Updated: Nov 5, 2021
Written by: Kealan Bane
Tesla (TSLA) becomes the sixth company to exceed a $1 Trillion market cap, a first for this company, closing up +$115.18 or +12.66%. The only other companies to exceed a $1T market cap are Apple (AAPL): $2.45T, Microsoft (MSFT): $2.31T, Google (GOOG): $1.84T, Amazon (AMZN): $1.68T, and a foreign oil company, Saudi Armco, worth somewhere around $2T.
The push to $1T is likely fueled by a recent order from one of the biggest car rental companies in the US, Hertz (HTZZ). This morning Hertz Car Rental released that they will be buying 100,000 Teslas in a $4.2B deal with the EV manufacturer. All said and done, this means that Hertz rental fleet will be 20% EV. On top of this, Hertz will also be installing thousands of Tesla charging stations in its locations as well as offering their customers free charging who book an EV rental before February 1, 2022. The order is expected to be fulfilled by the end of 2022 with cars appearing in Hertz locations as early as next month. Hertz will also be implementing an app that allows for a more rapid booking process for EV interested customers. As far as rental prices goes on the EV vehicles, a Hertz spokesperson said that renters can expect to pay around the same price as their luxury vehicle line. Hertz plans to have Tesla chargers set up in around 65 cities by the end of 2022 and and more than 100 cities with chargers by the end of 2023, according to Car and Driver and their report on this topic.
One very interesting thing to note about this massive order by Hertz is that in May of 2020, Hertz filled for chapter 11 bankruptcy. Chapter 11 bankruptcy allows for the company to stay in business while still working on a reconstruction plan to possibly save or turn the business around. It can been seen how this massive order by Hertz, the biggest EV order to date, can be part of a long reconstruction plan for the rental business as a whole.
TESLA (TSLA) EARNINGS RECAP
Tesla released earnings last week and to say the least, they were strong. TSLA beat both revenue and EPS expectations. More importantly, the EV giant posted sales of 241,300 electric vehicles in the past three months, ending in September, breaking all previous quarterly deliveries. Tesla has sold 627,500 vehicles so far this year, breaking the total sales for all of 2020 at 500,000 vehicles sold.
Looking at the massive growth Tesla is experiencing in all aspects of the business such as revenue, profitability, vehicle sales, vehicle price reductions, expansion, etc., it seems to be a valid claim to say that Tesla will continue their growth, if not grow faster. One piece of growth that I would like to specifically touch on is the vehicle sales growth. For vehicle sales to grow, people need to be buying the vehicles, obviously, but at what cost? Tesla can be expensive, but surely that is expected with a revolutionary vehicle, however Tesla is working hard on making their base model vehicles even cheaper, which in return increases their TAM (total addressable market). Yahoo Finance states that, "Third-quarter deliveries were driven again by the more affordable Model 3 and Model Y vehicles," showing that the price reductions are only working and increasing the TAM.
It seems very plausible that Hertz has looked deeply into Tesla and has likely come to a conclusion something along the lines of: Tesla is growing rapidly, their vehicles are in high demand and vehicle sales are only increasing at an eye opening rate, obviously people want to drive/own Tesla, as well as Hertz incorporating some of their business specific economic and investment models leading to the realization that this mass purchase of EV's can allow for growth and/or profitability for Hertz Car Rental.