Tesla shares have been on a rampage lately. Over the past six weeks, Tesla’s stock price has skyrocketed 25%, with shares currently trading in the $304 range. With a market cap of nearly $50 billion, Tesla is currently more valuable than Ford — which has a market cap of $46 billion — and is close to surpassing GM which currently boasts a market cap of $51 billion. Predictably, Tesla’s valuation has elicited ridicule from critics who can’t help but point out that Tesla in 2016 delivered 76,230 vehicles. In stark contrast, Ford during the first half of 2016 alone delivered 1.35 million cars to customers.
That data, though, is irrelevant as far as Wall Street is concerned. As tends to be the case, investors aren’t so much concerned with current performance as they are with future performance. And in that respect, as EV adoption continues to grow steadily, Tesla’s future looks incredibly bright.
Speaking to the New York Times recently, Karl Brauer of Kelley Blue Book opined that Tesla is selling a story that other competitors simply can’t match.
“Investors want something that is going to go up in orders of magnitude in six months to six years,” Brauer said, “and Tesla is that story.Nobody thinks Ford or G.M. is going to do that.”
Interestingly enough, Tesla CEO Elon Musk — who in the past has conceded that Tesla’s valuation can sometimes hover at absurd and arguably unjustified levels — recently expressed a different point of view.
In a letter Musk penned to engineers who came over to Tesla via the company’s acquisition of Grohmann Engineering, Musk said that shares of Tesla might see a 10-fold increase over the next 5 to 10 years. The letter was obtained by Electrek and reads as follows:
Unlike other automotive manufacturers, each Tesla employee receives Tesla shares in addition to salary. These shares can be easily sold for money, but they also open up the possibility of earning much more through stock appreciation. The tenfold increase in our share price over the past five years has made shareholding exceptionally profitable for our Tesla employees. I firmly believe that we have the potential for a further ten-fold increase over the next five to ten years. That would make a total value of € 100,000 from the € 10,000 in stock.
The impetus for the letter stems from financial concerns that Grohmann engineers began having once word emerged that Tesla had no plans to renew contracts Grohmann had with other auto manufacturers.
Looking to reassure engineers further, Musk added that Tesla’s product roadmap extends out far beyond the Model 3 and includes upcoming vehicles like the Model Y, a brand new Roadster, a pickup truck and a semi-truck.
While it’s easy to scoff at Musk’s “ten-fold” prediction with respect to shares of Tesla, it’s important to remember that the stock market is rarely governed by logic. Remember, Amazon’s market cap in recent years soared to insane levels even though the company wasn’t making much money at all. In a nutshell, Wall St. investors aren’t so much of the “what have you done for me lately” ilk as they are of the “what will you do for me in the future” crowd.