What Tesla’s $100B Market Cap Says About The Company

Tesla will have an earnings call later today, and no matter what the news is, the biggest “number” on everyone’s mind when it comes to the American electric car company is the recently achieved market cap of $100 billion.

On a recent conference call with a large group of Tesla Inc. (TSLA) watchers and analysts, I listened closely for clues as to why the stock price has suddenly ballooned to the point that the day-to-day stock value for this 16-year-old, rarely profitable car maker that is currently producing just three models for sale is double that of General Motors (GM), which makes dozens of models from econoboxes to pickups to minivans to Corvettes. Again: It’s not a little more valuable than GM, it’s more than double the value, and having hit the magic $100 billion mark, it seems likely it will climb even higher. Worldwide, Tesla only trails Toyota (TM) in market cap ($233B).

It would be easy to dismiss Tesla’s stock surge and market value by saying “anything is possible in the stock market” (and that is certainly true), but as I listened to seasoned market watchers and MBA analysts prattle on about production counts, the China situation, the German gigafactory and all else, the only comment that really struck me was when some guy with a lot of degrees and a fancy title at some well-known institution said “I don’t get why the stock is this high. I just don’t get it.”

Indeed, how is this possible?

I’ve been watching Tesla and it’s colorful leader, Mr. Elon Musk, since I first saw an original Roadster in the TV station parking lot where I worked in 2009. I had read about them, heard about them, but back then it seemed like a chancy proposition at best. How could a little EV startup succeed against the world’s automotive megaliths that seemed dead-set against electric cars of any sort? Plus, there was that little financial crisis happening at the same time. Good luck, Tesla.

And yet, here we are. I’ve been a car and motorcycle guy – a gearhead – all my life, and while I don’t own a Tesla, they have been on my radar ever since that parking lot encounter. I believe there are some intangibles the hard numbers folks and analysts overlook when they muse on how the electric car company run by what seems like an occasionally crazy person can more than double up the market value of one of America’s industrial and financial icons.

A Clear And Relatable Vision

Let’s face it, Elon knows what he wants, and he wants you to know it too. He wants to make bonkers fast electric cars (and trucks and semis), he wants to build Mars settlements, beam the internet from the heavens, slather solar shingles onto every rooftop, and he doesn’t cloak his goals in corporate BS mission-statement speak:

Tesla’s mission is to accelerate the world’s transition to sustainable energy. Tesla was founded in 2003 by a group of engineers who wanted to prove that people didn’t need to compromise to drive electric – that electric vehicles can be better, quicker and more fun to drive than gasoline cars.

That’s pretty damn concise, and people relate to concise. And truthfully, “vision” is likely the wrong word here, it should probably be focus. But because that focus cuts across the multiple industries Musk is involved with that clearly play into each other, it comprises a vision of a future with perhaps a few less big problems – like issues surrounding oil, energy and connection – and a return to a state of achievement that can’t be achieved politically, but can only come through often painful and personal perseverance. Tesla has often represented a journey from the valley of “try” to the plateau of “do,” and to a degree, that may be why there’s a bit of a cultish aura around the company in a vein similar to Apple when Steve Jobs was at the helm. People see a clear determination: the willingness of a billionaire to sleep on a couch at the factory, to get his hands dirty solving the problems instead of phoning it in, delegating the hard choices or just giving up the ship. Is it micromanaging? Debatable. But the problems got solved on the ground with direct action by the PIC. It speaks loudly to fans and followers.

Production Levels

Elon and his team have missed a few production schedules in the past and things were looking pretty grim during the Model 3’s 2018 “production hell.” But that seems behind them now, and the cars are rolling off the line both in America and China at massive plants that are filled with workers both human and robotic. The Tesla gigafactories now form the production baseline capacities that were missing until the Model 3, and now that two are in place with a third coming in Germany, it would appear the worst is behind Tesla in terms of making vehicles en masse.

The Model Y crossover is due up next (and possibly sooner than expected), and several people I know passed on the Model 3 for the Y since here in the Northwest, roomy snow-capable SUVs are more in demand than sedans. Will the Model Y be a hit? I’ll gamble yes, and while it may rob some sales from the Model 3, it’s such a close cousin it’s fair to say it’s almost the same car. With Model 3 inventory essentially sold out (current wait time for a Model 3 is six to nine weeks), who’s robbing from who? And with several new models waiting in the wings, including the halo Roadster supercar, the alt-think Cybertruck and the electric semi, Telsa’s lessons learned on Model 3 production ramping will likely smooth those launches. Nothing is for certain when it comes to production, but it appears the teething period is over.

