The Next Big Thing for Tesla Inc (TSLA) Stock: Semi-Trucks?

Earlier this month, Tesla Inc (NASDAQ:TSLA) beat on earnings-per-share and revenue expectations. Bears were looking for this quarter to reveal deep cash burn and further losses. They got it. But the losses were smaller than anticipated and investors continue to overlook spending as demand remains strong. As a result, TSLA stock is rallying.

The Next Big Thing for Tesla Inc (TSLA) Stock: Semi-Trucks?

Source: Tesla

As to not be repetitive, here are three main takeaways from the earnings report.

Now that the Model 3 enters production, investors are more hopeful than ever that Tesla stock can gain even more traction. It’s not as if prior concerns no longer exist. For instance, TSLA just raised another $1.5 billion to fund said Model 3 production. (Should you sweat the debt?)

TSLA stock is now up roughly 70% on the year and close to its prior all-time highs. Many may agree that a large portion of those gains are due to CEO Elon Musk. Musk is seemingly 10 thoughts ahead of whatever investors are thinking or hoping. So, selling that vision has paid off well for him and he’s very good at selling.

At times during recent conference calls, it feels like the Model 3 is more a memory to Musk rather than a current event. That the car is project No. 3 and he’s now on No. 8 in his mind; been there, done that. Or so it feels.

For instance, back in April and June he talked about developing an electric semi-truck. New reports suggest it’s more than just talk.

The Next Vision for TSLA Stock?

While Musk & Co. may have waltzed into the electric car market with its sexy Model S and took the auto world by storm, I wouldn’t expect the same thing in the trucking market.

It’s not because of companies like Cummins Inc. (NYSE:CMI), Swift Transportation Co (NYSE:SWFT) or J B Hunt Transport Services Inc (NASDAQ:JBHT). Rather, a company known as BYD Company Limited could be a larger obstacle.

BYD, based in Shenzhen, has quickly found itself in the rising electric vehicle battle. However, it’s bringing the battle over to the U.S. It has plants in Illinois and California, with expansions occurring in the latter. For those thinking BYD can’t sniff TSLA’s jockstrap, think again. First, BYD is an established player in both the auto and electric/battery markets. Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) has a near-25% stake. Think he’s messing around? The company sports a $100+ billion market cap and it is profitable.

While we did make a bullish case for TSLA’s energy storage solutions, BYD has a role in that space too. It has also made formidable progress in electric buses, forklifts and yes, semi-trucks.

Many investors may brush off the threat of BYD on account of not recognizing the company. But just because we aren’t familiar with it, doesn’t mean we should ignore it. Tesla also has increasing competition in the electric vehicle space, with General Motors Company (NYSE:GM) (another Buffett holding), Audi, BMW and many others looking to take share.

Tesla’s Plan

Specifically relating to the semi-truck reports, it appears Tesla is looking to test “platoons” in Nevada. The concept — which involves a lead human driver and several autonomous trucks following behind — is not new. Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and its Waymo division, Uber (despite all of its issues) via its Otto acquisition and Volvo AB (ADR) (OTCMKTS:VOLVY) (working with Peloton Technology) are all working on autonomous trucking solutions.

Tesla has had a lot of success so far. While its financials are far from perfect, that success has driven TSLA stock higher. But as “easy” as it was for Tesla to come in and disrupt a vastly inferior electric car market, the same won’t be said for electric trucking. The winner in trucking will be the company that provides the most bang for the buck. Tesla has the flashy name and efficient, sexy cars. Auto companies are trying to make up ground in both categories, but Tesla remains king.

Semi-trucks needn’t be sexy. Tesla isn’t king of the electric trucking business and I think it will have a hard time getting there. I’m not saying Musk shouldn’t try. But he’ll have a lot more competition in the space, particularly with BYD in the way.

When it comes to TSLA stock, I think our prior plans remain true. Right now, shares are in no man’s land. Despite the crazy-high valuation though, we shouldn’t be against it. Too many people have gone broke doing so. That said, the valuation is too high for me to be a buyer at current levels. With the additional volatility of the North Korea risk, I don’t want high-beta names like TSLA stock in my portfolio.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he did not hold a position in any of the aforementioned securities.

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