Tesla Surpasses US$1 Trillion in Market Value
Hertz ordered 100,000 vehicles from the electric marque.
4 min
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Tesla Inc. crossed US$1 trillion in market value Monday, joining a select group of companies after its stock price more than doubled this past year on surging vehicle sales and rising profits.
Investors pushed the electric-vehicle maker over the line after Hertz Global Holdings Inc. ordered 100,000 autos to be delivered to the rental-car company by the end of next year, a bulk purchase that promises to expose more mainstream drivers to Tesla’s technology.
Apple Inc. Microsoft Corp., Amazon.com Inc., Google parent Alphabet Inc. are the only other U.S. companies worth more US$1 trillion. Facebook Inc. was part of the group, though its share price has since retreated. Tesla, which last week reported record quarterly profit, is worth more than the next nine largest auto makers by market capitalization combined.
“Wild $T1mes!” Tesla Chief Executive Elon Musk tweeted Monday afternoon. He added, of the Hertz order: “Strange that moved valuation, as Tesla is very much a production ramp problem, not a demand problem.”
Tesla’s stock closed at $1024.86, up more than 12% on the day and giving the company a market value of $1.03 trillion.
Tesla’s valuation has soared unusually quickly. It took less than two years for Tesla’s market value to grow from $100 billion to $1 trillion, according to Dow Jones Market Data. By contrast, it took Amazon more than eight years to cover that ground.
The run-up in Tesla’s share price has benefited Mr. Musk, the company’s largest shareholder and world’s wealthiest person. Mr. Musk’s Tesla holdings, including vested and unvested options, were worth roughly US$297 billion as of Monday, according to corporate-governance data company Equilar Inc. That is more than the valuation of Toyota Motor Corp., the second-largest automaker by market capitalization.
Hertz’s Tesla order is part of a broader effort by the rental company to give customers more battery-powered options on rental-car lots.
The Estero, Fla., company said that starting in early November and expanding through the end of the year, Hertz customers will be able to rent a Tesla Model 3 at airports and other locations in major U.S. markets and some cities in Europe.
Financial terms of the deal between Hertz and Tesla weren’t provided. Based on list prices, the cost to Hertz would top $4 billion; however, historically it is common for such bulk orders to include a discount for the rental-car company.
Electric vehicles will comprise more than 20% of the company’s global fleet with the current order, Hertz said Monday. The rental-car company said it introduced electric vehicles into its fleet in 2011.
The order represents a major chunk of Tesla’s annual production volume, which has been growing in recent years. The electric-car maker delivered nearly half a million vehicles globally last year and, based on performance through September, is in a position to deliver nearly 900,000 vehicles to customers this year.
While the Hertz deal should allow more people to drive Teslas, it comes as scrutiny of Tesla’s advanced driver-assistance features has intensified. On Monday, the head of the National Transportation Safety Board doubled down on earlier criticism, chastising Tesla for not addressing what the agency views as safety deficiencies in the company’s driver-assistance technology.
“[O]ur crash investigations involving your company’s vehicles have clearly shown that the potential for misuse requires a system design change to ensure safety,” NTSB Chair Jennifer Homendy said in a letter to Mr. Musk.
The NTSB investigates crashes and makes safety recommendations but doesn’t have regulatory authority. The agency has urged Tesla to take additional steps to limit how drivers are able to use the company’s advanced driver-assistance technology, which doesn’t make vehicles autonomous.
Tesla didn’t respond to a request for comment about the letter.
Hertz’s purchase could help elevate its profile as it anticipates relisting on a major stock exchange by the end of the year. Hertz shares, which currently trade over the counter, rose roughly 10% to $27.17.
Hertz is making the investment after emerging from bankruptcy under new ownership. It filed for bankruptcy in May 2020 as the debt-laden company suffered from a collapse in reservations.
The expansion into electric vehicles is part of what the company defines as “the new Hertz,” which focuses on electrification, shared mobility and a digital-first experience, the company said. Hertz’s new owners seek to overhaul the century-old company, implementing new software to improve inventory management and better forecast customer demand.
“Electric vehicles are now mainstream, and we’ve only just begun to see rising global demand and interest,” said Mark Fields, Hertz’s interim chief executive. Mr. Fields, a former Ford Motor Co. CEO, took the role earlier this month.
The company said it also has partnered with Super Bowl champion Tom Brady for a marketing campaign for the electric-vehicle rentals.
Hertz warned that efforts to electrify its fleet could be hampered by factors outside its control, such as the shortage of semiconductors and other constraints.
Tesla has a network of charging stations for its vehicles to augment those people install in their homes. Tesla users, at times, have complained about long wait periods at charging facilities.
