Tesla Stock Could Be Worth a Trillion Dollars

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Morgan Stanley analyst Adam Jonas rates

Tesla

stock at Buy. On Wednesday he increased his price target on shares to $810, the highest mark on Wall Street, from $540. Hitting $810 would make Tesla stock, by one measure, worth just under $1 trillion dollars.

That value puts Tesla in some elite company, there are only four U.S.-listed companies with market capitalizations north of $1 trillion.

The reason Jonas took his target price up Wednesday looks to be fourfold. First, Tesla posted better-than-expected delivery volumes for the fourth quarter. More deliveries now and in the future is bullish for any auto maker.

Tesla also recently raised another $5 billion in capital to support growth. Faster growth can help company valuation multiples.

Third, Tesla was added to the

S&P 500

Index in December. “In the days leading up to and following” Tesla’s addition, wrote Jonas in a Wednesday research report, “we have been fielding an increased number of calls from a range of investors who are conducting financial and valuation analysis….for the first time.” The S&P 500 addition has more people checking out Tesla stock which means more potential buyers. That can also boost a company’s valuation multiples compared with its own, pre-indexation, history.

Finally, Jonas increased his value for Tesla’s nascent mobility business, which includes things such as robotaxi services and self driving software sales. “The higher population of vehicle[s] in the Tesla [installed base] as a direct knock-on impact on our Tesla Network Services valuation,” added the analyst.

Tesla stock is up about 4.8% to almost $771 a share in midday trading. The S&P 500 and

Dow Jones Industrial Average

are up about 1.3% and 1.8%, respectively.

Jonas didn’t mention the outcome of the Georgia senate runoff election. But a higher potential for a blue wave election outcome, giving democrats control of both houses of Congress, is seen my many on the Street as more good news for green technologies such as battery powered cars.

At $810 a share, Tesla stock would be worth an aggregate of about $990 billion, just 1% shy of $1 trillion, based on 1.2 billion fully diluted shares outstanding.

Tesla used 1.1 billion shares when calculating third-quarter figures, but that’s an average count over the entire quarter. And as Tesla stock keeps rising, and Elon Musk’s stock options keep vesting. FactSet estimates the fully diluted shares at this point in time are more than 1.2 billion.

Tesla has, roughly, 950 million shares issued and outstanding. The difference between the two numbers is that the larger includes all of management’s stock-based compensation, as well as convertible debt, warrants, and restricted stock units.

Which number is the right one to use can be debated. But in-the-money stock options—ones that allow holders to acquire stock for less than the market price—will be converted into shares some day. This isn’t necessarily a negative for the stock price, though. Tesla investors, as a group, know about Musk’s compensation package, so that information is, theoretically, already reflected in the current stock price. The biggest impact in which share count to use is on how Wall Street, and the media, quote Tesla market capitalization.

For the other trillion-dollar companies, the impact of diluted share counts is less significant that it is for Tesla. The difference for Tesla, between basic and diluted shares outstanding, is about 25% of the current shares outstanding. The average for the trillion-dollar four horsemen—

Apple

(AAPL),

Amazon.com

(AMZN),

Microsoft

(MSFT) and

Alphabet

(GOOGL)—is about 2% on average.

That’s a bit of fun with numbers, but investors really care about the individual share price and what the forward outlook is. “Despite the extraordinary run in the share price, we continue to believe Tesla can outperform [versus the auto] sector in 2021,” adds Jonas in his report.

That’s what bulls want to hear.

Write to Al Root at allen.root@dowjones.com