t was little over a month ago that the Standard confidently predicted Elon Musk would not stay the second richest person in the world for long. And how right we were.
Back in November, the Tesla founder was worth a mere $130billion, or around £100billion. Today, after a 7.9% jolt to his company’s share price, he overtook Amazon’s Jeff Bezos to clock a $194.8billion (£143billion) fortune.
It means that in the past year, while much of the rest of the world was bedevilled by the pandemic, the 49-year-old South African-born engineer’s personal fortune has ramped up by $165 billion, in the fastest bout of personal wealth creation in history.
The rise has been fueled by the extraordinary rally in Tesla’s share price which has rocketed 743% in a year on the back of consistent profits, inclusion in the S&P 500 Index and enthusiasm from Wall Street and retail investors alike.
The shares – of which he holds 20% – have gained more than 23,900% since its 2010 initial public offering, according to analysis by Bloomberg, and Tesla’s market value of $774 billion now stands $10 billion above Facebook’s.
This comes despite the fact that Tesla produced just over half-a-million cars last year – a fraction of the output of Ford and General Motors and has led critics to constantly caution that the bubble is about to burst.
They insist Tesla shares are absurdly overvalued, resting on a belief system rather than an understanding of the industry: it is now worth more than Toyota, Volkswagen, Hyundai, GM and Ford combined.
And every time, they have got burnt. The latest victim is Joseph Spak, a respected analyst for RBC Capital Markets who – in a report published yesterday – wrote: “There is no graceful way to put this other than to say we got [Tesla’s] stock completely wrong”.
Spak subsequently raised his 2025 delivery estimate for Tesla to 1.7 million cars, up a third from 1.3 million, and admitted underestimating the company’s ability to raise capital and fund growth. He then more than doubled his price target to $700 from $339.
Musk himself was outwardly unflustered by his sudden elevation to become king of the world, tweeting simply: “How strange,” followed by “Well, back to work.”
He has said that he intends to sell “almost all” his physical possessions and divide his fortune to “help problems on Earth, and half to help establish a self-sustaining city on Mars.”
A noble sentiment which some have seen undermined by his then relocating from California to Texas, a state that has gained new popularity among the wealthy for levying zero income tax.
Under normal rules, to justify today’s valuation, Musk would have to show that within the next five years or so Tesla can make more profits than pretty much the entire rest of the motor industry.
But these are not normal times: just look at the price of Bitcoin.
And like another tech visionary left staring disaster in the face when the dot com bubble burst 20 years ago, sometimes it helps to suspend disbelief. As John Maynard Keynes said “the markets can remain irrational longer than you can remain solvent.”
Back on Earth, Laith Khalaf, a financial analyst for AJ Bell, told the Standard: “Tesla stock has risen eightfold in price over the course of the last year, and is now trading at around 600 times earnings.
“However this is a stock where the plentiful short sellers have been continually burnt by betting against its meteoric rise. One can see how the fundamentals improve from here, but that kind of PE (price-to-earnings) ratio looks unsustainable in the longer term.”
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