Why TSLA Stock Is Rising
Tesla Inc (NASDAQ:TSLA) has once again proved the doubters wrong—with another surge by Tesla stock.
On the back of a huge deal with Hertz Global Holdings Inc. (FRA:AZK0, OTCMKTS:HTZZ), which will see the car rental company purchase 100,000 Tesla vehicles, TSLA stock climbed by more than 40% in October and is up by 175% from a year ago.
The good news for Tesla stock bulls is that these gains show no sign of slowing down.
How can a company that sells far fewer cars than any of the major automakers have a market cap larger than that of its next nine competitors combined—and a share price that continues to rise?
Simple answer: Elon Musk.
Chart courtesy of StockCharts.com
The divisive and often controversial CEO of Tesla Inc is unpredictable, brash, obnoxious, silly, headstrong—and a great leader for the company.
That’s because, more so than with Tesla’s cars, which you may or may not find impressive, people have bought into Musk’s vision and personality.
You can love or hate Musk all you want, but what’s undeniable is that the man has positioned himself as a darling of the market, with his creative edge causing Tesla Inc to become the fifth company ever to post a market cap of more than $1.0 trillion.
It’s worth noting that TSLA stock’s recent surge has put Musk atop the world’s richest person list, edging out Amazon.com, Inc.‘s (NASDAQ:AMZN) Jeff Bezos.
So what is it about Musk that engenders so much support in the stock market?
The “Elon Musk Effect” on Tesla Stock
Perhaps more than any other stock on Earth (at least that I can think of), Tesla stock is intrinsically tied to its CEO’s persona.
To be sure, there have been charismatic billionaire heads of companies in the past, but Tesla Inc’s Musk is in a league of his own compared to, say, the more media-shy Bezos.
That, in part, is what draws so many investors into Musk’s orbit.
Retail investors love TSLA stock, even as many hedge funds continue to try to short the company that has an outrageous price-to-earnings (P/E) ratio and sells only a fraction of the cars its leading competitors do.
The main reason for the popularity of Tesla stock is that the company actually builds something.
Unlike an app or some “x-as-a-service” jumble of acronyms and tech jargon, Tesla Inc builds cars. Sure, those cars are enhanced by a lot of technology, but at their core, they’re still cars.
And they’re vehicles that are designed to lessen emissions as we head into a new, greener world (lest we perish in a carbon-soaked one).
People like investing in things they understand, things they can tangibly put their hands on.
Early on in my journalism career, I worked on a piece about the assets owned by oil and railway tycoons of yesteryear versus the assets owned by, say, leading social media companies like Facebook, Inc. (NASDAQ:FB), now called Meta Platforms Inc.
Whereas companies of the past held enormous amounts of wealth in machinery, raw goods, equipment, etc., companies like Facebook held almost no wealth in the material world, instead deriving pretty much every cent of its revenue from the virtual world.
With TSLA stock, people can once again invest in something they can actually see and touch. In other words, Tesla Inc benefits by producing and selling more cars (as is the case with its order from Hertz).
So, retail investors already have a predisposition to like Tesla stock. The “Musk effect” is that, as his company’s lead salesperson, his outsized media presence helps engender more interest in TSLA stock.
And the interest from retail investors makes institutional investors more excited as well, creating a self-perpetuating cycle that could generate massive amounts of wealth for years to come.
What’s more, Musk is bigger than just Tesla. He also has SpaceX (which he could feasibly fold into Tesla Inc at some point) and other projects. He’s an insanely ambitious man, hoping to create solar panels, green home energy, self-driving trucks, and more.
Musk is involved in many potential moonshots that, if any were to land, would propel Tesla stock even further beyond the stratosphere.
All this is bolstered by the immense trust and admiration that both the overall market and the average investor have for Musk, rightly or wrongly.
Now, all this comes with a huge caveat: Musk’s personal wellbeing is critical to the health of Tesla Inc, which puts TSLA stock in a precarious position. If Musk were to leave Tesla, whether due to health reasons, a scandal, or another reason, the impact would be calamitous.
Having said all that, the odds are that Tesla stock will continue to rise as long as Musk remains free from the aforementioned dangers. If he manages to do that, investors will be able to anticipate years of continued success for the electric vehicle stock.
The stars are aligned for Tesla Inc to continue its dominance of not just the electric vehicle market, but the entire green energy sector. In that respect, there’s no foreseeable limit to Tesla’s potential.
Moreover, the prominence of Musk has greatly encouraged share-price growth, which means that, as long as he remains at the helm of the company, we can expect to see big things from TSLA stock.