The Tesla share price has been charging upwards! As a result, the company has now earned its badge to join the elite trillion-dollar club.
Here’s all you need to know about the humungous valuation, including how and why this electric vehicle (EV) stock managed to blast off recently.
[top_pitch]
What does the Tesla trillion-dollar valuation mean?
This trillion-dollar figure is based on Tesla’s market capitalisation.
To calculate a company’s market cap, you multiply the current price of a stock by the total number of shares. At the time of writing, Tesla’s individual share price is $1,024 (£740) and the total number of shares outstanding is 990 million.
So, if you multiply their share price by the number of outstanding shares, that gives you a total valuation of $1,013,760,000,000!
How did Tesla come to be worth a trillion dollars?
It’s not that long ago that the Tesla (TSLA) share price was hovering around $600 (£434). So why the massive jump to over $1,000 (£723) per share?
Here are a few reasons that led to the growing stock price:
- The recent market recovery has given the shares a huge boost. As a highly volatile growth stock, Tesla shares tend to take more damage during downturns but then have more upside during uptrends.
- Recent issues with fuel supplies and a general push towards electric vehicles have also been playing right into the hands of Tesla owner Elon Musk.
- It was just announced that Tesla has done some wheeling and dealing with car rental company Hertz to sell them 100,000 vehicles.
The deal with Hertz is the largest ever rental car order for electric vehicles! This news was what gave Tesla the final push into trillion-dollar territory.
Who else is in the trillion-dollar club?
Tesla now finds itself amongst an elite set of businesses. The other members of the esteemed trillion-dollar club include household names such as:
- Apple (APPL)
- Microsoft (MSFT)
- Amazon (AMZN)
- Alphabet (GOOGL)
Tesla has zoomed into pole position as the first-ever car maker to join these big technology companies.
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Is the trillion-dollar Tesla valuation justified?
This is where you’ll see a lot of debate among investors. What’s strange about Tesla is that the company tends to be valued more like a tech company than a traditional car manufacturer.
It’s really interesting that Tesla is the first car maker to join the trillion-dollar club. This is because it makes and sells nowhere near as many cars as other leading brands such as Toyota and Volkswagen.
So if you were to value the company simply as a car business, this trillion-dollar valuation is somewhat far-fetched. Because in order to justify this valuation, they’d have to shift a hell of a lot more cars than they do right now.
But Tesla supporters will argue that you can’t value the company like other brands. It’s spearheading the EV movement and its products and tech are far superior to its competitors’. This means it has a massive advantage in an industry that is only going to continue to grow over the coming years.
How can you invest in the trillion-dollar club?
The Tesla share price may be out of gas in the short term after such a steep climb. But if the company continues to deliver on its promises, it could still be a great long-term investment.
Using a share dealing account, you can easily buy shares in these trillion-dollar businesses. Another option is to invest in broad funds like the S&P 500 index, which will also give you exposure to this gang of highly-valued firms.
Holding growth stocks in a stocks and shares ISA can also be a great move. This is because you won’t have to pay any tax on gains, even if the share price keeps soaring!
Just remember that all investing carries risk and that more volatile investments can lose or gain a lot of value in a short space of time.
