Tesla's Market Value Tops $800 Billion for the First Time, But Can the Company Sell Another 500,000 Vehicles in 2021?
Electric automaker Tesla became the world's most valuable car company in 2020. But Tesla's meteoric rise did not end there. The company's stock has continued to climb and now for the first time Tesla's market cap has surpassed $800 billion.
Tesla's latest has made its mercurial Chief Executive Elon Musk the world's richest person, taking over the top spot from Amazon founder Jeff Bezos, Bloomberg News reported on Thursday. Musk's net worth climbed to $194.8 billion, which is roughly $9.5 billion more than Bezos.
During Friday's trading session, Musk's 21% stake in Tesla is worth around $170 billion as Tesla's share price climbed over 6% or $50.49 a share. Tesla stock was trading at $866.53 by Friday afternoon.
Tesla's soaring market cap makes it one of the five most valuable companies in the S&P 500. Tesla is now worth more than the combined value of General Motors, Ford Motor Co and Fiat Chrysler Automobiles, the "big three" Detroit automakers.
Can Tesla sell more electric vehicles in 2021 than it did the year prior?
However, Tesla's soaring market cap does not reflect in its yearly sales numbers. Tesla built 509,737 electric vehicles in 2020 and delivered 499,550 of them. While this is a respectable number and important milestone for Tesla, it's not a large enough number to sustain an automaker with a market cap of over $800 billion. For example, U.S. automaker General Motors sold 7.7 million vehicles globally in 2019, and its market cap is $61.7 billion.
In order to justify Tesla's soaring value, the company will need to sustain its sales momentum throughout 2021 and beyond. But there are indications that Tesla will have a difficult time matching the success in 2020.
Tesla is experiencing falling sales in Europe, especially in Norway, a country where electrified vehicles made up 54% of all auto sales in 2020. Norway leads the world in electric vehicle adoption, so one would think that Tesla would be widely successful in the country. The same is true for the Netherlands, another leader in EV adoption. However that is not the case.
As of Dec 1, 2020, Tesla's registrations have fallen 78% in the Netherlands and 75% in Norway. These numbers should be alarming for Tesla investors. A soaring market cap and falling sales in major markets of the world do not go hand in hand.
For the past decade, Tesla has faced little competition in the electric vehicle segment which helped the company establish itself as the world's electric car leader. But now legacy automakers are introducing their own battery-powered models to compete with Tesla, many of which cost less.
New and more affordable electric models from General Motors, BMW, Vokswagen and Hyundai/Kia are poised to take some sales away from Tesla in the next few years. In China, electric vehicle startups including Xpeng Motors and NIO are also giving Tesla new competition. China is the world's largest auto market and an important one for Tesla to be successful in in order to maintain its profitability.
However, with Tesla's crowned the world's most valuable car company, the company controls its own destiny. One way for Tesla to cement its position is to lower its prices so the company's electric vehicles are more affordable. Elon Musk promised a $35,000 mass-market Model 3 which never really happened.
The Standard Range Plus Model 3 costs $37,990 in the U.S., keeping it out of reach of many car buyers looking to switch to an electric vehicle. Tesla cannot lower the price any further without erasing its profits from the vehicle, which all but ensures that the Model 3 will never truly be a mass-market electric car.
But if Tesla offers an electric car costing less than $30,000 it potentially could become one of the world's best selling electric vehicles, which Musk is well aware of.
Tesla just lowered the price of the Standard Range Model Y crossover to $41,990 to entice new buyers, its lowest price ever. Musk once said that the Model Y has the potential to outsell all of Tesla's other models combined. Being that the compact SUV and crossover segment is widely popular with U.S. consumers, this could be true.
Tesla just needs to make its Model Y and Model 3 more affordable, or sell many more of them. With a growing number of new electric models from rivals reaching dealer showrooms in the next two years, this could be Tesla's biggest challenge.
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