Surprisingly, 3D printing and electric cars are two industries that are following very similar paths. They both threaten to disrupt major areas of the economy -- manufacturing and automotive, respectively -- and are within the early stages of their adoption cycle.
After all, of the 88.6 million cars expected to sell worldwide in 2015, approximately 430,000 are expected to be of the electric variety, according to Euromonitor International. Additionally, the 3D printing industry is expected to generate nearly $5.3 billion in worldwide revenue in 2015 -- peanuts compared to the over $10 trillion in economic output that stemmed from worldwide manufacturing activity in 2010.
Clearly, these budding industries offer tremendous long-term growth potential for investors to benefit. But which one is the better investment opportunity?
We asked two of our industrials specialists to weigh in.
Steve Heller: You may find it odd that, as a 3D printing specialist, I'm siding with electric cars in this debate. To be clear, I'm not bearish on 3D printing's long-term growth prospects from an industry perspective, but I do question the quality of the investment options that are available for investors to hold for the long haul. In my opinion, whenever investors are seeking to gain exposure to long-term growth trends such as 3D printing or electric cars, the importance of management shouldn't be understated.
As Warren Buffett put it, "Time is the friend of the wonderful company, the enemy of the mediocre." Channeling my inner Buffet, I'm genuinely concerned that leading 3D printing companies have mediocre management teams. 3D Systems, Stratasys, and ExOne have all experienced their share of execution issues over the last year, which, in my mind, raises questions about their abilities to deliver on their promises of consistent long-term earnings growth.
Specifically, 3D Systems' most recent earnings showed a company that remains challenged to execute well across all of its business segments, Stratasys' fourth-quarter earnings included a massive writedown for its MakerBot acquisition because management couldn't properly scale the unit for growth and deliver enough revenue growth, and ExOne has yet to meet Wall Street earnings estimates since becoming a public company.
Considering the lack of investment options that provide exposure to the electric car industry, I immediately gravitate toward Tesla Motors (NASDAQ:TSLA) and its CEO extraordinaire Elon Musk, who needs no introduction. Having the opportunity to participate in the potential success Musk may experience in the electric car industry sounds like a far more attractive investment opportunity than endorsing a 3D printing management team that can't seem to get a solid handle on their operations.
Between his successes at PayPal, SpaceX, SolarCity, and of course, Tesla, Musk has established an almost uncanny track record of taking what many perceive to be moon-shot ideas and turning them into realities in relatively short periods of time. To put it frankly, the faith I have in Elon Musk to consistently execute on a long-term basis is the reason I'm siding with Tesla -- and electric cars -- over 3D printing.
Jason Hall: Steve makes some great points about the risks of investing in 3D printing companies right now. The industry -- in terms of its real potential for industrial and commercial applications -- is relatively young, and it's going to be years before we really understand just how transformative it will be. As Steve described in the intro, global manufacturing -- which 3D printing is a growing part of, is one heck of a massive addressable market, with literally thousands of potential applications across hundreds of product categories, containing millions of potential products.
Frankly, 3D printing -- also called additive manufacturing -- is so far removed from traditional manufacturing techniques like metal casting and milling of metals, and injection molding for plastics, that it's largely a matter of users putting the technology to work addressing limitations of existing techniques and processes, and figuring out how its advantages can be used to make better products.
Right now, it's still largely a niche industry, with early successes in product prototyping, high-end aerospace applications, and short-run custom parts production. But it's those early successes -- which will combine with improved technology that leads to faster, cheaper production from more kinds of materials -- that will lead to major breakthroughs. And those major breakthroughs will be disruptive to traditional manufacturing technologies.
And that, of course, will be what drives long-term returns for shareholders. The 3D printing industry could grow 20 times larger and still only be about 1% of global manufacturing. And once the manufacturers really figure out how 3D printing can help their businesses, you can bet it will grow.
On the other hand, to Steve's point, there is much to love about a company like Tesla, of which I'm a shareholder. But beyond that one transcendent company whose stock trades at crazy-high multiples right now, it's hard to identify how investors can "win" from the potential for electric vehicles.
I mean, just look at the track record of automakers as investments:
That doesn't even include General Motors, which of course wiped investors out in bankruptcy during the recession.
At the end of the day, when I consider both the risks inherent investing in a new and still relatively unproven technology like 3D printing, versus the historical track record of investing in the auto industry -- which, outside of Tesla, is likely to be the source of almost all EVs going forward -- I'll take my chances that the 3D printing industry will get its act together, and keep disrupting and improving the manufacturing world.
And that will make for a superior investment over the long term.