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How Tesla Became the Most Valuable Auto Maker in the World | WSJ - YouTube
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- I don't think any other
stock has captivated investors
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on Wall Street or Main
Street the way Tesla has.
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It's just become one of the
most controversial names
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and one of the most
watched names out there.
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This summer, Tesla became the
most valuable auto company
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in the world,
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surpassing Toyota and
claiming a market cap
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of nearly $183 billion
before continuing its climb.
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- The electric vehicle maker's
stock speeding this year.
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- Musk's wealth skyrocketing
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thanks to a surge in Tesla shares,
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making him wealthier than Warren Buffet.
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- But the company's fundamentals
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don't seem to explain the rise.
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For example, Toyota sold
almost 25 times as many
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vehicles as Tesla did last year.
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Instead, the rally has been
driven by investor enthusiasm
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for CEO Elon Musk.
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In a belief by some that in the future,
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cars everywhere will be
powered by batteries,
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not gasoline.
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Here's how Tesla became the
most valuable auto maker
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in the world.
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Tesla developed its first
car in the early 2000s.
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But to follow its ballooning share price,
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a good place to start is last fall.
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In October 2019, Tesla
reported a surprise profit
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for its latest quarter,
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and that just sent its shares soaring.
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Just a few months prior,
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Tesla shares were hovering
near a three year low.
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The prior year, Elon Musk had tweeted
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that he was going to take
Tesla private at $420 a share.
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And that landed him in the
cross hairs of regulators.
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He also kind of had a history
of missing financial targets
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and car delivery targets.
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So that's why this surprise earning spree
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was a really big deal.
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Amid the rush of investor optimism,
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in mid-November Musk held
an event in Los Angeles
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to reveal Tesla's Cybertruck.
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What he did was he
unveiled this pickup truck
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that looked unlike any other pickup truck
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we had ever seen before,
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and he boasted that it was
really, really durable.
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At the event, a Tesla employee
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threw a metal ball at the
window to show its strength
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but ended up breaking the glass.
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- I should say also, we're
going to be offering rides
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in this all night.
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(audience cheers)
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Yeah, don't mind the glass.
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(audience laughs)
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- The next day, shares
fell more than six percent,
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but amid press around the event,
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the stock quickly recovered,
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and on December 23, it surged past $420.
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The reason that 420 mark
is kind of a milestone
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is that, you know, that
was kind of the tweet
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that landed Musk in the
cross hairs of regulators.
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The SEC later said the tweet
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was a reference to marijuana culture
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that Musk used to amuse his girlfriend.
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The shares crossing 420 later in the year,
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it was kind of a victory in that sense.
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In the following weeks,
Tesla had a string of wins.
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The company said it met its delivery goal
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of 360,000 cars for the year.
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And less than a year after breaking ground
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at its China plant,
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the car maker met its objective
for Model 3 production
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at the facility,
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and held a press conference
to celebrate deliveries
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of China-made Model 3s
to Chinese customers.
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Many people viewed China as
the world's biggest market
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for electric vehicles,
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so in order for Tesla to make this journey
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from a small start-up to a global behemoth
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producing electric cars,
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Polish investors say that it
needs to target that market.
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So this boosted expectations
for the coming year.
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The investor momentum
continued when on January 29,
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Tesla posted a profit for
the second quarter in a row.
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On the earnings call,
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the company said it was well on its way
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to producing its next car,
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the Model Y compact sport utility vehicle.
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And it told investors the
business should be profitable
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going forward.
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So this was around the
time that Tesla shares
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really just started to go parabolic,
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and you saw Wall Street
investors, Main Street investors,
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kind of all piling into
Tesla shares, Tesla options,
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and it just kind of
became this huge frenzy
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around the company.
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But not everyone was
betting for the car company.
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The fascinating thing about Tesla is that
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despite its meteoric rise in
the stock market this year,
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it remains one of the most popular shorts,
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so that means it's a really
popular bet for investors
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who think the shares are
going to absolutely plummet.
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When the stock goes up,
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that's painful for a short investor.
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That means that they're losing money.
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So some people can't hold on
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to these money-losing
positions for too long,
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so they have to close out their position,
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and sometimes they do that
by buying Tesla stock.
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In this kind of unusual twist,
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you have investors who think
the shares are going to go down
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actually helping to drive it up.
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But the stock run-off was
stopped short in March.
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Despite investor enthusiasm,
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Tesla was not immune to the market effects
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of the Coronavirus lockdowns.
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That month, California
issued stay-at-home orders,
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leading Tesla to suspend
production at a factory,
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and interrupting the company's ramp-up
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for its newest vehicle.
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The stock fell in March and
then quickly bounced back
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as the market started to recover.
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At the heart of this downturn,
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the federal reserve enacted
a massive stimulus plan
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to buoy the economy,
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fueling a broader recovery
in the stock market
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that also lifted stocks like Tesla.
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On April 29, Tesla
reported another profit,
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the third in a row.
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Even through the low of the S&P 500,
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the S&P was down roughly
30 percent year to date,
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and meanwhile, even
through that time frame,
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Tesla stock was up.
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So despite a recession,
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a global pandemic that
could crimp demand for cars,
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Tesla's stock has still
been resilient this year.
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Then on June 10, investors
pushed the auto makers' stock
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past $1,000 a share for
the first time ever.
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After Musk told employees it
was time to begin production
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on the company's all
electric semi-trailer truck.
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By July, Tesla became the
world's most valuable car maker,
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overtaking Toyota,
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and on the 2nd, Musk
taunted the short sellers
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when shares opened above
$1,200 for the first time
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after Tesla deliveries beat expectations
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and investors anticipated
the company's inclusion
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in the S&P 500 Index.
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In order to be considered for the S&P 500,
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a company needs to deliver
a cumulative profit
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over four consecutive quarters,
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including the most recent.
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So even before Tesla's most
recent earnings report,
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a ton of investors were anticipating,
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hey we think it's going to
be profitable this quarter,
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we think it's going to be in the S&P 500,
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and that drove the stock even higher.
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On an earnings call on July 22,
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Tesla said it hit that goal,
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defying the Wall Street
bears who expected a loss.
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- We were able to achieve
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a fourth consecutive profitable quarter,
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and although the automotive
industry was down
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about 30% year over year in
the first half of the year,
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we managed to grow deliveries
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in the first half of the year.
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- If you bought 10 shares of
Tesla last June, in June 2019,
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it would have cost you a
little more than $1,700.
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If you held on to that
investment through late July,
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it would have been
worth more than $15,000.
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Bears still say that the
stock is going to go down.
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They don't think that Tesla
will bring electric vehicles
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to the masses.
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