It seems like a crazy idea. Build an aesthetically appealing product, surround it with a cult of fans, charge a premium price for it, and sell it in its own sleek modern stores in shopping malls. Funny thing is I just described both Tesla Motors Inc (NASDAQ:TSLA) and Apple Inc. (NASDAQ:AAPL).
Now before the comments section blows up with people who are itching to point out how Tesla Motors Inc (NASDAQ:TSLA) and Apple are different, I want to make it clear that Apple is not a perfect comparison for Tesla. In fact, nothing is. Tesla Motors Inc (NASDAQ:TSLA) is an entirely new company trying to do what no other company has done: build a sexy and profitable all-electric car for the masses. As such, comparisons relevant to Tesla have both their similarities and their differences. Here we will take a look at a few of these comparisons.
Automotive comparisons
At its core, Tesla Motors Inc (NASDAQ:TSLA) is an automotive company. It designs, manufactures, and sells its own vehicles in a way similar to how major automakers do, just on a smaller scale. As of now, Tesla Motors Inc (NASDAQ:TSLA) is building the Model S, which starts at $52,400 but can rise to over $100,000 with additional packages and the larger battery pack options. With a goal to produce 20,000 Model S’s during 2013, Tesla is dramatically increasing its production rates from the 2,500 total Tesla Roadsters produced over the Roadster’s run.
But this figure is dwarfed by the production figures of the largest automakers. Right now, Tesla is more in line with a smaller (but growing) version of BMW Manufacturing Corporation or Porsche Cars North America, Inc. Both of these automakers are profitable, suggesting that if Tesla wanted to stay in the high end market, it could survive if it plays its cards right. But Tesla wants to be much more than another luxury manufacturer for the well-off segment of the population. It wants mass market sales.
What many people who consider Tesla Motors Inc (NASDAQ:TSLA) elitist fail to realize is that the automaker is building its capabilities to manufacture an affordable mass market car BY building the vehicles currently in development and production. Tesla CEO Elon Musk described The Secret Tesla Motors Master Plan to build expensive cars to generate publicity and funding for building less expensive Teslas all the way back in 2006.
Since investors must always be looking toward the future, it is worth bearing in mind what Tesla hopes to become. Tesla’s Gen III sedan is expected to be released somewhere between 2015 and 2017 and cost somewhere in the low $30,000 range after the federal tax rebate of $7,500. This price is comparable to that of a BMW 3 Series (the car Tesla hopes to defeat on a performance basis), as well as the Chevrolet Volt and Nissan Leaf.
But this price begins to approach that of higher-end Toyota Motor Corporation (ADR) (NYSE:TM) vehicles, which can easily run into the $30,000 range with the addition of various option packages. Tesla also hopes to build even lower priced vehicles in the future, meaning it could one day be similar to Toyota in the automotive realm. Even though Toyota could be a future competitor for Tesla, the two automakers have already launched a program where Tesla will supply Toyota with Tesla technology and Toyota purchased $50 million in Tesla stock. Of course, Tesla has a long road ahead of it and if it can make it to Toyota’s level, current shareholders will be richly rewarded.
Technology comparisons
Tesla is known for producing a car first and foremost, but the real life behind Tesla lies in the technology each car is built around. Even most Tesla bears will concede that the Model S is a great car. Clearly, Tesla relies on its ability to produce a new type of product (high-performance electric car) with features previously unavailable (instant torque, zero gasoline usage, zero tailpipe emissions). In these respects, Tesla is as much a tech company as it is an automotive manufacturer.
The previously mentioned comparison to Apple is one of the most frequently used examples. Both companies have a strong fan following, an innovation mindset, and a product/ product line with visually appealing offerings. But Apple sells computers, services, and smartphones. Apple changed the smartphone dynamic with its iPhone but this is a market that is increasingly being commoditized. Tesla makes a much higher priced item than Apple and this sets up a difference between the EV maker and the iPhone giant.
A person who becomes a fan of Apple’s products can go to many service providers and get the iPhone 5 for only $199 on a two-year contract. This allows a large percentage of Apple fans to buy the product they idolize, one of the keys to Apple’s success.
Tesla has a strong fan base as well but the percentage that can go buy a Tesla Model S is far smaller than Apple and its iPhone. Starting at over $50,000, Tesla buyers need a lot of money to buy the product they admire. While Tesla has legions of fans among people without this money, so do Ferrari and Lamborghini. Many fans of Tesla will never be able to afford a Model S, or even one of the automaker’s planned future offerings. Does this mean Tesla is doomed? No it doesn’t. Unlike Apple, Tesla does not need to sell millions of units of its product to be successful.
Perhaps the most positive takeaway for Tesla from the Apple comparison is that a new innovative product can take a market by storm. Hardly anyone believed Apple could do what it did. But now Apple is one of the most valuable companies in the world after having built out a product line where the letter i is attached to some of the best-selling tech goodies in the world. With Tesla trying to punch into an established automotive market, Apple’s success gives hope to the concept that a well-built, high-tech product can gain a foothold amongst existing competitors. And this is critical to Tesla, gaining a meaningful presence in the automotive market will decide whether Tesla succeeds or fails.
Meaningful comparisons
Tesla Motors and Tesla owners pride themselves on being unique. The idea of Silicon Valley building a world class mass production car company would have been seen as ridiculous less than a decade ago. But with so many obstacles overcome, investors in this now public company are looking for investment comparisons. The truth is that with uniqueness comes a lack of perfect comparisons. Tesla can be considered both automotive and technological leading to comparisons in both industries. But, for a lack of comparisons, Tesla offers investors something truly unique. And Tesla is looking to keep it that way.
