Why Did Tesla Stock Go Up So Much?

Tesla Inc (NASDAQ:TSLA) gained the world’s attention in the 2010s with its promise of all-electric vehicles. It took over the world by 2020, entering the S&P 500 index as the most valuable car company in the world.

By the time it joined your 401K fund, TSLA stock price had already jumped over 1,000 percent and made co-founder and CEO Elon Musk one of the wealthiest people in history. 

But why did Tesla stock go up so much?

It doesn’t sell more cars than the competition after all. Musk surpassed Rockefeller’s wealth using his own playbook. The network of Tesla superchargers is worth its weight in gold in recurring subscription fees.

Over the next 20 years, these charging stations could spell doom for all 34 companies derived from Rockefeller’s Standard Oil monopoly.

And the vehicles it does sell are light years ahead of legacy automakers. Tesla cars have better technology than Ford (F), BMW, Honda, or Hyundai. Musk’s Gigafactory buildout and plans of buying an American automaker to harvest its manufacturing footprint shows the future of transportation.

Let’s dive into the best- and worst-case scenarios for investors and the world at large.

The Tesla Bear Case

The biggest problem is that the future is already baked into its stock price. It entered 2021 with a market capitalization around $700 billion and climbing. That’s more than all the other car manufacturers combined.

It’s trading like a tech stock during the dotcom bubble at the turn of the millennium. Even next to the lofty valuations of Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT), Tesla’s valuation appears ludicrous.

Although even those tech giants trade at a discount compared to Tesla’s price. The company’s fifth quarter of profitability ever as a company was the third quarter of 2020, and it made $331 million in profits off $8.77 billion in revenue for that period.

By comparison, Musk added $140 billion to his personal fortune. He’s worth more than his company makes, and the profits are surely going to be either launched into space or dug into the ground.

The company took a decade to deliver 500,000 vehicles in one year. By comparison, Ford (F) sells around 6 million a year and General Motors (GM) sells around 8 million. To be fair to Tesla, however, those numbers are declining in its favor.

Of course, that doesn’t mean Tesla will be the only beneficiary from a push to EV. Several companies are building both charging stations and all-electric vehicles. It won’t be long before most of its features are standardized and the value of legacy automakers’ design and market research will show.

Let’s face it – the Cybertruck is as kitschy as the DeLorean, and we already know how that went.

Musk’s vehicle manufacturing expansion is expensive. Musk spent the past decade scaling vertically and laying the infrastructure for future success. If he can focus entirely on one thing and be less stigmatizing in the media, he very well could be remembered more as Thomas Edison than Nikola Tesla.

Of course, even General Electric Company (NYSE:GE) is cheaper than Tesla stock these days. And it may need to split to continue drawing retail investors. That brings us to the other side – the bulls have some valid points, in spite of these risks.

The Tesla Bull Case

Two big things set Tesla apart from other auto manufacturers, especially in the United States. The first is its software; like Uber (UBER), Apple (AAPL), and Google (GOOG), Tesla pushed to map out the U.S. roadways and develop artificial intelligence that could successfully help drivers steer.

It’s a technology company at heart, and a Tesla car has as many updates as your phone or computer. Meanwhile, Ford (F) and GM’s infotainment systems are barely adequate after over a decade in development.

Tech companies are increasingly pushing into vehicles. Even Amazon has Alexa Auto so you have a constant reminder to pay an annual Prime membership fee. By the time legacy automakers realized he was serious, Musk had created some finely engineered cars.

And the company dominates the EV market with over 18 percent of the market. It faced some delays (regulatory, supply chain, R&D, etc.) that were overcome. But it did over come them and raced to profits quicker than companies like Uber likely will.

Love or hate him, Musk has star power too. He draws people in with outlandish antics and beliefs combined with a firm sense of technology and science. There’s no denying his track record of success.

Sister companies like The Boring Company and SpaceX could very well work together with Tesla for years to come.

Tesla is disrupting both the oil and auto industries, and the mismatch between how it performed compared to them during the pandemic shows where both investor and consumer sentiment lies.

Tesla Stock Prediction

Arguably, Tesla’s biggest asset is in the recurring revenue it generates after the sale. It’s more than a car manufacturer – it’s also replacing the gas company. That gives it the green light to expand both horizontally and vertically.

The idea of Tesla buying another car manufacturer in 2021 is logical. Musk is a shrewd businessman who understands how to fix supply chain issues and bottlenecks.

He’s navigated state and federal regulators with his hands cleaner than contemporaries like Mark Zuckerberg or Jeff Bezos.

Now that it’s included in the S&P 500, Tesla is like Ford (automobile), Apple (hardware & software), and Chevron (fuel supply) all rolled into one. Like Rockefeller before him, Musk understands how to turn money into value and wealth.

Tesla will see downsides and stagnation through the 2020s. Sooner or later, the stock will hit a ceiling, especially when it takes on debt for its expansion. But the scalability and growth potential are too big not to invest – that’s why it was approved for the S&P 500 so we can all experience the gains.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.