Tesla Inc. became the most valuable car company in the world on Wednesday, a day before the electric car maker posted better-than-expected sales numbers.
Tesla announced that it delivered 90,650 vehicles during the quarter, better than the 74,130 vehicles that analysts who cover the company were forecasting.
That's a decline of about five per cent from the number of cars it sold in the same period a year ago, but investors were impressed with the number because it's less bad than the rest of the industry. New data on Thursday showed U.S. car sales in June were about 27 per cent below what they were in the same month last year.
Investors bid up Tesla share price to $1,218 a share before markets opened Thursday. That's an increase of nine per cent.
It was enough to make Tesla the most valuable car company in the world, with the total value of all its shares on the Nasdaq, a figure known as market capitalization, adding up to $207 billion.
That's more than any other car company and more than Toyota's $203 billion, which was the previous highest value.
Toyota sold 8,958,423 cars worldwide last year. That's almost 25 times the 367,500 cars Tesla said it cranked out in 2019. But Wall Street investors have decided Tesla is the better stock to buy.
Tesla's current stock price values the company at more than GM, Chrysler and Ford combined, despite those three U.S. automakers also selling far more cars than Tesla does every year.
Regardless of the apparent disconnect between expectations and reality, some in the investment community think the stock has even more room to grow.
Chaim Siegel of Elazar Advisors expects the company's stock price to rise to $1,545 US in the next year.
"If they are able to accelerate profitability in a quarter missing so many production days, imagine a normal quarter levering more fixed costs," he said in a note to clients. "Profitability will be even better."
Analyst Daniel Ives of Wedbush Securities called Tesla's performance a "major home run" considering the backdrop of COVID-19. "In our opinion, a 90K delivery number in this COVID lockdown environment is a jaw-dropper," Ives said.
He has a price target of $1,250 on the shares, but his most optimistic scenario forecasts the stock at $2,000 US apiece.
Tesla may soon join S&P 500
While a lot of the excitement over Tesla is built on nothing more than hype, the company does have one fundamental factor going for it that is likely to add to the buying. Tesla isn't a member of the influential S&P 500 collection of stocks.
But analysts expect S&P may soon have to include Tesla because it meets the requirements.
"Stringing together profitable quarters increases their chance for inclusion into the S&P 500," Siegel said. "That would force many large funds to have to buy."
Earlier this week in an internal email, CEO Elon Musk called on employees to work hard to allow Tesla to break even in the quarter despite the coronavirus crisis.
"While our main factory in Fremont was shut down for much of the quarter, we have successfully ramped production back to prior levels," the automaker said in a statement.
During the period from April to June, most of the United States was under government-imposed stay-at-home orders to combat the spread of the virus, which impacted production and caused a plunge in auto sales.
The lockdown resulted in the shutdown of production at Tesla's only U.S. vehicle factory in California for more than six weeks from the end of March to early May.