The Richest Person in Today’s World: Elon Musk
Name the historical richest in the world—no doubt, John Davidson Rockefeller. Then who is the living richest in today’s world? The wealthiest person as of 2022 is Elon Musk with a net worth of $219 billion. Have no idea on how big $219 billion is? Looking at Wikipedia list of countries by government budget, Elon Musk’s wealth is approximately equivalent to the revenues of Mexico ($254 billion in 2020). Why is Elon Musk so rich? One of the major contributors to his wealth is his shares in Tesla, the booming EV maker. He owns a 17% stake in Tesla; as Tesla stock price increases, so does Musk’s wealth. Now, why is Tesla worth so much?
Why Is Tesla Worth So Much?
As of 2022, these five US companies hit $1 trillion of a market capitalization: Apple, Microsoft, Alphabet A, Amazon, and Tesla. Apple and Microsoft are comparatively long-established techs standing since the 1970s. Likewise, Alphabet and Amazon are mature companies founded in the 1990s. On the other hand, Tesla is a young, rising company founded in 2003.
Apple achieved a market cap of $1 trillion in 2018, Microsoft in 2019, Google in 2020, and Amazon in 2018. And this teenage EV manufacturer rang the trillion-dollar bell in 2021 within two decades since its foundation. Furthermore, it was just within 11 years since Tesla went public. Even though its market capitalization shrank to below $1 trillion in April 2022 due to US stock market turmoil, Tesla is still one of the largest American companies by market capitalization. That’s quite an achievement, isn’t it?
Our previous article has already covered Tesla’s origin stories. Here, we focus on Tesla’s growth stories—why did Tesla grow so fast? And most importantly, why is Tesla worth so much today? The infographic above displays the historical market capitalization of Tesla since its initial public offering in 2010, along with major milestones.
A Six-Year-Old Start-Up Issued IPO | 2010
Although invention of electric vehicles dates back as far as to the 19th Century, they had not been in the spotlight until recent decades. In 2010, Nissan launched the world’s first mass-produced all-electric vehicle. In the same year, on 29th June, Tesla went public offering 13.3 million shares at $17 per share on NASDAQ. The company successfully raised $226 million.
One month earlier, Tesla purchased a factory that had been operated by New United Motor Manufacturing, Inc. (NUMNI), a joint venture between General Motors and Toyota. Tesla announced a partnership with Toyota “to cooperate on the development of electric vehicles, parts, and production system and engineering support.” The factory is known as Tesla Fremont Factory where close to 22,000 employees work. The factory started operation in October to produce its second electric vehicle, Model S.
Model S | 2012
From 2008 to 2012, Tesla produced Tesla Roadster, the first highway-legal electric vehicle with lithium ion batteries. In January 2012, the production of the Roadster came to an end. And instead, Tesla launched Model S in June.
This luxury sedan was an award-winning model. It won numerous awards including 2013 Automobile of the Year of Automobile Magazine. Responding to this prestigious award, Elon Musk released his comments:
Winning AUTOMOBILE Magazine’s ‘Automobile of the Year’ award is an important milestone for Tesla because it underscores our goal to build a great car, not just a great electric car.
Furthermore, it won 2013 World Green Car of the Year by Bridgestone Corporation, proving Tesla’s dedication to the environment as Musk’s comment said:
Winning the 2013 World Green Car award is great acknowledgment of what Tesla has accomplished with Model S in the last four years.
Model X | 2015
Tesla disclosed the prototype of Model X in 2012, aiming at entering production by 2014. This luxury crossover SUV with iconic falcon wings caught much attention across the globe. Tesla received 30,027 pre-orders for the Model X, more than double the number of pre-orders for Model S which had received 12,000 orders.
Although the first few models were launched in September 2015, Tesla did not enter the production of Model X until the end of 2015 due to supplier parts shortage. The following year marked 10,000 units sold. Tesla’s Gigafactory 1 also started operation in Nevada in 2016.
Years later, Tesla and Qantas Airways initiated a unique collaboration to prove the pulling power of this battery electric crossover. In 2018, Tesla Model X towed Red Roo’s Dreamliner, setting the Guinness World Record, as the heaviest tow by an electric production passenger vehicle.
