Understanding Tesla And Its Valuation

Understanding Tesla And Its Valuation

Tesla’s stock price in recent has been hovering around $1500, taking market capitalization of Tesla to $300 billion. Analysts and investors are startled, as the company’s market valuation is greater than the combined valuation of BMW, Ferrari, Volkswagen, GM, and Honda. The interesting part is that even though Tesla’s revenue and profit are lower than these companies, its stock is touching skies. Let’s demystify what is causing this rise.

Crux of the Matter

About Tesla
Musk did not start Tesla but was an early investor in the company founded by Martin Eberhard and Marc Tarpenning in 2003. Musk became its CEO in 2008 and envisioned sustainable transportation by mass production of electric cars – this became Tesla’s business model.

Tesla’s Three Stage Business Model
Stage 1: Launch an expensive electric sports car that could generate adequate money – in 2008 launched 1st generation Roadster that was not affordable to many and had a small market.
Stage 2: Profit from sales of luxury sports cars to be used to develop an affordable sedan – in 2012 2nd generation Model S, and in 2015, Model X launched with medium affordability and a market larger than Roadster’s.
Stage 3: Use the proceeds of stage 2 to develop an affordable electric car – in 2017 3rd generation Model 3 launched with higher affordability and a market larger than that of Model X.

Tesla’s Bussiness plan was unique but at the very same time, new and untested. With the launch of Model 3, the company marked the single biggest one-week product launch ever with more than 3,25,000 bookings in 1 week.

Production Testing Patience
Musk’s parallel vision of a fully automated production assembly line had caused several issues. The problems worsened when conveyor belt ripped off at Fremont production plant and workers had to use forklifts and hands to move body parts of the car. Moreover, robots and automated programs were also malfunctioning. Finally, Musk had to stop the whole production plant for 1 week to make repairs. Since the beginning, the company had reported only a few profitable quarters and debts were increasing. This was the time when investors began betting against Tesla, as its books were clearly stating a bleak future.

Excessive automation at Tesla was a mistake. To be precise, my mistake.

Elon Musk, CEO, Tesla

Back In Business
However, things began to get better when in 2018, despite all odds, Tesla managed to achieve the target to produce 5000 cars per week. Moreover, Tesla reported a quarterly profit of $312 million after a long time in the quarter ending September 2018. In 2019, 3,67,500 electric vehicles were delivered by Company i.e 50% more than the previous year, and launched 2 new vehicles with back to back profitable quarters. Tesla also launched Model Y 6 months early. Despite Covid-19 crisis, it sold 91,000 vehicles.

When something is important enough, you do it even if the odds are not in your favor.

Elon Musk, CEO, Tesla

Stock Price Playing Role?
This year, Tesla’s shares are up over ~300% and its current market capitalization is $263 billion, which is more than a combined market cap of Volkswagen, BMW, Ferrari, Honda, and GM. How is it possible if Tesla is not making consistent profits? The market capitalization of Tesla (or any company) is based on its stock price. Unlike other automobile companies’ investors, Tesla’s investors are investing based on the larger picture of a clear, electric future for mobility and Musk’s hardshell vision for Tesla’s pivotal role in this vision beyond 2025 and 2030.

  • The “PayPal Mafia” is a group of former PayPal employees and founders who have since founded and developed additional technology companies. Companies founded or developed by members of the group are Tesla, Inc., LinkedIn, Palantir Technologies, SpaceX, YouTube, Yelp, and Yammer.
  • Founded in July 2003, Tesla’s name is a tribute to inventor and electrical engineer Nikola Tesla. It was founded by engineers Martin Eberhard and Marc Tarpenning. Elon Musk joined later.
  • As of March 2020, Tesla offers four car models: the Model S, Model 3, Model X and Model Y. The Names of the four models form the word “SEXY”.

Elon Musk Shooting Off His Mouth & Hurting Self in Foot

From calling the Coronavirus pandemic panic dumb to repeatedly angering the investors and falling in lawsuits, Elon Musk has said it all on Twitter. So much so, his army of worshipers started wondering whether the Mogul of the space empire’s account had been hacked. For a self-styled futurist and popular tech influencer looked up to by as many as 33 million followers, is it responsible on his part to tweet without any accountability?

