Tesla is the first fully battery powered in the luxury segment . It is competing head on with
the major luxury car makers and made the auto industry and the customers realize that the electrification of the
automobile has arrived. Tesla has been getting rave reviews, and I personally like it so much.
Also, Wall St. has given lot of credit to this gizmo, in the form of a higher multiple for the stock, which is quite common for
an early stage growth company like this, even without making a dime. However, a good product doesn’t
necessarily translate to a good investment, the economics of the business in general is the key factor that determines
the nature of an investment. Automobile manufacturing basically is highly capital intensive and the incremental
capital requirements for new models and designs is pretty high as it scales up. Making few thousand vehicles is way different from
mass manufacturing, and at this stage all the pain points that are inherent in producing a luxury automobile will come to
the fore. Also, by this time the other major automakers will be competing fiercely with Tesla with their own versions
of electric / hybrid vehicles. This is not to undermine the strength of Tesla at all, of course it’s the pioneer in electric
cars. But the point I’m trying to underscore here is, scaling up in an industry like auto manufacturing is quite challenging.
One other important factor, that doesn’t get much attention is the fact that a battery in an electric are is a commodity.
There is nothing unique about it, and even if someone claims to have a grip on this, like their proprietary technology etc, it’s not going
to be tough replicating by others. With this backdrop, investing in Tesla might not be as stellar as its current price indicates,
even with a recent pullback it’s still overpriced. Again, this is just my view about this company and I may be totally wrong, and
on the contrary it may prove to be a worthwhile investment.
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