Telsa’s Competitive Headwinds

9/21/2021

Economy

0 min read

Will U.S. Car Companies be Handed Different EV Advantages?

Most investors will know these answers: What’s the world’s largest car company by market cap? What company builds the most electric vehicles (EVs)? Which car is the most “Made in the USA?” And finally, which large U.S. auto manufacturer was not invited when The White House announced plans to “Drive American Leadership Forward on Clean Cars and Trucks”?

Answers

Tesla, the electric car company that was founded by South African-born Elon Musk, has the highest market cap of any car company in the world, currently at $742 billion. The second largest is Toyota, approximately one-third the value at $254 billion. Tesla also happens to be the company that builds the most electric cars, measured by the actual number of vehicles and percentage of fleet (100%). The next answer is the car with the most parts sourced from American materials and labor (just over 70%) is the Telsa Model 3. The Model Y is in the third position while the Ford Mustang qualifies for second place. The last answer; when The White House invited U.S. car manufacturers to the White House on August 5 to sign an order that kicks-off the target of 50% electric vehicle sales each by 2030, to advance smart fuel efficiency and emission standards, Elon Musk and Tesla were not on the invite list.

Car Talk

There were a number of news stories written about the White House “snubbing” Elon. Financial TV personalities discussed it as odd or even insulting that he wasn’t invited, and Musk’s preferred social media platform, Twitter, erupted with sub-280-character commentary. We may never know the answer as to why. One of the “U.S. Big Three” car manufacturers that were there is an American subsidiary of a Dutch-domiciled automotive company, so it could be argued that they had no more business being invited than Honda or many others.

The reason may be as simple as the car manufacturers that were included in the signing ceremony, don’t meet the fleet percentage goals laid out in the non-binding executive order. In contrast, Tesla has exceeded the target set for 2030 and beyond. We don’t know if this was the rationale, but this could make sense.

Another thought on why the head of the car company where all models are electric was not included is that there really was no reason for him to be there. One thing that is in the infrastructure bill is to subsidize manufacturers when fewer than half their cars sold, are electric. Tesla won’t qualify as they have met the goal, in fact, they sell so many EVs that purchasers no longer qualify for government rebates as they do with other manufacturers that sell less than 200,000 EVs a year.

Some have questioned if there is something much more political behind Musk not be included at this ceremony. It has also been pointed out that after one of his other companies sent four civilians into space for the first time, there was no congratulatory phone call from The White House. Those that question the relationship between him or his companies with politicians point out that he is the only non-union car company headquartered in the states. Could there be pressure from political donors to avoid the founder? Another thing Musk and his company are excluded from suggests there may actually be some politics at play. Within the $3.5 billion proposed infrastructure bill, there is money set aside to create rebates for purchasers of EVs. However, this rebate only applies if the car was built with union labor. This clearly works to disadvantage Tesla’s business structure.

Entrepreneurial Spirit

The Founder and CEO of Tesla is a serial entrepreneur. Each company, whether it be Paypal, The Boring Company, SpaceX , Tesla, or others he started along the way are unique and probably required a lot of autonomy. The required autonomy is because the ideas may have seemed farfetched or beyond anyone’s grasp to accomplish. Less autonomy may have only served to undermine his success.

It may be this independent trait that separates him from those in government. Those that are more inclined to set an agenda and expect that others will fall in line. Some fall in line because their hand is out on behalf of their stockholders for assistance; others fall in line because they don’t have better ideas themselves. One example where Musk openly did not fall in line is when he resigned from two advisory councils during the last administration. Elon Musk was determined to only align himself with those that he felt were pro-environment. The U.S. backing out of the Paris Climate Agreement worked against this ethic, so he decided to resign from the White House’s Manufacturing Jobs Initiative and Strategic and Policy Forum, and the Economic Advisory Council.

Investor Take-Away

To operate a business in a country that can even consider spending the large $3.5 trillion for upgrades, change, improvements, and incentives to build toward a more solid future is positive for the company. If the trillions are spent in an uneven way, investors should pay attention to the industries that benefit and companies within those industries – specifically, the industries and companies that could benefit or be hurt by lopsided handling of funds used for growth.

The news outlets and avid Tweeters seem to exist to convey their thoughts and to a lesser extent, put on a show. Whether there was a snub of a U.S. car company (or its head) is really just gossip. Investors don’t make money off gossip. However, trends are important and so is a competitive advantage. Pay attention to how all the car companies are treated; there may be opportunities if one or more are favored during the coming changes.

Email me your thoughts on this or other investment matters directly if you’d like. If you aren’t registered to receive our articles and access to equity research take a second and leave your email here now.

Paul Hoffman

Managing Editor, Channelchek

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