Is Tesla Motors Inc. Really a Car Company?

Are we looking at Tesla in the wrong light? The electric-car company presents a unique problem for investors as they must consider the potential to disrupt that it embodies both as a car manufacturer and as a technology innovator.

Apr 11, 2014 at 4:30PM

Tesla Motors (NASDAQ:TSLA) can't really be expected to disrupt global auto sales as just a carmaker. In order to make sense of how much disruption the electric-car maker might cause we've got to look at Tesla as technology innovator. 

The emperor's real clothes
At its heart, Tesla is a software developer dressed in a carmaker's robes. The Silicon Valley company has focused on developing its software to be the primary component behind its fleet's sophisticated safety and battery systems, not to mention its infotainment console. The majority of Tesla's software is developed internally by a highly skilled group of electrical, power electronics, software, and automobile engineers. This software focus affords Tesla a flexible and dynamic approach to updating its fleet, something that few, if any, other carmakers have been able to accomplish.

In Store

Source: Tesla Website

Wireless recalls
Tesla's software is the first of its kind in the auto market, as it presents a noninvasive and dynamic approach to upgrading the user experience and vehicle safety. For example, in order to fix an overheating problem with its cars' in-home charging units, all Tesla had to do was send out an over-the-air software update to the affected vehicles. The company also went above and beyond this service by also providing

Screen Shot

Model S' Infotainment System. Source: Tesla

charger replacements, but Tesla was certain the update alone was an adequate fix. Compare that to almost every other carmaker, which would likely have to do a physical recall of the affected models, and it's easy to see why we have to broaden our classification of Tesla to being more than just a carmaker.

The car of the future
It's also important to consider what Tesla has in mind for the years ahead. Musk has hinted at moving toward an open-source format, allowing people to develop their own apps in order to customize their driving experience. Vehicle autonomy is on the company's mind, too, but that won't be substantially developed any time soon. If Tesla's software isn't a disruptive new technology, then I must be missing something.

Riding the wave
In order to get a better idea of Tesla's potential to disrupt, investors would be wise to consider the technology adoption curve. Right now, the folks that own a Roadster or Model S would be considered innovators, those people we all know that are always in front of the latest gadget trend. Once Tesla jumps into the early and late-majority adoption segments, all bets are off.


Source: Wikipedia, used under creative commons.

This adoption life cycle coincides with Tesla's historical timeline -- at the end of 2013 the company had about 2%-3% of the U.S. premium auto market share. Considering that people are becoming more exposed to and educated about electric vehicles, and taking into account Tesla's unique approach to software, shareholders can expect the company's fleet to claim a larger market share in the premium auto segment in future years.

Not just the 1%
Along with the potential for an increase in share of the luxury segment, the introduction of Tesla's third-generation model will likely expose the automaker to strong growth potential in the midrange auto segment. Gaining relevance within that market may prove vital to the long-term adoption of Tesla, something that shareholders should consider a risk because Tesla yet has no experience in scaling its technology and quality standards down to a more affordable level.


Market share visualized. Source: Tesla

Betting on disruption
Even with all the inherent risks in embracing an investment in Tesla as a technology company, the car company will likely find stability and security in the luxury car market. It will be interesting to see how Tesla's story will change as it moves into more affordable segments. If the electric-car maker can  win over the early majority with its mass market product, shareholders might find Tesla's next chapter to be much less risky.

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Leah Niu owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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