Deep dive into the automobile industry, part 3
Since putting out my deep dive into the automobile industry, I’ve had several requests to also take a look at Tesla and the OEM space within the industry. As I had previously identified, car manufacturing is a competitive space that is getting even more competitive given a number of new electric vehicle (EV) manufacturers entering the space and given the additional capital investments needed for incumbents to transition to fully EV fleets. That being said, there is a tremendous runway for conversion from ICE to EVs over the next several decades as EV penetration is only ~3% globally currently and there may be other revenue opportunities from the EV transition. For eg., there may be a recurring software component that we spend on EVs that replaces some of the current maintenance spend we have on ICE vehicles as EVs have ~5x fewer parts that ICE vehicles and require less maintenance. Also, the value chain may shift if OEMs take Tesla’s lead into vertical integration of their supply chain (ie., owning both manufacturing and distribution vs other OEMs that outsource large parts of these functions) and expanding into other ancillary services like insurance. But isn’t all this and more already reflected in Tesla’s valuation? This is the question I often get and here’s my attempt to break it down. Keep in mind that Tesla as of Jan 28, ’22 is priced ~30% lower than it’s all-time-high of $1250.