It’s been a good week for Elon Musk and his electrical vehicle business Tesla. Earlier this week, after Tesla Inc.’s rocky road to being added on the S&P 500 Index ended in a victory, Musk’s net worth soared by about $7 billion overnight, however, the initial estimate capped at $12 billion.
As was the natural expectation after such a development, Tesla’s stock values rose dramatically. But the second wave of fortune accumulation has come sooner than expected.
This surge is largely due to Morgan Stanley’s upgrade of Tesla from an equal weight corporation to an overweight one. What this fundamentally means is that the existing weighted market capitalization of a company is lesser than it should be. The underlying implication here is that the company (and consequently its stocks) performs better than the estimates suggest.
Following this announcement, Musk’s net worth rose by another $9 billion following this week’s surge, bringing it up to $128 billion. With this, Musk has not only surpassed Mark Zuckerberg and Bill Gates, but he is also fast closing the gap with Jeff Bezos, the world’s richest person. Though Musk is still only $54 billion behind from having the same net worth as Amazon Founder Jeff Bezos but given to the astronomical rise in the Tesla stock value recently, it’s doesn’t seem to be impossible.
Elon may be the trailing behind Jeff Bezos but when it comes to adding net worth, Jeff Bezos is far behind Elon Musk who is dominating the list with over $100 billion addition since January. The net worth of Jeff Bezos has gone up by $67 this year.
Tesla: On the Verge of a Shift in Model
Morgan Stanley, the leading investment bank which hasn’t been very favourable towards buying Tesla stocks for the past three years changed their stance due to an expected shift in Tesla’s existing business model.
The company holds that Tesla Inc.’s current market capitalization does not account for the various technological and software businesses that are embedded in the corporation but are not very well known or widely used yet.
Their expert instincts suggest that these additional businesses will soon start accounting for a greater portion of the company’s earnings. Adam Jonas, the analyst behind the concerned projection, believes that Tesla now has the opportunity as a well-established car business to start building recurring streams of income by offering software subscription bundles.
About the matter, he wrote,
“To only value Tesla on car sales alone ignores the multiple businesses embedded within the company, and ignores the long-term value creation arising from monetizing Tesla’s core strengths, driven by best-in-class software and ancillary services.”
On Wednesday, Tesla’s stock prices were at $521 per share, however, Jonas has imposed a price target of $540 based on his analysis.
By 2030, Tesla’s services could account for 6% of its revenue and 10-20% of its total earnings before tax cuts and depreciation.
With Elon Musk continue to leapfrog all the bigwigs one after another, he has entered the league of giants, becoming the world’s second-richest person in terms of wealth. The possibility of him soon surpassing Jeff Bezos and snatching his position is still quite high, albeit will take time.
Musk recently slashed the prices of one of Tesla’s newest luxury cars in order to one-up the competitive price of a rival luxury sedan which is set to release in the coming weeks. However, the company has also made significant changes to their warranty and return policies which have left customers surprised.