- Tesla’s shares have risen more than 20,000% since going public in 2010.
- The sizzling rally was driven by production growth, EV frenzy and vocalist Elon Musk.
- But many Wall Street analysts say the inflated Tesla stock price is a bubble that is bound to burst.
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Love it or hate it, there’s no denying that Tesla’s stock is up.
Since the company went public in 2010, its shares have skyrocketed by more than 20,000%, comfortably overtaking the market as a whole, consistently eliminating Wall Street expectations and turning early investors into millionaires.
To say that the pace of growth is out of the ordinary would be an understatement.
Last year alone, Tesla’s stock price rose more than 700%, delighting Tesla’s loyal investors and fans, while leaving many seasoned Wall Street analysts scratching their heads. Short sellers lost $ 38 billion over Tesla’s monumental 2020 hike.
This epic wave made Tesla the most valuable car company in the world, catapulting it above and beyond Goliaths like Toyota and Ford. He also gave Elon Musk, CEO of Tesla for 13 years, the title of richest person on the planet, thanks to his significant participation in the company.
Why Tesla just doesn’t give up
There are a number of factors driving Tesla’s rally-to-end-all-rallies, and many reasons why Tesla bulls say they are optimistic about their prospects.
To begin with, Tesla’s growth inspired confidence. After struggling to make a profit for years, the Musk carmaker has just closed its sixth consecutive quarter of profit and its first full year in the blue.
In 2020, the company surpassed Wall Street’s delivery estimates in several quarters, produced more than 500,000 vehicles (most of any year to date) and started selling its fifth production vehicle, the Model Y, ahead of schedule.
Investors and analysts have reason to believe that Tesla’s production capacity will grow substantially in 2021 as new plants in Berlin, Germany and Austin, Texas are installed and up and running. And many think demand for Tesla cars will continue to grow, especially in China – where the EV maker has already done exceptionally well.
Tesla also benefits from a general euphoria surrounding EV inventories, as stricter emission regulations around the world paint an increasingly clear picture of a future auto industry dominated by vehicles with zero and low emissions. He continued to cement his position as the dominant force in an EV market that is about to grow considerably in the near future.
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A stock split in the summer of 2020, which made Tesla’s shares more accessible to individual investors (even without changing anything about the fundamental value of the shares), helped boost retail investors’ enthusiasm. And the addition of Tesla to the S&P 500 later that year, a de facto vote of confidence from the index committee that compelled the funds that track the index to buy the shares, helped further.
Tesla’s biggest bulls also place immense value on Tesla’s potential to make money outside of its core auto business, although these ancillary ventures have not yet materialized. They say that a future autonomous taxi service, an energy storage unit and software developments such as Tesla’s long-awaited “fully autonomous” mode could help the company make profits never seen before in the auto market, justifying its currently outsized assessment.
There is one last factor that cannot be overlooked: outspoken chief executive Elon Musk. The eccentric meme-loving tycoon has inspired legions of loyal evangelists and investors at Tesla, mainly through his irreverent Twitter feed and other ambitious endeavors like SpaceX, PayPal and Neuralink. This is something that no other automaker has, although some have tried to emulate it.
Tesla’s very high rating, many argue, is not based on reality
Despite all these potential advantages, many experts argue that the frenzy around Tesla is nothing more than a bubble that will burst sooner or later.
By conventional measures, they point out, Tesla’s assessment is completely out of step with the rest of the auto industry. It has a price / earnings (P / E) ratio of 1,200, which means that for every dollar of profit, Tesla enjoys $ 1,200 of market capitalization. For comparison, Ford’s P / E is 22.74, while General Motors’ is 17.84.
Tesla also does not sell anywhere near the number of vehicles, as its rating is now declining. Tesla sold nearly 500,000 cars globally last year. In the United States alone in 2020, GM’s total sales were more than five times that figure, while Ford sold nearly 800,000 F-Series pickups.
Wall Street analysts skeptical of Tesla’s valuation also note that Tesla’s margins are not much different from the rest of the industry, and that Tesla is bound to face growing competition from other automakers entering the EV space.
But industry watchers are generally divided over Tesla’s prospects. Some predict that it will skyrocket further, while others advise investors to avoid it at all costs. JPMorgan analysts said the stock was mainly driven by “speculative fervor” in a note to customers late last year.
“You can play with the numbers any way you want, but one or the other of the required assumptions still seems very difficult to conceive in any scenario you have imagined,” analysts said. “Tesla’s shares are, in our opinion and by virtually all conventional metrics, not only overvalued, but dramatically.”