Tesla (NASDAQ:TSLA) Has Nothing the Auto Industry Cannot Replicate at Will
$TSLA, $F, $FCAU, $GM, $VLKAY
Volkswagen (OTCMKT:VLKAY) announced at the weekend that its platform is set to manufacture 50-M pure EVs, and it has acquired the batteries for that vehicle production output.
Ok, Tesla (NASDAQ:TSLA) has mastered making EVs cars, but its technology is nothing that the rest of the auto industry cannot easily replicate, as Volkswagen announced Saturday.
The worlds mainline carmakers know that vehicles overall are a low-margin business, so the industry is pushing toward mobility-as-service undertakings.
And Tesla has no meaningful mobility business and will struggle to catch up in this area.
Tesla is growing, the company should deliver more than 2X as many EVs as it did in Y 2017, still that is a tiny amount of cars, and its financials are improving, as revenue grow to historic marks for the fledgling electric car maker.
Tesla is really very much less than that of its actual physical presence in the global auto industry. It has 1 car factory and 1 partially completed battery factory, in California and Nevada, respectively.
Its total manufacturing capacity is roughly 500,000 EVs annually, while the rest of the industry in the US alone can do 14-M. And yet its market capitalization is higher than giants Ford (NYSE:F) or Fiat Chrysler Automobiles (NYSE:FCAU).
This outsized impression of success has led Tesla cheerleaders to attribute a massive 1st-mover advantage to the company, arguing that Tesla somehow has a huge lead and that everybody else will need to play catch-up.
There are 2 Key problems with that thesis.
- The market for EV’s is currently tiny. Tesla has established itself as a force within a market for curiosities. The auto industry is not sure that there will be mass market for EV’s anytime soon, and
- That Tesla will get a pass on spending to remain competitive. For Tesla to do what Elon Musk sees, it will require new factories, and it will have to build them at 21st-Century prices, the investor money is not there for that mission.
Tesla and its CEO Elon Musk are addicted to reinventing the wheel.
A massive investment in automated assembly at its Fremont plant failed in Y 2017-2018. Meanwhile, GM (NYSE:GM) upgraded its Orion factory in Michigan to build the Chevy Bolt electric car by reinforcing an existing assembly line to handle the heavier weight of vehicles with electric batteries and by adding a battery pack entry point and installation process. That was it, and the same line still builds cars with gas tanks.
The traditional automobile business does not consider electrification to be a big deal.
Electric vehicles have been around for 100 years. Tesla under its engineer founder, and the financier Musk re-branded the electric car, making it sexy and fast rather than virtuous and under-powered. But swapping gas-engines for electric propulsion is not a heavy lift.
Up to now, the automobile industry avoided it because EVs cost a lot more than gasoline powered cars, achieving long-range with EVs is challenging, and the recharging infrastructure is light and consumer demand is slight.
Regulatory pressures and a rapidly expanding auto market in China forced carmakers to rethink EVs, but the economics are still there and not worked out. No one is sure if EV net profit margins will materialize, even though Tesla often boasts 20%-ish gross margins.
Now 2 pivots have occurred in the more futuristic area of auto-mobility:
- The shift to self-driving cars. This is the electric car of the moment, as compelling as EV’s were 10 years ago. Billions of dollars in value are now being attached to serious autonomous efforts from GM’s Cruise division and Alphabet’s Waymo, and
- Is mobility as a service. Much of the M&A activity in the industry is now around alternatives to the automobile and is focused on the highly urbanized environments of the future, which could be highly car-unfriendly. Ford just bought a San Francisco scooter startup, Spin, and has already acquired a ride-sharing service in Chariot. GM has developed a ride-hailing/sharing service, Maven. And various other car companies are doubtlessly planning to use the massive amount of cash they have made in selling big SUVs for the past few years to make their own moves.
Tesla has been talking about a networked transportation service, but it does not have anything so far. Plus, the very traditional own/lease model for its cars is incompatible with the notion that customers will want to allow strangers to borrow vehicles that go for $50,000-$150,000. Sharing cars is a turnoff!
Tesla is the first new entry to come along in decades. But it does not have a flexible business model, and if anybody is going to play catch-up on mobility-as-a-service, it is probably going to be Tesla, and the company may not succeed other than be another flash in the Silicon Valley’s pan.
Tesla has upped electric-car game since Y 2014, that may be all that it is meant to do. If EVs are the future say in 50 yrs, the big players will make it happen.
|NASDAQ:TSLA||335.07||12 November 2018||-15.44||348.37||349.78||331.17||5,643,368|
|HeffX-LTN Analysis for TSLA:||Overall||Short||Intermediate||Long|
|Neutral (0.20)||Bullish (0.26)||Bullish (0.27)||Neutral (0.06)|
Have a terrific week
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