Tesla’s giddy fans should calm down

New York — Back when Tesla delivered 95,000 cars to customers during the spring quarter of 2019, the stock price was languishing at about $235 and Elon Musk’s electric car company was valued at “only” $40bn. Fast forward a year and the shares are now priced at more than $1,200. With a market capitalisation of $224bn, Tesla has surpassed Toyota as the world’s most valuable carmaker.

Musk’s company sold 7,650 more vehicles than analysts expected during the second quarter, and the stock price jump equates to about $2m of added shareholder value for each of those additional sales. This seems a little excessive given that a Tesla Model 3 sells for less than $40,000, and the profit margin on those cars is pretty slim.

Rather, the investment case is a long-term one: that it will come to occupy a dominant position in clean transport and energy in the years ahead. That explains why the shares trade at 320 times its analyst-estimated earnings this year. But subsequent evidence that Tesla can sell cars for more than it costs to produce them has transformed the mood — and with it Tesla’s stock price.

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