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How Tesla became America's darling

April 13, 2017 15:12 IST

Tesla's Model 3 sedan, scheduled to roll out later this year, will be critical to founder Elon Musk's ambition to transform his company from a niche car-maker into a mass-market manufacturer.


Image: Model S, the all-electric, 5-door car Tesla introduced in 2012.

On April 10, Tesla Inc grabbed the headlines on Nasdaq when its stock price and volume climbed high enough, to $311, to beat US giant General Motors and become the most valuable car company in the United States. At $51 bn, it had pipped GM's market value by $ 1million. This was just a week after surpassing Ford’s market value.

The disruptor however still has a long way to go before beating the world's No.1, Toyota, whose market value is a whopping $170 bn.

Tesla vs GM (as on April 10)
Tesla Inc's share price soared more than 3.3 per cent to $311

Company's valuation is at around $51.4 billion

Tesla is now within $1 billion of Honda's market value

Tesla on path to become one of top 5 car-makers worldwide

Ford is worth $45 billion

GM's market cap: $50.3 billion
 
 

But everyone agrees that Tesla has outdone itself so far.

So was this performance just a fluke?

Or does Elon Musk’s company actually have the potential to rank consistently among the world's top 5 car makers, and not just in terms of market value, which is an offshoot of how the stock market perceives you, and which may not reflect the reality on the ground?

According to media reports, some analysts believe the stock Tesla has the potential to even hit $500.

But Chief Executive Elon Musk was quick to admit that his company could be considered 'absurdly overvalued' on the basis on its past performance. He tweeted analysts that '...but that's irrelevant. A stock price represents risk-adjusted future cash flows.'

Experts point out that the turnabout speaks about the extent to which investors have bought Musk's vision of electric cars and the company’s diversified portfolio in future technologies such as fast charging, autonomous driving, solar power, and energy storage.

Enough, in fact, to overlook the fact that the company is yet to earn a profit, which stock analysts expect to happen not before 2019, on the back of its more affordable Model 3 sedan, expected to roll out later this year.  


Tesla Motors CEO Elon Musk introduces the Model S. Photograph: Stepan Lam/Reuters.

So why are stock markets so gung-ho about Tesla?

Musk firmly believes that pretty soon electric vehicles will rule the roads, and it is clear investors have bought into his vision of the future. Legacy companies, on the other hand, are ranked based on their past.

A quick fact check here: Tesla delivered fewer than 80,000 vehicles globally in 2016 compared to GM’s more than 10 million. Despite this huge gap, Musk, however, is confident that Tesla will be able to manufacture 500,000 vehicles a year by 2018.

A Bloomberg report, quoting Maryann Keller, an auto-industry consultant in Stamford, Connecticut, said even if Tesla turns to profit, they will eventually have to make enough to justify their current valuation. 

That maybe so, but the fact is that the futuristic motor company has caught the attention of not just investors but of car-buyers too. Last year, when it opened pre-order bookings for its keenly-awaited Model 3, almost 400,000 signed up, putting down $1000 as refundable deposit each.

Tesla may have earned almost $400,000,000 thus, but Musk knows it is a double-edged sword. The pressure of delivery, and performance, will soon catch up with it. Cancellations could ruin its reputation.

Legacy motor companies have built their reputation and trust over decades. Tesla was founded in 2003, Ford in 1903, and GM in 1908.

Tesla's innings has just begun.

Image: The Model 3 is an affordable sports sedan from Tesla, and the first electric car to be mass-produced.

All about Tesla
  • Tesla Inc (formerly Tesla Motors) was founded in July 1, 2003, at Delaware, US, by Martin Eberhard and Marc Tarpenning.
  • The company also considers Elon Musk, J B Straubel, and Ian Wright among its co-founders.
  • Tesla specialises in electric cars, Lithium-ion battery energy storage, and residential solar panels.
  • Tesla is headquartered at Palo Alto, California.


Image: The Tesla Model X.

Milestone on the way
  • 2008: Tesla Roadster, the first electric sports car, is introduced.
  • 2012: Model S, an electric luxury sedan introduced, and the Tesla journey begins.
  • 2015-16: The Model S becomes the world's best-selling plug-in electric car.
  • 2016: Model 3 unveiled. It is slated for release in 2017 with a price tag of $35,000.

Photographs: Kind courtesy, Tesla Inc.

Rediff Money Desk