Why Google Will Drive Tesla’s Cars and Stock in the Near Future

Tesla’s (TSLA) and Google’s (GOOG) founders share a fondness for special interest projects. They shoot for the future, whether that takes the form of SpaceX with its space launch vehicles or Google Glass with its vision of augmented reality.

In 2010 those paths crossed when Google announced it was beginning work on driverless cars. While they have been pursuing different goals — Google’s driverless cars are aimed at saving lives and reducing traffic congestion while Tesla’s electric cars tackle the issue of polluting gasoline engines — there’s a good chance the two will converge in the near future.

When that happens, expect Google to drive Tesla’s cars as well as Tesla stock.

Google has been a top performer in the technology market. In the past decade GOOG stock has increased in value by more than 1,000%. According to a Millward Brown study, Google has overtaken Apple as the world’s most valuable brand, with a 2014 brand valuation of $159 billion. If the company wants to continue this growth trajectory in the future, it needs to expand beyond its current reliance on ad revenue. That’s where projects like the driverless car come into play.

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Source: Tesla Motors

The Story So Far

Tesla has also been on a roll. Since its 2010 IPO, Tesla stock is also up 1,000% with the bulk of that increase taking place in the past year.

However, there are some clouds on the horizon for TSLA stock. While Google essentially created the market that it now dominates, Tesla is trying to disrupt an automotive market that is crowded and controlled by huge companies like Ford (F) and General Motors (GM) that have a century-long head start. Meanwhile Toyota (TM) virtually owns the electric hybrid car market.

That makes it considerably more difficult for TSLA stock to keep growing at its current pace.

The company’s electric cars are built and priced as luxury vehicles, and while sales have been good — Tesla announced it delivered 22,477 vehicles in 2013 — that is a minuscule fraction of the nearly 83 million cars sold globally last year. With ambitious projects like the multi-billion dollar “Gigafactory” and plans to release a crossover Model-X in 2015 and a lower cost Model E a year or two later, Tesla is building for expansion.

But that EV market is currently limited. Many see Tesla CEO Elon Musk’s move to open source his company’s EV patents as a desperate move to push other auto makers into adopting the technology. If the gamble pays off, they might begin producing their own electric cars, broadening the market and giving Tesla more room to compete. But that’s looking far in the future.

TSLA stock spikes whenever there is news of potential cooperation between it and the established players — including a 9% gain earlier this week on news Tesla and a group including Nissan (NSNAY) were talking about collaborating on electric vehicle rechargers — showing investor confidence is currently tied to Tesla’s ability to play the roll of technology supplier to the industry rather than on its ability to sell cars.

A future where Tesla works closely with Google on its driverless cars pays off for both companies…

Why Tesla and Google Need Each Other

Google faces an uphill battle to get its driverless cars on the road. Its best chance at eventually going mainstream is a gradual introduction with proven technology. The ideal test buyer is someone who wants the latest high-tech gear, cares about the future and the environmental impact of automobiles and has deep pockets — packed with technology and in limited quantity, these Google cars will likely be expensive, at least initially. It also needs to find a manufacturing partner.

Tesla already has a loyal following of users who are willing to push the limits of technology, willing to shell out $71k or more for a car, and Tesla has the expertise and facilities to design and manufacture automobiles. Anything from Tesla’s factory makes the current driverless car prototypes from Google look more like amusement park rides than the future of transportation….

Tesla’s long-term survival and success involves EV cars eventually going mainstream. But in the near future, Tesla stock would see significant growth if it were to enter into a relationship with Google, becoming the manufacturing partner for those Google driverless cars of the future and making them even more compelling by ditching the gasoline motor in favor of electric power — perfect for use in the big cities where those deep-pocketed high tech evangelists tend to live.

Google would have a pool of customers clamoring for its driverless cars, willing to pay for the privilege and even more excited by the prospect that they would also be getting a zero-emission electric vehicle with Tesla’s legendary design. Drivers would even get a tax break in many States, thanks to that EV powertrain. These people would be the ones to pioneer the driverless car, prove its value and help overcome the many obstacles that could de-rail the effort.

Tesla would be able to leverage that Google driverless car hype and build more cars despite the limited EV market, gaining breathing room even as Google helps to promote adoption of EV technology. That’s good news for Tesla stock over the near future. With Google’s cash and determination to see its driverless car succeed, Tesla would also likely get some help in expanding its network of EV rechargers — another key component to getting electric vehicles into the mainstream. And that would be good for TSLA stock both in the short term and into the future.

Bottom Line

Combining the company recognized as being on the cutting edge of EV auto technology — Tesla — with the marketing muscle and determination of the world’s most valuable brand — Google — the future of driverless and electric cars would be much brighter. Such a partnership would not only drive adoption of futuristic automotive technology and set the stage for eventual mainstream adoption, it would also help to drive GOOG stock and TSLA stock to new heights.

As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2014/06/google-driverless-cars-tesla-stock/.

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