Weekend musings. I've been trying to figure out why I am more confident in Tesla's huge long term success than in any company I've ever invested in or been a part of. It comes down to three things:
1. The markets Tesla serves are vast and market trends now strongly favor Tesla. The EV space was seen as a small niche market until Tesla proved with the Model S that a long distance EV is not only possible but a much better experience than an ICE car. Aided by Dieselgate, market sentiment has now strongly switched to EV's being seen as the solution for meeting ever more stringent emissions requirements. The German automakers have capitulated, and my guess is that the looming Model 3 tsunami will cause the others, including Toyota, to eventually follow.
The same is becoming true in the market for utility scale battery storage. Forward thinking utilities are already installing battery systems instead of building new peaker plants. I have not picked up any sentiment that there is looming better solution to this or to smoothing out the delivery of energy from renewables.
The market sentiment in solar power is a little more muddled in the medium term until the future of residential net metering is sorted out, but again there are no alternate solutions to renewable power that have a chance of being a ubiquitous solution like solar.
2. Tesla has a compelling and defensible competitive advantage. This can be seen best in autos, where the unwillingness of the large competitors to embrace the long distance EV space for so long has allowed Tesla to innovate through multiple product cycles while the others are mostly just getting started. The resulting technological gap can't be closed just by throwing money at the problem, because it also requires focus and the time necessary to come up the learning curve. And what possible innovation can come from startups or the large auto makers that Tesla isn't already doing or could easily replicate with their engineering talent?
In the energy storage space, Tesla is beginning to reveal its competitive advantage as the low cost producer. But often overlooked is their vast experience with battery systems operating in real world environments and the reliability data that comes from this. This will provide comfort to the more conservative utilities as they are forced to adopt battery storage for regulatory and competitive reasons.
In the solar energy space, Tesla's main competitive advantage will be having a global, respected brand in what heretofore has been a very fragmented space. Solar City already has more residential systems installed in the U.S. than any other competitor. And combining battery storage with solar will be a necessity to be cost effective as retail net metering is gradually phased out. This same combo technology allows Tesla to offer an integrated solution at utility scale for solar power generation.
3. Execution. Many outsiders see this as a weakness of Tesla because of missed deadlines and the Model X production problems. But if you step back and look at the pace at which Tesla has engineered and delivered advanced product capabilities it is astounding. The fact is that, led by Elon, Tesla employees work longer, harder and smarter. And like Google, it is a place where smart young people want to work. In addition, Elon has been attracting executive talent such as in Finance and Manufacturing that are helping the company to mature its capabilities without slowing it down. And another advantage is that when Tesla has had execution missteps like the Model X it is willing to admit the issues and focus on fixing them. This builds confidence that Tesla can continue to out execute its competitors.
So what are the risks to this rosy scenario? I believe they mainly fall in the Acts of God category - something happening to Elon, massive earthquake damaging the Fremont factory, etc. There is still a short-term financing risk, but we have seen in the past 30 days how focused Musk and Wheeler are at mitigating this risk.
Putting my money where my mouth is, I added 25% to my long term Tesla holdings on Friday at $190. I invite
@Value Ev,
@myusername,
@brian45011,
@bonaire,
@mmd and the other doubters to shoot holes in my thesis. Fire away!
