Tesla stock: will the EV giant ever be worth $1trn again?

Tesla (NASDAQ: TSLA) stock has been absolutely pounded this year. Only back in April, the company was valued at a trillion dollars. Since then, it’s lost nearly two-thirds of its value!

In fact, the market cap of Tesla now stands below that of energy giant ExxonMobil, as I write. That’s symbolic, considering many believed the traditional oil industry represented the past, not the future.

This also caught my eye because I’ve been looking at the world’s largest companies by market cap across the decades. The list tells me how hard it will be for the electric vehicle (EV) pioneer to maintain its lofty valuation.

Changing of the guard

The world’s 10 largest companies by market capitalisation (excluding Saudi Aramco):

1980 2000 2021
IBM Microsoft Apple
AT&T General Electric Microsoft
Exxon NTT DoCoMo Alphabet
Standard Oil Cisco Systems Amazon
Schlumberger Walmart Facebook
Shell Intel Tesla
Mobil NTT Berkshire Hathaway
Atlantic Richfield Exxon Mobil TSMC
General Electric Lucent Technologies Tencent Holdings
Eastman Kodak Deutsche Telekom Nvidia

Source: Gavekal Research

I think the big takeaway from this table is that, save for Microsoft and ExxonMobil, the only constant is change. The fortunes of companies are forever shifting. It highlights how hard it’s going to be for Tesla to remain as one of the largest companies in the future. What the 2030 or 2040 top 10 list will look like is anybody’s guess.

However, it’s noticeable that the 1980 list is almost totally dominated by oil firms. The 2000 lineup is much more skewed towards technology companies. Then the 2021 list is almost totally “big tech”.

Considering the length and breadth of the global energy transition, it wouldn’t surprise me if a future list contained renewable energy firms. That could theoretically include Tesla, but there are many hurdles for the company to overcome in the meantime.

Tesla’s challenges

Tesla faces a number of challenges, but then that’s nothing new for the company. The early years were extremely rocky, with difficulties in financing and lots of staff turnover. And according to CEO Elon Musk, the carmaker was “about a month” from bankruptcy as it tried to ramp up Model 3 production some time between 2017 and 2019.

Today, it’s facing problems with the skyrocketing price of lithium, a crucial component in EV batteries. Musk has called the price of the soft metal “crazy expensive“, and believes a shortage of lithium is holding back the company.

This is critical as competition in the EV industry heats up. Tesla increased the price of its cheapest Model 3 earlier this year. What had once had an initial price of $36,000, now starts at $46,990.

However, both Ford and GM are releasing cheaper EVs and are expected to continue eating into Tesla’s market leading position in North America. And Tesla is facing extreme competition in China from domestic EV firms.

Despite all this, I have recently bought the stock. I think the long-term growth potential for Tesla remains compelling. And I believe the 65% drop in share price offers me a much more favourable risk-reward opportunity.

It would need a near tripling in the stock for Tesla to reach a trillion-dollar valuation again. Even as a bullish shareholder, I don’t expect that to happen anytime soon.

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