Tesla Motors (TSLA) is a technology company holding specific technology that other companies need in order to compete in the automotive space. Tesla is the Apple (AAPL) of the automotive industry. These are the kinds of things you hear from Tesla bulls on a regular basis. The problem is that Tesla is neither a technology company nor does it differentiate like Apple. Let’s address both of these myths.
Exclusivity like Apple?
Tesla is touted to be the Apple of the automotive industry. The problem is that Apple differentiates in design and has exclusive software and homegrown IC designs. Tesla, on the other hand, doesn’t hold such perks. The company has to compete in a market flooded with competitors and component providers.
For instance, car platforms are a key differentiator if one wants to compete on quality. There are several providers for car platform products across industries.
This is a snapshot of software platform partners of QNX software systems. There are service providers in every area of car platforms and infotainment ranging from vehicle-bus to system integrators. The point is that Tesla might not be able to differentiate as it doesn’t have exclusivity in this area.
Battery technology isn’t the only thing that matters for the production of a competitive electric vehicle. Management of those batteries through software and embedded systems can create a whole lot of difference. That’s why car platforms are important.
Tesla’s capabilities are easily replicable
Having such a wide base of suppliers in every area of automotive, it won’t be a problem for other car manufacturers to match Tesla in terms of technology and in-car experience. It’s just a matter of outsourcing the right suppliers – not to mention the deep pockets of General Motors (GM) and Ford Motors (F) to actually do that. Big automotive can replicate what Tesla has been doing. There is no closed source iOS to make Tesla competitive. Apple’s success, in part, was derived from its closed source strategy, which made the phone more efficient. Anyhow, Tesla’s capabilities are easily replicable. Let’s now take a look at how much of a technology company Tesla actually is
Electric powertrain?
Source: lens.org, electric powertrain
Ford Motor, General Motors and Toyota Motor Corp. (NYSE: TM) are among the top owners of patents for electric powertrain. Tesla is nowhere to be seen in the top 10 patent holders. General Motors and Ford Motors also hold some of the key patents in electric vehicle powertrain. When searched for electric vehicle patents, neither does Tesla show up among the top 10 patent holders, nor does the company holds key patents, according to patent database lens.org.
Source: lens.org, electric vehicles
Interestingly, Tesla doesn’t even show up in a patent search for “battery electric vehicles.” Ford and General Motors hold the top two spots. To make things worse, LG Chem Ltd. (XKRX:051910) appears in the top 10 patent holders for battery electric vehicles. Note that LG Chem is eying the battery market and competing against the likes of Panasonic Corp. (TSE:6752) and Tesla Motors.
Source: lens.org, battery electric vehicle
Furthermore, Tesla uses a three-phase AC induction motor in its Model S60 as compared to permanent magnet AC synchronous electric used by Chevrolet Bolt. While three-phase motors are cheap and maintenance free, permanent magnet motors are better in terms of overall efficiency. Overall, it’s a trade-off, and Tesla doesn’t beat the competition at all ends.
Advance driving assistance?
Source: lens.org, driving assistance
Regarding advanced driving assistance systems, or ADAS, Toyota holds the most patents for driving assistance followed by Denso Corp. (TSE:6902) and Nissan Motor (TSE:7201). General Motors, Delphi Technologies and Ford Motors are in the spotlight for automotive electronics. Note that key players in advanced driving systems, or ADAS, include Delphi, Bosch, Continental, Denso, Mobileye (MBLY) and QNX, etc. The point being, Tesla doesn’t hold a competitive advantage in advanced driving assistance that can justify its design leadership or the share price. See the patent distribution in automotive electronics below:
Source: lens.org, automotive electronics
Let’s move to batteries. When searched for lithium ion batteries, Toyota showed up on the top. It’s worth mentioning that LG Chem holds around 2,040 patents as compared to 1,051 patents held by Panasonic Corp. Given Tesla’s Gigafactory partnership with Panasonic, the company is lagging in terms of patents as compared to LG Chem. What’s more interesting is that automotive related battery patents are being led by GM Global technologies; Tesla isn’t in the top 10. See the chart below:
Source: lens.org, automotive battery
No earnings in sight
Reuters reported that Tesla might be facing renegotiations from certain suppliers leading to incremental costs.
“Tesla – experienced cost increases from certain suppliers in order to meet quality targets, development timelines and due to design changes. Tesla – certain suppliers, including for model X, have sought to renegotiate the terms of the supply arrangements.”
Reuters further notes that the company is redesigning some components in order to reduce costs. Being on a deadline for Model 3, this doesn’t look good from a production perspective.
Final thoughts
Overall, let’s stop comparing Tesla to Apple as it doesn’t have exclusive differentiation. The IP portfolio isn’t impressive to warrant the current stock price. And, no, Tesla can’t replicate Qualcomm’s (QCOM) success licensing its IP because clearly, across the assembly, the company doesn’t show up in top patent holders, and there’s no evidence of Tesla licensing its IP to other providers as of now. Tesla is grossly overvalued and a quite risky proposition for the portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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