The ‘strange’ US$1-trillion Tesla dilemma facing investors
As long as monetary policy stays loose, the peer pressure on big investors to join the party will keep on building
Tesla shares do not care if you hate them. You may think their eye-popping ascent, which has dragged the company up to a US$1-trillion valuation, represents the final death throes of a foolish, cultish trading culture that treats favoured shares like loyalty tokens, and you have a point. But it doesn’t matter. The punchline: doubters are now at the stage where they are almost forced to buy.
The trigger for the latest burst higher in shares of the divisive electric carmaker was news that car rental business Hertz Global Holdings Inc. intends to buy 100,000 of its vehicles. Even the company’s founder, Elon Musk, described the rally as “strange.”
At that kind of valuation, Tesla is worth more than the next nine biggest carmakers in the world combined, or roughly half of Germany’s entire Dax index. It has slapped on the equivalent value of an extra four Fords this month. The stock has gained 45 per cent this year.
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What are the bears missing? Plenty of things, said David Older, head of equities at European asset manager Carmignac. “A couple of years ago people thought it was teetering on the edge of bankruptcy,” he said. Now Tesla has “fixed” production problems, and punchy Chinese targets for electric-vehicle adoption provide a solid bedrock of demand.
Perhaps, as Keith Parker, chief United States equity strategist at UBS Group AG, Tesla could be one of the big beneficiaries of the “corporate spending phase of the cycle.” Companies have plenty of money to spend. It is not unreasonable to think they might splash at least some of it on electric cars. Hertz might be just the beginning.
And while every other company on the planet struggles with supply chain challenges, Tesla seems to have sailed through, Older said. “Elon Musk is an engineer, and yet he has managed the supply chain better than anyone else. How has the guy done it? It’s just magical,” he said.
