Tesla- The Story of a Trillion-Dollar Company
Updated: Aug 21
Although strongly disliked by car enthusiasts, Tesla- the Electric Vehicle manufacturer has become a household name for any families considering an environmentally friendly option. But, more than that, it has become the talk of investors- the stock that IPO’d at $17 and grew to a massive $498.83 at its peak. What exactly happened in these 16 years, and how has Tesla grown to the money farm that it is today?
Tesla initially IPO’d on June 29, 2010, at $17 per share. Until the end of 2019, the Tesla share remained an ordinary penny stock only growing to a high of roughly USD 22 by the start of December 2019. However, what followed was nothing short of amazing as by 22 January 2021, the stock had proceeded to grow to a strong $282. That’s more than a 1000%+ increase! This success was a combination of multiple factors. The first and possibly most important was the low interest rates after COVID (governments were trying to boost spending to help take the economy out of recession- read more about expansionary fiscal policy!). What this reduction in rates (and yields from government issued securities) caused was a large outflow of cash into the stock market. But, with over 5800 stocks listed at the time, what caused investors’ money to flow into Tesla specifically? This was the outcome of high investor confidence. By that time, EV adoption was slowly increasing, and retailer interest in these cars was also surging.Tesla was even labelled as a growth stock, which meant that investors expected this firm’s revenue and profits to grow at a rate much higher than average. People were not valuing Tesla on the basis of their sales in 2020, but the confidence that their sales in the future (say 2030) would exponentially grow. This was significantly reflected by Tesla’s P/E ratio (the ratio of a share price to the annual earnings per share). Where a mature stock may have a P/E ratio of around 15-30, Tesla’s was going beyond 150-which reflected that future valuations significantly exceeded Tesla’s current earnings per share.
Until 2022, other than its stock splits, the Tesla share did not experience anything major but continued to consistently grow. Then the Federal Reserve struck and ruined the growth party. By 2022, inflation was reaching all-time highs, and the Federal Reserve had to hike interest rates (contractionary Fiscal Policy), and by mid-year the rates had grown from 0.25~0.50% to roughly 2%, with it further increasing to between 4.50% and 5% by the end of the year. This increased the yields of treasury bills and bonds, which caused a rotation of investor funds out of stocks- such as Tesla. Instead of relying on a feeling that values will grow, investors moved into assets with guaranteed returns. This major sell-off caused share prices to fall from USD 404.620 (3 Nov 2011) to a low of USD 119.770 (9 Jan 2023).
The stock eventually made a rebound and is back at its original status (Around 300-400 USD), but the growth between 2023- 2025 was much slower, and is the pattern throughout this article, there were multiple contributing factors. Now with the arrival of a multitude of Chinese EV manufacturers such as Xiaomi or Yangwang, Tesla’s competition significantly increased and as a result, they had to cut the prices of each car they sold. Normally, following the principles of Demand and Supply, this should’ve boosted sales- and this it did- but it significantly worsened profit margins, which meant that even if Tesla’s revenue significantly grew, their profitability may not reflect a similar level of growth. As a result, each quarterly earnings release of Tesla’s made its share price very volatile as reported revenue, car sales, and the link to profits revealed the impact of high competition, and market saturation, which reduced investor confidence in regards to the initially forecasted level of growth. This can be best seen using the example on July 24, 2024- where the revelation of reduced profit margins, delays in the robotaxi, etc. caused a plunge of the share price by roughly 12% (from ~250 USD to~220 USD).
However, Tesla is a special case in the way that its Earnings Releases affect the stock’s volatility more than any traditional stock. This is because there are so many different things released in earnings report calls that makes it easier to disappoint and crush investor confidence (Tesla is so much more than just a car manufacturer). Unlike ordinary car companies, Tesla also talks about revenue, earnings per share (EPS), profit margins, deliveries/production numbers, future guidance in the form of expansion plans, future market demand, factory plans, pricing of vehicles, developments in AI/Autonomous Driving such as self-driving or Robotaxis, and so many factors ranging from battery production to the visibility of Elon Musk’s confidence through Q&A sessions, make it much easier to worry investors if even one of these values is mismatched, leading to easier and more common sell-offs. Another problem with Tesla is its expectations and previous performance as a large, successful firm. Investors constant expectation that Tesla’s growth will match its initial levels also makes it easier for them to be disappointed and misled by the lack of fulfilled expectations. The best example to depict this is EPS. Normally if the expected EPS of $1 is beat with the company revealing their EPS to $1.10, it can cause the share price to rise due to a rally of confidence. But, in the case of Tesla, even if the market expects EPS to be $1, and it turns out to be $1.10, it may also cause the stock to fall because investors may have hoped for it to be $1.20, showing the power of secret hopes over calculated expectations, and how it can negatively impact such a large firm.
To conclude, Tesla is definitely a company that is a trailblazer in a field of technology, and just as much of a revolutionary in the stock market- a company that is built on investor confidence and expectations. And regardless of whether all of these factors (including the very words Elon Musk says) negatively or positively affect Tesla’s share price, it will still remain as one of the greatest trillion-dollar companies ever.
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