What’s Next for Elon Musk and Tesla Stock?

Tesla StockTesla Inc Overtakes GM and Ford in Market Cap

As Tesla Inc (NASDAQ:TSLA) races past General Motors Company (NYSE:GM) as the most valuable car company in the U.S., Tesla stock investors are over the moon. The company clocked a market capitalization of over $50.0 billion as TSLA stock ended at $312.39 on Monday. While the media, analysts, and investors are busy analyzing the rise of this cult stock, let us go through what is causing the rally and what comes next once the exuberance and momentum surrounding TSLA stock slows down.

The rise in Tesla stock is due to the future potential of Tesla Inc, since the current valuation cannot be justified based on the past performance of the electric car maker. Tesla’s performance pales in comparison to that of GM and Ford Motor Company (NYSE:F), which are profitable companies that sell millions of cars every year. Tesla sold a little over 25,000 cars in the last quarter, which was enough to spark a rally in TSLA stock as not many had expected the company to exceed the target.

But the stock market is always forward-looking and right now, investors are optimistic about the company delivering on its “Model 3” promise, which was causing the most distress on the Street. Moreover, the demand for electric vehicles is expected to continue rising as consumers keep searching for clean and green tech options.

The following chart shows the stellar rise in TSLA stock as compared to GM and Ford over the last few weeks.

tsla stock chart

Chart courtesy of StockCharts.com

Strong EV Sales Growth in March

The U.S. electric car sales data came out last week and the March growth for fully electric cars came out to be 134%. The Tesla “Model S” and “Model X” were the top selling models. Although the sales numbers are estimates based on the company’s quarterly statements, Tesla accounts for a high market share of U.S. electric car sales. If we exclude the “Chevrolet Volt” and “Toyota Prius Prime,” which are plug-in hybrids, the next fully electric car that shows impressive performance is the “Nissan Leaf,” which is ahead of the “Chevrolet Bolt.” (Source: “US Electric Car Sales Increased 89% In March,” EV Obsession, April 6, 2017.)

U.S. electric car sales accounted for 1.2% of all U.S. car sales, which is a new record for the U.S. EV market.

Sr No EV Model Mar. 17 Mar. 16 YTD 2017 YTD 2016
1 Tesla Model S 4700 2000 8800 6000
2 Tesla Model X 3900 1200 7500 2400
3 Chevy Volt 2132 1865 5563 3987
4 Toyota Prius Prime 1618 7 4346 23
5 Nissan Leaf 1478 1246 3287 2931
6 Ford Fusion Energi 1002 1238 2445 2751
7 Chevy Bolt 978 0 3092 0
8 BMW i3 703 332 1403 762
9 Ford C-Max Energi 662 610 1774 1450
10 Audi A3 e-tron 414 332 1201 907
11 Ford Focus Electric 407 110 691 257
12 BMW X5 xDrive 40e 397 313 934 839
13 BMW 330e 365 19 638 19
14 Volkswagen e-Golf 342 86 967 612
15 Kia Soul EV 171 79 440 220

(Source: Ibid.)

However, there have been concerns over the slowing growth in the Model S and Model X of late. Adding to the challenge is the number of automakers who are planning to introduce their electric cars in the coming months.

With the intensity of competition expected to rise, will Tesla Inc be able to maintain its competitive edge? The company may have the advantage of a “Supercharger” network right now, but the existing auto giants have the resources to build such a network in a couple of years. What happens next is anybody’s guess, but Tesla stock may take a hit once it becomes clear that there is a limit to the growth of the Model S, the Model X, and even the upcoming Model 3.

Rising Challenges for Tesla Inc and a Possible Sale?

Given the inevitable rise in competition, a good case can be made for Elon Musk to sell Tesla’s electric car business to a company that can bring strong synergy to the deal. It could be a technology behemoth like Apple Inc. (NASDAQ:AAPL), with strong financials and stronger interest in electric cars, or an auto giant like General Motors Company, with more than 100 years of experience in manufacturing automobiles.

However, it is very unlikely that Elon Musk will take this path. But the major concern is that Tesla’s car business is unlikely to thrive on its own. Given the strong growth projected in the company’s energy storage business, Tesla stock shall benefit highly if it focused on that part of its business.

The company’s solar energy business shall also add to the existing challenges facing Tesla Inc and will bring down TSLA stock sooner rather than later.

Given the fact that Elon Musk shall become more involved with SpaceX as the space company grows in the coming years and would also be taking out time for his new ventures, Tesla stock investors should weigh the high risks that this entails.

The Bottom Line on Tesla Stock

There is a wild frenzy surrounding Tesla overtaking Ford and then General Motors in market cap and emerging as the top car company in the U.S. But the fact is that Tesla is no longer just an electric car company. Everything changed when Elon Musk decided to acquire SolarCity Corp (NASDAQ:SCTY) and rebranded the company as Tesla Inc, the world’s only vertically integrated energy company.

Tesla not only competes with car makers, but energy storage and fossil fuel companies as well in its quest to bring greener technologies to customers. So the comparisons with car companies do not matter much. However, TSLA stock investors need to be wary of the stock’s volatility and try not to get carried away by the barrage of good news. As Tesla stock comes down to a more reasonable levels in the coming days, investors need to weigh the costs and benefits of being invested in Tesla’s myriad businesses.