Industry in Transition

“Mobility” is changing rapidly, with the dramatic growth of car services such as Uber and Lyft, as governments mandate lower car emissions, and as technology companies look to enter the automotive space. Electric vehicles have been around for a very long time, at least in concept. However, after many years and many set-backs, they are finally becoming a real – albeit small – part of the overall automobile sector. As the only meaningful pure-play in the space, Tesla (NASDAQ:TSLA) offers investors exposure to their potential market share gains.

Tesla is an emerging company leading an emerging industry, in our view. For Tesla, this involves not only continued innovation, but also developing a nationwide recharging infrastructure, building a network of company owned Tesla dealers and investing in battery R&D directed at making the car affordable for mass adoption. Tesla supporters are bullish on the shares not because of an expected bump in revenue in 2016, 2017 or even 2020. Nor are they bullish because of the potential for improving operating metrics over the same period. We believe the bulls are looking down the road to: if EVs become a mass market item AND Tesla lowers costs through its initiatives including the Gigafactory AND its operating metrics improve with production cost reductions and scale AND it retains a leading position in a significantly larger EV market. These are a lot of “ifs” but if the company is successful, it will likely validate the bulls’ belief in the company and the shares, we believe.