Tesla soars past $1tn in market value

Tesla has become the first carmaker to be valued at $1tn after rental group Hertz said it had ordered 100,000 Tesla Model 3 sedans to electrify its fleet.

Tesla shares rose 9.84 per cent in mid-day trading on Monday to $998.74, bringing year-to-date gains above 40 per cent and lifting the company’s market cap to $1tn.

“This Hertz deal is a ‘major feather in the cap’ for Tesla and speaks to where demand is heading in the EV transformation hitting the auto sector globally,” said Dan Ives, analyst at Wedbush.

Tesla overtook Toyota in July 2020 to become the world’s most valuable carmaker by market value. Since then, its value has increased fivefold with the company now worth more than all other public automakers combined. It is the sixth American company to hit a trillion-dollar valuation following Apple, Microsoft, Alphabet, Amazon and Facebook.

The company has defied doubters, and after being mocked for years for never producing two consecutive quarters of profit, it has now earned net income for nine in a row.

Its latest filing showed net profits up 380 per cent from a year ago to $1.62bn, a record high, with vehicle production rising 72 per cent at a time when others have been crippled by a global chip shortage.

Although Tesla only produced half a million cars last year, chief executive Elon Musk said the company will be growing by 50 per cent a year for the foreseeable future as China production expands, its German factory comes on-line and its facility in Texas begins producing the Cybertruck, the Model SUV and, eventually, a semi-truck.

Musk has said he anticipates building 20m cars a year by 2030 — roughly double what leaders such as Volkswagen and Toyota currently produce.

Tesla is already selling a “full self-driving” software upgrade for $10,000 upfront or for $199 a month. Such fees, almost pure margin, represent a new profit model for carmakers, which typically sell volume cars in single-digit margins and premium vehicles in low double-digit margins.

The Hertz order, worth $4.2bn for Tesla, caused the stock to add $80bn in market value, according to Neil Campling, researcher at Mirabaud. “That’s insane,” he said.

“Wall Street is drinking the Tesla Kool-Aid and they aren’t asking the tough questions about the chip shortage,” he added. “Even the world’s largest company, Apple, is having chip problems but somehow Tesla isn’t.” 

Bernstein analysts said Tesla’s valuation implies huge volume and industry-leading profitability, which would be “historically unprecedented”. Bernstein’s 12-month price target is $300, implying Tesla will lose 70 per cent of its value in the coming year.

Bernstein said it is “unclear that Tesla”, which currently sells just four models, “will have the breadth of line-up to deliver 50 per cent growth” in the next two years. It concedes, however, that the Model 3 saloon and Model Y SUV are the among the top-selling luxury cars in the world at annual run-rates of 500,000 and 400,000, respectively.