Market capitalization is an easy way to determine the value of a publicly traded company. You simply add up the total market value of all the outstanding shares of the company.
While there are a ton of highly valued companies out there at the moment — the stock market has been on a nearly uninterrupted tear for months — only a few have reached the truly elite level of having a market capitalization above $1 trillion.
There is Apple, Microsoft, Google-parent company Alphabet, and of course Amazon. Facebook closed above $1 trillion in market capitalization this summer before its stock price was pummeled by a series of scandals that demonstrated how it hijacks people’s brains, is really bad for democracy, and is apparently unapologetic about it.
Notably, you don’t see any automakers on that short list. You’re about to though: Tesla just breached a $1 trillion market cap for the first time.
This is great news for small Tesla shareholders like me, and even better news for Tesla’s biggest shareholder Elon Musk. Still, Musk was a little trepidatious about the company’s most recent share price surge.
Park of the reason for Tesla’s latest share price increase was that it landed its biggest-ever order. Hertz, the car rental company, ordered 100,000 brand new Teslas to join its fleet.
An order of 100,000 vehicles is nothing to sneeze at under any circumstances. Yet, market analysts pegged the reason for Tesla shares’ 12.7 percent climb to end the day at $1,024.86 not only on a huge order, but also on the fact that such a huge order going to a major car rental company demonstrates that electric vehicles have reached mainstream status.
Probably won’t hurt either that Tesla is going to get a lot of free advertising when rental car customers get behind the wheel of a Tesla and find that it handles like a rocketship without all the guilt of burning the remains of ancient life forms.
While Elon Musk did celebrate a little in his Twitter feed, referring to the Hertz deal, he also said, “Strange that moved valuation, as Tesla is very much a production ramp problem, not a demand problem.” Indeed, even pre-Hertz deal, Tesla hasn’t seemed to have much of a problem moving its vehicles once it manages to get them assembled.
Reaching $1 trillion in market capitalization is the big headline here. After all, only about a dozen U.S. companies have ever done it before, and even when you look at the ones that have, an EV maker seems to be in a category of its own.
Yet, the Hertz deal that gave Tesla stock the push it needed to climb over the $1 trillion mark was responsible for another impressive milestone all on its own: It was the largest purchase of electric vehicles in all of history. Tesla also achieved another little distinction very recently here as its Model 3 sedan became in September the first fully electric car to top overall new car sales in Europe.
Can Tesla sustain its monumental stock gains and stay on the right side of its $1 trillion market capitalization? Only time will tell, and there are always going to be some valleys among the peaks in any stock’s performance. But analysts seem to have an optimistic view: Morgan Stanley, for instance, recently boosted its Tesla price target to $1,200 per share.
As for the rest of us, I guess we can all look forward to renting a Tesla sometime in the near future to give it a try before taking the big plunge as a buyer. Or maybe even to getting in on the Tesla stock bonanza.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at email@example.com.