Tesla’s shares have reached a new record high, ending the day at US$547.20 per share, an increase of $36.70 per share (7.19%). Even more impressive is that rise continued in after-hours trading, meaning Tesla will open tomorrow as the first American automaker to surpass the US$100 Billion market cap. Despite competitors like Ford and GM being more than 100 years old, Tesla has achieved this in just 16 years.
As recently as October, Tesla stock was worth just $231.43, showing just how much of a run the company is on. In a previous post last week, I detailed why the share price is going nuts right now, but now I want to focus on the future potential of the company that could see that continued growth for decades to come.
The price of any stock represents a combination of their fundamental and technical value. The fundamental is an amount derived from the intrinsic value of the company, like the number of cars they can ship and the profits derived from selling those cars. The technical value is a representation of how the market feels about future prospects of the company.
While other auto manufacturers certainly ship many multiples of what Tesla is currently doing, it’s important to look at the trajectory of Tesla’s business, not the current position.
Right now Tesla is a market leader in a number of key areas:
- Battery chemistry, efficiency and manufacturing scale
- Electric motor design
- Vehicle management software
- Infotainment UX
- Connectivity and software updates
Probably their most important effort is their work in chip design with HW3 and the computer vision space which is enabling them to chase autonomous driving faster than anyone else.
Right now there really is no clear second place in EVs or Autonomous driving, the two big frontiers that’ll change the transport industry to be unrecognisable over the next decade.
Legacy car manufacturers are finally realising that EV is the future, with almost every one of them announcing future models. The problem is they aren’t moving fast enough. Many car companies are waiting for EV sales to consume a substantial % of vehicle sales, so they try to hang on to whatever revenue they can from falling vehicle sales of combustion engines.
The problem with that strategy is that if you went 100% after Tesla today, you’re starting 5 years behind and catching up is expensive, really expensive, if possible at all. If you don’t have an EV that can drive itself in the next few years, your sales will fall off a cliff. This shift will be so rapid, so dramatic that large name brands will absolutely go out of business because they didn’t learn from the Blockbusters of the world.
If you work for an automotive company, I encourage you to share this post with your business, have those difficult conversations with your boss today because it will be your job on the line in the future if they don’t make the right decisions today.
Tesla has managed growth fairly carefully, which means they’ve been saying no to a lot of opportunities in fear of growing too fast and stretching themselves too thin.
Everyday Elon’s Twitter replies are full of people suggesting great improvements to their vehicles and we’ve seen a consistent flow of user-generated ideas actually implemented in software updates, improving the ownership experience, which increases word of mouth and ultimately sales.
Some of the biggest opportunities are yet to come:
Tesla the services company
Musk has already spoken about an autonomous fleet of Tesla vehicles coming to compete (or kill) Uber, with a significantly reduced operational cost (minus the driver).
What hasn’t been spoken about is the opportunity for premium ridesharing experiences. One obvious revenue opportunity is for pay-to-play services in the car during the trip. Want to watch Netflix, you could pay, or better yet, if a service provider like Foxtel wants to have their app available in the car, they could pay to be on the Tesla platform.
When we can watch movies in the car, it’s possible Tesla could offer a premium movie experience, where like airlines and hotels, they get access to the latest movie releases, ahead of the TV/Blu-ray release window. This would come at a cost, purchase through the app or through the in-car display and if you’re in for a 3-hour drive, say Wodonga to Melbourne, it’d be perfect.
Tesla the data company
With all research and development, Tesla is pouring into AI in the form of computer vision, their ability to train a model on recognising things in the real world could be incredibly valuable to local councils and city planners who would love data about traffic congestion, road issues and even emergency services where a Tesla drives past an accident.
Organisations are increasingly becoming aware that one of the greatest risks to employee safety is when they get behind the wheel. Tesla has already indicated that Autopilot driving is safer (almost 9 times safer), than humans.
As Tesla improves the safety and shares more data to prove it, the case to buy a fleet of Tesla vehicles to keep employees safe (along with lower running costs) will get stronger and stronger. Right now Tesla sells vehicles one at a time, but this would tip the scale to see 20, 50 or even 100 at a time.
Each Tesla vehicles are fairly different, especially that Cybertruck, but they all have two things in common, performance and great range. Something Tesla could and probably should experiment with is creating a sub-brand that goes after the lower-end of the market, the $20-30,000 EV.
With batteries still the single biggest cost component of an EV, it’s likely that will have to be downsized to reach those kind of numbers. While Tesla has better efficiency than anyone else, there’s no getting away from a smaller battery simply would offer less range.
Tesla may also consider that a large portion of the time, commuters travel alone, so there’s likely an opportunity to deliver a small car, for just 1 or 2 people, similar to a Smart Car.
Tesla the Experience company
Typically when it comes to navigation, the goal is to find the most efficient route from A to B. When you don’t need to pay attention to the road, there becomes an opportunity to take in much more of the great landscape we have around us.
Tesla could easily create ‘experiences’ that takes you on the most exciting or the most scenic routes, which could then take you to the best place to eat (and drink). The prioritisation of which businesses get recommended could also work like Google search result, some sponsored, some organically driven or based on user-ratings.
Another smaller, but still important potential market is for this small window of time where we still have steering wheels in our cars. As people come to terms with giving up the steering wheel, Tesla could encourage people to take their vehicles to the track.
Understanding perfectly the vehicles own capabilities, the car could teach the driver to find the perfect racing line, hit the braking market, then apex and finally accelerate out of the corner for the best lap time. In theory, a Tesla could map a circuit and make these recommendations, simply by scanning during a single lap.
Tesla the charging company
Not waiting for Government incentives, Tesla did what no other automaker did, which is rollout their own charging infrastructure across the world. While the Supercharger network is growing steadily, Tesla isn’t the only game in town.
If Tesla were to install solar farms, collect the power in Powerpacks and have vehicle charging come from the batteries, they have an opportunity for that to be a profit-generating part of their business. Right now they draw power from the grid (hopefully from a green energy provider) and charge at a rate of $0.40c per kWh.
Should Tesla decide to go after the entire EV market (even provide different connectors), they could really dominate the charging landscape as well.
These are just some of the possible avenues Tesla could grow their revenue streams in the future, there are many, many more.
If you have ideas, please leave them in the comments below.