Tesla had an excellent year. Its share price increased by 466% in 2020 and thanks to this growth Elon Musk is now the world’s third-richest man.
Tesla Motors was founded in 2003 by engineers Martin Eberhard and Marc Tarpenning and was named after inventor Nikola Tesla.
Their aim was to show that people didn’t need to compromise when buying an electric car and that they can be better, quicker, and more fun to drive than gasoline cars.
Musk, which has been the face of Tesla for over a decade, joined the company in 2004 as chairman after investing $6.3 million in Tesla stocks during a Series A round of investment.
He served as Tesla CEO since 2008 and has been the driving force behind the company’s success.
A prototype of Tesla’s first car, the Roadster, was first revealed in 2006 and was officially launched in 2008.
The Tesla Roadster unveiled the automaker’s cutting-edge battery technology and electric powertrain.
The Roadster was followed by all-electric Model S sedan, the Model X sport-utility vehicle, and the more affordable Model 3.
It expanded beyond an automaker through its unique set of energy solutions, which include the Powerwall, Powerpack, and Solar Roof.
Supporting Tesla’s automotive and energy products is Gigafactory 1 – a facility designed to significantly reduce battery cell costs.
Tesla’s astonishing share price growth
Tesla had a rocky past. Musk recently said they were about a month from bankruptcy during the run-up in Model 3 production between 2017 and 2019.
This was not the first time Tesla was on the ropes – it was heading for bankruptcy with just two weeks’ worth of cash left in the bank in 2013.
Musk made a deal with former Google CEO Larry Page for the search giant to buy Tesla for $6 billion, but this deal never happened.
This is because Musk “demanded that all staff, no matter what their job title, get on the phones and sell cars to curious customers who had placed refundable deposits”.
These financial problems are now a distant memory as Tesla is hitting regular share price highs as many investors remain bullish on the company’s future.
The company first listed on the Nasdaq in June 2010 at $17 a share, which raised $226 million.
The share price doubled in the next three years and continued to make steady gains after a big jump in 2013.
Tesla was already a ten-bagger in 2019, but it was over the last twelve months that the company showed its strongest share price growth.
Over the last year, Tesla’s share price increased by over 600%, which makes it one of the best performing shares in 2020.
This share price growth pushed Tesla’s market cap to over $400 billion and the S&P 500 Index Committee subsequently announced it will join the S&P 500 on 21 December.
This was welcomed by investors and Tesla’s share price spiked by more than 13% on the news.
Most valuable automaker in the world
Tesla’s astonishing share price rise in 2020 means it is now the most valuable automaker in the world.
It officially overtook Toyota five months ago, and Tesla’s market cap is now more than double its closest rival.
Many people have questioned Tesla’s valuation as it produces far fewer vehicles and generates only a fraction of the revenue of many of the top automakers.
Last year, for example, Toyota sold nearly 11 million vehicles, while Tesla sold less than 300,000 cars.
Toyota’s revenue in 2019 also dwarfed that of Tesla – $253 billion for Toyota versus $21 billion for Tesla.
It is easy to understand why AutoNation CEO Mike Jackson called Tesla’s valuation “insane” and why many investors are shorting the stock.
Short sellers have, however, lost lots of money and Musk has even mocked them by starting sell shorts branded with the company logo.
The company’s fundamentals and future growth prospects clearly do not justify its valuation, which raises the question of what is driving the share price growth.
Vestact portfolio manager Byron Lotter explained that long-term, Tesla has the potential to be the next Apple.
“I think they are going to corner the EV market in the next decade just like Apple did with smartphones because of their first-mover advantage and brand quality,” he said.
He added that Tesla’s energy utilities business is also under-estimated.
“Maybe on a fundamentals basis the valuation does not make sense, but that can be said for many other companies like Amazon in the 2000s,” he said.
Lotter said it is very possible for Tesla to one day become a $1-trillion business.
Tesla’s astonishing valuation
At $461 billion, Tesla is not only the world’s most valuable automaker, it is also more valuable than many of the world’s top car manufacturers combined.
The image below shows just how valuable Tesla is when compared to the combined value of top automakers like BMW, Mercedes Benz, Porsche, Ford, General Motors, Honda, and Hyundai.