Over the last few weeks, Tesla’s stock has risen from $260 per share to $350 per share. It has resulted in a $13 billion increase in its market value. Tesla has had a very tumultuous year and even then it has managed to increase its stock, it is just amazing.
Tesla, Inc. is an American automotive and energy company based in Palo Alto, California. The company specializes in electric car manufacturing and, through its SolarCity subsidiary, solar panel manufacturing.
Most of Tesla’s success is courtesy of Elon Musk. The genius Elon Musk is a technology entrepreneur, investor, and engineer. He holds South African, Canadian, and U.S. citizenship and is the founder, CEO, and lead designer of SpaceX; co-founder, CEO, and product architect of Tesla, Inc.; co-founder and CEO of Neuralink; and co-founder of PayPal.
Courtesy the unexpected rise in stock, with 33.7 million shares, Elon Musk has made around $3 billions without doing any additional work whatsoever.
So what really happened with Tesla?
It has been a truly turbulent year for the electric car manufacturing company.
Tesla has faced a number of challenges this year, including concerns over its finances, ability to build cars at scale, and public comments attributed to Musk and Tesla. Now, the company is at an inflection point.
The third quarter was the most profitable in its history, beating Wall Street’s expectations. In upcoming quarters, Tesla will be under pressure to prove that it can maintain profitability and stay out of trouble with regulators as it ramps up Model 3 production, introduces new vehicles, and builds a factory in Shanghai.
Tesla has a long history of beating the odds. Musk has said he believed the company had around a 10% chance of success when it was founded in 2003. Since then, the company has won awards for its vehicles, built an enthusiastic fanbase, and watched its market value multiply day in day out.
Part of the company’s success can be attributed to 47-year-old Elon Musk’s rare gift for storytelling. Since taking over as the company’s chief executive in 2008, he’s outlined a vision for the company that extends beyond selling cars to transforming global energy grids. Investors have shown faith in Musk, which is why Tesla has been able to raise money without much difficulty despite posting consistent deficits.
How did a company that worth $44 billions made $13 billion in so few days?
It means a 33% increase in the market value of the company. That’s just extraordinary. Tesla’s third-quarter update 2018 is the main factor behind it. Reason being that the most important thing investors are looking for is the performance of the latest Tesla car named Model 3. This is the first quarter in which Model 3 has been consistently produced in large quantities of roughly four thousand three hundred units per week.
So this was the test to see if Tesla is able to make money in the future.
According to the quarterly update, Tesla did ace this test and made over three hundred million dollars net income out of 6.8 billion dollars revenue. This got industry analysts scratching their heads because it is almost impossible under usual circumstances.
The analysts already know the number of Model 3 company produces every week tracking the VIN registration system in the United States of America coupled with some mathematical modeling analysts’ Model 3 tracker system can get pretty close to the real production rate.
With such information, we should be able to calculate the company’s third-quarter revenue, and we did have an estimate but that estimation is far off predicting Tesla to lose money in this quarter. So what really went wrong?
It turns out Tesla’s gross margin is much higher than the industry norm and thus, as a result, Tesla made more car per sold that is 20% comparing to the 5-10% industry standard. This has pushed the quarterly loss that everyone predicted to a quarterly net income of $312 millions for Tesla.
It’s the official reason why Tesla stokes skyrocketed few weeks and great performance that beats expectations by a large margin.
However, this explanation isn’t good enough. It doesn’t explain why every analyst of the world predicted it wrong but it does explain that each of such analysts is a financial expert and not a tech expert. They are good at making analysis statements and managing perceptions but they are almost utter ignorance about the technologies behind the company. That’s where the problem lies.
Traditional analysts often want to consider Tesla as a usual automobile company and start applying multiples to its stock prices but in reality, people are investing in the company because of its story and its potential. To be frank, Tesla is more of a tech company than an automobile company. So here is the main difference tech companies always invest in the future.
The premise of financial analysis is to give us definitive guidance that how much a company is worth but because of the modern technology that Tesla is based on, they have got their predictions wrong.
Electrification is the future, everyone knows that. So that’s why people keep investing in Tesla. In recent years many international companies have produced electric vehicles, predominantly by getting inspired by the unprecedented success of Tesla. It’s good news as our Earth needs to be taken care of, and electrification of automobiles is the step in the right direction.
“When something is important enough, you do it even if the odds are not in your favor.”