Tesla Inc crossed $1 trillion in market value on Monday after offloading its biggest order from rental car company Hertz, a deal that will see electric cars top the entire auto industry in sales over the next decade. Strengthened the ambitions of the leader.
Tesla shares rose 14.9% to $1,045.02, making it the world’s most valuable automaker, according to a Reuters calculation based on its latest filing.
Tesla is the first carmaker to join the elite club of trillion-dollar companies that includes Apple Inc, Amazon.com Inc, Microsoft Corp and Alphabet Inc.
Most automakers don’t boast about sales to rental car companies, often at a discount to offload slower selling models. But for Tesla and its investors, Hertz’s decision to order 100,000 Tesla vehicles by the end of 2022 showed that electric vehicles are no longer a niche product, but will largely dominate the car market in the near future.
“Electric vehicles are now mainstream, and we are only just beginning to see increasing global demand and interest,” Hertz interim chief executive Mark Fields told Reuters.
Tesla Chief Executive Elon Musk has set an average annual sales growth target of 50%, eventually reaching 20 million vehicles a year. This would be more than twice the volume of current sales leaders Volkswagen AG and Toyota Motor Corp.
Consumer demand for electric vehicles is turning a corner in some key markets. The Tesla Model 3 was the best-selling vehicle of any kind in Europe last month, consulting firm Jato Dynamics reported on Monday.
Tesla was also making progress on Monday in resolving regulatory problems threatening its business in China. The company said it has opened a new data and research center in Shanghai to comply with government requirements that data collected from vehicles in China remain in the country.
However, Tesla faced new US regulatory pressure on Monday. The new head of the National Transportation Safety Board sent a letter to Musk asking why Tesla was rolling out its “full self-driving” software, even though the company has not officially talked about the safety of the NTSB’s automated driving system. But the questions have not been answered.
“This (hertz order) puts an exclamation point under guidance for 50%+ growth in deliveries. Another solid piece of evidence is EVs are going mainstream,” said analyst Craig Irwin at Roth Capital.
Tesla is now faced with the daunting day-to-day challenge of becoming a high-volume automaker that hasn’t been seen since the early 1900s when demand exploded for Henry Ford’s Model T.
Tesla is facing an order backlog for its vehicles and extended supply chain disruptions. Tesla’s Chief Financial Officer Zachary Kirkhorn cautioned investors during a call last week that Tesla’s near-term production targets hinge on resolving those disruptions and ramping up two new, sprawling assembly and battery plants in Austin and Berlin. Will happen.
“We have quite the execution journey ahead of us,” Kirkhorn said.
The opponents are not sitting still. Daimler AG’s Mercedes-Benz brand, General Motors Co., Ford Motor Co., and startups like Lucid and China’s Xpeng are all battling Tesla with new electric cars or trucks.
Investors and analysts are currently dealing with the challenges of the near future. Morgan Stanley raised its Tesla price target by 33% to $1,200 as the brokerage expects the electric carmaker to surpass 8 million deliveries in 2030.
The Hertz deal also underscored the power of the Tesla brand, as the rental car company emerges from bankruptcy and aims to revive its once-dominant brand. Hertz’s rescue has been led by a group of investors including Knighthead Capital Management, Certificate Opportunities and Apollo Capital Management.
“We absolutely believe this is going to be a competitive advantage for us,” interim Hertz CEO Mark Fields said of the Tesla order, due to be delivered by the end of 2022.
“We want to be a leader in mobility. … Gaining the customer experience with electrified vehicles is an absolute priority for us.”
Tesla’s most affordable Model 3 sedan starts at about $44,000, bringing the order to roughly $4.4 billion if the entire order was for its mass-market sedan.
Fields declined to say how much Hertz was paying for the order. Tesla was not immediately available for comment.
With the current order, Hertz said EVs will make up more than 20% of its global fleet. Fields cited the increasing number of EVs for sales and consumer interest in electrified vehicles.
Hertz also said it is installing thousands of chargers across its network. Customers who rent a Tesla Model 3 will have access to 3,000 Tesla Supercharging stations throughout the United States and Europe.
Tesla shares were up 11.9% at $1,018.35 in afternoon trading.
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