Tesla & the Psuedo-Tech Bubble
Despite producing significantly fewer vehicles, only producing 5% of the number of cars produced by Volkswagen, why is Tesla the largest auto company in the US by market cap and the 2nd largest in the world?
1. Shown signs of profitability
Tesla still didn’t turn an annual profit in 2019. But it was better than the $1 billion loss the company posted in 2018. In fact, Tesla finished the year with back-to-back profitable quarters.
2. Superior Tech- Patents
Companies with better tech can make more profit in the long term. EV Patenents are completely different from Gasoline Engine Patents and thus it leapfrogs the large gasoline engine patent portfolio of traditional auto companies. Key EV technologies are Batteries, Control and Autonomous Driving none of which are the core competency of traditional auto manufacturers. Tesla’s success will continue due to its key investment in EV technologies very early on.
3. Strategic Partnerships
The China Factor
The Chinese government has never gone so out of the way to help a foreign company. The Shanghai Gigafactory was paid for by the Chinese banks at a very low interest rate. China is one of the biggest proponents of renewable energy and EV is a critical part of that. Also, bring real competition in Chinese markets would force local companies to become globally competitive.
Is it overvalued?
Car Company or a Tech Company?
The lower the marginal cost, the more Tech a company is. Each additional account on Facebook and Netflix costs almost 0, while the same is not true for producing a car.
With the ongoing development of autonomous driving, it surely has a Tech component to it. Maybe it can leverage its ecosystem like Apple, another “Tech” company that does not have a 0 marginal cost of its offering. But, Tesla is walking a path no one has walked before, inventing an industry.
