On April 10, electric automaker Tesla’s stock rose in value above that of General Motors (GM) in morning trading, making the electric car company the most valuable automotive firm in America. At noon, Tesla’s gains slowed, allowing GM to retake its place on top. However, by April 11 Tesla was again America’ biggest carmaker in terms of market cap, reaching 52.2 billion (versus GM’s 51.14 billion). Some may interpret this development as a signal of a shift of America’s automotive center from Detroit to Silicon Valley.
Tesla’s stock price has seen steady growth over the last year and has climbed in value by over 40 percent, which has recently seen the firm pass Ford. This price increase has come from optimism over Tesla’s new initiatives. Elon Musk, Tesla’s CEO, plans to produce 500,000 vehicles next year with the arrival of the more affordable Model 3 and include more software that will improve its cars’ self-driving capabilities. Additionally, Tesla is more than just a car company. It’s acquisition of home solar panel maker SolarCity Corp. and continued investment into battery technology deepen its foray into renewable energy. This proposed expansion has attracted excitement from investors including Tencent Holdings Ltd., the creators of the popular Chinese social media app WeChat.
Despite the stock’s performance, there is a chance investors’ optimism will be unfounded. Tesla has missed production deadlines before, causing problems with back orders and missed demand. It may have trouble competing with larger companies once they enter the electric car market, as GM is producing its own electric-powered Chevy Bolt to compete with the Model 3. The firm’s self-driving technology also exposes it to public relations risk from collisions, such as the incident in which an Autopilot-driven Model S plowed into the side of a semi truck, killing its occupant.
Yet, investors’ confidence in Tesla illustrates how the growing appeal for its products could change how consumers travel and power their homes. People will invest where they see an opportunity for returns, meaning that many expect electric vehicles to deliver on their potential. Regardless of who prevails in the market, the future appears to be electric.
For more, visit the Wall Street Journal.