Last week, the chief executive of Tesla, Elon Musk, became the 2nd richest person in the world, surpassing Microsoft’s Bill Gates by more than 7 billion dollars. In December of last year, Musk’s net worth valued at a mere 28 billion dollars, so where did this sudden burst of wealth come from? Simply put, his electric car company, Tesla, performed well in the market this year. Really, really well.
Since the start of 2020, Tesla’s stock price has grown a monumental 550%, with a current price per share of approximately $585.84. This grants Tesla a market capitalization of nearly 530 billion dollars, giving it a more extensive market value than any other automotive company by hundreds of billions of dollars (more than Ford, GM, Honda, and Fiat Chrysler put together). In fact, this December, Tesla will be added to the S&P 500 index, notable news for a car company.
Even with the Wall Street attention, Tesla’s high evaluation is being questioned given its past failings. Notably, the company doesn’t have a great reputation for on-time production. Because Tesla’s battery technology is vastly different from other car engines, it is harder to obtain sufficient production resources. For instance, lithium, cobalt, and nickel are all in high demand but limited supply. Moreover, the outbreak of COVID-19 has been of no help. One of Tesla’s largest factories in Fremont, California, remains shut down due to the pandemic. With a pressing demand and prospect in output, this is a significant impediment for Q4 expectations. Lastly, there is a level of uncertainty against Tesla as a whole. While the company has led electric car technology, it is hard to tell how long they can maintain their market dominance. Because of Tesla’s social and environmental focus, they have maximized investments from ESG funds, portfolios or equities that invest with such factors in mind. However, as the world shifts to cleaner forms of transportation, it is inevitable that companies who produce gas-powered vehicles will eventually transition to electric cars and challenge Tesla. So while Tesla has little competition, the question is for how long?
There is no sure way of predicting what the future holds. Just a few years ago, some thought Tesla didn’t even have the potential to make it out of their prototypes’ preliminary production. While investors are assuming that Tesla will continue to dominate the electric automotive industry, this isn’t impossible, but not guaranteed. The future will tell.