Tesla Competitors in the Rearview Mirror
If imitation is the sincerest form of flattery, Elon Musk should be blushing red with embarrassment. Tesla Inc (NASDAQ:TSLA) competitors are stealing his entire playbook, causing me to ask the question: are Tesla competitors a threat to TSLA stock? I’m not yet convinced, but it’s an important question to consider. After all, increased competition might affect the Tesla 2020 stock price.
Until now, Tesla stock has been a one-way ticket to riches. The share price more than doubled in the last 18 months, and its 10-year chart shows a tenfold increase.
Investors live for that kind of growth.
But these copycats might prevent the stock from making a repeat performance, particularly because they are not random startups with zero credibility—they are established players.
Major car makers, leading technology companies, powerful energy conglomerates—all of them are gunning for Tesla. The carmakers are going electric and driverless. The energy companies are thinking about solar. And the smartest of either are looking at battery technology.
It doesn’t matter that two of these trends (at the very least) were started by Tesla.
That does not guarantee Elon Musk victory. It does not protect Tesla’s market share, and it most certainly does not guarantee that TSLA stock will continue its upward trek.
Being first doesn’t necessarily count for much unless, like Apple Inc. (NASDAQ:AAPL), you make a deep and lasting connection with consumers. Tesla’s future success depends on this crucial link because established companies have the advantage of deeper pockets and lower prices. So what we should be looking at is whether Tesla can survive a knockdown drag-out fight.
Tesla Competitors List: Automakers
You may notice that Tesla changed its official name from “Tesla Motors, Inc.” to “Tesla Inc” earlier this year.
That’s because the company bought SolarCity Corp (NASDAQ:SCTY), a rooftop solar provider, and expanded its vision beyond cars. As such, its competitors are in more than one arena.
Automakers are the most obvious. Eleven of them applied for permits to test driverless cars in California. However, the following six companies are the ones I am most worried about.
|Company||Market Cap||Share Price|
|Ford Motor Company||$44.3B||$11.06|
|General Motors Company||$51.1B||$33.41|
|Toyota Motor Corp||$176.1B||$107.97|
At $56.0 billion in market cap, Tesla’s valuation is comparable to these automakers. But don’t let that confuse you into thinking its market share is anywhere close to theirs.
Tesla produced 83,922 vehicles in 2016 compared to the 6.4 million produced by Ford Motor Company (NYSE:F). (Source: “Tesla Q4 2016 Production and Deliveries,” Tesla Inc, January 3, 2017.)
Some observers might think this comparison is unfair. After all, Tesla only makes luxury cars at this point. Therefore it can only be compared to other luxury car makers.
But looking at luxury sales independently doesn’t seem to paint Tesla in a better light. For instance, Bayerische Motoren Werke AG (ETR:BMW), better known as BMW, sold 2.37 million vehicles last year, roughly 28 times what Tesla was able to manufacture in the same time frame. (Source: “BMW Worldwide Sales Hits a New Record in 2016,” BimmerFile, January 9, 2017.)
Does this mean that we should dump TSLA stock as soon as possible? Not quite.
On a model-for-model basis, Tesla is selling just as many cars as BMW and Mercedes-Benz (if not more). The problem is that Tesla doesn’t have that many models. It went from the ultra-expensive “Roadster” to the still-really-expensive “Model S” and “Model X.”
Production numbers won’t pick up until “Model 3” deliveries roll out, which is supposed to be a big moment for the company—it is supposed to be Tesla’s ramp into the big leagues. Luckily, things are looking good on that score.
When the Model 3 was unveiled last spring, more than 400,000 pre-orders flooded in.
But, given that Tesla has yet to make 100,000 cars in a single year, you may be wondering how it plans on scaling production to meet Model 3 pre-orders. Well, that’s where the “innovation” part comes in.
Tesla factories are heavily automated. It took awhile to get them up and running, but soon the speed of automated production will increase the company’s output, lowering the cost per car and widening its margins.
Tesla’s competitors are moving toward greater automation as well, but I doubt they can reach the same level of efficiency. That is the downside of being an established player; existing protocols are too deeply embedded in the company’s infrastructure—its factories, processes, and union contracts—to be changed overnight.
