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- Tesla’s stock has jumped more than 20,000% since its IPO in 2010.
- The meteoric rally was fueled by production growth, the electric vehicle frenzy and leader Elon Musk.
- But many Wall Street analysts say Tesla’s stock price is a bubble that’s bound to burst.
- Visit Insider’s Business section for more stories.
Love it or hate it, there’s no denying that Tesla’s stock is on a roll.
Since the company went public in 2010, its shares have climbed more than 20,000%, comfortably outpacing the market as a whole, systematically erasing expectations on Wall Street and turning early investors into millionaires.
To say that the rate of growth is out of the ordinary would be an understatement.
In the past year alone, Tesla’s stock price has climbed more than 700%, delighting investors and loyal Tesla fans, while leaving many seasoned Wall Street analysts scratching their heads. Short sellers lost $ 38 billion during Tesla’s monumental rally in 2020.
This epic push made Tesla the world’s most valuable auto company, 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 in the world, thanks to his significant stake in the company.
Why Tesla just doesn’t want to quit
Several factors are driving Tesla’s rallies, and many reasons Tesla’s bulls are optimistic about its outlook.
For starters, Tesla’s growth inspired confidence. After struggling to make a profit for years, Musk’s automaker has just ended its sixth consecutive profitable quarter and first full year in the dark.
In 2020, the company beat Wall Street delivery estimates in multiple quarters, produced more than 500,000 vehicles (the most for the year to date), and began selling its fifth production vehicle, the Model Y, ahead of schedule.
Investors and analysts have reason to believe that Tesla’s production capacity will increase significantly in 2021 as new manufacturing plants in Berlin, Germany and Austin, Texas come on stream. And many believe that demand for Tesla’s cars will continue to grow, especially in China – where the electric vehicle maker has already done exceptionally well.
Tesla is also enjoying a general euphoria around electric vehicle inventories, as tighter emissions regulations around the world paint an increasingly clear picture of a future auto industry dominated by zero-emission, low-emission vehicles. emissions. It has continued to consolidate its position as a dominant force in an electric vehicle market that is poised to grow significantly in the near future.
Read more: S&P 500 decision to include ultra-volatile Tesla in the index is reckless and dangerous
A stock split in the summer of 2020, which made Tesla shares more affordable to individual investors (even without changing the fundamental value of the share), helped spark enthusiasm among retail investors. And Tesla’s addition to the S&P 500 later that year, a de facto index committee vote of confidence that forced funds that track the index to buy the stock, helped even further.
Tesla’s biggest bulls also place immense value on Tesla’s potential to make money outside of its core automotive business, although those ancillary businesses have yet to materialize. They say that a future autonomous taxi service, an energy storage unit and software developments like Tesla’s long-awaited autonomous driving mode could help the company achieve unprecedented profits in the automotive sector, justifying its currently disproportionate assessment.
There is one final factor that cannot be overlooked: outspoken general manager Elon Musk. The eccentric, memes-loving mogul has inspired legions of evangelists and loyal Tesla investors, thanks in large part to his irreverent Twitter feed and other ambitious companies like SpaceX, PayPal and Neuralink. This is something that no other automaker has, although some have tried to emulate.
Tesla’s extremely high valuation, many argue, is not based on reality
Despite all of these potential benefits, many experts say the frenzy surrounding Tesla is nothing more than a bubble that will burst sooner or later.
By conventional measures, they point out, Tesla’s valuation is completely out of balance with the rest of the auto industry. Its price-to-earnings (P / E) ratio is 1,200, which means that for every dollar of profit, Tesla enjoys a market cap of $ 1,200. For comparison, Ford’s P / E is 22.74, while General Motors’s is 17.84.
Tesla also does not sell the quantity of vehicles, although its competitors are now more valued. Tesla sold just under 500,000 cars worldwide last year. In the United States alone in 2020, GM’s total sales were more than five times that amount, while Ford sold nearly 800,000 F-Series pickup trucks.
Wall Street analysts skeptical of Tesla’s valuation also note that Tesla’s margins are not much different from those of the rest of the industry and that Tesla faces increasing competition from the industry. other automakers entering the EV space.
But industry watchers are, by and large, divided on Tesla’s outlook. Some predict it will rise even higher, while others urge investors to avoid it at all costs. Analysts at JPMorgan said the action was driven primarily by “speculative fervor” in a note to clients late last year.
“You can play around with the numbers however you like, but either of the required assumptions still seems very difficult to conceive in any imagined scenario,” analysts said. “Tesla’s stocks are in our opinion and by virtually all conventional measures not only overvalued, but dramatically.
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