Apple has generated a lot of buzz recently by becoming the first company to hit $2 trillion in market capitalization. Market capitalization, better known as market cap, is the current stock price multiplied by the number of shares outstanding. Put another way, market cap represents the total market value of the company.
Part of what makes this milestone so remarkable is that just over two years ago Apple became the first company to reach $1 trillion in market cap. As the late T. Boone Pickens might have wryly observed, the first trillion must have been the hardest, right?
One hundred years ago, U.S. Steel was the largest company in the United States. Although it continues to be publicly traded today, its market cap is only $1.7 billion, making it 0.1% the size of Apple.
Clearly, tastes and preferences change over time at both the consumer and industrial production level. Although steel is still heavily used today, it is much more commoditized than it was in 1901.
Advances in technology have allowed stronger and lighter metals such as titanium to gain market share. Nowhere is this fact truer than in the auto industry. Steel, once a major component of the frame and exterior panels, has increasingly been replaced with plastics and other metals to make cars lighter and more fuel efficient.
THE TESLA EFFECT
Speaking of cars, consider Tesla. In July of 2020, Tesla garnered a lot of news coverage for passing Toyota to become the largest automaker by market value in the world. But how many cars do they actually sell? Here are the largest market shares for North America in 2019:
- General Motors: 16.9%
- Ford: 14.2%
- Toyota: 13.9%
- Tesla: 1.3%
It seems hard to fathom how a car company with only 1.3% of the North American market could be the largest automaker in the world. But what if we consider market share growth? As in, how quickly has each company grown (or shrank) their piece of the pie? Here is the market share growth for 2019 (year over year):
- General Motors: -2.2%
- Ford: 4.0%
- Toyota: -1.7%
- Tesla: 39.4%
Tesla’s growth paints a substantially different picture, and perhaps partly explains why its stock has already doubled twice so far this year.
But is all that growth sustainable? That is truly the question for the likes of Apple and Tesla. The stories of the former market cap record holders would certainly indicate that there are limits. Just as workers at U.S. Steel could not have imagined that in a hundred years a business like Apple would hold the title of largest company, it is hard to imagine what the company holding this title 100 years from now will look like.
Note: Market cap figures, percentages, and North American automakers market share and market share growth data from Bloomberg.