Real Differences

I first drove a Model S P85 in 2013, before the dual-motor models came out, and even then, the driving experience was a revelation, especially for a guy with a predilection for very high-powered motorcycles: Just pure instant motion, massive acceleration, no gear gaps, no lag, and little noise. It was borderline otherworldly. The Model S is a premium-priced car to be sure, but even then, it was just so different and so much better than anything I’d driven before, and I’d piloted many a “premium car” at equal or higher price points.

Today, that same EV experience I had is now trickling out to the masses as family and friends get seat time in some of the half-million Model 3 sedans now on the road. Charging stations are becoming more common and range numbers continue to climb. A stylish, innovative, comfortable American-made car that goes fast, handles well, carries five people plus luggage and never needs gas? Doesn’t need oil changes? Or tuneups? Or trips to the DEQ? And charges up at home while you sleep? Americans, so married to their gas-powered SUVs, are beginning to get the picture – and investors know it.

International Appeal – And Production

Tesla is currently the top producer of mainstream electric cars worldwide, which has spurred other carmakers, notably Nissan, Ford, Mercedes-Benz, Chevrolet, Fiat, BMW and others (let alone the massive shift to EV production in China) to spool up design efforts and offer their own cars, which creates an EV-hype feedback loop that again benefits Tesla since the dominant question perspective buyers ask first is: How does the car stack up to a Tesla? Often, the answer is “not that well,” especially in terms of performance, price and design.

Worldwide, Tesla cars are seen as upscale, smart, environmentally “better” and generally a cut above. And since the only major change Tesla has to make is right or left side drive configuration depending on the country (instead of having to meet varying emissions standards and so forth), international production is more streamlined. It’s unlikely the German Gigafactory is going to come online in anything close to the scant ten months it took to take the China plant from dirt to production, but once it does get going, Tesla will be churning out cars in BMW and Mercedes’ back yard for German autobahn pilots and the Europlex in general. America, China, and Europe: Covered.

Listening To Users

While comparisons of Tesla to Apple are rife in this story, they are warranted. Steve Jobs was known to personally answer user complaints and questions, if not exactly in an overly friendly way, but he was at least willing to be involved at a personal level. Elon uses Twitter much to the same effect, but often in a more engaging, fun way. Does chatting up fans on Twitter boost stock prices? Probably not, but demonstrating goodwill to fans and followers – even if they might be kids, let alone not knowing if they are Tesla owners at all – builds the positive perception of Tesla in the marketplace, and that is definitely an intangible of high value. My own teenage son, a gearhead in his own right, has only one rig in mind for when it comes time for him to buy a vehicle: A Tesla Cybertruck. That purchase is likely a decade or more away, but he’s already all in and saving up his money for the big day. I didn’t tell him to do it. He just follows Elon Musk on Twitter (and elsewhere) and loves what sees.

The built-in ability of every Tesla to receive over-the-air software updates gives Tesla cat-like reflexes to respond to users ideas or complaints, and implement software tweaks or new features that supercharges the cars’ abilities in multiple areas, from Autopilot self-driving improvement updates to motor and battery performance increases to things like the novel Sentry Mode video capture system. No other major carmaker is doing this or at least not at this level, although they certainly will be in the future. It’s just one more area of innovation (and perhaps common sense) where Tesla has a massive lead, and consumers love it since they are already familiar with the concept of software updates for their computers and phones. Why not for cars and everything else? Why not indeed.

A Sense Of Fun

Perhaps as a result of Elon’s clear capacity to not take himself too seriously – and to push the boundaries of what’s “expected” from a product – Tesla cars are not just fun to drive, they’re fun to own. Take a look at this tweet:

That’s the CEO of Tesla telling a fan via Twitter that their favorite video game, Minecraft, is coming to the center screen of the company’s cars. And that it’s a priority. It joins a raft of new and classic video games already in the cars that drivers and passengers can play while the car is charging up – or just while parked. I don’t see legacy automaker CEOs telling their customers via any social media channel that cool stuff like video games, dancing car easter eggs or Blade Runner-themed anything is forthcoming from their factories – to say nothing of the zero-cost publicity value of tapping into the hivemind of the Minecraft collective.

