Tim Dohrmann sent me a link to an Australian Financial Review article last night. Since you’re a Money Morning reader, I’m sure you’ll agree with me when I say Tim’s one of the sharpest analysts out there. He’ll often tell me about big stories well before they hit the papers. In fact, that’s a big part of his trading success and strategy.
But the story he flicked me last night was a mainstream press story. He thought I’d be interested in it. And when Tim sends me a story, I take a good look at it. And he was right. This story was of interest to me.
The story was about Tesla ‘rolling into’ Australia. Tesla Motors are setting up shop in Sydney and Melbourne. I’d assume within the next year or three they’ll be in every major city in Australia.
It’s also likely Tesla will build a supercharger network in Australia. After all, Tesla’s cars aren’t as great without the supercharger network. Still, I’ll only be really impressed when a supercharger station pops up somewhere between Ceduna SA and Norseman WA. Good luck driving the Nullarbor without one…
Tesla’s a fascinating company. And I am often asked if I think they’re a good buy. It’s a hard one, because the market thinks they’re worth about $28 billion. That’s a bit under half the market cap of BMW AG (market cap around USD$68 billion).
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However, there’s a big difference between Tesla and BMW. No, it’s not the technology. It’s that BMW sells around 74 times more cars per year than Tesla.
In 2013, the BMW brand sold 1.66 million cars. Add in sales from Mini and Rolls Royce (both of which BMW owns) and group-wide sales are just shy of 2 million new cars in 2013. Tesla in 2013 shifted around 22,450 of their only car, the Model S.
Now don’t get me wrong. I love Tesla as a company. They’re innovative and are certainly pushing the competition to follow suit. But I struggle to think they’re worth half the market cap of BMW.
Innovate or die
I’ve often said that in industry you have to adapt and change to survive. It’s a necessity to innovate and innovate to remain relevant in a fast changing world. Innovate or die — it’s that simple.
There are plenty of industries where companies resist change. The banking sector in particular comes to mind. And those companies will struggle in the coming years.
But the auto industry isn’t one of those. In fact the auto industry pushes innovation and development more than many other manufacturing industries do. They constantly work on the future of cars. As I’ve said before, they make new concept cars every year. These showcase the cutting edge of car technology and design. And they give us a glimpse of what’s to come.
I can’t think of many other industries that utilise this process. What it does is create an enormous amount of competition between manufacturers. And this drives the market forward.
Purely electric cars are a part of that innovation process. And almost every major manufacturer now has at least one model of purely electric car. And more will come as the infrastructure and demand increase.
But for at least the next decade or more, the modern car is going to improve from a number of angles, and electric power isn’t necessarily one of them.
I say this because if electric cars were really about to saturate the market, then the big carmakers would be in real trouble. Instead, they’re still increasing global sales. And global sales of electric cars are only creeping along, not at any great speed.
It’s worth noting too that the ongoing use of the combustion engine isn’t a conspiracy by Big Oil. They’re still in big trouble, but that’s another energy story for another day.
I say it’s not a conspiracy because the world’s big carmakers are making cars, and engines, that require far less fuel. They’re making their cars travel longer and more efficiently on less fuel than ever before.
Tesla isn’t the only innovative car company
Take for instance a new car from Citroen that you can go out and buy today. Well, you can buy it here in the UK; it’s coming to Australia in 2015. It’s the new Citroen C4 Cactus.
I won’t go into the full range and features of the car. I think it looks pretty cool, but it’s not to everyone’s taste. However, you can’t deny the technology under the hood. The most efficient Cactus model has what they call a BlueHDi 100 engine, essentially a diesel engine with a manual gearbox. The kerb weight is 1070kg, and its efficiency is 3.1 litres per 100kms in normal conditions.
Its fuel tank has a capacity of 45 litres. That means on a full tank you’ll get around 1,451 km. That’s impressive, and it’s three times the range a Tesla Model S will get you. It’s also about $210,500 cheaper.
The current focus for carmakers isn’t electric cars. It’s efficiency. It’s getting aerodynamic drag down to a minimum. It’s about using lightweight materials like aluminium and carbon fibre to reduce weight, and it’s about getting as much power from as small an engine as mechanically possible. That’s not necessarily all out electric power, but sometimes a combination of combustion and electric…a hybrid.
Take another example. It was a concept car from Volkswagen. It was supposed to be a study of efficiency. Instead, it’s about to become a full-blown production model. And it’s a taste of things to come from Volkswagen.
Source: Volkswagen
The XL1 is the most efficient car in the world. It has an 800cc turbo diesel engine and an electric motor. The XL1 will only use around 0.9 litres per 100km. Its range is only about 1,100km. But that’s because it only has a 10 litre fuel tank.
The XL1 is a brilliant example of what’s possible in terms of efficiency. You only need to look at the car to realise perhaps this is the future of cars.
Tesla inspired the XL1. As I said earlier, they’ve created a level of competition that forces others to innovate. And so when Volkswagen comes out with the XL1, it forces BMW, Audi, Mercedes and Volvo to further innovate.
And Volvo has. They’re currently testing a new engine. It might appear at first to be a normal two-litre, four-cylinder engine. But it also has three turbochargers. It’s on track to be the most powerful per-litre engine ever made — another impressive example of innovation in car making.
Electric power might be Tesla’s ‘thing’ for now. However, to be a truly great car company you need a few more tricks up your sleeve. I think Tesla will be around for a long time. But I also don’t think you should dismiss the competition too quickly.
When I look at BMW, Volvo and Volkswagen, I see companies just as innovative as Tesla. It’s just that these are long standing companies that also need to continue to sell cars.
They’re certainly not standing still. They’re all highly innovative companies. They always have been. But sometimes it takes a young upstart like Tesla to come in, shake things up and inspire more innovation than ever.
Regards,
Sam Volkering +
Technology Analyst, Revolutionary Tech Investor
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