Via Financial Times

The stock market value of the electric car maker Tesla has topped $100bn for the first time, capping a dramatic rally that has seen its share price rise 125 per cent in the past three months.

The milestone marks a moment of vindication for Elon Musk after a controversial period in which the Tesla chief executive has at times been almost at war with Wall Street. It also comes days after his rocket company, SpaceX, completed a test that puts it on track to become the first private company to take astronauts into orbit. 

The dramatic start to the year has cemented Mr Musk’s reputation as the most accomplished salesman — and showman — in US business. Speaking in Davos on Wednesday, President Donald Trump compared him to the serial inventor Thomas Edison and called him one of the world’s “great geniuses”. Mr Trump marvelled at SpaceX’s successful reuse of its rocket boosters, “where the engines come down with no wings, no anything, and they’re landing. I said, I’ve never seen that before.”

“There is no doubt that Elon Musk is a charismatic, brilliant salesman, and he has built a solid brand” with Tesla, said Bob Lutz, a former top executive at all three of the big US carmakers and a longtime outspoken critic of the Tesla boss. 

Mr Lutz said he had changed his mind about Tesla after seeing it ramp up production in the US, make deep cuts to its fixed costs and take the first steps internationally with a plant in China and one planned in Germany.

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“For the first time, I think he has a really good shot,” he said of Mr Musk’s chances to build a lasting automotive company. “He has stopped the more outrageous aspects of his behaviour and is dedicating more attention to the business.” 

Line chart of Market capitalisation ($bn) showing Tesla hits $100bn

The nadir for Mr Musk came in 2018, when he turned on Wall Street analysts and accused them of asking “boring, bonehead questions”. After battles with short sellers, the Tesla chief then falsely claimed that he was close to turning his back on the market with a buyout at $420 a share, with “funding secured”. He later gave up the chairmanship of Tesla as part of a settlement with regulators over the claim. 

The company’s value rose above $100bn for the first time at the opening of trading on Wednesday. By early afternoon in New York, the stock was up more than 7 per cent at $586.20 each, valuing the company at almost $106bn. At that level it is worth more than Volkswagen, the world’s biggest carmaker by volume. 

The rally has stretched Tesla’s valuation to 98 times its expected profits this year, prompting long-term bulls such as Adam Jonas, an analyst at Morgan Stanley, to warn that the shares will eventually fall back to trade more in line with other car company valuations. 

But Tesla’s strong brand and early lead in premium electric cars could prove lasting, just as Toyota’s Prius made it the recognised leader in hybrid vehicles, Mr Lutz said. “Tesla has the reputation for being the best in electrics, and it will be hard to displace that,” he said. 

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Production from Tesla’s new plant in China and expansion in the US could put it on track for a rapid increase in deliveries over the next two years, said Walter Price, manager of Allianz’s global technology fund, which owns Tesla stock. “There is tremendous leverage in the model, so if things go right, the company can grow into its valuation,” he said.

The sharp revaluation in recent weeks could trigger a huge payday for Mr Musk. If the market capitalisation averages $100bn or more for six months, he will be able to cash in on the first, $346m instalment of a 10-year share bonus plan. 

Even without that, the share price rise has brought a massive increase in Mr Musk’s personal wealth. The value of his shares in the company has gained $16bn since the shares hit a low point in June last year, valuing his stake now at $23bn. 

On average only three large companies a year see their shares double or more in the space of six months, as Tesla’s have now done, according to Toni Sacconaghi, an analyst at Bernstein. Those periods of outperformance are normally followed by a less profitable period, with shares rising 2.6 per cent over the following six months, he wrote in a note to investors. 

Tesla went public at $17 a share in July 2010. Anyone holding shares since then has seen a 33-fold increase in their investment, compared with a three-fold increase in the broader US stock market. 

Tesla’s $106bn market capitalisation — the most widely followed measure of a company’s value, based on the total value of all outstanding shares — is about twice that of General Motors, the second-most valuable US carmaker.*

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*This story has been amended to remove a comparison of the enterprise value of Tesla and GM.