Tesla: Reasons of a meteoric rise to overcome most valuable car makers

Amid the COVID-19 pandemic Tesla’s market capitalization has increased from around $100 billion to $360 billion over in 2020. Because of this scenario, Tesla has become the world’s most valuable car company in the world, overtaking companies like Toyota and Volkswagen. After years of losses, the electric vehicles (EV) company reported three consecutive quarters with profits and according to its CEO Elon Musk, there will be a 30 to 40% increase in the production in comparison to 2019. These facts and the growing interest for cleaner energy sources are linked to its meteoric rise in stock markets.

Despite these numbers, there are many analysts and investors who say Tesla is an overrated company and a risky bet in the short and even middle terms. These opinions are supported by comparisons with other car makers, for example, Toyota sold 10.4 million cars and reported revenues for $281 billion in 2019 financial year, which ended in March 2020. On the other hand, Tesla numbers are still far from those from the Japanese company. The EV company ended 2019's year with 367 200 cars sold and $24.6 billion of revenue.

Tesla share price during 2020

Clearly Tesla is not as profitable as their main competitors but having Elon Musk, a man who built a private space company from ground and recently sent men to the international space station using his own reusable rockets, as its CEO is something to take seriously. Back in 2004 Tesla was a company formed by 3 engineers and 1 investor (Elon Musk) who wanted to prove that electric cars can be better, cleaner, and faster than gasoline cars. In those times the idea of making any profit of EV was analogous to the chicken-or-egg conundrum for investors: electric cars were costly, not cool and had a limited range due to batteries performance. That is why people were not interested in buying them and companies did not want to invest because of lack of demand. Despite uncertainties, Elon Musk bet on building and selling a luxury car, the Roaster, then use the money earned to develop more affordable models like Model S and Model X and again used this money for research and development in order to get even more affordable cars which will lead the company's growth in a world with a high demand of cars. There is more information about this strategy is in Elon Musk’s Secret Master Plan.

Nowadays things have changed a lot. A growing interest for EV cars has forced traditional companies to allocate efforts and money in order to develop models that can compete with Tesla’s cars and also big economies like China are promoting its use by putting restrictions to buying gasoline cars. Of course, China has several EV manufacturer companies like SAIC, FAW, Dongfeng, Chana and they compete in a cheaper category.

Now Tesla has three production facilities, called gigafactories: two located in US and one in China, Giga Shanghai, which started its production in 2019 and will reach a capacity of 500 thousand cars by year (Model 3 and Model Y). Even tough Tesla has battery supply agreements with Panasonic and other companies, Musk has stated many times that batteries supply is a limiting factor for production increase.

There is still a long way to complete the switching from fossil fuels to electric cars, since they are still very expensive and considered a luxury asset for most people. Recently Tesla’s CEO announced his plan for a $25 000 electric car, a considerable reduction in price that can be achieved in about three years from now. This goal will be possible thanks to battery technology developments mainly focused on cell manufacturing and chemistry that will allow to reduce costs. He believes that as more car companies compete to persuade people to change their fuel powered cars for an electric one, technological hurdles will eventually overcome.

Not only individual persons are looking for an affordable electric car, but companies in the business of transportation and supply chains also. These kinds of companies aim to acquire workday electric cars and even trucks. Uber, for example, launched this year initiatives that aim at getting an important amount of their contract drivers to use electric vehicles. Amazon, in the other hand, made an order for 100 000 electric vans from Rivian Automotive.

I strongly believe the spread of using electric cars will have led the change to a more sustainable future, but there still is a lot to do. Using them is just part of the solution because without changing the main source of primary energy and continue powering these vehicles with energy that is produced in power plants that burn fossil fuels, we are just mitigating the problem. Countries must start with the implementation of policies to eventually reduce the consumption of oil and gas and move towards a zero-emission future. The faster this is done, the better.