Is Tesla the new king of the hill?
The Silicon Valley upstart overtook long-time industry leader General Motors as trading on the New York Stock Exchange closed Monday afternoon.
Tesla had seemed poised for more than a week to take the lead, having already nudged past Ford earlier in the month. But Monday brought the Wall Street equivalent of a close horse race, GM and Tesla trading the lead almost by the hour. Finally, as the bell rang, the EV maker had a closing stock price of $312.39, a $9.85 gain for the day, leaving it valued at $50.95 billion, while GM closed up $0.26 a share, at $33.97, with a market cap of $50.89 billion.
The surge in Tesla's market performance comes at a critical time for the Silicon Valley automaker, which little more than a month ago had warned its finances were "on the edge" as it continued its costly investment in the launch of the new Model 3. The midsize electric vehicle, Tesla's first priced by the mainstream, is set to go into production in July.
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"It's one of the strangest things I have ever seen," said analyst David Sullivan, of AutoPacific Inc. "Wall Street being patient and rewarding a company that keeps losing money, quarter after quarter."
Sullivan wasn't the only surprised by Tesla's April run-up. In New York for a preview of the annual auto show there, Ford President Joe Hinrichs said he couldn't understand investors who normally put a premium on "a solid cash flow…like ours."
Indeed, the market had seemingly turned against Tesla when, in late February, it reported that it lost $121.3 million, or 78 cents a share, during the final quarter of 2016 — the automaker falling into the red during all but two quarters since it went public. Compounding investors' concerns: Tesla CEO Elon Musk warned that his company was "on the edge" and running short of the capital it needed to bring critical new product to market.
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Tesla did get a boost when it raised more money than expected — about $1.4 billion — from a recent stock offering. And, it turned out, Tencent Holdings, was one of the backers, the big Chinese investment firm subsequently reporting it had taken a 5 percent stake in Tesla.
Meanwhile, Tesla got another lift when it reported earlier this month that first quarter sales and production both reached record levels, though it still lags behind any of the traditional manufacturers. GM sold about 10 million vehicles last year, which works out to about 250 percent more vehicles each week than the 76,000 Models S and X battery vehicles Tesla moved in all 2016.
Of course, the real focus for investors is what happens once the Model 3 goes to market. CEO Musk has forecast sales will climb to 500,000 in 2018 — most of that from the small electric vehicle — and that it will grow to 1 million by 2020.
He has also announced plans for other new products, notably the Model Y, a compact crossover-utility vehicle based on the same architecture as the Model 3.
Of course, the challenge will be to deliver on plan. Tesla has yet to launch any product on schedule, the Model X running two years behind and then suffering serious quality problems that led influential Consumer Reports to warn potential buyers to beware.