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What Has Been Driving Tesla Market Cap to New High?

Tesla Model S. Flickr Image.

Tesla’s market capitalization or market cap has reached an insane level of as much as $300 billion as of this article was published. The stock market has given Tesla a market valuation that is bigger than the combined value of Toyota, General Motors and Ford.

That said, you might wonder how Tesla’s market cap could reach such enormous value in as little as a year or maybe shorter? What has been driving the company’s market cap to reach more than $300 billion?

The stock price is one factor but there is another factor that you may have missed out.

The answer to this question can be found in Tesla’s shares outstanding or common stocks outstanding to be exact.

Tesla’s Share Outstanding

Tesla common stocks outstanding

Tesla common stocks outstanding

The chart above shows Tesla’s common stocks outstanding over the past 5 years from 2015 to 2020. As the chart shows, Tesla’s shares outstanding have been on a rise since 2015, reaching a new high as of 1Q20 to more than 180 million outstanding shares.

Over the years, the company’s shares outstanding have grown from 120 million in 2015 to more than 180 million in 2020, representing a growth rate of nearly 60% in the last 5 years.

The growth of Tesla’s shares outstanding has created advantages as well as disadvantages to the company. For a detailed discussion of the effect of Tesla’s shares outstanding, this article, Tesla’s common shares outstanding, explains what has been driving the company’s share count to balloon to such a high level.

Tesla’s Market Capitalization

Tesla market cap

Tesla market cap

The chart above shows Tesla’s market capitalization in the last 5 years from 2015 to 2020.

As seen from the chart, Tesla’s market cap has reached the $300 billion thresholds in July 2020 which was a new high for the company’s market valuation.

Within just 9 months, Tesla’s market value has more than tripled according to the chart, rising from as little as $50 billion back in 4Q19 to $300 billion as of 2Q20.

Thanks to the company’s increasing common stocks outstanding, Tesla managed to achieve this gigantic feat in as little as a year.

Tesla’s Market Capitalization With Reduced Shares Outstanding Growth

Tesla market cap with reduced shares growth

Tesla market cap with reduced shares growth

What would happen to the market capitalization if the growth of Tesla’s shares outstanding were to be reduced by 50%?

In this scenario, I have plotted a chart above that shows Tesla’s market cap when the company’s common stock growth is reduced by half while maintaining the stock prices to be the same as the market values.

According to the current chart, Tesla can only achieve a market cap of $250 billion as of July 2020 when common shares outstanding growth rate is reduced by half.

There is a difference of $50 billion compared to the scenario when there is no reduction in the growth of the common stocks.

In short, Tesla’s market cap was reduced by $50 billion when stocks outstanding were to grow at only 50% of its current rate.

Tesla’s Market Capitalization With Zero Shares Outstanding Growth

Tesla market cap with zero shares growth

Tesla market cap with zero shares growth

What would happen to Tesla’s valuation if Tesla’s stock count remains the same as it was back in 2015? This scenario highlights a no-growth situation of the company’s shares outstanding.

According to the chart above, when the shares outstanding remained the same as the number in 2015, Tesla’s market capitalization would only reach $200 billion in July 2020.

Therefore, the growth of Tesla’s common stocks all these years has created an extra $100 billion in market capitalization for the company.

In a no-growth scenario, Tesla can only achieve a market value of $200 billion.

Still, that $200 billion market cap is slightly bigger than Toyota’s market cap of $180 billion, and Tesla is still the biggest automobile company in the world.

Conclusion

To recap, Tesla’s market cap has reached an insane value of $300 billion as of July 2020. The growth in market cap has been mainly driven by two factors and they are (i) growth of stock prices and (ii) growth of common stocks outstanding.

While the growth of stock prices did contribute significantly to the growth of Tesla’s market valuation, the growth of common stocks cannot be ignored.

As seen in the chart, Tesla managed to gain an extra $100 billion in market capitalization just from the growth of its common shares.

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References and Credits

1. All numbers and figures in this article were obtained and referenced from financial statements available in Tesla Investors Days.

2. Featured images were used under Creative Common License and were obtained from Steve Jurvetson and Herman Caroan.

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