Tesla's market value has risen over 750% in the past year, valuing the electric vehicle maker and renewable energy company at around $800 billion (€657 billion) — more than the combined market cap of the nine largest car companies globally. This despite the carmaker's selling fewer than 500,000 cars a year, a fraction of what Toyota or Volkswagen sell.
Tesla's stock has stood out in what has been an incredible year for global markets. While the likes of Apple, Amazon, Zoom, Netflix and the other "stay-at-home" stocks benefited from the popularity of their products during the pandemic, no one reason explains Tesla's tearaway performance.
In fact, there are plenty, including Tesla's potential to disrupt the auto industry, rising demand for electric vehicles, and retail investors coming to the party or even pure speculation. But one reason must offer a lot of hope to climate activists. It's that investors are increasingly realizing that a company selling cars that don't run on polluting fossil fuels is a key piece of the puzzle in combating climate change.
Tesla's CEO Elon Musk, who has become the world's richest person thanks to the share rally, is essentially being rewarded for trailblazing a path toward a sustainable future — a journey that traditional automakers have also embarked upon, albeit reluctantly, after having postponed the inevitable for years.
Investors are betting that Tesla's colossal lead over rivals in terms of technology, design and brand value would help it dominate the market when combustion engines are eventually phased out as part of efforts by several countries to become carbon-neutral over the next two to three decades.
Their optimism has been backed by generous incentives from governments, including here in Germany, where Chancellor Angela Merkel last year snubbed traditional carmakers — a longtime darling of Berlin — by refusing to dole out any incentives for the purchase of conventional petrol and diesel cars. Instead, Merkel's largesse — a discount of up to €10,000 ($12,200) — was reserved for electric vehicles with a "view on the future."
Tesla is by no means an exception; shares in companies with stronger environmental, social and governance credentials have been lapped up by investors over the past few months. Solar power company Enphase, Chinese battery carmaker Nio and fuel cell maker Plug Power have all had a dream run rivaling or even eclipsing Tesla's.
There are encouraging signs even on the debt front. Green bond issuance shattered records amid global turmoil, surpassing $1 trillion last year, according to research company BloombergNEF. The massive demand for green bonds — which are used to fund environmental projects — meant that companies like Volkswagen and Daimler could raise money from the markets at a much cheaper cost to fund their electric push. This effectively means that investors are beginning to charge a premium for non-green bonds.
Smelling the coffee
Investors have largely been ignoring climate risks despite the economic damage from climate disasters rising in recent years. The International Monetary Fund has warned that investors globally have been underestimating the economic fallouts from climate change. It predicts natural disasters such as wildfires, floods, droughts and storms may cost $1 trillion annually starting in 2050.
But the COVID-19 outbreak seems to have forced investors to smell the coffee. The unprecedented economic damage unleashed by the pandemic shows just how costly being unprepared for major crises could prove to be.
It's a shame that we needed a pandemic of this scale to force investors to pause and think about the urgency to avert climate change. Let's hope this serendipitous realization survives well beyond the current crisis when oil producers and airlines return to their polluting ways with full force. The investor community still has a long way to go to burnish their green credentials.