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Over the past year, shares of Tesla Motors (NASDAQ: TSLA ) have risen more than 400% as the market becomes more enthusiastic about the electric automaker's future prospects. However, many investors are bullish on Tesla's growth, but feel the valuation is too high to buy the company's shares. Here are will two companies that stand to benefit from Tesla's growth.
Unlike other automakers that use large cell battery packs, Tesla opts to use 18650 cells -- and a lot of them. These cells are very similar to the ones found in laptops, and a Model S battery pack requires thousands of these batteries.
Panasonic (NASDAQOTH: PCRFY ) has the honor of supplying this massive battery order thanks to its extensive history with Tesla, which included an equity investment before Tesla hit it big. Today, Panasonic supplies the batteries for the thousands of Model S sedans that Tesla has produced.
To get a feel for how much demand Tesla is creating for 18650 cells, estimates project that Tesla will consume as many of the cells as the entire industry did prior to Tesla's existence. However, Panasonic's current facilities can't even meet that level of demand, limiting 18650 cell sales at Panasonic until the company ramps up production.
As a result, it's reported that Tesla is in talks with Samsung for the Korean company to fill the production gap that Panasonic cannot fill. However, if Tesla continues on its growth plans, Panasonic's close relationship with the electric automaker should allow Panasonic to generate even more revenue by increasing manufacturing capacity for 18650 cells. And, even if Panasonic chooses not to expand production, it can still count on a steady stream of battery sales revenue from Tesla.
Like most automakers, Tesla has an extensive assortment of suppliers. One of the most critical is Modine Manufacturing (NYSE: MOD ) , which supplies the battery chiller to the Model S. As you may have guessed from the name, the battery chiller is meant to control the battery's temperature, and is critical to the overall design of the car.
Modine calls itself "a worldwide leader in thermal management since 1916," so it appears Modine is exactly the type of company Tesla would look for to temperature control a massive battery pack.
Although Tesla is only a small part of Modine's total business, if good relations are kept between the two companies, Modine could very well end up supplying the battery chiller for the higher volume Tesla Gen III sedan, and future vehicles beyond that. And it is expected that every Tesla will need a battery thermal management system of some kind due to the nature of lithium ion batteries. By being a core Tesla supplier early in Tesla's existence, Modine sets itself up as a top company on Tesla's list for future battery management orders.
In this way, Modine could see a sharp increase in sales of its battery chiller over the next few years, as Tesla's production ramp-ups drive up demand for parts.
Moderate Tesla exposure
Panasonic and Modine are a couple of examples of companies that stand to benefit from Tesla's success through auto-part sales. If Tesla can meet its goals, and produce hundreds of thousands of vehicles per year, demand for both Panasonic's 18650 cells, and Modine's battery chillers, should shoot higher. By investing in these companies, investors can gain some exposure to Tesla's growth plans without assuming the risk of Tesla shares.
Looking for another disruptive company?
With the U.S. relying on the rest of the world for such a large percentage of our goods, many investors are ready for the end of the "made in China" era. Well, it may be here. Read all about the biggest industry disrupters since the personal computer in 3 Stocks to Own for the New Industrial Revolution. Just click here to learn more.