Tesla, Inc. (NASDAQ: TSLA) shares ended 743% for 2020. Its market cap rose to $669 billion, which makes it the sixth most valuable public company behind Apple, Microsoft, Amazon, Alphabet, and Facebook, each of which has much larger revenue.
The primary reason analysts believe the figure remains so extraordinary and artificially high comes from Tesla’s annual vehicle sales. They may reach 500,000 this year, according to Wall. St. firm Wedbush. Founder Elon Mush has made the 500,000 mark a milestone for the year just ended.
In reality, Tesla remains small-sized compared to huge auto companies. That comes particularly in contrast to market leader Volkwagen’s which has annual sales of 10 million vehicles. Telsa’s market cap stands higher than those of the top six car companies based on sales combined, even though its production sits at 5% of VW’s.
It is unlikely Tesla’s revenue will reach $30 billion this year. Through the first three quarters, it was $21 billion. And, auto sales revenue was only 90% of the total.
Those who argue Tesla deserves its current market cap press the point that it will end up with the largest share of the electric car market worldwide. The number of vehicles sold in the category may reach 20 million by the end of this decade. Even under circumstances in which Tesla does get the sales lead, it will be a smaller company than VW.
The argument against Tesla’s market value turns on how much competition it has now and will have over the next several years. Every major manufacturer in the world has an EV initiative. Ford, GM, and VW have already said that among them they plan to launch dozens of electric cars. Even with Tesla’s reputation for quality, and its brand, the onslaught comes from competitors that have substantial product management, R&D, marketing, and distribution resources.
Tesla can no longer be dismissed as a small car company. Investors can make the argument that it is overvalued. They cannot quarrel with its current EV leadership. Investors can argue it will never grow into its current market cap. Short sellers have lost tens of billions of dollars because they support that premise.
Finally, the crux of the Tesla value debate turns on whether it has been built as a manufacturing company or software operator. That debate misses the point that it is both.