Tesla (NASDAQ:TSLA) stock represents the first industrial company to be worth $1 trillion.
The other four trillionaires – Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon.Com (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL), are all Cloud Czars. Things are made for them. Their value is wrapped up in their information technology operations.
Tesla is a true industrial. Its clouds are its “gigafactories,” where it produces cars and batteries. Its value is based on the ability to scale these factories, scale their production and exploit the life cycle value of the products as Apple does.
The latest move higher in Tesla stock is based on a single contract, with Hertz Global Holdings (OTC:HTZZ), which wants to order 100,000 Teslas as rental units.
A Closer Look at TSLA Stock
It may have sales of $40 billion this year, but it’s tough to make the case that Tesla is a trillion-dollar company. That’s still one-third the sales of General Motors (NYSE:GM), but Tesla’s sales are rising 25% per year. Those of GM are falling. Tesla’s profits are also rising, sharply, with no end in sight. GM’s margins are falling.
However, if you wanted to make the case that TSLA stock represented a trillion-dollar company, it’s worth remembering that sustainable growth is what the market is buying in 2021. That’s what Tesla seems to have. Only 2.6% of today’s vehicle sales are electrics, but Tesla has more than half that market. We’re buying tomorrow.
Tesla also makes its own batteries, and this is the real key. Other electric car companies are depending on outside vendors for batteries. Tesla not only makes its own battery packs, but it designs them. This means it stays on top of the state of the art.
Finally, Tesla captures all of its value chains. You buy your Tesla directly from Tesla. You get it serviced by Tesla. You buy your power from Tesla. The computer services that keep it safe are from Tesla. Even your insurance can come from Tesla.
All the suppliers and repair shops and services supplied by third parties in the gas-powered days, it’s all Tesla once you commit to Tesla.
Car market analysts, as opposed to stock analysts, don’t think Tesla can keep it up. They think most new cars will still be gas-powered in 2030, and that GM electric sales will exceed Tesla in 2025.
They also see Chinese companies like Nio (NYSE:NIO) and BYD (OTCMKTS:BYDDF) as serious threats.
This creates a wall of worry Tesla stock can rise against. There is still abundant short interest in Tesla, especially in “dark pools,” traded outside the general market. Even the analysts at Tipranks are tapping the brakes on Tesla stock with only half saying “buy” and six screaming “sell”.
This is great when Tesla beats earnings estimates, as it did in the third quarter. Non-GAAP net income came to almost $2.1 billion, $1.86/share. Revenue was $13.76 billion. Tesla delivered over 241,000 cars during the quarter.
The Bottom Line
Tesla stock may have a tough time holding $1 trillion, at least in the near term. This is not Cloudflare (NYSE:NET). Tesla must make things to make money. Even Apple sells for just 6.5 times revenue.
But Tesla has changed the car market, and much else besides. The electric revolution is coming. Tesla will lead the way. Car companies are becoming tech companies, and all will capture more of their own value in the future. Other product markets will follow, as the Machine Internet rolls on.
Tesla is going to change. It’s going to become more of an institution. Musk is going to spend less time there, and more at SpaceX, his space start-up. Musk is going to the Moon.
Tesla and its shareholders are already there.
On the date of publication, Dana Blankenhorn held long positions in AAPL, MSFT and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for Halloween he has a collection of COVID-19 stories https://www.amazon.com/Bridget-OFlynn-Virus-COVID-19-Pandemic-ebook/dp/B09K8PSQC8/ at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
