Wall Street Dumbfounded: Tesla Stock Climbs Meteoric 80% in a Month

Logan Rosell, Scarlet Staff

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Tesla stock is up almost 80% in 2020 alone. That means that if you had bought one share of Tesla stock on January 1st, 2020 for $430, that same share would now be worth $748! You don’t have to be a stockbroker to see that that represents a huge swing in price.

A gain of $318 over about a month for a single share of a large company seems important, but companies on the stock market go up all the time, so why is this so special? To understand why Tesla moving 80% in just over a month is a big deal, you have to understand market capitalization. It is a fancy term for a simple concept. Market cap, as it is affectionately referred to, represents the theoretic worth of a company on the stock market. It is how much money it would cost to buy out every person holding shares of the company to effectively own Tesla. So, when the stock price goes up, logically it takes more money to buy the company. The trick here is that Tesla was already worth tens of billions of dollars.

At the start of 2020, when you bought your hypothetical share of Tesla for $318, the whole company was worth about 80 billion dollars. That alone makes it the third-largest American car company just behind Ford and GM. As you can imagine, it must be difficult for a company of this size to grow very rapidly because it has to add billions of dollars to its value to grow even 1%. Yet in only about a month Tesla grew by 60 billion dollars to a market capitalization of around 140 billion dollars. That makes it the United States’ largest automaker in history by market cap.

How did Tesla do this? Are they bigger than Ford or GM? To put it plainly, nobody is quite sure why Tesla grew by so much so quickly but what we do know is that this explosion in stock price did not happen because they are truly larger than the other US automakers.

Tesla sells less than 1% of the number of cars Ford sells, which means its massive valuation comes from somewhere else. Though most Wall Street analysts are baffled by the company’s performance, there are a couple of simple explanations that don’t rely on traditional valuation techniques like counting the number of cars produced.

The first reason Tesla is performing so well at the moment is that they just announced their profitable third financial quarter out of the last four. To provide context, the car manufacturer has spent most of its 16-year existence, or 64 financial quarters, losing money. The big change now is that hundreds of thousands of people are buying the more affordable Model 3 sedan. All this is to say that Tesla has consistently proved that there is a demand for electric vehicles and now they are starting to reap the benefits.

It would appear that the average consumer is also hearing about Musk’s business success. You can see this when you type “should I” into Google and one of the top autofill options is “should I buy Tesla stock.” This demonstrates a fascinating phenomenon where average consumers are hearing about and getting increasingly involved in the financial side of corporations.

Any way you look at it, Tesla hitting important milestones, and in doing so exposing electric vehicles and investing to a wider range of people, can’t be a bad thing.