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Tesla's Biggest Threat Isn't Another Car Maker

By Jamal Carnette, CFA - Sep 18, 2015 at 10:40AM

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If a new report is correct, Tesla faces headwinds from a company that's not even in the car business -- yet.

After a few delays, Tesla's Model X starts shipping later this month. Image source: Tesla.

September has been a rather eventful month for electric-car maker Tesla Motors (TSLA -6.42%) and its CEO, Elon Musk. Early this month, Musk took to Twitter to discuss the highly anticipated Model 3 sedan. While the model is still two years from production, Musk confirmed the $35,000 price tag and added that the official unveiling will occur next March, after its Gigafactory is fully operational.

For a more immediate fundamental catalyst, however, look no further than the end of this month. Tesla's Model X Signature series of luxury crossovers, which were announced in 2012 and beset with numerous delays, will begin delivery Sept. 29. Together, these two announcements are good news for a CEO with an ambitious plan to produce 500,000 cars by 2020.

And while there are many carmakers vying to take Tesla's title as the "King of Electric Vehicles," the biggest competition may not come from a traditional carmaker, but from a tech company. If a new report from AppleInsider is true, it seems Apple's (AAPL 0.17%) self-driving electric-car plans are becoming an issue for Tesla.

"Big impact" on Tesla's vehicle development
According to a "well-placed source with knowledge of the situation," tech giant Apple has been poaching Tesla's workers to the point that the source claims it has had a "big impact" on the development of future vehicles, says AppleInsider. While the article steers clear of discussing which particular project or vehicle, it's not a stretch to think Tesla's Model 3 would feel this impact to some extent and that the delays the Model X experienced were due in part to a loss of talent.

And this isn't the only source: Earlier this year, Business Insider reported it had received an email from an Apple employee about its "Project Titan." The source specifically said Tesla employees were "jumping ship" to work for Apple's mysterious autonomous-car project, and at the time Business Insider noted roughly 50 Apple employees who had previously worked at Tesla, per LinkedIn. Other reports added that Apple is offering up to $250,000 signing bonuses and large salary increases to woo potential employees from Musk's camp.

To be fair to Apple, the feeling is quite mutual, as Musk and Co. have persuaded nearly 150 Apple employees to jump ship for his company as of February, according to Business Insider, although there have been no reports of delays or issues from Apple as a result of these losses. But, more broadly, it appears Apple and Tesla are in a battle for the most valuable resource: talented employees.

The most valuable resource
While Wall Street tends to focus on balance sheets and income statements and treats employees as an expense to be curtailed, human capital is what truly separates great companies from mediocre ones. Over time, production processes can be copied, non-human assets can be acquired, and current technology becomes outdated, but innovative employees are a source of sustainable, long-term competitive advantage.

It's a safe bet to assume these employees are highly valuable and profitable, as both Apple and Tesla need expertise as they try to redefine the automobile. So while many are focusing on Tesla's competition with incumbent automakers on the basis of completed products, Apple may be winning a behind-the-scenes battle that could pay future dividends in the electric-car market.

Of course, it's always tough to gauge the impact of new entrants, but Apple's a capable, deep-pocketed competitor, and investors in both companies should follow its moves in this market closely.

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