Gary Zhou 
With Tesla’s share price now above $2,000, those who claimed just about half a year ago that the company was overvalued when it rose to $420 will probably have irritated eyes after so much rubbing them in ever-mounting disbelief. If they were also engaged in short selling, all they have left to do is to buy a pair of red shorts, a hat with donkey ears, and sit facing the wall, because rarely have a bunch of smartasses made such fools of themselves on the stock market.
Tesla’s improved share price is not just based on the company’s outstanding performance; it reflects the markets’ growing interest in electric vehicles, to the point that a company like GM is considering spinning off its electric division. Meanwhile, awash with cash, Tesla is preparing to enter its next phase. What does it consist of? Over the last few years, Tesla has proven itself capable of carrying out its first mission: to design attractive electric vehicles, manufacture them on a large scale, make money from them, and consequently, revolutionize the automotive market and force other brands to change their strategy and go electric. The industry wanted to delay this transition for as long as possible, but Tesla has managed to accelerate it by making electric vehicles not just a more conscious, mature and economically sensible alternative, but more attractive in all senses.
The problem, of course, is that the major motor manufacturers have been asleep at the wheel for some time, and are now between five to ten years behind Tesla. They face a stark choice: either devote significant resources to try to catch up with the company, or simply consider licensing Tesla’s technology, something Elon Musk is perfectly willing to facilitate since the mission of his company, as I wrote about several years ago, was never to manufacture vehicles, but to accelerate the transition to renewable energy.
What impact would the announcement that one or more major motor manufacturers — experts in large-scale production but anchored in an obsolete technology called the internal combustion engine — were licensing Tesla’s technology have on the market? On the one hand, these brands would focus on what they know how to do: manufacture and sell cars. On the other hand, Tesla would receive significant revenue and could continue to be a good technology company that, incidentally, makes cars. And as a third spin-off, but no less important, the world would benefit from a reduction in emissions and a much more sustainable approach.
Anticipating that movement means making the company as well-capitalized as possible. Hence the announced stock split, which would multiply by five the shares in circulation and enable the entry of more investors at lower prices, and the more than possible entry into the S&P 500 index, which would make many investors who invest passively in indexed funds become shareholders of the company. Including Tesla in the S&P 500 is a logical next step: not only does it qualify, but it would be the largest company added to the index in its history, and above all, it is very representative of what the economy will be like in the future.
With other automotive brands desperately trying to fill the space left by Tesla in the market, the transition to the electric vehicle will soon affect everyone. Prices will soon be similar to or lower than harmful internal combustion engine vehicles, while we can expect innovations such as million-mile batteries that will in many cases outlive the vehicles carrying them. The United States could save some $70 billion dollars annually — not including the health benefits to its inhabitants — if 75% of its vehicle fleet were electrified.
Nevertheless, regardless of what some people want to believe, what’s really important about Tesla is not its electric vehicles. What is really important, apart from the fact that it has chosen to leverage technologies subjected to very strong economies of scale, will be its role in leading the energy revolution, one that begins not so much when most people decide to purchase an electric vehicle instead of an internal combustion-powered vehicle, but when they begin recharging that electric vehicle with the solar-powered energy generated by panels on the roofs of their homes. When the market begins to see the effect of offering reasonably priced domestic power generation alternatives and storing the surplus in batteries, Tesla’s current stock increase will reflect what the company really is: not an automotive company, but something much, much more ambitious.
Tesla’s next phase is not to sell cars, but instead to license automotive technology and sell energy solutions at all levels, both domestic and industrial. When the market truly understands what Tesla is and the consequences of its success, we’ll talk again.
Original Publication by Enrique Dans at Forbes.
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