This week Tesla Inc. surpassed Ford and General Motors as the most valuable car maker in the country. Founded at the turn of the 21st century, Tesla is dwarfed by the age and magnitude of production of the other big automakers in the United States, but now supersedes them in market value. The brains behind the electric car company is Elon Musk, the eccentric engineer from South Africa who founded PayPal and SpaceX. Tesla is now valued at $51 billion while GM is at $50 billion and Ford is at $45 billion.
The recent jump in valuation has raised Musk’s net worth an additional $1.8 billion to a total $14.8 billion, making him the 29th richest person in the world. One might ask how such a valuation is justified. After all, last year GM sold 10 million vehicles, Ford sold 6.6 million, and Tesla came in with only 76,000 vehicles. Topping off their year, Tesla reported a net loss of $675 million.
However, the valuation does not come based on current numbers; it’s all on potential. As such, Tesla still has the ability to be a flop in the long run, but all the signs seem to point toward Tesla’s success. Timothy Lee’s explanation in his article for Vox helps to clarify: “To understand what the market might be thinking, it’s worth remembering what happened in the cellphone industry a decade ago. Back in 2007, the cellphone market was dominated by Nokia with 435 million units, followed by Motorola with 164 million units. Apple released the first iPhone that year, but it sold fewer than 4 million units.”
Now Apple is the most valuable company in the world, propelled by its sales of the iPhone. Wall Street is betting on autonomous, electric cars rather than man-powered and fossil fuel vehicles. According to Ron Baron, whose company owns significant shares of Tesla, the company will eventually be worth $700 billion. His comments along with a sale of $1.4 billion in stock by Tesla helped to spur the valuation.
The expected 2018 release of Tesla’s third production car, the Model 3, is expected to make or break the company. Demand is higher than expected for the vehicle which, combined with the current Model S and Model X, could lead to the production of 500,000 vehicles by 2020. Even if Tesla fails to perform in the automotive industry, it may still excel at making batteries. Tesla plans to be one of the top producers of lithium-ion batteries with expected productions just for the company to exceed the numbers produced by the entire world in 2013.
Dubbed the Gigafactory, the Nevada battery factory has the ability to take raw materials and convert them to battery cells. An additional factory is in the works in New York while others are planned for Europe. Only time will tell if the valuation of Tesla will hold true to the predictions.
