Oops! It appears that you have disabled your Javascript. In order for you to see this page as it is meant to appear, we ask that you please re-enable your Javascript!

Tesla stock gains 20 percent for second day in a row

A photoshopped image of Elon Musk emerging from an enormous pile of money.
Aurich Lawson / Duncan Hull / Getty

The price of Tesla stock soared by 21 percent on Tuesday, rising above $940 for the first time.

Tesla’s value has more than doubled since the start of the year—and quadrupled since last September.

What’s driving the dramatic rise in Tesla’s share price is not clear. Last week, Tesla reported solid but unspectacular profits of $105 million for the fourth quarter of 2019. A number of Wall Street analysts have upgraded their share price targets for Tesla in recent weeks, but Tesla’s value is now far above most analysts’ estimates.

Tesla’s latest share price values the company at more than $170 billion—a stunning figure given how few cars Tesla sells.

Tesla delivered 367,500 vehicles in calendar year 2019. GM sold about 20 times as many cars last year, yet Wall Street currently values GM around $50 billion—a third of Tesla’s market capitalization. Tesla is also worth more than Ford, Volkswagen, and a number of other major automakers. Factoring in the firms’ debt changes the picture only modestly; Tesla is valued far more highly, relative to its sales or profits, than other automakers.

The reason, of course, is that investors think Tesla is going to grow a lot faster than other carmakers—and possibly enjoy higher profit margins as well. Tesla currently commands a large share of the tiny market for electric cars. Tesla bulls are betting that the electric car market as a whole will grow rapidly, while Tesla will hold on to a significant share. That could easily lead to Tesla selling millions of cars annually before the end of the decade. Only time will tell if this bet is right.

Meanwhile, the soaring stock has set Musk up to receive some generous stock options. Under a massive performance-based pay package negotiated in 2018, Musk is supposed to receive stock options representing 1 percent of Tesla shares if the company’s market value rises above $100 billion—something it did last month. He’ll get another 1 percent if the stock rises above $150 billion—a milestone it reached on Tuesday.

Musk will only get his awards if the stock price stays high—specifically, the average stock price must be above these levels over a six-month period. Musk also has to hit specified revenue and profit targets, but the company has said it has already reached those milestones.

The options have a strike price of $350 per share, so if Tesla’s stock price stays above $900, the two stock option awards will have a combined value of more than $1 billion. Musk is also Tesla’s largest shareholder, so his wealth has already grown by billions of dollars thanks to Tesla’s rising share price. Forbes now estimates that Musk is worth more than $40 billion.

Correction: This article inaccurately said that electric vehicle sales were down in 2019.

Leave a Reply

Your email address will not be published. Required fields are marked *

Top