Is Tesla's Disruption Worth the Price?
Here's Morningstar analyst Seth Goldstein's take on the world's largest battery electric vehicle automaker.
Tesla (TSLA) is the largest battery electric vehicle automaker in the world. In less than a decade, the company went from a startup to a globally recognized luxury automaker with its Model S and Model X vehicles. In addition to luxury autos, the company competes in the midsize car and crossover SUV market with its platform that is used for Model 3 and Model Y vehicles. Tesla also plans to sell multiple new vehicles over the next several years. These include a platform that will be used to make an affordable sedan and SUV, a light truck, a semi truck, and a sports car.
Tesla’s strategy is to maintain its market leader status as EVs grow from a niche auto market to reaching mass consumer adoption. To do so, the company is undergoing a massive capacity expansion to increase the number of vehicles it can produce. Tesla also invests around 5% of its sales in research and development, focusing on improving its market-leading technology and reducing its manufacturing costs. For EVs to see mass adoption, they need to reach cost and function parity with internal combustion engines. To reduce costs, Tesla focuses on automation and efficiency in its manufacturing process, such as reducing the total number of parts that need to be assembled in a vehicle. The company will also move upstream into battery production, with a goal to reduce costs by over 50%.
To reach functional parity, EV will need to have adequate range, reduced charging times, and availability of charging infrastructure. Tesla’s extended-range EVs are already at range parity with internal combustion engine vehicles, and this should improve further with plans for its batteries to increase energy density. Tesla continues to expand its supercharging network, which consists of fast chargers built along highways and in cities throughout the United States, European Union, and China. The company is attempting to take a larger share of its customers’ auto-related spending, which includes selling insurance and offering paid services such as autonomous driving functions.
Tesla also sells solar panels and batteries used for energy storage to consumers and utilities. As the solar generation and battery storage market expands, Tesla is well positioned to grow.
Seth Goldstein does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.