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Tesla, Inc (NASDAQ: TSLA) is an autonomous electric vehicle maker that is rapidly revolutionizing the auto industry. Just a short while ago, the costs of electric vehicles were too high and the appeal was low. Tesla has been able to address both of these issues, making low cost, fun to drive vehicles as a result of innovative advancements in technology. The company has quickly become a household name and enjoys brand recognition that is seldom seen in the automotive industry. With a visionary CEO at the helm, Tesla is one of the most promising companies in the market today.
What is Tesla, Inc (TSLA)?
Despite being synonymous with Tesla, Elon Musk was not actually one of the company’s original founders. Instead, two engineers, Martin Eberhard and Marc Tarpenning were the ones that started the company in 2003. Musk first got involved as an early investor but joined the company as chairman of the board shortly after. The early vision for Tesla was to create a carmaker that was also a technology company. By investing in research and development, the company has over the years pioneered hardware and software that has led to revolutionary breakthroughs such as autonomous driving.
Tesla’s first vehicle was the Roadster, which targeted the higher end market. Production began in 2008 and the first delivery included a total of 147 vehicles, Musk leveraged these sales to invest in bringing costs down and also put his own money in to support the company through the startup process. With many investors interested in the potential of Tesla, a company led by the visionary behind ventures such as Paypal and SpaceX, the company finally IPOed in 2010.
In the following years, Tesla was able to bring costs down and enter new segments of the market. Lower costs vehicles such as the Model X, Model S, and Model 3 debuted in the following years, which helped broaden the mass market appeal of electric vehicles. With this expanded product line, Tesla has invested significantly into building out production capacity. Tesla’s original factory was located in Fremont, California at the site of a former GM factory. Since then, the company has expanded production into New York, Nevada, Texas, Shanghai, and Berlin.
Why Tesla, Inc (TSLA) Matters
One of Tesla’s greatest engineering feats was their tabless designed batteries that were announced in 2020. Originally, Tesla’s batteries were produced by Panasonic and other vendors. However, they brought production in-house in 2020. The patented design removes the need for a conductive metal tab that connects the battery to the main drivetrain in the car. This revolutionary technology has addressed two main complaints that many have regarding electric vehicles: their price and their lack of range. As the costliest part of electric vehicles, this battery innovation allowed Tesla to drastically reduce the costs of battery and as a result, sell vehicles at lower price points. The changes are expected to reduce the costs of production by 56 percent, allowing Tesla to compete with gasoline-powered cars. In addition, the battery will be capable of holding five times more energy and extend the range of vehicles by 16 percent
Unlike some automakers, Tesla’s manufacturing process is highly vertically integrated. While other manufacturers focus their research and development on engine production and outsource the production of other parts, Tesla spent a considerable amount of time perfecting the entire production process from beginning to end. Despite the ramp-up of production struggling due to issues in 2017 with Tesla’s seat manufacturing process for the Model 3, the problems have now been worked out. These growing pains bottlenecked production and put Tesla at the brink of bankruptcy between 2017-2019, but have been worth it in the long run. This business model allows for a smooth production process and more control over quality and delivery schedules, both huge benefits over their competitors.
Tesla, Inc (TSLA) Prospects
There is no questioning that electric vehicles are the future. While many traditional automakers are catching up and beginning to develop electric vehicles, there is no doubt that Tesla is well ahead in terms of brand recognition and brand loyalty. In 2020, Tesla held 18 percent of the market share for electric vehicles, with VW coming in at a distant second at 6 percent. While their position remains strong, many automakers have begun to invest significantly in electric vehicle technology. Even if competition increased, sales and revenues would likely continue to grow. Due to the growth of the overall sector in the coming years, a diminished market share would mean that Tesla would be able to get a smaller piece of a much bigger pie. In 2019, electric vehicles made up only 2 percent of worldwide car sales, with Europe and Asia leading the way. By 2030, estimates predict that electric vehicles will account for 31 percent of overall new vehicle purchases, with China and Europe accounting for forty-nine and twenty-seven percent respectively. Policy changes are being enacted all over the world to further speed up this process. Instruments at the hands of lawmakers include carbon taxes, city access restrictions, and cash subsidies for electric vehicle purchases.
While Tesla is most known for its vehicles, another key driver of growth into the future is likely to be subsidiary SolarCity. As one of the lowest-cost producers of solar energy in the United States, SolarCity is a key part of Tesla’s portfolio. Acquired by Tesla in 2016, the company is well integrated into Tesla’s other product offerings and fits in well with the company’s vision of transitioning the world towards a sustainable economy. While SolarCity ranked third in terms of market share for solar installations in 2020 and does not enjoy the brand recognition Tesla vehicles do, they are nevertheless a very important part of the company moving forward.
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Tesla is without a doubt one of the leaders in the global transition towards a more sustainable future. The company has been able to single-handedly change public perception of electric vehicles and has developed a cult-like following. The investments made throughout the years have come to fruition, with Tesla now able to bring down costs and produce at scale. As prices decrease even further through future innovations, adoption rates for electric vehicles will only go up. The long term growth prospects for the company are highly promising, and the groundwork that has been laid ensures that the company has a clear path towards sustained growth well into the future.
So far we discussed Tesla’s electric and solar future, it’s current leadership in AI is equally important as investigated in our Investing in Artificial Intelligence feature.
Baggio has been an investor in the technology space for over half a decade. He uses the perspectives gained from his work experience in the private, public, and non-profit sectors to guide his investment strategy, with a specific interest in the potential of emerging disruptive technologies.