The Controversial Acquisition of SolarCity | 2016
In November 2016, Tesla acquired SolarCity for $2.6 billion. SolarCity was a photovoltaic company. And the founders are Musk’s cousins. On Tesla blog post, Tesla emphasized the benefits of combining Tesla and SolarCity:
Solar and storage are at their best when they’re combined. As one company, Tesla (storage) and SolarCity (solar) can create fully integrated residential, commercial and grid-scale products that improve the way that energy is generated, stored and consumed.
However, Tesla shareholders doubted Tesla’s intension. Firstly, the founders of SolarCity are Musk’s cousins. Secondly, the company was shedding off its employees earlier, suggesting its dire financial straits. In 2017, a group of Tesla shareholders filed a lawsuit accusing Tesla and Musk bailing out SolarCity. Musk appeared in court to defend the acquisition. In April 2022, the court ruled in favor of Musk.
Setting the controversy aside, Tesla acquired a photovoltaic cell factory in New York, now known as Tesla Gigafactory 2. The production of clean energy generation and storage products started in 2017, in a partnership with Panasonic. In 2019, Tesla expanded the factory to produce components for Supercharger, Tesla’s charging station.
Model 3 | 2017
Tesla Model S and Model X were high-end luxurious vehicles for most commoners, pricing over $90,000. The Model 3 launched in July 2017 was a game changer—Tesla made this sedan much more affordable to more people. Tesla brough down the starting price to below $50,000 for this new model.
The affordable Model 3 soon picked up steam in the trendy EV market. Tesla passed 1 million cumulative EV sales in 2020. Furthermore, by the end of the second quarter 2021, Tesla Model 3 seemingly surpassed 1 million deliveries. That is within 4 years since its launch. And the Model 3 won the title as the first electric vehicle to sell 1 million, securing its position as the all-time best seller.
Gigafactory 3 | 2019
Tesla expanded its footprint not only in the USA but also worldwide. In October 2019, Tesla started operation of Gigafactory 3 in Shanghai. Today, the factory takes on the final assembly of Tesla Model 3, as well as the Model Y launched in 2020.
The Gigafactory 3 is not the only foreign Gigafactory of Tesla. On 22nd March 2022, Tesla opened its second foreign Gigafactory 4 in Berlin, Germany.
The First Profitable Year | 2020
2020 was the first profitable year for Tesla since its IPO. Tesla’s income from operation was $1.994 billion in 2020, compared to a loss of $69 million in 2019, a loss of $288 million in 2018, and a loss of $1.632 billion in 2017.
According to a report by MarkLines, starting operation of Gigafactory 3 at the end of 2019 contributed to an increase in vehicle production, cost reduction, and profit expansion in China. The company’s global production for 2020 increased by 39.6% year-over-year. An increase in China also supported Tesla’s growth.
2020 was also the year when Tesla’s market capitalization jumped to over $600 billion from $75.71 billion in 2019. The valuation of young Tesla well surpassed that of Toyota, who had been sitting at the top of the car makers.
Model Y | 2020
The fourth model is a compact crossover, Model Y, that debut on 13th March, 2020. Tesla set its price at around $60,000, somewhere between the luxurious Model X and the affordable Model 3. The newly-built Gigafactory 4 accommodates production of the Model Y, which will benefit Tesla in reducing cost in the European market.
Bottomline: Why Is Tesla Worth So Much?
Tesla’s upward valuation is primarily supported by an imperative momentum: the global EV trend. The demand for electric cars has been skyrocketing in recent years. According to IEA, registrations of electric cars counted only 0.5 million in 2015. In the following five years, the number reached 3.1 million; in 2021, it hit 6.7 million.
The two biggest players in this increase are China and Europe. Tesla has expanded its business not only in the US but also worldwide, especially in China and Europe. Just as Gigafactory 3 pushed up Tesla’s production and sales in China, Gigafactory 4 will do so in Europe.
Although there are several other car makers that sell EVs such as Rivian and Lucid Motors, Tesla is the absolute leader in the EV space. Not only Tesla takes the largest share in EV sales, but also it is the only profitable EV company as of 2022. The launch of Model 3 has made Tesla mode accessible to more people, making the Model 3 the all-time best-selling EV.