“While we certainly have work to do in expanding capacity in some congested areas, average congestion on the network has decreased over the past 18 months,” Tesla senior vice president Andrew Baglino said on an earnings call this month. The Tesla charging network, he said, has doubled over the past 18 months and the company plans for it to triple over the next two years.
Tesla says on its website that it has more than 25,000 charging stations worldwide, principally in North America and Europe. Hertz said it is also installing thousands of electric-vehicle chargers in its network.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: October 25, 2021.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
Many people are spending more than they think as inflation stays elevated
3 min
Many people have a gap between what they think they spend and what they actually spend. This gap has widened recently as the financial and psychological effects of higher prices further strain people’s budgets.
Elevated inflation has rippled through American’s wallets for more than a year now. Some have cut back, while others have increased their spending to keep up. Credit-card balances were staying relatively flat for a while, but have jumped higher recently.
In the fourth quarter of 2022, the average household’s credit-card balance was $9,990, up 9% from in the fourth quarter of 2021, according to WalletHub, a consumer-finance website. Meanwhile, the average credit-card interest rate rose to a record high of about 20% last week, according to Bankrate.
Financial advisers say the larger amount of credit-card debt while rates are higher is one indication that some Americans are spending more than they think they are. This type of spending can reduce people’s ability to pay for important items down the road, such as college for a child or even fund their own retirement. More immediately, it will put people in costlier debt.
“If people spend too much on credit, they could end up trapped in a cycle of debt,” said Courtney Alev, consumer financial advocate at Credit Karma.
Spending less isn’t always possible when everything from groceries to travel is generally more expensive. Still, people can find ways to cut back if they understand more about why they are overspending and take a closer look at their finances.
Inflation on top of inflation
The power of compounding is a boon to investors, but not to shoppers.
Money grows much faster than most people expect because interest is earned on interest, said Michael Liersch, head of Wells Fargo & Co.’s advice and planning centre. A similar concept applies to inflation: Prices rise, and if inflation remains high, prices continue to grow on top of already-inflated prices, leaving people off guard.
“People get constantly surprised that their money isn’t going as far as they thought it would,” he said.
The cost of eating out and going for drinks continues to take Dina Lyon aback. Even though the 36-year-old married mother of one is dining out and ordering in far less than she did a year ago, some prices still give her sticker shock.
“The difference between cooking at home—about $10 for nice pasta and quick sauce from canned tomatoes—versus Italian takeout of $50 is astronomical,” said Ms. Lyon, who lives in Brooklyn, N.Y.
Outdated budgets
People tend to underestimate their future spending in large part because they base their predictions on typical expenses that come to mind easily, said Abigail Sussman, a professor of marketing at the University of Chicago Booth School of Business.
She and other researchers found that when people are coming up with predictions, they tend to think about what they usually spend money on—such as groceries, rent and gas—and base their predictions primarily on these expenses. They are less likely to consider atypical expenses, such as car repairs or birthday presents, the researchers found.
This pattern is particularly problematic when inflation is high, said Prof. Sussman. When the price of the same basket of items rises, people might not account for these price increases in their future budgets, she said.
Further, times of stress cause people to be less intentional about tracking their money, said Mr. Liersch. They might also spend more than they know they can afford to soothe feelings including anxiety and depression.
According to a recent survey by Credit Karma, 39% of Americans identify as emotional spenders (defined by the study as someone who spends money to cope with emotional highs and lows.)
Take control
You have a better chance of staying under budget if you become more aware of your spending instead of sticking your head in the sand, financial advisers said.
One thing Adam Alter, a professor of marketing at New York University’s Stern School of Business, does is create a line item in his monthly budget for one-off expenses, such as an unexpected medical bill. This gives him a cushion in his budget and enables him to more fully examine how much he is spending each month, said Prof. Alter, who has studied overspending.
People might also wish to include an escalating buffer into their budgets of say, 2% to 5% a year, to account for inflation, he said.
Jay Zigmont, a financial planner in Water Valley, Miss., looks at clients’ total take-home income from the year, subtracts everything they must spend money on such as their mortgage and how much they saved. The remaining number is how much they spent on discretionary spending.
In most cases, clients are surprised they spent so much, he said.
Once people know how much they spend, Britta Koepf, a financial planner in Independence, Ohio, suggests they practice mindful spending. Before any purchase, ask yourself if you really want or need what you are buying. Frequently, the answer is yes, but sometimes waiting five seconds will prevent you from overspending, she said.
You can also practice mindfulness by delaying purchases further.
“A lot of the time, if I tell myself that I will purchase it next week, I find that I am no longer interested a week later,” she said.
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