Tesla’s Wild Stock Market Ride Has No End in Sight: $1.218 Trillion

The skyrocketing of Tesla’s stock seems to know no upward limit. Just days after its market value crossed the 1,000 billion U.S. dollar mark for the first time, it has already surpassed it by another 20 percent with 1,218 trillion U.S. dollars (1.05 trillion euros), the 18-year-old company now ranks among the five most valuable companies in the world, behind only Microsoft, Apple, Alphabet and Amazon. Tesla became the first automaker to crack the $1,000 billion mark.

The speed of the share price increase is breathtaking: on January 3, 2020, Tesla was worth just 76.3 billion euros, 22 months later it was worth almost fourteen times that amount! This means that Tesla is worth as much as the next 13 manufacturers combined, or five times that of Toyota and eight times that of Volkswagen. Mind you, both manufacturers produced more than 10 million vehicles each in the year, while Tesla came in at half a million vehicles in 2020, and will probably just scrape the 900,000 vehicle mark in 2021.

Market Cap of the 25 most valuable automakers

The reasons for this seemingly insane rise in the share price are complex and cannot be fully explained. For example, the news that the car rental company Hertz wants to order 100,000 Teslas and integrate them into its fleet caused the share price to rise by over a trillion dollars, even though Elon Musk later denied it and did not want to know about any contracts being signed. Especially not about a volume discount, which is common in the industry, since Tesla currently has more orders than it can produce vehicles. This did not seem to bother investors, and the share price has continued to soar.

Also contributing seems to be Tesla’s ability to continue to manage between 50 and 70 percent annual production increases despite the pandemic and the disruption in the supply chain since then – with a particular emphasis on the chip shortage – at a time when the rest of the industry is having to shut down plants for months on end due to a lack of parts. Overall, 10 to 11 million fewer cars will be produced this year, and the sales of other manufacturers have plummeted by an average of 20 to 25 percent, even if profits remain high because everyone is currently giving priority to the production of higher-priced vehicles. At the same time, however, the supplier industry in particular seems to be suffering, having to wait up to more than a year to pay outstanding invoices with payment terms that are already long in themselves. Some suppliers have already had to give up and close down, and others are sure to follow.

Some analysts are already predicting a market value of $3 trillion for Tesla, and that day may come sooner than expected. For example, two factories (Berlin, Austin) are expected to start operations this year, and new models such as the Cybertruck and Semi-Truck will be produced, followed by the Roadster and an as yet undisclosed compact vehicle for the European market. The low cost structure allows Tesla a profit margin that other manufacturers can only dream of. This also makes it difficult for other manufacturers to undercut Tesla on price. Yes, today most electric cars from other manufacturers have to be financed by cross-subsidies from the sale of combustion vehicles. Given the collapsing sales of gasoline and diesel vehicles, this is a strategy that will no longer work in just a few months. And that could be the time when Tesla cleans up the entire market.

This article was also published in German.

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