Stock market betting big on the change to electric cars

//Stock market betting big on the change to electric cars

Stock market betting big on the change to electric cars

Author Mark Fairlie

Despite only selling 76,230 vehicles around the world in 2016, Tesla is now the world’s fourth large car manufacturer by the value of its share.

In 2016, Tesla sold 76,230 vehicles and the stock market valued them than at $58.7 billion.

On the other hand, General Motors, which sold 10,000,000 vehicles in the same year, is worth $51.0 billion. Ford, amassing a huge 6,651,000 car, van, and truck sales in 2016 is valued by the markets at $41.4 billion.

And here’s something which may surprise you even more. Out of the three companies, two of them made a profit ($9.4bn and $4.6bn). The other one may a loss of $800,000,000.

In case you hadn’t guessed correctly, and we’re sure you did guess correctly, it was Tesla that lost $3m a day in 2016.

The stock markets are predicting the future belongs to Tesla

This is something for those people among you who have ever wondered why some internet companies have enormous valuations even though they don’t make that many sales and they could be losing tens of millions of pounds a year.

Uber, the car-sharing company, lost $2.8 billion in the last financial year but was valued at $69 billion. Amazon, the online retailer, is worth $460 billion but only made $197 million in the last quarter, meaning that, at that speed, it would take 583 YEARS worth of profit to match the company’s stock market valuation.

The stock market thinks that Uber is going to change the way we get from place to place. It also thinks that Amazon is going to change the way we shop.

And the stock market strongly believes that Tesla is going to change the fuel we use when we get from A to B in our cars.

Governments plan to ban petrol and diesel vehicles

Paris, Madrid, Athens, and Mexico City signalled their intentions to ban petrol and diesel cars from 2025 in various statements last year.

The British Government followed that by recently announcing its plans to ban the sale of all petrol and diesel cars from 2040. From that point on, only electric and hybrid cars may be sold to the public.

Around the world, governments and health campaigners have become more and more concerned with the level of premature deaths caused by nitrogen oxide (NOx) gasses emitted by, in particular, diesel cars. 40,000 people are estimated to die from NOx exposure every year in the UK.

tesla electric car

France also wishes to ban petrol and diesel cars by 2040, India wants all new car sales to be electric or hybrid from 2030, and from 2025, Norway wants all new passenger cars and vehicles to be zero-emission.

Further similar announcements have been hinted at by many other governments around the world.

The future for motoring seems to be electric and this is one of the reasons investors are pushing up the value of Tesla.

Reviewers are enthusiastic about Tesla’s cars

For companies, it’s always positive when they are seen to be ahead of the curve but it doesn’t always guarantee that they are going to be successful.

When television launched in the UK, there were two separate transmission systems. They ran in competition against each other for a short time. The BBC would broadcast in one system on one week and in the other system on the following week. Eventually, it became clear that one system was better and more reliable than the other, causing the inferior system to be abandoned.

There are lots of companies producing electric cars and vans in the world, including big household names like Ford, Toyota, and Nissan.

Tesla’s stock price has benefitted more than any other car manufacturers because of the quality of their cars, according to many analysts.

Their most recent car, the Tesla Model S, has received glowing reviews in the motor trade press too. Costing between £57,835 and £136,735, Autocar gave the model 4.5 stars out of 5, Top Gear magazine 9 out of 10 (“the future is here and it’s amazing. The Model S is a true game changer”), and WhatCar awarded it 4 stars out of 5 (“everything about it is designed to indulge, from the sports car performance to the sleek looks to the jaw-dropping interior).

Will Tesla run away with the whole market?

When its stock was floated in August 2012, the shares were valued at $29.50 each. At the time of writing, four years later, they had topped $340.00 each. If you’d invested £100,000 in Tesla shares at the time of floatation, they would now be worth over £1 million.

With a market as big as the car industry, Tesla will not have the field all to itself. Existing petrol and diesel manufacturers will compete against them and there are likely to be new companies which have not even been formed yet who will eat away at their current lead.

While great strides have been made advancing electric car technology, certain challenges do remain for the industry and for the rest of society and other companies too. They include:

  • power generation – the AA have predicted that 10 new Hinkley Point C-type nuclear power stations will need to be built between now and 2040.
  • it takes a long time for them to charge up – travelling from Newcastle to London, for example, would require a length refuelling stop using today’s battery technology
  • there are fears about chemical pollution at home and abroad caused by an exponential increase in the amount of raw materials needed for battery production and their later disposal
  • public charging points – they would need to be as ubiquitous as filling stations are today, and
  • private charging points – for those who park on the street (for example, if you have no driveway), how would you get your charging lead to your car?

In the UK, we have 22-and-a-half years to solve these issues. And it seems that, at the moment, Tesla is going to be part of finding the answers needed on how you get society to switch from one form of fuel propulsion to another.

By | 2017-09-26T11:40:39+00:00 August 22nd, 2017|Business|0 Comments

About the Author:

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Journalist, Mark Farlie, provides cutting edge articles with a focus on plain English & zero jargon. With a breadth of interests, Mark writes on topics such as; personal finance, commercial finance, B2B, marketing, law and technology.

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