Tesla’s $1 Trillion Valuation Belies Its Revenue Position
The EV maker’s most recent annual revenue was below $50 billion
(Bloomberg) -- Tesla Inc. has joined the trillion-dollar-valuation club as the member with the lowest revenue.
The electric-vehicle maker’s shares have run past several milestones over the past couple weeks amid a rush of positive news, including reaching a rarefied $1 trillion in market value on Monday. That helped further bolster sentiment among investors, who are betting on Tesla’s potential for rapid future growth as EVs become mainstream and eventually replace gas-driven cars.
However, unlike its trillion-dollar peers, Tesla’s valuation touched that level before its revenue could reach the $50-billion mark.
Even though Tesla is the fifth-biggest company on the S&P 500 Index when ranked by market capitalization, it is in 89th place when ranked by last year’s annual revenue. It is preceded by Capital One Financial Corp. -- which had $31.6 billion in revenue last year versus Tesla’s $31.5 billion and is valued at $75 billion. The company with the biggest revenue on the index is Walmart Inc. -- a mammoth $559.2 billion that dwarfs its own valuation of about $417 billion.
Tesla shares’ substantial premium when compared to other technology firms at the time they crossed market valuation thresholds reflects greater investor enthusiasm for its technological dominance over peers, as well as an inflation of the S&P 500 Index’s market multiple, Morgan Stanley analyst Adam Jonas wrote in a note.
However, Jonas said Morgan Stanley clients also noted the company’s larger addressable market, and an opportunity to dominate the internet-of-cars market as other possible factors built into its valuation.
Tesla’s valuation milestone came as car-rental company Hertz Global Holdings Inc. placed an order for 100,000 of its vehicles, a move that signals EVs are here to stay and gives bulls confidence that Tesla’s sky-high valuation is sustainable too.
“Wall Street is starting to believe the skyrocketing move with Tesla’s stock price is nowhere near over since Tesla has a massive lead in the EV space and improving growth potential as the U.S., European and Asian markets for electric cars grows,” Oanda analyst Edward Moya wrote in a note on Monday.
Tesla shares jumped as much as 6.8% to $1,094.94 on Tuesday, but erased the gains to close down 0.6%. The company’s valuation now hovers around $1.02 trillion.
| Company | Last yearly revenue before reaching trillion valuation | Hit trillion on |
|---|---|---|
| Tesla | $31.5 billion | Oct. 25, 2021 |
| $85.97 billion | June 28, 2021 | |
| Microsoft | $110.36 billion | April 25, 2019 |
| Alphabet | $161.86 billion | Jan. 16, 2020 |
| Amazon.com | $177.87 billion | Sept. 4, 2018 |
| Apple | $228.59 billion | Aug. 2, 2018 |
As the table shows, Tesla’s last annual revenue is considerably lower than that of Facebook Inc.’s, which entered the trillion club earlier this year before slipping back below that level. That also gives Tesla a very expensive price-to-sales multiple. The EV maker’s shares are currently trading at 21 times its sales, with the same ratio hovering at 8 times for Facebook and estimated to be around 6 times for the NYSE FANG+ Index.
Tesla also has a considerable debt load that puts it in 162nd place when ranked by 2020’s. For the current year, Tesla reported total debt of $10.1 billion as of Sept. 30.
“Looking at current valuation multiples and market share for Tesla has been a loser’s game for years,” said Matt Weller, global head of market research at Forex.com & City Index. However, Weller noted that at some point, likely as more competition enters the market and interest rates start to rise, “investors will start to question whether the company will be able to deliver on its massive promises.”
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