Tesla (TSLA -4.23%) is the undisputed leader of the electric vehicle revolution, with a stock that is up more than 1,300% over the past five years. The company has four vehicle models on the road, is building new factories around the globe, and continues to develop complementary products, including its solar energy system, cutting-edge battery technology, and autonomous driving system.
The company, and the stock, has come a long way, but there are still challenges up ahead and companies with the potential to knock Tesla back a bit.
Here's why three Fools believe Alphabet (GOOG -0.08%) (GOOGL -0.15%), Ferrari (RACE -1.14%), and Enphase Energy (ENPH -3.95%) are set up well to mount challenges to key parts of Tesla's business in coming years.
The Google car could win the autonomous race
Lou Whiteman (Alphabet): A substantial part of the bull case for Tesla is built around its autonomous tech. Cathie Wood's Ark Invest -- in setting its ambitious $3,000 per-share price target on Tesla back in March -- built its argument in part based on its expectations that Tesla in the years to come will be able to launch an autonomous robotaxi service.
Tesla may well get there, but there are a lot of other companies exploring autonomous driving that could get there first. Although Alphabet is more known for its Google search engine and YouTube streaming service, its Waymo self-driving subsidiary looks like a serious contender for the autonomous crown.
Waymo has taken a slow and steady approach over the years. But the company's tech has progressed far enough that last year it signed a deal with what is now Stellantis (STLA 0.10%) to develop "Level 4" autonomous-driving commercial delivery vans.
Level 4 is not fully automated, but it is more advanced than the Autopilot Tesla currently has on the roads. And Waymo believes its system (which, unlike Tesla, deploys laser-based tracking known as lidar in addition to cameras for navigation) is safer than its rival's tech.
I'm not an engineer and won't claim to know for sure which company and technology will win out in the end. But Waymo has a lethal combination of a deep-pocketed backer in Alphabet, impressive auto-industry partners like Stellantis, and years of development experience to help make its vision of an autonomous future a reality.
If nothing else, Waymo is well positioned to provide Tesla with a serious challenge as the tech continues to develop.
The most profitable automaker in the world is (sort of) on sale
John Rosevear (Ferrari): If you think Tesla is too much -- too hyped, too expensive, too overblown -- then how about the anti-Tesla?
Ferrari isn't exactly an anti-Tesla, of course. While its stock-in-trade is its jewel-like, high-powered (and thirsty) V-8 and V-12 internal combustion engines, the company is in touch with the reality of where the world is going. Ferrari already offers one hybrid model, the SF90 Stradale sports car, and it's planning to launch a fully electric sports car in 2025.
But Ferrari is unlike Tesla in some important ways. First, it's massively profitable, with the best operating margins in the auto business (and zero tax-credit sales). Second, its sales volumes are tiny and likely to stay that way: While Tesla is hoping to sell a million vehicles a year before long, Ferrari is quite content to be selling 10,000 or thereabouts.
But auto investors should take note: While Ferrari deliberately limits its annual production to preserve its exclusivity and pricing power, it does have a plan to boost its profits and margins. That plan is centered on a series of new models, some of which will enter new territory for the brand (there's an SUV-like Ferrari in the works), and some of which will be high-priced, limited-production models for Ferrari's most loyal and deep-pocketed fans.
Ferrari announced the plan back in 2018. At the time, it said it expected its profits to roughly double by 2022. The company said this past week that COVID-19-related delays have slowed its product-development efforts, and it's now pushing that deadline out a year, to 2023.
News of the delay hurt the stock, but that in turn might create a buying opportunity. Ferrari is still on track to hit its ambitious profit goals -- something that I think some auto investors missed; it's just that the train is going to arrive a bit later than expected.
Of course, despite the sell-off, Ferrari's stock still doesn't seem cheap at almost 43 times expected 2021 earnings. But if you think of Ferrari as an elite luxury brand (which it arguably is, with operating margins around 25%) rather than an automaker, the high valuation makes a lot more sense and might even be a bit cheap. And it's a safe bet that Ferrari, which will celebrate its 75th anniversary next year and just reported that its order books are at record levels, will be around and thriving for a long time yet.
Tesla faces new rivals in one of its fastest growing markets
Rich Smith (Enphase Energy): Everyone knows that Tesla builds electric cars, and with $29.5 billion in automotive revenue in 2020, cars are inarguably Tesla's most important business -- for now. As competition ramps up in the electric car space, however, some analysts are starting to wonder if down the road the real money will be found in Tesla's energy generation and storage business and in particular, in its batteries business.
Last month for example, investment bank Canaccord Genuity made the case that as Tesla ramps up battery-production capacity beyond what it needs to supply its car business, the company will increasingly shift to selling batteries to store solar energy generated by rooftop solar panels and utility-scale solar farms. Between 2020 and 2025, in fact, Canaccord predicts that Tesla's battery business will quadruple in size to $8 billion. Moreover, the bank forecasts a 25-fold increase in the profitability of the battery business as gross margins achieve the same 25% gross margin it forecasts for Tesla's cars.
And yet, just as Tesla faces growing competition in the electric car space, so too might it face growing competition from rivals that want a taste of those high profit margins in batteries and solar power. Take Enphase Energy, for example. Up until last year, Enphase ran in second place to SolarEdge (NASDAQ: SEDG) in market share, supplying the "inverters" needed to translate direct current solar power from solar panels into the alternating current used to run your A/C and charge your smartphone.
In 2021, however, Enphase overtook SolarEdge in market share (now 48% versus 40%) and announced a new "Encharge 10" integrated home battery system as well -- a backup battery system that will compete directly with Tesla's own Powerpack offerings. Enphase now competes with Tesla's backup battery offerings in two ways: First, it's an alternative to Tesla's in-house developed power inverters -- and a real rival, given Enphase's now dominant market share in that business. Second, Enphase's introduction of its own battery offering directly challenges Tesla's growth market in backup batteries themselves.
While its victory over Tesla is far from assured, Enphase is a stock with momentum in this market -- and a good chance of giving Tesla a run for its money.