Why Tesla Inc (TSLA) Taking Risks Is Critical to Future Success

Advertisement

Tesla Inc (NASDAQ:TSLA) can’t outspend the competition, so it has got to outthink them instead. If TSLA stock is to reach $500 or $1,000 or whatever long-term share price investors see for the maker of electric vehicles, Elon Musk and the team at Tesla only can get there by continuing to take more calculated risks that benefit drivers than its competitors.

tesla stock

Recent examples in the media suggest Musk agrees.

Software Updates

InvestorPlace contributor Bret Kenwell recently discussed Tesla’s move to assist Florida residents trying to escape the wrath of Hurricane Irma by updating the car’s software to increase the range by 30-40 miles, a move that wouldn’t have been possible without over-the-air updates.

“The fact is, Tesla can make near-instant upgrades to its vehicles, which provides value to customers,” Kenwell stated in his September 25 article. “Tesla can make beneficial tweaks at a moments notice, not something my Jeep is capable of. Knowing that Tesla has the ability to do it and will actually do it is also attractive from a customer point of view. Tesla has its customers’ backs.”

Data has increasingly become the weapon of choice in today’s business environment; the more information you have about your customer, the better you’re able to do what’s necessary to keep them happy—including helping them get to safer ground.

That’s not something that its bigger competitors have been nearly as good at doing. By continuing to push the envelope on over-the-air updates and computer software, Tesla remains a tech company that happens to sell cars.

I see that as a huge advantage over its peers.

Vertical Integration at Tesla

Outsourcing’s become an essential part of the globalization of business.

However, by moving away from vertical integration, these companies are relying on the ability of others to be successful, and that’s never a good thing when you’re a car company built on technology. 

Tesla’s rumored move to custom-design its chip for handling autonomous driving in partnership with Advanced Micro Devices, Inc. (NASDAQ:AMD) is another example of how it’s hell-bent on controlling its destiny rather than following the auto industry’s status quo.

“The Tesla/AMD move has disruptive implications to the multi-billion self-driving market,” Rosenblatt Securities analyst Hans Mosesmann said about the potential partnership. “The net/net here for AMD is that Tesla has confirmed AMD’s CPU and GPU roadmaps in a field that nobody was considering as viable; it says that AMD’s CPU/GPUs in PC and server markets are the real deal.”

Although the ramifications for AMD stock are obvious, the benefits to Tesla are less so until you consider what Apple, Inc. (NASDAQ:AAPL) has done with the iPhone and custom-designed chips.

Jim Keller, the chip architect behind the A4 custom chip that powered the iPhone 4 back in 2010, is now the head of Tesla’s 50-person team working on a custom chip capable of providing the power necessary for operating a self-driving car.

Apple was able to spread the cost over millions of phones to make it worthwhile; Tesla will need the Model 3 to be a home run for a custom-designed AI chip to be financially feasible.

Bottom Line on TSLA Stock

Five years ago I argued that America needed more Teslas because innovation like the kind Elon Musk delivers is vital to growing manufacturing jobs in this country.

“How many times can you say you’ve owned the stock of a business that’s truly making a difference in the world? Vision is something that very few companies have,” I wrote at the time. “America’s future is stronger with a viable, profitable Tesla in the mix.”

Some analysts suggest that once the big boys get serious about electric vehicles, Tesla’s trendiness will fade as consumers realize how many other options are available to them.

I don’t disagree that a bigger marketplace means more competition for Tesla, but I also don’t see why it has to be negative.

Increased competition should keep Tesla, if we’ve learned anything about Elon Musk, taking calculated risks to keep well ahead of anything Detroit or Stuttgart can deliver.

The biggest risk takers will win the electric car wars—and I see that being Tesla.

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

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/tesla-risks-critical-future/.

©2024 InvestorPlace Media, LLC