Tesla has now joined the elite trillion-dollar-valuation club, but it has done that as the member with the lowest revenue. The electric-vehicle manufacturer’s shares have so far run past many milestones in recent weeks powered by a gush of positive news. Among the positive news is reaching a rarefied $1tn (€860bn) in market value on October 25.
This surge further helped in boosting sentiment among the investors that are betting on Tesla’s possibility for massive future growth as electric vehicles become mainstream and replace petrol-driven cars.
Nonetheless, unlike all its trillion-dollar peers, the carmaker’s valuation reached the level before its revenue could reach the $50 billion mark. Although Tesla is now the fifth-largest firm trading on the S&P 500 Index when ranked by market capitalization, it is a distant 89th place when ranked using last year’s yearly revenue.
Data shows that it is preceded by Capital One Financial Corp that had $31.6bn in revenue in 2021 versus Tesla’s $31.5bn and is now valued at $75bn. The firm that has the largest revenue on the index is Walmart Inc, which recorded a staggering $559.2bn in revenue which is significantly more than its valuation of nearly $417 billion.
Wedbush analyst Daniel Ives said:
“If you look at Tesla’s revenue for the next year or so, valuation looks stretched.”
Nevertheless, Mr Ives’s $1,100 price target on the Tesla stock offers the chance for the firm to capture a huge share of the EV market over the coming 5-10 years, along with huge margins, according to the analyst.
Tesla’s valuation milestone was achieved as car-rental company Hertz Global Holdings placed a huge order for 100,000 of its vehicles. This move indicates that electric vehicles are here to stay and gives the bulls a lot of confidence that Tesla’s explosive and sky-high valuation is sustainable too.
Oanda analyst Edward Moya wrote on October 25:
“Wall Street is starting to believe the skyrocketing move with Tesla’s stock price is nowhere near over since Tesla has a massive lead in the EV space and improving growth potential as the US, European and Asian markets for electric cars grows.”
The Tesla shares spiked by up to 6% on October 26, after closing up 13% the previous day. The firm’s valuation now hovers around $1.1 trillion. In that context, the last annual revenue is significantly lower than that of the social media giant, Facebook, which joined the trillion club earlier in the year before dropping back below that prestigious level. Thus, this scenario gives the car manufacturer a very expensive price-to-sales multiple.
The electric vehicle maker’s shares are now trading at 21 times its sales, with the same ratio hovering at about 8 times for Facebook and estimated to be nearly 6.6 times for the NYSE FANG+ Index.
Tesla also has a huge debt load, which puts it in 162nd place when it is ranked by 2021’s total debt. For 2021, the company reported total debt of $10.1 billion as of September 30. The global head of market research at Forex.com & City Index, Matt Weller, said:
“Looking at current valuation multiples and market share for Tesla has been a loser’s game for years.”
Nonetheless, Mr. Weller said that at some point, maybe as more competition enters the market and rates of interest begin to rise:
“investors will start to question whether the company will be able to deliver on its massive promises”.