Tesla Inc. (TSLA) shares slipped by 2.75% last month after Morgan Stanley cautioned against the car company’s exceedingly large expenses and operating losses, as were reflected in their recent earnings report. Nevertheless, investors are currently more than optimistic with regards to Tesla’s future, despite concerns over the company’s dwindling cash reserves prior to the production of the highly anticipated Model III sedan, which is to be released in July. Moreover, one such enthusiastic party to add to the long list of Tesla supporters is none other than Apple Inc.’s Steve Wozniak.
Last week, the Apple co-founder claimed in an interview with Bloomberg Canada that the American automobile company had the capacity to surpass Apple as the most innovative company residing in Silicon Valley. According to Wozniak, Elon Musk’s management of Tesla is unparalleled and forward thinking and has never been seen before within the auto-industry. Wozniak, who is a Tesla owner and ardent supporter of the company, resultantly concluded that he is betting on Tesla to continue to rise in the years to come.
Wozniak’s comments are a testament to Tesla’s unlikely success story. For despite the fact that the company sold just 76,230 cars last year against General Motors 3,042,773, Musk’s enterprise is still receiving major backing from investors and has a stock valuation to show for it. For instance, the Tesla stock roared right along on Friday to touch yet another intra-day high of $344.88. As such, the company has reached a market capitalization of more than $57 billion, rendering it more valuable than both its major competitors, General Motors and Ford respectively.
Further, still, even Musk’s comments that the company’s market cap is above-and-beyond what they “deserve” has not been a sufficient enough catalyst to derail the most hyped stock of today. And for investors who got in early, the stock has been a one-way ticket to riches, insofar that the company share price has more than doubled in the last 18 months, and its 10-year chart evidences a tenfold increase.
Tesla stock valuation increase. Source: Business Insider
So, if not sales nor shipments, what exactly is driving the large-scale enthusiasm for the Tesla stock? One analyst, namely Adam Jonas of Morgan Stanley, suggests that the financial world is starting to come around to the bigger picture regarding Tesla, which involves seeing the company not as a traditional car manufacturer but rather as a merger of multiple industries. As such, Jonas argues that investors are beginning to see the company as existing at “the nexus of shared, autonomous and electric transportation”, as opposed to being considered just another automaker.
That is, Jonas accredits Tesla’s stellar stock performance to the wide appreciation investors are bestowing to the use of artificial intelligence in autonomous driving. For although Tesla is at core a car manufacturer, under Musk’s direction the company has shifted its story significantly, turning considerable attention to Autopilot, namely semi-self-driving technology, and resultantly has acquired mass support from the financial community. In this way, Tesla has spearheaded a new kind of business model, which is the reason that it has gained the encouragement of Wozniak, alongside a legion of other enthusiastic spectators.
Nevertheless, as a result of the company’s unprecedented gains, Tesla competitors are beginning to emulate Musk’s management, which involves merging state-of-the-art technology with traditional car manufacturing. For instance, Ford recently shelled out 1 billion dollars for an artificial intelligence outfit, acquiring ride-sharing service Chariot and investing in Velodyne, a company producing lidar, namely the laser scanning technology that many argue is necessary for self-driving cars. Likewise, General Motors acquired self-driving expertise in the form of a start-up called Cruise and has partnered with Lyft in order to situate the eventual result on the road.
So, while Tesla’s success is becoming more understandable in light of Musk’s hybrid and dynamic business model, the company faces increasing threat from copycat competitors who are looking to profit from Tesla’s innovation. In this regard, Tesla is still a great bet, however, future investors should tread with caution as competition within the auto-industry steadily increases.
(Kathleen Craig, Research)
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