Tesla’s valuation has surpassed the $1 trillion mark. What helped the electric vehicle maker to achieve this milestone?
What’s New?
The valuation of Tesla surpassed the $1 trillion mark on Monday. Earlier, Apple, Microsoft, Amazon, and Alphabet had reached a $1 trillion valuation, and this makes Tesla the fifth company to join the club of trillion-dollar companies. Shares of the electric car maker jumped 12.6%. The jump in share price led to Elon Musk’s personal wealth going up by $36.2 billion in one day. Musk’s net worth of $288.6 billion is now greater than the market value of Exxon Mobil Corp. or Nike Inc.
Why This Happened?
This move comes after Hertz, a major U.S. car rental company, placed an order for 100,000 Teslas by the end of 2022. The rental car firm will pay $4.2 billion over the next 14 months. Sources told Bloomberg that this is the single-largest purchase ever for electric vehicles (EVs). Hertz interim Chief Executive Officer Mark Fields told Reuters, “Electric vehicles are now mainstream, and we’ve only just begun to see rising global demand and interest.”
Hertz said that Tesla’s Model 3 sedans will be available to rent at Hertz locations in major U.S. markets and parts of Europe beginning in early November. Customers will have access to Tesla’s network of superchargers, and Hertz is also building its own charging infrastructure.
The Significance
The news of selling cars to rental companies is not something that is often boasted by many automakers. The reason for that could be, most of the times, the cars are sold at discounts to unload slow-selling models. However, Musk confirmed on Twitter that Tesla didn’t give Hertz a discount on the order and the cars were sold at the “…same price as to consumers.” This shows how EVs are becoming mainstream and how Tesla might capture a large market share in the future.
The other important thing to note here is that the market cap of Tesla is worth more than the combined market cap of the nine largest carmakers around the world, including automotive giants such as Volkswagen, and Toyota. The interesting thing here is that Tesla makes up less than 1% of global car sales. In 2020, Tesla produced about 500,000, which is far lower than the likes of Volkswagen which made 9.3 million, Toyota’s 7.2 million vehicles, and the Renault-Nissan-Mitsubishi Alliance’s 6.8 million vehicles.
Despite Tesla being viewed as a technology company in Wall Street, Tesla accounts for the majority of EVs sold in the U.S., including 79% in 2020, according to IHS Markit. A Morgan Stanley report on July this year said that Tesla still has a solid lead in the global EV market share. The report said that Tesla has a 21% market share as compared to General Motors at 12% and Volkswagen at 10% battery-electric vehicle market share.
In The End
We can see how Tesla is enjoying a major portion of the EV market share, but experts told CNBC that this will change soon. Because other automakers such as General Motors, and Volkswagen are also shifting to build EVs over the next decade or so. Hence, there is a high possibility that these companies will eat into the market share of Tesla.
IHS Markit associate director Michael Fiske told CNBC, “In a growth market, it’s extremely challenging to maintain majority market share, regardless of industry. … As we start to move toward a larger and really significant number of manufacturers that are going to be playing in the space, Tesla has to lose share.”
So, Tesla’s growth might be challenged by the other automotive giants, but for now, Tesla seems to be enjoying the spotlight due to more consumers shifting to or preferring EVs, as they are considered to be environmental-friendly. Hertz’s deal with Tesla will also help the company attract more customers and boost its revenue, as it had emerged out of bankruptcy only in June. If more rental car companies as well as ride-share firms like Uber, Lyft begin offering EVs, it will help the environment, and also boost the EV market. We have to wait and see how this deal helps Hertz, and whether more rental car firms join this list and start providing more green options for consumers.
