Tesla's Stock Price of Over $2,000 Per Share: Justification and Future Prospects
The value assigned to a stock, including Tesla's remarkable $2,000 per share valuation, is driven primarily by market demand rather than personal or theoretical justifications. Market analysts play a crucial role in providing justifications for a stock to be rated as a buy, sell, or hold. This article delves into the multifaceted reasoning behind Tesla's current valuation.
Justification Through Company Type
When assessing Tesla's high stock price, the argument begins with what kind of company one perceives Tesla to be. If Tesla is solely regarded as a car manufacturer, it appears overvalued. A car company, such as Ferrari, typically operates within a market cap of 25–30 billion dollars. However, Tesla's business scope extends far beyond just automotive manufacturing.
Multifaceted Business Operations
Tesla is more than a car company. Its operations include the manufacturing and sale of batteries, solar panels, and cars, while also transitioning into energy production and distribution. Tesla operates as a power utility, engages in car insurance, and even has an app store and subscription services.
Over the next year, Tesla plans to add new markets including freight hauling, ride sharing, and introduce two additional vehicle models for sale. The market size for each of these new ventures is estimated to be tens of billions of dollars. The multifaceted business operations foster a much higher valuation, explaining why Tesla's stock is valued at over $318,000 per share, similar to the valuation of Berkshire Hathaway.
Musk's Predictions and Future Outlook
Elon Musk, Tesla's CEO, has provided insights into the stock's high valuation. In multiple tweets, he mentioned that the stock price will likely continue to increase as the company grows. Tesla is poised to expand by doubling its sales at its Singapore factory and ramping up production at its German factory, which is set to start in early 2021. Additionally, the Austin, Texas, factory is due to commence production in the middle of 2021, contributing to significant additional production capacity.
Battery Day: Future Business Line Expansion
Tesla's continued growth and its future valuation will be bolstered by the technology showcased at the upcoming Battery Day on September 22nd. This event promises to highlight new battery technologies, which could significantly enhance Tesla's energy storage capabilities. Tesla is also expanding its photovoltaic (PV) business with PowerWall and Solar roof installations, setting competitive prices that rival natural gas in utility-sized peaker batteries.
Expansion and Gains in Multiple Business Lines
The key driver behind the valuation of Tesla's stock is its gross sales growth in multiple business lines over the next 3 to 5 years. Tesla has already demonstrated robust growth, having doubled its sales volume when they opened the Singapore factory, which is expected to further expand production capacity. By the end of 2021, Tesla is estimated to produce nearly 3 million cars annually with additional expansion possibilities.
Conclusion and Justification of the High Stock Price
Given the multifaceted nature of Tesla's business and the expected growth in its various sectors, justifying a $2,000 per share valuation is not far-fetched. The combination of profitable sales in multiple areas, future expansion plans, and the potential of entering the SP 500 index are all compelling reasons for the stock's valuation. As Tesla continues to innovate and expand, its stock price is likely to maintain its current high valuation or even increase further.