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- Rory Catlan-Jones
- Technology Business Journalist
Published image, Getty Images
Elon Musk overtook Bill Gates in calculating wealth last week, becoming the second richest person in the world, with his company, Tesla, surpassing $ 500 billion.
Why do investors think electric car company Tesla is worth so much more than it was a year ago?
In early 2020, the stock market valued Tesla at almost $ 80 billion – and even then, skeptics thought that was too high a price for a company that was barely making a profit.
During the year, its stocks and valuations reached more than $ 500 billion, after news broke that the company would be included in the S&P 500 index of major companies.
To be clear, Tesla is now worth more than Toyota, Volkswagen, Hyundai, General Motors and Ford combined.
“You are rational very! “
I did some rough calculations and found that these companies, which were undoubtedly in a vulnerable state, had combined profits of over $ 50 billion in the past year.
And this year, Tesla is on track to hit nearly $ 1 billion. Therefore, to validate the current valuation, you must be confident that this company will achieve, through its technology and market dominance, a 50-fold increase in profits in the not too distant future.
Published image, GETTY IMAGES
Technological innovation is the core of Tesla battery design
“You are very logical!” Said Eileen Berbig of Passion Capital. When I mentioned to her that Tesla’s excessively high share price was illogical.
She added that it was “the people who buy the shares at that price, they think they can sell it at a higher price.”
Eileen’s work as a stock market investor focuses on assessing the value of companies that are in the early stages and lag behind Tesla’s stage. She told us that this often feels more like an illogical process and depends on the mood of the larger-scale market, rather than the quality and characteristics of each company.
And many Tesla fans will rightly point out that the company has steered the auto industry on a new path, has unique battery technology with many other applications, as well as visionary leadership.
But it was all also true at the start of 2020, when it was only worth $ 80 billion.
A short bet
“There is clearly no fundamental element of the business that points to a five to six fold increase in its valuation since the start of the year alone,” said Eileen Burbegg. But she reconsiders her opinion that investors are betting in the short term.
“I tend to think the markets are fundamentally rational at the end of the day. I think the problem lies in our time horizon… These buyers really think they will be able to sell for a higher price. elsewhere, so far, they are right to believe, ”she added.
A prominent Fleet Street Stock Market reporter responded to a question about the reason for the price increases, saying it was “foolish to try to apply a lot of logic to the movement of stocks in the short term,” adding a phrase he used to say: “There are more buyers than sellers.” Opposite response while the market is in decline.
Like a bottle of wine made in 1945, a Picasso painting, or a small apartment in London or San Francisco, Tesla’s “value” is what someone is willing to pay, even if the price is irrational.
However, one person, who probably knew a lot about the company, said months ago that the value of the electric car company was overvalued and wrote a tweet in early May on their Twitter account, saying, “The course Tesla’s share is very high ”.
But who is this person saying that?
Well, that was Elon Musk himself, and his tweet cost Tesla $ 14 billion in value.
Since then, the share price has quadrupled, but let’s stop here and ask what he knows?
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