DON'T LOOK DOWN

Tesla is now more valuable than Ford because it’s no longer just a car company

Obsession
Batteries
Obsession
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What’s in Tesla’s gas tank? The company, which saw its value surpass Nissan in February, is on a tear. After stumbling in late February, Tesla’s stock has rebounded and the company is now taking on the biggest car makers well ahead of schedule. Shares in the 14-year-old Tesla closed up more than 7% on Monday, giving it a market cap of $48.6 billion, 7% higher than that of 113-year-old Ford.

The surge came after Tesla reported on April 2 that it delivered a record 25,418 vehicles in the first quarter, a 69% increase over last year. It remains to be seen if Tesla can sustain the momentum. CEO Elon Musk’s ambitious goals have been known to strain the company’s ability to deliver quality vehicles on time: technical problems and delays led to a 9% production decrease in the final quarter of last year. But the stock streak prompted Musk on April 3 to prod Wall Street investors who have wagered (and lost) billions shorting shares of Tesla.

Tesla is defying analysts’ expectations that the company will sputter as it ramps up manufacturing. Earlier this year, Goldman Sachs switched its stock recommendation to “sell” over concerns about cash flow, production delays, and executive departures. The company plans to produce 500,000 cars per year by 2018 to compete directly with majors like GM and Ford.

But now, Tesla is already one of the world’s most valuable carmakers, having eclipsed Peugeot (April 2012), Fiat Chrysler (May 2013), Suzuki (June 2013), Renault (Feb. 2014), Hyundai (June 2015), Nissan (Feb. 2017).

But Tesla is more than a car maker. It’s a vertically integrated energy company that also makes vehicles. For the last half-century, most carmakers’ business models have been to assemble, market, and then finance vehicles. Tesla’s mission, it says, is creating a solar-powered transportation fleet, and weaning humanity off fossil fuels. Musk’s four-point Master Plan calls for Tesla to transform from its original state as a small, financially precarious manufacturer of luxury electric cars to the world’s dominant supplier of clean, autonomous transport, and an electricity source for millions of businesses and homes.

Tesla can start to deliver on that promise by combining the solar energy firm SolarCity, its massive lithium-ion battery factory, a growing number of retail stores, and an expanding commercial and residential energy storage business. Tesla’s theory goes that it can innovate faster, engineer a seamless user experience and reduce costs through economies of scale. As a one-stop shop for clean energy and mobility at work, home and on the road, Musk has mused before that Tesla could be the world’s first $1 trillion company one day.

Analysts are, to say the least, skeptical. “It’s mind-boggling that a company that has the global breadth and depth that Ford has is suddenly valued at less than or equal to Tesla,” Dave Sullivan, a research analyst at AutoPacific, told Bloomberg. “It does not compute.” Tesla has elicited superlative accusations of being overpriced: “The Worst Stock in the World,” charges The Street, and “the riskiest stock in history,” shouts Business Insider.

There are plenty of reasons to doubt. Tesla needs to boost its production volume by an order of magnitude to meet its targets for the $35,000 Model 3, Tesla’s first mass-market electric vehicle. It must convince millions of people and businesses to install batteries and SolarCity’s photovoltaic panels on their buildings. It must outcompete more established, deep-pocketed competitors in these markets while turning a profit. Tesla, which has recorded profits in only two quarters since 2003, loses hundreds of millions of dollars each year.

Today’s astronomical share price may make sense if Tesla is understood as more than a car company in the same way that Apple is more than a hardware company. Tesla’s success would make it a major global player in two of the world’s largest markets: energy and transportation. Now it just needs to show it can make more money than it spends.

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