Tesla, Inc. is a leading company in the electric vehicle (EV) industry, which has heavily influenced the stock market since its inception in 2003. As of 2021, Tesla has become the world’s most valuable automaker, surpassing traditional powerhouse automakers like Toyota and General Motors in market capitalization. Tesla’s success and exponential growth have made it a global phenomenon and has impacted not only the automotive industry but also the stock market. This article will delve into Tesla’s impact on the stock market by examining the company’s financial performance.
Tesla’s Rapid Growth
In the past year, Tesla shares have soared over 400% reaching a market capitalization of nearly $780bn. The company has been on a rapid growth trajectory, with its financial results providing an insight into its success. In the third quarter of 2020, Tesla achieved its fifth consecutive quarter of profit as it delivered more than 139,000 vehicles. Despite the COVID-19 pandemic’s adverse effects on the industry, Tesla’s revenue grew by 39% compared to the previous year. Furthermore, Tesla’s net profit was $8.7bn, outpacing analysts’ expectations.
Investors’ Perception of Tesla
Tesla’s performance in the stock market and its skyrocketing valuation have left investors divided into two groups. On one hand, there are Tesla bulls who believe that the stock will continue to grow steadily in the long run. They argue that Tesla’s growing revenues signify that the company has a promising future in the fast-growing EV sector. In addition, they point out that Tesla’s battery technology, electric powertrains, and autonomous driving technologies, are ahead of their competitors.
On the other hand, Tesla bears passionately hold onto the notion that the company is overvalued and a clear example of a speculative bubble that will eventually burst, leading to catastrophic losses for investors. These skeptics argue that the company’s revenue growth is not sufficient enough to justify its inflated market valuation. They suggest that it is only a matter of time before investors realise that the company is not living up to its investors’ expectations and the subsequent loss of value will result in depressed stock prices.
Tesla’s financial statements are an integral component of its impact on the stock market. In the third quarter of 2020, Tesla posted a net income of $331m, marking the fifth straight quarter of positive earnings. However, it is worth noting that the company has yet to post a full-year profit since its inception. Tesla’s revenue for the quarter was $8.77bn, representing a growth rate of 44% year-over-year. Tesla’s gross margin expanded from 18.7% in the third quarter of 2019 to 23.7% in the same period in 2020.
Tesla succeeded in controlling its cost structure in Q3, with total operating expenses declining from $1.03bn to $940m YoY. The company’s balance sheet was equally impressive, with cash and cash equivalents topping $14.5bn. This level of liquidity provides the company with the necessary flexibility to invest in growing its enterprise.
Tesla’s Impact on the Traditional Automakers
Tesla’s innovative technology and success have considerably impacted traditional automakers worldwide. Notably, the company’s market capitalization surpassed that of General Motors and Ford combined in 2019. Tesla’s success has increased investor interest in the electric vehicle space, particularly in start-ups like Rivian, Faraday Future, and Fisker. This interest has the potential to further disrupt the traditional automobile market, as young electric vehicle companies are being given the opportunity to drive innovation and engineering.
Moreover, Tesla’s success has forced traditional automakers to scale up their development and production of electric vehicles to remain competitive. For instance, Volkswagen Group plans to invest $86bn to produce 50 electric models by 2025. Ford announced that it planned to spend $11.5bn by 2022 to build an all-electric fleet.
Tesla’s impact on the stock market has been immense as the company’s meteoric rise to the top of the industry has disrupted traditional automakers’ status quo. Tesla’s innovative battery technology, electric powertrains, and autonomous driving technologies have revolutionized the automobile sector, sparking interest in electric vehicles, and prompting traditional automakers to invest in research and development to remain competitive. Tesla’s financial performance, particularly in 2020, has attracted significant media attention and investor interest. Even though Tesla bears continue to warn of an impending market setback, the company’s prospects remain bright. As Tesla continues to establish itself as an industry leader, it will undoubtedly influence the stock market even further through its continued growth and innovations.