Tesla’s share price is typically not something we pay attention to, as like most stocks, the currently traded price rarely reflects what’s actually happening at the company. Share holders are after returns, so they’ll likely chase what’s perceived as hot, rather than watching the fundamentals of a company as it makes great business decisions that could increase profitability over the long term.
At the time of writing Tesla’s share price is US$537.92 per share, only a couple of weeks ago we were talking about it breaking through the US$420 price Musk had referenced during talks to take the company private. Since then, shares have continued to surge and that translates to an overall market cap of US$96.96 Billion dollars.
There are a few key elements driving this price rise that many don’t take the time to consider.
Record deliveries for Q4 2019
The whole game of the share market is to make predictions about your capacity to make what you sell, then work really hard and beat those expectations. In Tesla’s case, the metric is shipping vehicles and in the last quarter of 2019, they shipped more vehicles in 3 months than they ever had before in their existence. This was the first shot in the arm for the share price bump.
Record deliveries for 2019
At the end of 2018, Tesla made some predictions about the number of cars they could manufacture during the whole of 2019. They also beat this expectation. This doesn’t come from a few people pulling late nights, but rather a massive effort to scale out production while also finding efficiencies to speed up the rate of production.
Tesla were successful at both and made more cars in 2019 than any previous year, but some margin. Tesla as much as doubled the number of cars produced from a couple of years ago, again a strong indicator of the future ability of the company.
Gigafactory Shanghai completion in record time
Tesla’s story in China has been a good one. Understanding that importing cars to China would see them be slapped with 30%+ of tarrifs, the resulting price would make them unaffordable for many Chinese residents, a massive potential market for the company.
Tesla did what almost no other auto maker has, which is to work with the Chinese Government to build a production facility on-shore, to provide local jobs and service the Chinese market, minus the tarrifs. The massive factory construction happened inside a year which is an impressive construction story of its own, but the faster you build a factory, the faster you can sell cars from it.
Tesla will also build their batteries at the China Gigafactory which also has the potential to produce solar energy storage, helping the country meet its renewable targets.
Gigafactory Shanghai now producing Model 3s
While the weeks leading up to the end of 2019, there was speculation the first Model 3’s had already rolled off the production line, we have now had official confirmation Model 3s are leaving Gigafactory 3 and are being delivered to customers.
Right now the production is ramping and we could see as many as half a million cars per year produced, virtually doubling the vehicle output of Tesla. This is only possible by leveraging the years of learnings accumulated from rapidly developing the Gigafactory 1 in the US.
Not resting (and giving the competition a chance to catch up), Tesla have started the land clearing in Germany to begin construction of Gigafactory 4. This further indicates that Tesla have a huge appetite to grow and expand their production across all corners of the globe.
Model Y about to start production
The Model Y is a mid-sized SUV, which is currently the largest selling vehicle segment in the world. This means Tesla has the potential to sell more Model Ys, than they do Model 3s which is kind of ridiculous to think about. There are some assumptions being made about the maintained rate of Model 3 production and that Model Y would simply add to, rather than borrow from, the same potential market.
As indicated by the sales figures across many different countries, the appetite for Tesla anything is strong. Even the controversial Cybertruck launch has now turned into a huge net positive for the company.
The market is waking up to Tesla’s lead
We haven’t even talked about the Tesla Semi which has one of the largest possible revenue sources once transport and logistics companies start to realise the economics of using an EV. The challenge will be the deploy Megachargers along the most common long-haul routes and once they’re driving themselves, also fight the legislation battles to enable trucks to drive longer than human shifts that mandate breaks, reducing profitability.
The 2020 Roadster will be a flagship performance car that will take on not supercars, but Hypercars for performance. This is likely to arrive in late Q3 or Q4 of this year.
Finally we get to one of Tesla’s absolute trump cards, their market lead in Autonomous Driving. One of the only companies that are using computer vision as their strategy to build a digital brain for your car, to replace the human one. While the self imposed ‘feature complete’ date of end of 2019 didn’t get hit, Elon has suggested that will be achieved ‘soon’. Once the car can manoeuvre low, mid and high speed area of our road landscape, it’s really down to solving the edge cases.
Right now it doesn’t feel like Tesla even has a close second in this race to convert our vehicles (of all types) to EV and enable level 4/5 autonomy.
The market is finally waking up to Tesla’s lead.