Electric carmaker Tesla continued its extraordinarily successful start to 2020 after its share price gained over 4% yesterday to take its market capitalisation to over $100 billion. The company’s share price has been quickly climbing since it revealed an unexpected third quarter profit and delivered more vehicles than expected. Stock market analysts subsequently raising their ratings on Tesla’s stock has seen a wave of new investors pile into the EV specialist with ambitions in driverless cars technology.
The Tesla share price achieved an intraday high of $583.95 during yesterday’s Wall Street session, before closing at $569.56 for a 4.1% gain. That took the share price comfortably above the $554.8 threshold required to value the company at over $100 billion.
Tesla’s recent gains leave only Japanese automobile manufacturing giant Toyota on a higher valuation, after it surpassed Volkswagen’s current market capitalisation of $99.5 billion. Tesla finished yesterday worth $103 billion. General Motors is the next most valuable U.S. car maker but, at $50 billion, is now worth less than half of Tesla, despite its sales, and profits, far outstripping those of its upstart rival. Tesla has also now beaten the record valuation ever held by a U.S. carmaker, which was previously Ford’s $80.8 billion, set back in 1990.
Tesla’s recent surge can be attributed to the success of its first mass-market car, the Model 3. After a shaky period over which several supply line and manufacturing problems were ironed out, production has been quickly increasing and sales strong. However, the company’s numbers are still only a fraction of those typically turned over by the big traditional car brands. But investors are betting on Tesla’s market share of the future EV-dominated car market and are clearly now confident that the company is well-positioned to lead the way.
Co-founder and CEO Elon Musk stands to benefit more than most by proving his doubters wrong (Tesla holds the dubious honour of being the most shorted stock in history). If he manages to maintain Tesla’s valuation at an average of over $100 billion over the next six months, or any six months, he will unlock share options that could be worth up to $55.8 billion.
The potential for a mammoth pay day was agreed between Mr Musk and Tesla’s board in 2018. The agreement sees him awarded share options worth 1% of Tesla for every $50 billion the company adds to its valuation, while under his leadership as either chief executive or executive chairman. He will unlock the total bonus package available to him by taking Tesla’s valuation to $650 billion, while hitting 12 out of 16 financial targets.
However, not all shareholders are happy with the largesse of Musk’s bonus structure, despite the fact that him reaching the targets set would represent a monumental achievement. Not to mention the increase in value it would see investors realise on their shares in Tesla. The deal is currently the subject of legal action brought by shareholders, who argue that it represents a failure of fiduciary duty by board members. Tesla are contesting the claims, which the company says are ‘without merit’.
The ongoing legal case is unlikely to cause Mr Musk much loss of sleep. The supremely confident entrepreneur announced at the time he struck his deal in 2018:
“I actually see the potential for Tesla to become a trillion-dollar company within a ten-year period.”