Tesla’s share price reportedly increased by seven-fold in 2020, closing at $649.88. The startling expensive price of Tesla stock has economists debating the true value of Tesla’s shares.
There are two main mysteries as to why Tesla stock is priced so high. The first mystery is simply the fact that it is an auto manufacturer company. High stock prices are typically enjoyed by technology companies who sport extremely different business models. Tesla’s shares are valued at one thousand times its revenue while other companies’ shares are valued significantly less relative to their revenue. The second mystery is how Tesla’s market value is greater than five of the top auto manufacturer companies (GM, Ford, Toyota, Volkswagen, and BMW) combined. Since a company’s stock value typically reflects its overall performance, many are confused that Tesla’s stock price far exceeds its competitors despite Tesla not being anywhere near dominating the automobile industry.
Due to the unknown reasons why Tesla stock is so unexpectedly high, many economists are debating about the true worth of Tesla stock. Adam Jonas, an analyst at Morgan Stanley, estimates the stock price at $540. Jonas believes that Tesla’s current valuation is well-deserved. Considering the lack of belief in investors and the stock’s rapid rate of increase, Jonas states that “the stock will certainly trade above any analyst or investor’s fair value estimate.” Contrarily, Ryan Brinkman, an analyst at JPMorgan, only values Tesla’s stock at a mere $90. Toyota and Volkswagen combined to sell 22 million vehicles while Tesla only sold 500,000 in 2019. Therefore, Brinkman reasons that it is highly unlikely that Tesla’s true valuation is higher than Toyota and Volkswagen’s stock prices combined. However, Brinkman clarifies that he still believes that Tesla will dominate the automobile market in the future, “but they will need to be growing even so much more to justify the current share price.”
Since the stock market can only be estimated and not determined, both Jonas’ and Brinkman’s valuations should be taken lightly. Only time can reveal the true valuation of Tesla’s stock price.