By a twist of fate, the electric car company named in Nikola Tesla’s honour has become one of the most extraordinary, wealth-creating stock market machines in history. Despite last weeks global sharp sell-off in tech stocks, Tesla’s share price increased almost 600% since the market lows of the COVID-19 pandemic.
Run by Elon Musk, Tesla is currently valued at about 390 billion USD, which is one and a quarter times more than Toyota and Volkswagen combined (Toyota and Volkswagen combined have more than 11 car brands including Audi, Lamborghini, Lexus etc.).
Elon Musk, the revisionist tweeting, rocket-launching and weed-smoking CEO is not just selling cars, he provides a ticket to the future supporters claim. The market euphoria surrounding Tesla has also skyrocketed the market value of other EV companies. Last week, during the stock market debut in New York of ‘Xpeng Motors’ also jumped 40% as it profited from a ‘Tesla Halo’.
To put things in perspective, in 2019 Volkswagen and Toyota combined sold 21,8 million cars and generated approximately 15,6 billion USD of free cash flow in 2019. Compare that with Tesla, who made 366.000 cars and 1,1 billion USD in cash. At the current stock price, each Tesla car is ‘valued’ at more than 1.000.000,- USD a piece, whilst you can buy a Tesla Model 3 for 35.000,- USD
Generally speaking, Musk fans are convinced that Tesla is betting on world changing technological trends like electric cars, battery technology and autonomous driving.
Contrary, some people argue that the Tesla share price is detached from reality and compare the hype to the world of the ‘Dot.com’ bubble of 2000. It can be stated that its current valuation looks irrational. Also, what if the entire world would run on electric vehicles. How does the mining of lithium, the core element of the batteries of EV’s, will affect the planet? Or will cars eventually drive on Hydrogen, a new emerging technology were Musk is currently not betting on?
According the recent tech rally in stocks, the world assumes that EV’s are the answer to all our problems. But, logistically, is this the answer in the foreseeable future?
References:
https://www.reuters.com/article/us-tesla-china-breakingviews/breakingviews-tesla-valuation-speeds-into-ludicrous-mode-idUSKBN1Z72ZW
https://www.reuters.com/article/us-tesla-results-breakingviews/breakingviews-teslas-wacky-valuation-has-a-link-to-reality-idUSKCN24N2Y6
https://ftalphaville.ft.com/2020/09/01/1598948660000/Tesla-is-nuts–will-it-ever-crash-/
Nice article, really liked reading it! Cvs might have to simply just be the answer in the foreseeable future. We’re clearly running out of raw materials and fossil fuels and so the urge to switch to EV has to rapidly increase. On another note, what would happen to the valuation of Tesla if an OEM takes over at some point? Some might say that will never happen and Musk would never allow that, but he is no longer in charge, and as time passes I think it wouldn’t even be the worst of moves for Tesla. There have already been rumors of Volkswagen willing to take over and I’m very curious to see what would happen then, especially in terms of EV development. Now, many OEMS are battling each other for the next best EV on the market, Tesla aside.
Hi Tinus!
Thanks for your post.
To answer your question, I think electric vehicles are possibly the answer for the forseeable future, if and only if the electricity used is generated by nuclear power plants. Only if this is the case, is it possible to acknowledge electric vehicles to be a carbon-free alternative to conventional gasoline and diesel based cars.
I really like your post and the way you described the hype around Tesla. In my opinion tech companies such as Tesla, are too much focussing on delivering the technology instead of thinking about other issues regarding climate, ethical problems or people. This is what they call “technical debt”: the cost of extra work regarding choosing the easy option. In my opinion tech companies should hire environmental experts and philosophers to help then tackle these problems and deliver a robust technology.
Hi Tinus,
Really interesting article! I have to agree with you that it is quite strange how the investors have such faith in Tesla considering how long it took them to make a profit. As for your question, I personally believe hydrogen cars are super interesting. The problem however, is the network needed to upscale it. As with electric vehicles, everyone with a power outlet could install a charger at home. With hydrogen, the engines have to be filled more like traditional cars. Thus, gas stations need to install “hydrogen pumps”, which comes without saying, is not profitable before there is a large enough demand. BMW nicely states it as a “chicken and the egg problem” in this article; https://www.bmw.com/en/innovation/how-hydrogen-fuel-cell-cars-work.html.