Crux of the Matter

Case 1 : Contrarian Stance on COVID-19: Advocates Ending Lockdown in US

Even though recent reports suggest that COVID-19 has claimed more American lives than the infamous Vietnam War, Elon impatiently suggested that the US government should end self-isolation and give “freedom back” to the people.

With predictions by CIDRAP (Center for Infectious Disease Research and Policy) stating that the pandemic could last up to two years, and with the dangers of a second wave of the virus, it is surprising that a smart guy like him would say anything other than demanding cooperation from the general public.

Case 2: Once Bitten by SEC, Never Shy: Stock Prices Seem High Again?
In 2018, Tesla’s investors had questioned his leadership when Musk carelessly tweeted how Tesla Inc.’s stock price is overvalued and his company’s stock fell down 12% in the next hour itself. 

The situation escalated further when the CEO’s next set of tweets talked about securing funding that would make Tesla a private company at $420 a share. The U.S. Securities and Exchange Commission (SEC), that maintains orderly and efficient markets to facilitate capital formation, sued him for falsely asserting this figure on a public platform, meant to impress his girlfriend, rapper Grimes. Musk and Tesla, each paid $20 million to settle this securities-fraud lawsuit back then. 

Thereby a mutual agreement between SEC and Tesla required the CEO to not speak about the following without an approval:
– company’s financial condition
– earnings forecast
– proposed acquisitions
– production data.

In a déjà vu state of affairs, Musk yet again said last week how Tesla’s stock price is too high in his opinion and this time the electric car company’s stock price dropped by 10 percent. This fall wiped off $14bn of Tesla’s value.

Case 3: Gets High, Loses Executives and Stocks
Shares of Tesla plunged 6% when SpaceX’s top executives resigned, right after a bizarre video surfaced of Musk smoking pot on a Joe Rogan podcast. This fueled concerns about his recreational drug use.

The company’s HR chief, Gaby Toledano, and Chief Accounting Officer, Dave Morton, both stepped down from their roles, citing intense public attention as the reason.

The April fools’ joke that caused Tesla’s stock to plunge more than 7%
Timeline of 2018 showcasing the rise and fall of Tesla Inc. stocks

Case 4: Thai Cave Operation Controversy: Hero for Everyone, ‘Pedo’ to Him
Musk came under fire in late 2018, when he questioned the motives of a British diver who helped rescue soccer team boys trapped in a flooded cave in Thailand. He tweeted about him being a pedophile and then baselessly referred to the public hero as a “child rapist” in an email to a reporter.

The submarine diver retorted back by calling it Tesla’s PR strategy while critics advised the SpaceX founder to stick to his pledge of being less combative and more productive on social media.

Facing backlash for his animosity, the entrepreneur hurriedly deleted previous tweets and congratulated the team behind the successful operation. Then he offered his help by proposing a kid sized submarine model for rescue operations ahead, which ironically got rejected for being impractical.

                  The capsule for the mini-submarine was built with SpaceX rocket parts

Musk v/s Fans  

Defensive demenour of Mr. Musk

One of his fans speculating whether his account has been hacked

Conspiracy theories suggesting the real Musk is long gone

“I’m not an alien…but I used to be one”

Elon Reeves Musk, CEO of Tesla Inc., SpaceX, and Boring
  • In October last year, Elon Musk donated $1 million to plant trees after a YouTuber asked him to donate for this campaign of his oven on twitter. He then changed his twitter name to Treelon.
  • Actor Robert Downey Jr. sought help from Elon Musk to get into the character of Tony Stark for the 2008 film Iron Man, making Musk a direct inspiration behind RDJ’s portrayal of Tony Stark. Musk later guest-starred as himself in the sequel of the film.
  • Shares of Tesla Inc jumped more than 8% on Monday (4th May), taking Tesla’s market capitalization to $141.1 billion at the close. Only 3 days ago Tesla’s stock fell by 10% after Musk tweeted it to be overvalued in his opinion. More importantly, Tesla’s stock market value reached a six-month average of $100.2 billion, according to an analysis of Refinitiv data. As of today, Tesla Inc. is the most valuable automobile company in the world.