In our modern world, it’s all too easy to be cynical and negative, especially as we get older. The title of CEO is rightfully viewed as a label that puts untouchable people in a tower above the rabble. With Elon, it never seems that way. He’s listening to, thinking about, and enjoying the same things you enjoy. You want video games in your car? Great idea, so do I, let’s do it. He’s the Peter Pan CEO who never lost touch with his inner 10-year-old and all the dreams of youth: Landing on Mars, making electric cars that drive themselves, creating a world filled with unlimited energy and potential – and having fun doing it, despite the challenges and obstacles. Who would you rather buy a car from? That guy, or some cloistered, unreachable Oz looking down from the top floor of some skyscraper? Easy choice.

Chutzpah

I’ll probably always remember the moment the Cybertruck rolled onstage on that November day. Like millions of others I was watching a livestream of the event and when the Cybertruck appeared, I was nearly shocked out of my shoes. I had tangentially predicted such a thing might happen in another Forbes post, but I honestly was not prepared for it. To reiterate, my initial reaction was that it was some sort of joke, Musk being known for a good sense of humor. But no, it was the real deal, an 80s sci-fi movie prop made real, a truck perhaps Homer Simpson would design given the chance. On top of that, the “bulletproof” window feature reveal went terribly wrong and Musk fairly stumbled through the event, making what seemed like an unqualified disaster of a reveal look like an ad-libbed high school drama club production. For seasoned car industry watchers, it looked like a complete debacle compared to the slick, well-rehearsed model reveal presentations put on by most carmakers.

Except.

Except my son, age 13, was enraptured by the whole event. He didn’t know a vehicle reveal from shinola, so for him it was honest, funny, and all the more impressive. He prodded me to put a deposit down immediately. And that week, when the shock wore off, the reconsiderations began, as did the hundreds of thousands of pre-orders.

And that’s where Elon and Tesla’s perhaps biggest attribute becomes apparent: Chutzpah, that nebulous something that is part courage, part intuition and part stubbornness. It’s a theme running through Tesla products. It’s the power output of the family-friendly Model S that embarasses exotic supercars in a drag race, the kooky-cool falcon doors of the Model X, the striking zen minimalism of the Model 3 interior, the gobsmacking sci-fi styling of the Cybertruck. At Tesla, new features are driven by Elon, all kinds of see-if-it’ll-stick ideas, owners’ input and a vivid imagination, not focus groups and carefully considered metrics. It’s an unorthodox way to design a vehicle in our overly-measured business climate, but that’s also why it’s working.

$100 Billion Later

This may seem like a love letter to Tesla, but it’s not, it’s just observation. The company has had its issues with meeting production schedules, turning a profit, worker safety, initial quality control and self-driving tech that might be doing a bit too much of the driving for some people. More challenges certainly lie ahead, including turning a profit for a year instead of just a quarter or two, a possible standoff with a heavily unionized German workforce and a U.S. administration that so far has not been supportive of moving away from a fossil fueled economy.

But the fact remains that more than a decade after those first Roadsters started rolling out, Tesla is still the only company cranking out hundreds of thousands of electric cars that people are lining up to buy. Ever since the Model S sent a shockwave through the automotive industry, Tesla still has no real competition from…. anyone. The “Tesla killer” is always just around the corner, a corner which no one seems to be able to fully turn. The Nissan Leaf, Chevy Bolt, Fiat 500e, Porsche Taycan, Jaguar iPace, Kia Soul EV, Mercedes-Benz EQC, Audi e-tron, BMW i3/i8 and the other small-batch specials from established carmakers are all good electric cars, but most quickly pale in terms of performance, price and design to even the base Model 3. The few models that do compete are typically high-end products with limited availability, limited appeal and high prices. Maybe the Ford Mach E or the Rivian rigs will finally put up a fight, but for now, they are at least a year away from actual delivery in meaningful numbers and in electric car years, that’s a hell of a long time and several hundred thousand more Teslas in consumers’ driveways.

Perhaps that’s one more reason Tesla stock keeps climbing.

Full disclosure: I do not own a Tesla product or any Tesla stock.