By Eric Liu
The Rapid Rise of Tesla
Tesla Inc. shares soared to a historical record high of 1794.99 per share on July 13th, about one week before its release of second-quarter financials. Although the stock price fell in the following few days, its six-month average trailing market value exceeded $150 billion dollars for the first time ever. The stock gained almost 260% in just a year.
More importantly, Tesla reached its highest market value of 186 billion dollars and became the top of the auto manufacturers globally surpassing Toyota (Market value of 190 billion dollars). An auto manufacturer founded 17 years ago with an annual production of fewer than 370 thousand vehicles (data of 2019) exceeds the market value of a traditional company with annual productions of more than 10 million cars, Tesla has made history again.
As Tesla’s stock price soars, CEO Elon Musk is also receiving a big stock option incentive. Satisfying the requirement of a six-month average trailing market value of 150 billion dollars, Musk is eligible for the second Tesla option incentive of 1.69 million shares. Based on the strike price of $350.02 per option contract, Musk will gain a profit of 2.1 billion dollars selling the stocks, although these stocks are restricted to be sold in five years.
The first time Musk receives the incentive is only less than two months ago when the six-month average trailing market capitalization hits 100 billion. He received about 1.7 million shares of stock which valued more than 775 million dollars.
According to Musk’s contract with Tesla, he is not receiving any compensation and reward for ten years from January 1st of 2019. He will only receive an option incentive which is directly correlated to the performance of the company. According to Tesla’s six-month trailing market value, Musk’s option rewards are divided into 12 progressive targets. The first two goals which were already reached were 100 billion and 150 billion dollars. Each of the next target market value is another addition of 50 billion dollars. The total incentive in this contract includes 20.3 million shares of options which approximates to at most 56 billion dollars. This could be the incentive option contract with the highest value granted in history.
The Journey to the S&P 500
By Jun 26, Tesla has a market value of 262.82 billion dollars, overtaking many giants in the market.
For a company to enter the S&P 500, it is expected to meet certain criteria. Tesla already met the requirements of liquidity, market cap, and geographical location of headquarters in the U.S. Its biggest challenge, however, was positive reported earnings under GAAP standard for four consecutive quarters. With the newest quarter report, Tesla has made this true despite a large number of concerns due to the global pandemic. Therefore, Tesla is on the fast lane of entering the S&P 500. If Tesla is added to S&P 500, it will be the 15th largest company in regard of market cap in the S&P 500, placing between UnitedHealth Group and Nvidia.
The last time a “Super Large-Cap” been added to S&P 500 is when Facebook was added in 2013. This change will definitely have a large impact on the market. Adding Tesla to S&P 500 is signally a huge opportunity for this electric vehicle manufacturer. This might also bring a considerable amount of attention to the whole market of vehicles with sustainable energy. As talking about auto manufacturers, it is unavoidable to mention the new star of the market – Nikola Motors.
Nikola’s Competition with Tesla
Nikola is a start-up company located in Arizona founded in 2014, focusing on the development of new energy heavy trucks powered by hydrogen fuel cells and batteries. Nikola announced a challenge to Tesla (Tesla) Semi by launching its own new energy semi-trailer in November 2018. Interesting enough, Nikola Motors, along with its direct competitor Tesla, are both named after the famous Croatian scientist Nikola Tesla who had many major contributions to the field of electromagnetic and designed the modern alternating current (AC) system which is used in daily life and is a crucial part of the designing and production of motor vehicles.
Nikola was listed in an unusual way where they merge with a publicly traded special purpose acquisition company (SPAC) VectoIQ Acquisition Corp. (already listed with NASDAQ., Stock code: VTIQ). This move also made Nikola the world's "first hydrogen energy heavy truck."
At that time, Trevor Milton, the founder of Nikola, announced that the company had begun accepting orders for its newest pickup truck - badger, which is loaded with hydrogen fuel and battery packs and has a range of 600 miles.
The news was enthusiastically welcomed by investors as Nikola's stock price rose 103.7% and its market cap reaching 26.314 billion dollars.
However, Nikola's share price soon fell drastically. The company has brought much attention and arguments since before its IPO. The founder Milton has said that he is one of the few in the world who are able to surpass Elon Musk. He also expressed multiple times that the direct competitor of the company would be Tesla. Both Tesla and Nikola offer electric trucks, but the latter believes that energy networks are more important than trucks. Milton said that hydrogen production efficiency has been steadily improving, and costs have been declining, which will give hydrogen fuel trucks an advantage over battery-powered trucks charged in cities.
Much like the early stage of Tesla, Nikola is now facing many challenges. It has not yet delivered one vehicle and it is uncertain how long it will take for Nikola to start to make profit. Due to the business model of the company, the constructing and spreading of the hydrogen energy network will be crucial and decisive to the success of the company.
Sources: MarketWatch, Barrons, Electrek, Yahoo Finance, TradingView