Is Elon Musk’s vehicle manufacturing empire set to sink or sail within the next few years?
Tesla’s estimated worth has skyrocketed past other vehicle manufacturers, even those who have been in the industry for much longer. With Elon Musks’s company now attracting so much ‘hype’ and media speculation, it has the market split into two contesting sides. Some believe that the stock is seriously overvalued; others stated that it has significant future potential, which is only just beginning to be unveiled.
Despite experiencing surprising fluctuations, the Tesla share price has continued to soar since the company’s IPO. From June 2010 up until June of 2018, Tesla’s stock valuation managed to rise from $23.83 to an astounding $383.
The reason why Tesla has been successful in securing such a high valuation recently is because of the unique and innovative approaches of the brand. Tesla is aeons ahead of other carmakers in the electric vehicle industry, who take on a more traditional tactic towards their vehicle designs and manufacturing.
However, can we really take the vehicle designs of a man who smokes weed on the radio seriously? Much of the internet has argued against it. Musk’s failed cyber truck demonstration in November led many critics to chastise his brand’s futuristic and unconventional car designs as impractical and less than ideal.
Just eight minutes into the demo, the whole fiasco went horribly wrong as a large metal ball thrown at one of the truck’s armoured windows immediately caused the glass to shatter. Besides causing Elon Musk much-unexpected embarrassment, it also caused the share prices of Tesla to plummet by as much as 4.1% overnight. It wasn’t long before the internet was releasing memes of Elon having brought to life the cyber truck design he had allegedly drawn up at age 5 in school.
However, even though Tesla is often criticized for its risky approach to manufacturing, it is noted that their designs often attract high levels of publicity and interest from investors. There is also recognition of Tesla being more of a technology company rather than a carmaker, which has led to the rapid growth of the firm.
Tesla’s meteoric rise makes the brand even more costly to own than Amazon, Apple, and Netflix, according to Morgan Stanley’s estimates. However, the brand’s project valuation and growth are expected to rise even higher above these other technology companies across the next five years.
Tesla’s EV/EBITDA ratio demonstrates the profit the company makes before taxes, interest, depreciation and amortization are calculated. The company’s high premium shows that potential investors are more interested in its developmental potential rather than its current earnings.
Even before Tesla is due to complete the construction of its fourth Gigafactory in Germany, the ratio of potential earnings is just too high to be accurately measured. At the beginning of this year, Tesla shares skyrocketed as Argus Research increased its target price for the stock by almost $250.
Just a few days later, due to the recent outbreak of the Coronavirus, Vice President of China Tao Lin stated that car deliveries overseas would be delayed. The earlier news of Tesla shutting down its Shanghai factory only increased investors’ fears and resulted in their stock value falling by 17.2% over just one day.
Despite the pitfalls, the Tesla stock was able to recover quickly and ended in the same week with an increase of 17% and its value up by 75% since the beginning of the year. It seems as there is no concrete prediction of where Tesla’s value could be in the future.
Catherine Wood, Ark Investment CEO, says: “Tesla should be valued somewhere between $700 and $4,000 in five years.” This varied estimation is a primary example of exponential growth, and although it has seen a number of production setbacks, Tesla is benefiting from its leading position in the electric vehicle market.
Many analysts, although, have warned young investors about the dangers of the Tesla Bubble. The brand’s reputation is gathering tons of attention from potential market traders but has caused experts to reflect on the history of similar high-flying stocks that crashed decades ago.
Brian Johnson, a Barclays auto analyst, is aware that his financial advice may trigger the “Ok, boomer” response from a pool of hungry young investors. He says that Tesla’s recent success “brings to mind NASDAQ c. 1999”, which were similar high-flying stocks that tragically crashed over 20 years ago. Johnson went on to argue that Tesla is “fundamentally overvalued” before forecasting a 65% plunge in the company’s stock.
Many traders will support the theory that the main reason why Tesla is such a bubble is because of CEO Elon Musk himself. The company’s share value is not the direct result of a financially secure company. Instead, it is the result of a smart leader with an abundance of original marketing strategies. His repetitive ploys for securing media attention only continue to take the brand and its share prices to new and dizzying heights.
Manisha Bhanot
