Is Tesla really worth $100bn?

by Graeme Evans from interactive investor |

Passing another milestone, some say the divisive tech firm could become the most valuable company ever. 

As Wall Street's first ever $100 billion-valued car maker, the recent turbocharging of Tesla shares represents quite a result for FTSE 100 index-listed investment trust Scottish Mortgage (LSE:SMT) and scores of interactive investor clients.

The stock has more than doubled in value since CEO Elon Musk wrong-footed short-sellers in October by reporting a surprise profit of $143 million in third quarter results. 

Tesla closed at $569.56 on Wednesday night, taking the electric vehicle maker over the $100 billion market cap threshold and valuing the business at twice that of General Motors. In fact, Tesla is now worth more than GM ($49.9 billion) and Ford ($36.3 billion) combined.

Source: TradingView Past performance is not a guide to future performance

interactive investor customers appear to have enjoyed the Tesla ride in recent months, given that it was our most-bought US stock in 2019, ahead of Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), and it’s proven popular at the beginning of 2020 too.

Shares are also up by about a third so far this calendar year, but that's not stopped Tesla again being our most-bought stock. Almost 60% of Tesla trades in January were buy orders, compared with Amazon where sellers are currently in the ascendancy.

Alongside Tesla, the vegan option Beyond Meat (NASDAQ:BYND) has been another popular play for our clients, as has Wall Street newcomer Virgin Galactic (NYSE:SPCE) after 87% of trades were to buy the stock in January.

    20 most-bought US stocks in 2020 so far
  Company +/- since 2019 Buy trades as % of total Increase/decrease in % of buys vs sells
1 Tesla (NASDAQ:TSLA) no change 59 -5.2
2 Apple (NASDAQ:AAPL) up 1 61 26
3 Beyond Meat (NASDAQ:BYND) up4 64 3.4
4 Microsoft (NASDAQ:MSFT) no change 74 10
5 Alphabet (Google) (NASDAQ:GOOGL) up 1 67 15
6 Advanced Micro Devices (NASDAQ:AMD) down 1 63 7
7 Amazon (NASDAQ:AMZN) down 5 47 -30
8 Facebook (NASDAQ:FB) up 1 59 28
9 Virgin Galactic (NYSE:SPCE) New 87 -
10 Alibaba (NYSE:BABA) up 6 63 11
11 Nio (NYSE:NIO) New 63 -
12 Uber Technologies (NYSE:UBER) up 2 67 -12
13 Boeing (NYSE:BA) up 5 62 -2.4
14 Visa (NYSE:V) up 6 79 11
15 Netflix (NASDAQ:NFLX) down 3 52 -16
16 NVIDIA (NASDAQ:NVDA) down 8 54 -3.4
17 Mastercard (NYSE:MA) New 72 8.1
18 Qualcomm (NASDAQ:QCOM) New 69 -
19 Twilio (NYSE:TWLO) down 8 51 -18
20 The Walt Disney (NYSE:DIS) down 10 59 -5.1

Source: interactive investor

Tesla exposure for UK investors also comes through the blue chip-listed investment vehicle Scottish Mortgage, which is one of the US company's biggest shareholders. Its fund manager James Anderson recently backed Tesla to become the world's most valuable company, a title currently held by Apple at $1.39 trillion.

UK investors can also buy into other funds heavily invested in Tesla and other US tech stocks, among them Baillie Gifford American where currently 6.53% of the £2.7 billion fund is invested in Tesla. 

The next big test for Tesla investors, however, will come after markets close on Wednesday 29th January, when Musk presents fourth-quarter and full-year results and updated guidance on 2020 deliveries. Analysts at UBS geared up for the event by publishing a note in which they took a more bullish view on Tesla's technology but warned that shares had “already left the orbit”.

They believe that Tesla will become the most profitable car manufacturer, and their new target price of $410 is based on the company selling 1.1 million cars in 2025 at an 11% operating margin, compared with Wall Street's valuation of 1.6 million vehicles.

UBS warned that any issues could have a “substantially negative impact” on sentiment and the share price. They added:

“Risks in execution and US demand following the phase-out of electrical vehicle tax credits seem to get ignored. We think shares are over-shooting right now.”

UBS expects Tesla’s update, scheduled for publication at 3.30pm Pacific Time, will guide to 500,000-550,000 car sales in 2020.

Tesla certainly appears to be priced for explosive growth and profitability, similar to many tech company valuations. That's highlighted by the gulf in valuation to General Motors (NYSE:GM) and Ford Motor (NYSE:F), whose combined value is about the same valuation as Tesla. The question longer term for investors is whether Tesla will be able to produce the kind of cash flows needed to service its debt and justify the current valuation.

It wasn't that long ago that Musk published an ill-judged Tweet in which he said he had secured funding to take the company private at $420 a share. That was in August 2018 when shares were trading at $330. Over the first six months of 2019, Tesla's price fell 32% to $223.

They surged in October after the surprise profit, which was achieved after record production of 96,155 vehicles in the quarter and record deliveries of approximately 97,000 vehicles. 

Management also flagged a dramatic improvement in the pace of execution and capital efficiency of its new production lines. Gigafactory Shanghai was built in 10 months and is ready for production, while it was 65% less expensive to build than its Model 3 production system in the US.

Tesla went public at $17 a share in July 2010, meaning that anyone holding shares since then has seen a 33-fold increase in their investment.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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