Tesla and the State of the EV Market

By: Ami Weiss  |  May 15, 2024

By Ami Weiss, Staff Writer

In January 2020, Tesla was valued at $117 billion. By the end of that year, the company’s stock skyrocketed to $658.39 billion, and less than a year later, on October 25, 2021, Tesla reached a remarkable milestone: a $1 trillion market capitalization. However, Tesla’s meteoric rise during the pandemic has recently been tempered by a significant stock decline. As of early 2024, Tesla has been down 30% year-to-date (YTD), with its market capitalization currently around $500 billion. Amid these challenges, the electric vehicle (EV) giant has made a strategic $500 million investment in charging infrastructure while contending with the growing popularity of hybrid vehicles. 

Tesla’s ascent to a trillion-dollar market cap was fueled by a combination of innovation, investor enthusiasm, and financial instruments. At the heart of Tesla’s remarkable stock surge was what the Financial Times termed a “Tesla financial complex.” This complex consisted of various investment products like options, equity-linked funds, and climate tech-focused investment vehicles that played a pivotal role in Tesla’s rise. The relationship between Tesla’s stock and these financial instruments became symbiotic. As Tesla’s stature grew in the market, funds and derivatives tied to its stock generated significant returns, attracting new investors and further increasing its influence.

For instance, in July 2018, Tesla was holding in 106 exchange-traded funds (ETFs). By December 2021, it was part of 244 ETFs. Tesla’s inclusion in the S&P 500 in December 2020 further exposed funds tracking the index to its stock. Tesla joined with a 1.6% weighting and, by November 2021, accounted for 2.5% of the index, contributing nearly a quarter of its returns. Additionally, the average trading value of Tesla options exceeded $241 billion per day in recent weeks, far surpassing the $112 billion daily average for the rest of the S&P 500 (excluding Amazon). This explosion in options trading has been a critical driver of the broader market.

Retail investors and Elon Musk’s tweets played a significant role in driving Tesla’s stock to new heights. Social media discussions, coupled with Musk’s charismatic leadership, helped create a wave of retail investment in the stock. During the pandemic, the growing focus on climate change and the U.S. administration’s green energy push further contributed to optimism around Tesla. Record EV delivery numbers and ambitious expansion plans added fuel to the fire, propelling Tesla past the $1 trillion mark.

Despite its stratospheric rise, Tesla’s stock has seen a notable decline. As of early 2024, Tesla’s stock has been down 30% YTD, and its market capitalization has fallen to around $500 billion. Several factors have contributed to this decline. Rising interest rates and concerns about a global economic slowdown have made investors increasingly cautious about growth stocks. Companies like Tesla, which rely on high growth expectations, are particularly vulnerable to changing market sentiment.

The competitive landscape in the EV market has evolved rapidly. Legacy automakers like Ford and General Motors are investing heavily in their EV divisions, while new entrants like Rivian and Lucid Motors continue to attract attention and investment. Tesla has also faced production and delivery challenges, partly due to supply chain issues and logistical constraints. While production has increased, delivery delays and missed targets have raised questions about its growth trajectory. Furthermore, Elon Musk’s acquisition of Twitter (now known as X) and controversial public statements have made some investors uneasy. Concerns about his focus and management style have led to speculation that Tesla may struggle to maintain strategic direction.

Amid these challenges, Tesla recently made a strategic $500 million investment in its EV charging network. This move aims to address one of the most significant barriers to widespread EV adoption: charging infrastructure. Tesla’s investment will expand its Supercharger network, which already comprises over 45,000 chargers globally. This expansion will make Tesla’s fast-charging infrastructure more accessible to its growing customer base. In a strategic shift, Tesla announced plans to open its Supercharger network to non-Tesla EVs in the U.S. and Europe. This move aims to increase charger utilization rates and generate additional revenue. By improving charging infrastructure, Tesla aims to accelerate EV adoption and maintain its leadership in the rapidly growing EV market.

Despite Tesla’s significant investment in EV infrastructure, hybrid vehicles are gaining traction in the automotive market. Hybrid vehicles are increasingly seen as a pragmatic solution for consumers seeking to reduce emissions without fully committing to electric vehicles. In 2023, hybrids outsold EVs in some markets, offering a balance of fuel efficiency and convenience. Legacy automakers like Toyota and Honda have expanded their hybrid offerings, while Ford and General Motors are blending hybrid technology into their lineups. These strategies cater to consumers who are hesitant to switch to fully electric vehicles due to range anxiety or charging infrastructure concerns.

Tesla remains focused on pure electric vehicles but has acknowledged the competitive threat from hybrids. Its charging network expansion and production ramp-up aim to counter this trend by providing more convenient and reliable EV ownership experiences.

Tesla’s recent stock plummet and strategic investment in EV chargers reflect the company’s evolving challenges and ambitions. While it remains a leader in the EV market, Tesla faces increasing competition from both traditional automakers and new entrants. Moreover, the rise of hybrid vehicles presents a formidable challenge that requires a strategic response.

Ultimately, Tesla’s future success will hinge on its ability to navigate these challenges, maintain investor confidence, and continue delivering innovative products that shape the future of transportation. Whether the company can sustain its trillion-dollar momentum in a post-pandemic world remains to be seen, but its bold investments in infrastructure signal a strong commitment to staying ahead in the rapidly changing automotive landscape.