This means Tesla has a real shot at making better electric cars for cheaper production costs.
Tesla Competitors List: Tech Companies
Self-driving technology is expected to disrupt the entire car market over the next decade. Tesla is keenly aware of this trend, and is trying to front-run it. Here’s how.
Model S vehicles delivered after September 2014 were fitted with self-driving hardware.
While they were not road-ready, they gave Tesla the freedom to update existing cars as driverless technology improved. And that is exactly what Tesla did.
It introduced “Autopilot” last year, a feature that enables partially autonomous features, such as highway steering and automatic braking. Every time someone engages Autopilot, data collected by that car is used to improve the “intelligence” of all the Teslas on the road.
This means that Tesla put itself years ahead of the competition by introducing Autopilot so early. It was a genius move that can guarantee Tesla success going forward, because driverless cars are entirely about the “intelligence” of the driverless software.
The more miles that a system is able to record, the more data it is able to process. The more data it processes, the better driver it becomes.
Think about it this way: would you trust a novice driver or an experienced one? The same logic applies to self-driving cars.
But, of course, Tesla is not the only company pursuing this technology.
Some of the big automakers are running their own research departments. Others are simply licensing the technology from specialists, such as those listed below.
|Company||Market Cap||Share Price|
|Uber Technologies, Inc.||$69.0B||—|
Of all the Tesla competitors, I’d probably rate Alphabet Inc (NASDAQ:GOOG) the most dangerous. Not only is Waymo (Alphabet’s self-driving subsidiary) a pioneer of self-driving technology, it is also spared the cost of manufacturing cars. This means it can become a lean, mean, profit-seeking machine.
Plus, Alphabet sees itself as an information company. Steering clear of hardware is in the company’s DNA and, since building cars is intensely hardware-driven, it makes sense that it would simply license out its software.
Working with multiple automakers also has its benefits. Waymo does not have exclusive agreements, so it can hedge its bets across the industry.
Apple is, by contrast, better at hardware than software. This could pose an entirely different threat to Tesla, because Apple can conceivably design something as elegant as the Model S.
Design is no small part of Tesla’s success. The company’s attention to design is something that distinguishes it from previous attempts to build an electric car.
Even alternatives like the “Nissan Leaf” and “Toyota Prius” can’t hold a candle to the slick, graceful lines of the Model S. Apple could probably dream up something as visually appealing, which makes it a company to watch in this space.
However, Apple would almost certainly have to partner with another firm. Some have speculated that Apple can afford to buy one of the big automakers. After all, it has a gigantic cash pile sitting in Ireland, collecting dust as we speak.
Why not put that money to good use? Maybe Tim Cook will decide to buy Ford, who knows?
In any case, Tesla is still miles ahead of the competition. Quite literally, the company is stacking up miles as its Autopilot program collects more and more data.
So, in the same way that consumers give preference to cars with better safety ratings, they might give preference to Tesla for having more miles logged in its driverless program.
Tesla Stock Prediction 2020
I didn’t even get to energy storage, in which there is no serious rival to Tesla. The company’s gargantuan battery factory in the Nevada desert has the biggest footprint of any factory in the world. That’s including factories that make airplanes and cruise ships.
These battery packs are essential to creating distributed energy networks. I only mention it to show that Tesla stock is uniquely positioned. A business like batteries, which can become a real cash cow in a few years, is not even Tesla’s main focus.
That’s how broad Elon Musk’s vision is for this company.
He really wants to revolutionize how we create, store, and use energy on this planet. Not in one city or state, but across the world. Coming from anyone else, it would sound like a utopian fantasy, but Elon Musk has a knack for matching technologies to the right business model.
That’s what I think will save TSLA stock at the end of the day. We can debate the finer points of Tesla stock analysis for days on end. The likelihood is that everyone will be stuck in the same positions as they were at the start—bears thinking it is a sham, and bulls thinking it’s the best thing since sliced bread. Only time will tell who is right.
For my part, TSLA stock could be headed to $500.00 by 2020.