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Tesla: The new King of auto industry

 

  • How Tesla managed to become the most valuable auto company globally?
  • Tesla’s innovation is defining new era for the global auto industry

 

Formed merely 17 years ago, Tesla has now become the world’s most valuable car company with USD ~300 bn in terms of valuation. The company has not just created battery-powered electric vehicles that are overtaking old-school manufacturing know-how but also has marked a start to create a new era for the global auto industry by taking a new approach to make stylish and cutting-edge vehicles that are challenging the traditional established system.

Tesla’s share price has increased more than 82-fold since its IPO in July 2010.  In the year 2020 when the entire world is struggling with the Covid-19 pandemic, its stock is up over 250% YTD. Moreover, on 20th July 2020, its share hit the new high of USD 1,643 leaving it with a market capitalization of more than USD 300 bn. With this market value, Tesla has now surpassed Toyota (its main rival in terms of market cap). In fact, Tesla is now worth more than many of its competitors combined like Ford (USD 27 bn), GM (USD 38 bn), Volkswagen (USD 87 bn), Honda (USD 45 bn) and many more. Moreover, Daimler AG, the parent company of Mercedes-Benz, which bought nearly 10% stake of Tesla in 2009 is worth only one-sixth compared to Tesla with market capitalization of nearly USD 48 bn.

                                 Source: EquiBase – Televisory

 

 

 

                                  Source: EquiBase – Televisory

 

The interesting part here is that Tesla has created this massive value despite selling just a fraction of its competitor’s production. Number of cars sold, a traditional metric to analyse an auto company, does not hold any significance here. While many of its rivals like Toyota, Ford, GM, Honda, sold over 5 million cars each during the last year, Tesla’s sales were less than 370k cars. Moreover, in terms of revenue also, Tesla seems very tiny in front of these big companies.

                                  Source: EquiBase – Televisory

 

The question arises here: how this relatively very small company with shorter history of operation than its rivals has gained the title of the most valuable auto maker by investors?  The answer is, Tesla has created this historic success by focusing on high-status and premium electric vehicles (EVs). Helmed by Elon Musk, Tesla has pioneered new approaches in designing software, electronic architectures and manufacturing of cars which has enabled it to launch more innovative vehicles at faster pace than rivals. Tesla is the Electronic Vehicle (EV) market's dominant force with the Model 3, Model S and X accounting for 53% of all US EV sales, leaving its rivals far behind. The rise in Tesla's market value was largely due to its top selling car Model 3. The number of Tesla vehicles delivered worldwide has soared since the release of the Model 3 in Q3 2017, and the carmaker added its new Model Y to the product portfolio in 2020. Tesla has already delivered 80,050 Model 3 and Model Y units in the second quarter of 2020.

                                  Source: Statista, Televisory Research               

                                 * Based on plug-in electric vehicle sales in U.S. in 2018

 

Furthermore, combining plug-in hybrids and fully electric vehicles sales, Tesla topped with 19% of the market share surpassing Volkswagen Group with 13%, Renault-Nissan alliance with 11% share, BMW Group and Hyundai-Kia both with 8% market share each.

                              Source: EV Volumes, Televisory Research

 

Tesla’s annual sale increased to nearly 370k units in 2019 from ~244k units in 2018. In Q2 2020 as well, Tesla delivered around 90k vehicles, about 2,250 units more than it did in Q1 2020. Although Q2 2020 numbers are lower by 4.8% than YoY performance, Tesla’s Q2 results was being considered a big success looking at a rather difficult time for auto makers in the ongoing Covid-19 scenario.

Tesla’s improving fundamentals, better than expected results and deliveries in 2020 along with strong sales in China (one of the largest market for EVs) has contributed in its on-going success but investors are also betting on the disruption it has created in the auto market. The auto industry is currently undergoing fundamental changes and during the next few years, auto companies are likely to face an onslaught competition for EVs from established automakers. Tesla has made an early entry in the EV segment and continues to drive the market with its innovation and premiumization in cars. Its is now potentially the first company to bring battery costs down with technologies without using cobalt that is expected to change the future of the EV market. Furthermore, Tesla’s ability to scale up its manufacturing is another plus point in investors eye.

Although demand in the U.S. is attaining maturity stage, Tesla is betting on increasing demand from China and Europe. Owing to high level of competition, it is entering the high-end electric and self-driving car market to position itself further higher. Even though concerns are being raised on its heady valuation with tiny sales figures and on its sustenance over long period whilst  also haven been accused of production quality errors and technological errors but still, when it comes to luxury EVs, Tesla’s name tops the list. With the demand for EV’s only going to increase in the future, Tesla backed by its time-tested products alongside high quality is expected to continue to rule the EV space, at least in the near future.

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