- Tesla’s share has risen by more than 20,000% since it became known in 2010.
- The thrilling rally was driven by production growth, EV madness and frontman Elon Musk.
- But many Wall Street analysts believe that Tesla’s inflated share price is a bubble that is likely to increase.
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Like it or hate it, there is no denying that Tesla’s inventory is going on.
Since the company’s launch in 2010, its shares have risen more than 20,000%, comfortably surpassing the market as a whole, destroying Wall Street expectations and turning early investors into millionaires.
To say that the rate of growth is extraordinary is an understatement.
In the past year alone, Tesla’s share price has risen more than 700% upwards, delighting Tesla’s investors and loyal fans, while many experienced Wall Street analysts have scratched their heads. Short sellers lost $ 38 billion during the monumental rally in Tesla in 2020.
The epic boom has made Tesla the most valuable automotive company in the world, catapulting it above and beyond Goliaths like Toyota and Ford. It also gave Elon Musk, Tesla’s 13-year-old CEO, the title of richest person on earth, thanks to his significant stake in the company.
Why Tesla Just Doesn’t Stop
There are several factors that pull Tesla’s rally to the end of it all, and many reasons why Tesla bulls say they are optimistic about its prospects.
To begin with, the growth of Tesla has inspired confidence. After years of struggling to make a profit, Musk’s automaker has just completed its sixth consecutive profitable quarter and its first full year in the black.
In 2020, the company beat Wall Street delivery estimates in several quarters, producing more than 500,000 vehicles (the most from any year so far) and starting to sell its fifth production vehicle, Model Y, ahead of schedule.
Investors and analysts have reason to believe that Tesla’s production capacity will grow significantly in 2021 as new manufacturing plants in Berlin, Germany and Austin, Texas, get underway. And many think that the demand for Tesla cars will grow, especially in China – where the EV manufacturer has already done particularly well.
Tesla also benefits from a general euphoria around EV shares, as stricter emissions regulations around the world paint an increasingly clear picture of a future car industry dominated by vehicles with no and low emissions. It went on to reaffirm its position as the dominant power in an EV market, which will soon grow significantly.
Read more: The S&P 500’s decision to include ultra-volatile Tesla in the index is reckless and dangerous
A split of shares in the summer of 2020, which made Tesla shares more affordable for individual investors (even if nothing changes the fundamental value of the stock), helped stimulate the enthusiasm of retail investors. And Tesla’s addition to the S&P 500 later that year, a de facto vote of confidence by the index committee, which forced funds that follow the index to buy the stock, helped even further.
Tesla’s biggest bulls also attach great value to Tesla’s potential to make money outside of its core car business, even though the auxiliary businesses have not yet realized. They say that a future autonomous taxi service, an energy storage unit and software development such as Tesla’s long-awaited “full self-driving” mode can help the company realize the unprecedented profits in the automotive industry, which justifies the current exorbitant valuation .
There is one last factor that cannot be overlooked: the outspoken CEO, Elon Musk. The eccentric, meme-loving magnate has inspired legions of loyal Tesla evangelists and investors, largely through his reverent Twitter feed and other ambitious ventures such as SpaceX, PayPal and Neuralink. This is something that no other car manufacturer has, although some try to mimic it.
According to many, Tesla’s sky-high valuation is not grounded in reality
Despite all the potential disadvantages, many experts argue that the madness surrounding Tesla is nothing more than a bubble that will sooner or later burst.
According to conventional measures, the valuation of Tesla is completely inconsistent with the rest of the automotive industry. It has a price-to-earnings ratio (P / E) of 1200, which means that Tesla earns $ 1,200 market capitalization for every dollar earned. By comparison, Ford’s P / E is 22.74, while General Motors’s are 17.84.
Tesla also does not even sell close to the amount of vehicles, because the competitors’ valuation is dwarfing now. Tesla only sold 500,000 cars worldwide last year. In the U.S. alone in 2020 alone, GM’s total sales were more than five times as much, while Ford sold nearly 800,000 F-Series pickups.
Wall Street analysts who are skeptical about Tesla’s valuation also note that Tesla’s margins are not entirely different from the rest of the industry, and that Tesla is likely to face increasing competition from other carmakers in the EV space.
But viewers in the industry are generally divided over Tesla’s prospects. Some predict it will rise even higher, while others urge investors to avoid it at all costs. JPMorgan analysts said the stock was driven primarily by a ‘speculative fervor’ in a comment to clients late last year.
“You can play with the numbers as you like, but some assumption is still hard to imagine in an imaginary situation,” the analysts said. “Tesla shares are, in our view and almost every conventional benchmark, not only overvalued, but also dramatic.”