Tesla breaks a record: Tesla and founder Elon Musk are famous for the greatest six-week decrease in value ever. In 2012, the electric vehicle producer revealed Model S, the first-ever premium all-electric sedan. Six years later, Musk’s SpaceX started the most powerful Falcon Heavy rocket in the world. This was the first milestone since the Falcon had taken the Tesla Roadster into space, making the pioneering EV the first car ever to orbit the Earth.
Musk has recently set supersonic financial records. The moon shot from Tesla’s market cap of $30 billion in mid-April last year to $849 billion on 26 January is a nine-month increase for every other young comer. At the beginning of January, Tesla’s increase raised Musk’s net worth to $185 billion, making Tesla’s founder the wealthiest person in the world. Tesla breaks a record: The biggest six-week drop in value ever
Musk has only just achieved a new financial first – the stock losing the most value in a short period of time. Since the end of January, Tesla’s appraisal cratered 36 percent to $305 billion at mid-morning on March 5, as its stocks dropped from $883 to $566. In just five and a half weeks, no company on the annals of the equity markets has ever fallen to such a large scale remotely.
The $300 billion-plus downturn of Tesla goes beyond the market caps of all but sixteen of the most valued S&P 500 companies. Tesla has fallen by far over twice the Ford and General Motors combined market caps, with $100 billion more than that of Toyota, the second most valuable car manufacturer worldwide.
Tesla Bulls can be assured that it was a highly volatile stock in the past: it saw big drops, and then always recovered to shoot past the previous peaks. The amount dropped by half between mid-February and mid-March last year and dropped 34% in the first two weeks of September, only to roar back on both occasions.
The September downturn was $186 billion, and Tesla got it all back and 400 billion more over the coming months. You will certainly hear that Tesla will suffer big bumps along the way, but her long trajectory will follow a sharp upward ascension.
The 34% decrease, however, means that Tesla’s shares need to rebuild by 56% to recover their old peak of $883 (and $849 billion of valuation). Overnight, investors decided that Tesla would earn much less than it had previously foreseen at the end of January.
What drives the big pullback of Tesla?
Let us assume that shareholders want an annual return of at least ten percent in exchange for what they can count as wild rides. To get there by the end of January, Tesla needed 2.2 trillion dollars by early 2031. At a premium income of 30, Tesla would generate $73 billion in net earnings annually from GAAP. That’s 5 billion dollars more than Apple, by far the largest profit spinner in S&P last year.
Shareholders have lowered the bar – but the bar remains extremely high. Using the same formula, the bogey now stands at $1.44 trillion in ten years, with revenues of $48 billion. To achieve this, Tesla’s $721 million profit in 2020 must grow at an annual rate of around 50 percent.
This huge fall of Tesla, so quickly, highlights the extreme uncertainty in evaluating what is really worth. In fact, investors don’t know much or no of Tesla’s earnings in the future. In 2031 the figure will be $60 billion, or $10 billion, less or something in between? To make a reasonable estimate, so many assumptions are required that the exercise is pointless. What remains is a super-sexy product, a charismatic CEO, a cult, and a great story. What remains is a still-giant appraisal that can only increase when large numbers start to arrive quickly. Otherwise, Tesla is sitting on an airbag whose deflation is unlikely to set new records.