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At the moment, there are not many names that have the same heat as Tesla on the stock market.
The electric car company officially surpassed Toyota Motor on July 1 to become the world’s most valuable car manufacturer. Their market capitalization now stands at $835 billion – which is much larger than the similar capitalization of the seven largest Japanese automakers combined.
It is worth mentioning that just about a year ago, Tesla’s market capitalization was just over $300 billion. Thanks to such a non-stop increase in stocks, CEO Elon Musk’s fortune has also increased rapidly. As of Friday, Elon Musk holds $230 billion, larger than the combined assets of his two predecessors, Bill Gates and Warren Buffett.
The recent Tesla stock chart is reminiscent of companies during the dot-com bubble of 1999 and Bitcoin’s meteoric rise in 2017. However, in the case of Tesla, Their sublimation is based on some factual basis.
The transition from internal combustion engines to electric vehicles is a real trend. Tesla’s business results are the clearest evidence for this statement. In the second quarter, profit from auto sales – excluding Tesla’s zero-emissions certification was 25.8%, up from 22% in the previous quarter and 18.7% in the same period last year.
Additionally, its second-quarter revenue almost doubled to $11.96 billion. Tesla delivered a total of 201,250 vehicles and produced a total of 206,421 vehicles. The company’s total net profit in the second quarter reached a record $1.1 billion.
By the third quarter, Tesla revealed it was able to sell 241,300 vehicles and produce about 238,000 vehicles, despite the other automakers seeing sales decline due to the impact of the global chip shortage.
This explains why investors remain unmoved as the company’s value approaches those of the tech giants.
However, expectations of a high growth rate cannot fully account for the exponential price increase of Tesla stock. It seems that some investors bought the stock in the belief that someone would buy it back from them at an even higher price.
But who are those “some investors”? The Nikkei reports that investors are probably betting on this stock in anticipation of a wave of buying regardless of the price.
The sentiment of investors with Tesla stock can be explained by the “Greater Fool” Theory which states that you can profit from investing as long as there is a fool out there than you. , willing to invest at a higher price. That means you can make money on overvalued stocks as long as someone stupid is willing to pay a higher price to buy it from you.
If the investor acted on the More Fool theory, investors would buy securities regardless of their quality. If this theory holds true, investors should still be able to sell stocks to someone “stupid” out there, who is also hoping to keep selling them and make a quick profit.
In some cases, though, the More Fool theory doesn’t work. For example, economic crisis and recession. In 2008, when investors held mortgage-backed securities, it was difficult to find a buyer when the market crashed.
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