Musk's Tesla Rockets Past GM To Become The Most Valuable US Carmaker At $51.5 Billion

 

Elon Musk takes great pleasure in announcing ever quicker iterations of Tesla’s luxury electric vehicles, cars that rocket from zero to 60 miles an hour in about 2.5 seconds. In the world of global automotive brands, Tesla has moved at a similarly rapid pace to become the most valuable U.S. automaker based on its stock price just seven years after its IPO.

Tesla shares closed at a record $312.39 in Nasdaq trading on April 10, inflating the Silicon Valley-based company’s market capitalization to $51.5 billion. That drove it past General Motors, the biggest U.S. carmaker by sales volume, which ended the day with a market cap of $50.2 billion. Exactly one week earlier, Tesla passed Ford. The company that revolutionized mass production of automobiles a century ago had a total market cap of $44.6 billion as of April 10.

Tesla investors remain remarkably loyal and excited by Musk’s vision of a future defined by exhaust-free cars powered by clean energy, despite the company’s tiny sales volume, limited lineup of all-electric vehicles and lack of profitability, aside from two quarters in the black. 

The U.S. outlook for Tesla, ahead of the addition of its first widely affordable car later this year, the $35,000 Model 3 sedan, is also somewhat unclear as the Trump Administration mothballs environmental programs and policies that incentivized sales of emission-free vehicles.

At its current valuation, Tesla is worth more than eight times its revenue in 2016. The company delivered about 77,000 Model S and Model X vehicles to customers last year, while GM sold 9.8 million cars and trucks. And while Tesla lost $675 million in 2016, GM reported net income of $9.4 billion.

So what accounts for the stock’s rapid ascent? From the outset, investing in Tesla has been defined by corporate vision, rather than near-term financial concerns. Barclays analyst Brian Johnson, who recommends that investors “underweight” Tesla shares, compared belief in the company to the “red pill/blue pill” choice in “The Matrix.”

Neo, the hero of the 1999 film played by Keanu Reeves, is told that if he takes a blue pill offered to him by rebel leader Morpheus “the story ends, you wake up in your bed and believe whatever you want to believe.” But if he chooses the red pill “you stay in Wonderland, and I show you how deep the rabbit hole goes.”

“Much of the 'cult' stock appeal of Tesla revolves around, in our view, the science fiction-like future envisioned by Tesla CEO Elon Musk,” Johnson said in a research report this month, after Tesla’s market cap topped Ford’s. “Supported by Mr. Musk’s side ventures in rockets to Mars (SpaceX), hyperloops, advanced tunneling, and now brain-computer implants, Tesla investors and car buyers are deeply attached to the notion that they're not buying a regular financial instrument or vehicle, but instead a ticket to the future.”

Tesla is trying to significantly reduce the cost of its lithium-ion battery packs by opening its Gigafactory plant in Nevada, which continues to boost production even while completing the $5 billion facility. Musk wants Tesla to be a leader in autonomous driving and manufacturing, saying the Model 3 is designed to make it simple to build and defect-free.

That last goal is crucial, because Tesla is working to boost annual vehicle production from a little over 100,000 units this year to 500,000 in 2018 and a million in 2020.

Those are big goals. If Tesla hits them, and weathers a murky U.S. political environment, investors may see their faith in the company rewarded.