Please ensure Javascript is enabled for purposes of website accessibility

Why Does Everyone Keep Calling Tesla a "Car Company"?

By Motley Fool Staff – Apr 25, 2017 at 2:41PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As listener Brian points out, given that it's a business with a diverse set of products, it's odd that the media and the market only want to compare it to Detroit's giants.

In this segment from Market Foolery, producer and host Mac Greer, Million Dollar Portfolio's Matt Argersinger, and Supernova and Rule Breakers' Aaron Bush dip into the Fool mailbag and find a listener confused about why Tesla (TSLA -6.32%) is so often reduced in people's minds to merely an automaker, given its solar-power and battery-making bona fides. And he's curious how the Fools would define it. 

A full transcript follows the video.

10 stocks we like better than Tesla
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Tesla wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 3, 2017

This video was recorded on April 19, 2017.

Mac Greer: From Brian Bosak, who writes: "I keep seeing headlines like this one: 'Tesla Just Passed GM to Become America's Most Valuable Carmaker.'" Brian goes on to write, "What I don't fully understand is why intelligent people keep calling Tesla a carmaker when they do so much more than that. They could be a battery producer, technology company, energy company. Yet they keep getting compared, unfairly, in my opinion, to Ford and [General Motors] when it comes to market cap. It feels a bit like calling Apple a phone company and comparing them to Motorola instead of Microsoft or Google. If you had to call Tesla a 'blank' company, what would you call them, and to whom would you compare them?"

Aaron Bush: I would say Tesla is a vertically integrating energy-conscious car company. It's a car company, OK? [laughs] 

Matt Argersinger: With several big adjectives in front of it.

Bush: It's a car company. Yeah, I think, at the end of the day, it really is a car company. We were talking before, Apple is a phone company. I do think you have to look at what it is that they're selling, and it is cars. That said, I do think there's a danger in comparing here. I personally don't want to compare Tesla to anyone, literally anyone. My thinking here stems around the fact that there are two types of evolution. There's gradualism and there's punctuated equilibrium. Those are fancy terms, but the latter category, which, you could say, in business-speak, those are the companies that create a new industry, or radically change an existing industry. They should not be compared to the incumbents, because the market is forward-thinking and because they are changing the rules of the game and will look different at some point in the future. And investors who try comparing what's new with what's old, which is a classic innovator's dilemma, are going to miss out on the underlying story there.

Greer: Punctuated equilibrium.

Bush: There you go, science lesson for the day.

Greer: It sounds like a medical condition.

Argersinger: I think Aaron nailed it on the head. I just think, for now, if Tesla is going to be generating 90% of its revenue, roughly, from cars, and SolarCity is getting integrated this year, it's still going to be 90% revenue from cars. Apple, some 70% revenue from phones. That's the prime product. Now, that can change over time. Amazon, I don't think it's fair to call Amazon a retail company anymore. You could have called them an online retail company five years ago, but now, because of the diversity of the business, you can call Amazon something different. But for now, where is the revenue coming from? Where is the beef made?

Greer: OK. Sorry, Brian, it sounds like, for now, still a car company.

Bush: Tesla is Tesla.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Aaron Bush owns shares of Apple and Tesla. Mac Greer owns shares of Alphabet (C shares) and Apple. Matthew Argersinger owns shares of Apple and Tesla. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, Ford, and Tesla. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.