Tesla: The leader that keeps on leading
Tesla (NASDAQ: TSLA), is an electric vehicle, software, and renewable energy company that focuses on building an ecosystem of sustainable products and services for consumers.
After great quarterly results and a huge order from a rental vehicle company known as Hertz, estimated to be worth approximately over $4 billion, Tesla shares began skyrocketing, sending Tesla’s market capitalization to now over $1 trillion.
In just October alone, Tesla shares rallied over 43% which has sent Wall Street scratching their head wondering why the valuation is so high.
In the third quarter, Tesla reported revenue of $13.76 billion which beat analyst estimates of $13.63 billion. These revenue figures are dramatically up year-over-year, representing 57% growth.
On top of this, Tesla also reported phenomenal adjusted earnings per share results of $1.86 versus analyst estimates of $1.59. Compared to the same time last year, it was only $0.76. Analysts were surprised to see a sudden increase in profitability because of Tesla’s history of having a low-margin business. That being said, the tides are shifting as consumers look towards purchasing a Tesla for their next vehicle, leading to higher profitability.
These quarterly results were also mixed into the news announced prior of over 241,000 vehicles delivered in a single quarter, which also grew 73% year-over-year.
Currently, a majority of Tesla’s revenue is generated from electric vehicle sales. However, this will likely change as subscription-based software packages begin to be introduced. This means that Tesla is on its way to diversifying its revenue streams, further proving the higher valuation.
Why It’s Important
The purchase of 100,000 vehicles by Hertz was a strategy to revamp its business model to bring shareholders value over the long term. EVs require far less maintenance than traditional internal combustion engine vehicles and cost significantly less to recharge, which should contribute to profitability.
However, this also massively benefits Tesla. Now, thousands of Hertz customers will be stepping into Tesla vehicles, providing free word-of-mouth advertising for Tesla, potentially bringing demand even higher on its already heavily demanded vehicle fleet.
Tesla has never had a demand problem, more of a production problem as they simply can’t make enough vehicles fast enough for their eager customers. This is a great problem to have, which amplifies the excitement even further.
Factories in both Texas and Berlin are still under construction but should be producing vehicles sometime next year which will likely spike revenues higher.
Despite Tesla’s $1 trillion market capitalisation, many investors believe there is still growth to be made in the next decade. This is a possibility as Tesla hasn’t yet expanded its energy and full self-driving business segments to their full potential, which may lead to an impeccable amount of revenue and consistent profitability in the years to come.
Overall, Tesla is proving its valuation every quarter by beating estimates, growing revenues, and earnings at high multiples. Investors who previously couldn’t comprehend Tesla’s mission are now beginning to understand why the share price is now over $1,000 as the lens becomes increasingly clear day by day.
Not Investment Advice
Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.