Tesla Inc (TSLA.O) surpassed $1 trillion in market value on Monday after landing its biggest-ever order from rental car company Hertz, a deal that reinforced the electric car leader’s ambitions to top the entire auto industry in sales over the next decade.
Reuters reports that Tesla shares surged as much as 14.9% to $1,045.02, making it the world’s most valuable automaker according to Reuters calculations based on its latest filing.
Even Tesla Chief Executive Elon Musk expressed surprise at the velocity of the surge. “Strange that moved valuation, as Tesla is very much a production ramp problem, not a demand problem,” Musk tweeted in reply to a comment by Ross Gerber, co-founder of the investment fund Gerber Kawasaki and a Tesla shareholder.
Tesla now faces the daunting day-to-day challenge of becoming a high-volume automaker growing at a rate not seen since the early 1900s when demand exploded for Henry Ford’s Model T.
Tesla is coping with an order backlog for its vehicles and extended supply chain disruptions. Tesla Chief Financial Officer Zachary Kirkhorn cautioned investors during a call last week that Tesla’s near-term production goals will hinge on resolving those disruptions and ramping up two new, huge assembly and battery plants in Austin and Berlin.
“There is quite an execution journey ahead of us,” Kirkhorn said.
Rivals are not sitting still. Daimler AG’s (DAIGn.DE) Mercedes-Benz brand, General Motors Co (GM.N), Ford Motor Co (F.N), and startups such as Lucid (LCID.O) and China’s Xpeng (9868.HK) are all battling Tesla with new electric cars or trucks.
Investors and analysts, for now, are looking past the near-term challenges. Morgan Stanley boosted its Tesla price target by 33% to $1,200 as the brokerage expects the electric carmaker to surpass 8 million deliveries in 2030.
The Hertz deal also underscored the power of the Tesla brand, as the rental car company emerges from bankruptcy and aims to revive its once-dominant brand. Hertz’s rescue is led by a group of investors including Knighthead Capital Management, Certares Opportunities and Apollo Capital Management.
“We absolutely believe that this is going to be competitive advantage for us,” interim Hertz CEO Mark Fields said of the Tesla order, due to be delivered by the end of 2022.
“We want to be a leader in mobility. … Getting customers experience with electrified vehicles is an absolute priority for us.”
Tesla’s cheapest Model 3 sedan starts at about $44,000, making this order worth about $4.4 billion, if the entire order were for its mass-market sedan.
Fields declined to say how much Hertz was paying for the order. Tesla was not immediately available for comment.
With the current order, Hertz said EVs will make up more than 20% of its global fleet. Fields cited the rising number of EVs for sale and consumer interest in electrified vehicles.
Hertz also said it was installing thousands of chargers throughout its network. Customers who rent a Tesla Model 3 will have access to 3,000 Tesla supercharging stations throughout the United States and Europe.
