by Staff Reports Money Morning, Money Morning
Special Report from Money Morning
— this post authored by Mike Stenger, Associate Editor, Money Morning
Dear Elon,
Congratulations – Tesla Inc. (NASDAQ: TSLA) stock is up 549% year over year. No doubt, five consecutive quarters of profit really riled up those short sellers you hate so much.
Yes, the future is bright. Real bright. But if you want it to stay bright, there’s a catch…
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You have to do it all again. Or one electric vehicle (EV) stock is going to eat your lunch.
Most successful CEOs will tell you their challenges never truly disappear once resolved. Problems manage to return bigger and more complicated, requiring new and more complex solutions.
Elon Musk knows it better than anyone else: Tesla’s journey has only begun.
The world is grateful for your pioneering efforts in the EV industry. You’ve put your money where your mouth is. But now that you’ve dipped your toes in the lava, it’s open season for EV stocks in 2021.
There is a “WANTED” poster in every vehicle manufacturer’s office with your name on it.
That is to say, it will not be nearly as easy to hit your 2020 numbers starting next year.
And one EV stock is coming to eat into your profits.
It very well might be the Tesla of 2021…
Why Tesla Should Be Worried
Craig Irwin, an analyst at Roth Capital Partners, recently told Reuters that Tesla’s current valuation is “like it’s operating in a vacuum.”
This is the biggest threat to Tesla revenue, typical for any first-mover in a budding industry. Competitors start seeing green, the market becomes increasingly saturated, and your share of the pie dwindles.
That’s why one good year – which was also a good year for EV stocks in general – will not cut it. Sure, Tesla hit its annual delivery target for 2020. Impressive. But what about all those times the company missed delivery targets from 2016 to 2019?
Investors are going to (or at least should) be looking at the big picture to get a sense of whether or not a stock is a buy. Their profits right now hinge on the half-million delivered in 2020 due to increased Model Y production. You also saw increased production at your new Shanghai, China, plant.
Without these, Tesla would have missed its targets again. What does that tell us?
If you want to succeed in this industry, you need more cars made in more places. And you need them fast.
Tesla’s last quarterly report showed a revenue record of $8.8 billion and a quarterly profit of $331 million. But that won’t be the norm if the company doesn’t scale at an epic rate.
Why?
Because 400 new electric vehicle models are hitting the road in 2024.
California is tightening its emissions restrictions so that by 2035, the state will be 100% EVs.
China won’t allow the establishment of new companies that make internal combustion engines.
Pollution credits are being used in various nations as incentive to drive EVs.
The world is changing. Tesla stock soared at a ridiculous rate because it was ahead of the curve. But the scales could tip just as quickly.
Hope for this $573 billion market cap company rests with the release of a Cybertruck in 2022, and later a semitruck.
Unfortunately, that Cybertruck is going to have more competition that your Model 3 and Model Y did. General Motors Co. (NYSE: GM) has a Hummer pickup on the way next year.
Rivian expects to deliver around 20,000 of its new R1T pickups. Lordstown Motors Corp. (NASDAQ: RIDE) will also release its long-awaited truck, the Endurance.
You could look at your autonomous vehicle projects as evidence of market dominance. But the jury is still out on that one.
Tesla is unique in that it’s one of the only companies proposing a “vision” model of autonomy, rather than light detection and ranging (LIDAR).
In your own words, “LIDAR is doomed” because it’s so expensive. Cameras are a cheaper, more practical, effective, natural way to self-drive.
You would rather an artificially intelligent camera be able to identify objects in real time than a laser. That’s an attention-grabber. But so is the Tesla-brand tequila you recently put out.
Meanwhile, most other autonomous driving companies – Uber Technologies Inc. (NYSE: UBER), Waymo and Toyota Motor Corp. (NYSE: TM), for example – employ the LIDAR technology. If you’re wrong, you could be buried.
If I’m a Tesla investor, I hope you’re right. But hearing about 13 autonomous Tesla crashes between 2016 and now doesn’t instill confidence.
Conventional motorcycling wisdom says your first fall comes right as you get comfortable on the bike. Likewise, Tesla stock might have risen much too fast to maintain.
Everyone needs a reminder to stay on their toes once in a while, especially if they’re busy digging into the earth’s mantle or flying to Mars.
EV investors right now are wondering whether it’s better to be a one-stop shop or a specialist. You’ve opted for the former – not just in EV terms, but almost universally in the future-tech world.
Well, there are some specialists out there that you may be concerned about.
Here’s one of the best EV stocks in 2021 making trouble for Tesla.
The Best EV Stock in 2021
One thing that should make you, Elon, nervous is traditional vehicle makers penetrating the EV market. These are companies that might not be on the fringes when it comes to innovation, but they do have enough capital, know how, and scale to make your job a nightmare.
Toyota Motor Corp. (NYSE: TM) is one of those. It’s right behind Tesla in market cap, at $230 billion.
The company announced just last week that it would be joining the electric vehicle market, having built an EV chassis for a car set to release an electric SUV in Europe in 2021. It has plans for North America further down the line.
Remember, this is the company behind the Prius and the Rav4 hybrid. The company sold nearly 100,000 Rav4s last year.
Though the Prius was revolutionary, its angular, modern look kept it on the fringes for a while. Now that Tesla has revealed a demand for electric cars with muscle and luxury, Toyota won’t go for “hipster” the next time around.
Climate change, on the other hand, is becoming less funny over time, for many governments. So if Toyota can learn from its mistakes, and from Tesla, it is in a good position to compete in the EV market.
Toyota’s deputy chief officer, Koji Toyoshima, said the company plans to sell 5.5 million electrified vehicles by 2025.
It also has 60 new electrified vehicles on deck – various hybrids, EVs, and hydrogen fuel cells.
Where it might really gain an edge is with its solid-state battery pack. It’s expected to charge faster and enable travel over longer distances than lithium-ion batteries used by Tesla. That alleviates concern over getting stranded in a Texas desert with no charging stations.
Toyota has taken its time with this direction, letting early movers test the market first. Its hybrid cars have also been compliant with emissions standards in stricter areas, so there was little rush diving into EVs.
Now that regulations and incentives are growing, Toyota is diving in. Unless Tesla can make a cheaper offering, as it has been trying to do, this company is going to take a big bit of the EV market.
EV investors can pick up some Toyota stock for $153 today. Compare that to Tesla at $638, and it’s a steal.
It also has an analyst growth target of $180 over 12 months. That’s a solid 17% pop. But as more information about its EV lineup is unveiled in 2021, expect upgrades all around.
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