Tesla at $2,000: Electric car maker’s stock extends its surge

Company reported last month it delivered more cars than expected in the second quarter despite the coronavirus pandemic.

Tesla Model X
Tesla appears to be weathering the coronavirus storm better than many of its rivals, but its share price compared to its earnings is also on the high side of the market [File: Yilei Sun/Reuters]

Shares of Tesla Inc surged past the $2,000 mark for the first time as the electric car maker extended its recent rally ahead of an upcoming share split.

The company’s stock closed at a record high $2,001.83 on Thursday, up 6.6 percent for the day.

With many investors betting Tesla will be added to the S&P 500 index after a strong quarterly report last month, the stock has surged over 300 percent in 2020.

The stock has jumped 45 percent just since August 11, when United-States based Tesla announced a five-for-one stock split, with shareholders of record on August 21 receiving four additional shares for each share they own, distributed after the close of trading on August 28.

Some companies choose to split their stock when their share price rises beyond a certain level in order to make the shares more affordable for a broader range of investors. The overall market value of the company remains the same after the split.

Thursday’s surge put Tesla’s stock market value at $372bn, greater than all but seven of the S&P 500’s components.

Tesla’s valuation is currently about $373.1bn, while Walmart is hovering around $369.8bn, according to Bloomberg data.

Last month, Tesla reported deliveries of 90,891 cars in the second quarter, down five percent compared to the same period last year, but beating Wall Street estimates and the much deeper plunge in sales of rival carmakers such as General Motors, Toyota and Fiat Chrysler.

‘Breathing all the air in the room’

But the company’s market capitalisation is “discounting far more than cars,” Morgan Stanley analyst Adam Jonas wrote in a note to clients, adding that Tesla’s ability to attract capital and talent is increasing with its significantly higher valuation.

“Tesla’s performance is seen by some as breathing all the air in the room with respect to the outlook for competing electric vehicle initiatives, particularly amongst legacy players,” the analyst said.

Tesla’s stock is among the highest priced, per share, on Wall Street, and the Palo Alto, California-based company has said it was looking to make its shares more accessible to employees and investors.

However, with Robinhood and other brokerages increasingly letting customers buy fractions of individual shares, the benefit of stock splits has become less obvious, making Tesla’s rally following the announcement of its stock split surprising to some professional investors.

Tesla’s stock is currently priced at an exceedingly high 148 times expected earnings, according to Refinitiv, and that valuation will not be affected by the upcoming stock split.

Tesla will start rolling out “made-in-China” Model Y vehicles at its factory in Shanghai starting in 2021, the Global Times tweeted on Thursday, citing an unnamed executive.

Investors expect important announcements when Tesla holds its long-awaited Battery Day on September 22, the same day as its annual shareholder meeting.

The company is expected to present battery innovations, with analysts at Morgan Stanley predicting a company announcement on supplying “superior” battery packs to the auto industry.

Source: News Agencies