Tesla (TSLA) Becomes U.S. Most Valuable Automaker, Passing GM

Tesla ()

Tesla ()

Can anything stop Tesla (TSLA)? The California-based luxury electric vehicle company, which calls itself the “Quickest production car on earth,” has just outpaced General Motors (GM) in market value — something I told you a week ago was poised to happen. Admittedly, I didn’t think it would come this quickly.

Tesla shares raced 3.26% higher Monday on strong volume, reaching yet another new all-time high at $313.73. In the process, Elon Musk’s fourteen year-old company briefly emerged as the largest automaker in the U.S. based on market capitalization, surpassing 120-year old GM. Whether TSLA maintains its lead remains to be seen. But if you’re a GM or Ford (F) shareholder, does that really matter?

The bigger story here is the enormous belief investors have placed in the promises Tesla CEO Elon Musk has made, which by contrast renders the slow-growing GM and Ford — despite dominating Tesla in total vehicle sales — to “used car” status. Reuters noted that Tesla’s market cap — which peaked Monday at $51.105 billion — is now the equivalent to $102,000 for every car it plans to make in 2018, or $667,000 per car sold in 2016. This compares to GM's market cap which is equivalent to $5,000 per car it sold in 2016.

Does it make sense? The comparison seems to imply there’s some irrational thinking going on in terms of investors’ confidence in Tesla. TSLA stock, which has already soared 46% year to date, besting the 5.2% rise in the S&P 500 index, continues to defy gravity. "As a car company alone, Tesla is crazy high valuation,” said Jeffrey Gundlach, DoubleLine Capital hedge fund manager, who oversees more than $105 billion in assets.

Gundlach, who sees more reasonable value in the battery component of Tesla’s business, is essentially saying Musk still has a lot to prove, including making Tesla more mainstream. And it’s for this reason Tesla investors shouldn’t even think about parking their shares. According to analysts Alex Potter at Piper Jaffray, Tesla can still deliver 17% additional gains in the next twelve months.

Tesla is still riding the momentum of its strong first-quarter delivery total, reaching 25,000 cars. On Monday the analyst raised its rating on TSLA stock to Overweight from Neutral and raised its price target to $368 from $223 per share. "In many ways, [Tesla] seems to play by its own rules," Potter wrote in a research Monday.

As evidenced by the strong stock returns delivered in 2017, those “rules” involve making investors rich. And investors should keep playing until those rules change.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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