How you classify a company like Tesla (Tesla Stock Quote, Charts, News, Analysts, Financials NASDAQ:TSLA) might seem like a none-too-important distinction — put TSLA in whatever industry category you want and the stock would probably still have shot to the moon.
But it’s actually a big deal, says portfolio manager Paul Harris, since once you frame Tesla not as an automotive company but a tech operation, the strengths it has over its competitors become crystal clear. And what’s most evident is Tesla’s wide technology lead over other carmakers, Harris says.
“We can banter back and forth about valuation, but Tesla’s the iPhone and everybody else is BlackBerry and Nokia, effectively,” said Harris, partner at Harris Douglas Asset Management, who spoke on BNN Bloomberg on Friday.
“When you look at them, their battery technology is way better than anybody else’s, when you look at their software, their software in the car is way better than anybody else’s. They’re way ahead of anybody else on those things,” he said.
“I think that’s how you have to think about it,” Harris said.
Fresh off CEO Elon Musk’s coronation as Time Magazine’s Person of the Year, Tesla’s stock opened lower on Monday and has pulled below the $1000 mark for the first time in weeks. The trillion-dollar market cap company is still likely to richly reward shareholders this year, however, with the stock currently up about 36 per cent for 2021.
It’s only been a couple of years but Tesla and Musk seem now far removed from the days when both were considered questionable commodities for investors to be backing. In 2019, Musk was ironing out a settlement deal with the US Securities and Exchange Commission over flagrant Twitter use when he mused about taking Tesla private. And Tesla itself was struggling with production numbers while profitability still seemed far down the road.
Back then the thought was, here we have a very bright man who may not have the stability (re: pot-smoking on national radio) or business savvy to step up with the likes of GM, Toyota and Volkswagen, companies that not only had decades of experience over Tesla in the highly competitive auto space but who were churning out cars by the millions versus Tesla’s meagre hundreds of thousands.
Yet here we are at the end of 2021 and the story is quite different. Tesla ended its third quarter with an annual run rate production of one million vehicles, quarterly revenue of almost $14 billion and, yes, profitability at $1.86 per share. And Musk has quieted his critics while at the same reaching richest man in the world status, even as he’s selling $10 billion worth of Tesla stock and musing on Twitter about quitting his job to become “an influencer full-time.” Synopsis: the world seems to have gotten used to Musk’s antics and realized that Tesla is far from in trouble under his leadership.
Harris says even though it’s less germane to Tesla’s technology dominance, the company’s cars are better looking, too.
“The shell of the car is [just] the shell of a car. I mean, it’s a much nicer shell than the [Chevy Bolt], it’s much better looking. So, you’ve got a better looking car and they’ve got way more data from all the people driving their cars than anybody else. And they’ve got battery technology that’s way ahead of everybody else. When you look at iPhone relative to these other companies, you can see what happened to them,” Harris said.
“The other problem is that all these other companies have these legacy assets, and I don’t know if they’re valuable or not — they probably are to a certain degree, but you have to deal with those legacy assets. And on top of that the combustion engine has something like 2,000 moving parts and then Tesla car electric car has 20. It’s very different,” he said.
Tesla’s record third quarter revenue also came with some strong guidance from the company which said it can hit 50 per cent average annual growth in vehicle deliveries over upcoming years. For the Q3, Tesla delivered 241,300 electric vehicles and produced 237,823 vehicles.
Tesla said it’s dealing with supply constraints particularly related to the global semiconductor shortage but it underlined in its third quarter comments that Tesla’s ability to sell more vehicles will help accelerate the overall transition from combustion to electric vehicles worldwide.
“EV demand continues to go through a structural shift. We believe the more vehicles we have on the road, the more Tesla owners are able to spread the word about the benefits of EVs,” said the company in its third quarter press release. “While Fremont factory produced more cars in the last 12 months than in any other year, we believe there is room for continued improvement. Additionally, we continue to ramp Gigafactory Shanghai and build new capacity in Texas and Berlin.”