If you look at the listing of publicly traded car manufacturers, you will notice what looks like an anomaly; a relatively new automaker, Tesla, tops the list. More confounding, however, is that Tesla is worth more than a trillion dollars, a distinction as only a handful of companies ever reaches that valuation. Occupying a distant second place is Toyota, worth a quarter of a trillion dollars! Other auto companies with legacies spanning decades are even further down the list!
What exactly is responsible for Tesla’s exceptionally high valuation? We find out in this article.
1. TESLA IS VALUED AS A TECH COMPANY AND NOT A TYPICAL AUTOMAKER
If you look at the companies with more than a trillion-dollar valuation, you will notice a trend. Most of them, i.e., Microsoft, Apple, Alphabet, Facebook (now Meta), Google, and Amazon, are tech companies with ties to Silicon Valley.
This is an assessment Tesla benefits from as it is often considered a tech company. Even the CEO, Elon Musk, has referred to his cars as mobile computers. So, despite having less than 1 percent of global car sales, it enjoys a high valuation.
2. TESLA IS REAPING THE BENEFITS OF MAKING THE FUTURE HAPPEN
Historically, companies that successfully take a risk have been rewarded on the stock exchange. Tesla fits this description perfectly. While legacy automakers dragged their feet concerning electric vehicles, Tesla was willing to go all out on electric cars and make them attractive and practical. Musk said the company came close to bankruptcy while ramping up the production of the Model 3. However, Tesla survived, and the car has become a smashing success.
3. TESLA IS EXTREMELY INNOVATIVE
Much of Tesla’s success is hinged on the company’s ability to innovate continuously. It is one of the most vertically integrated companies and has built up manufacturing expertise. Its products are also usually in the best category, like Autopilot, and top sales charts across the world.
In addition, Tesla is on an expansion spree, with new factories in China, the US, and Germany. This gives investors lots of confidence, making Tesla shares sought after.
Electric vehicles are expected to witness a boom in the short term, and when your company is regarded as the leader in the industry, it helps your share price.
4. TESLA HAS A VERY VOCAL AND INFLUENTIAL (INFLUENCER) CEO
It pays to have a highly visible CEO. Musk has a following on social media that will make many pop stars jealously, and many people think they can relate with him. Sometimes, this exposure results in negative publicity and controversies, but overall, it helps.
5. TESLA AS BUILT A LARGE AND LOYAL COMMUNITY OF TESLA OWNERS AND ENTHUSIASTS**
From day one, Tesla has been cultivating a community of devoted enthusiasts through a umber of highly effective methods such as its exclusive product launch events, vehicle reservations, social media giveaways, referral prizes, livestreams and a CEO who is not afraid to mix it up with fans on Twitter.
Tesla also cleverly releases limited edition products that are particularly on related to its core product, but end up going viral and selling out within a few hours. From the Tesla Tequila to the Cyberwhistle and the SEXY Short Shorts, Tesla as a brand is able to present a light hearted persona with these one-off products, which further endears its fans to the brand.
All these help to strengthen Tesla brand recognition and affinity, both of which get highly rewarded by Wall Street.