One of the fascinating and, at times, frustrating parts in analyzing an industry is how it evolves over time — new products, new services, new competitors and new technologies. All of these can have a profound effect on an industry. When more than one innovation is hitting at once, it can result in a sea change. In today’s society, you probably are thinking of the current go-to product — the smartphone — but there are a number of examples.
One high-flying stock up until recently was electric car manufacturer Tesla Motors (TSLA). Even though there were hybrid cars from the likes of Toyota (TM), Ford (F), General Motors (GM), Honda (HMC), Hyundai and others, Tesla’s all-electric offering stood out and garnered numerous fans. Led by colorful CEO Elon Musk, Tesla shares quickly became a cult stock, and they zoomed to a high of $194.50 from a low of $31.52 during the last year. In recent weeks, three incidences of fires in Tesla’s Model S have weighed on Tesla shares, and now the National Highway Traffic Safety Administration (NHTSA) is launching a preliminary investigation.
While they may have initially scoffed, the major car manufacturers are not ones to miss out. At last week’s Los Angeles Auto Show, BMW, General Motors (GM), Volkswagen and Audi all introduced new plug-in models aimed at affluent, eco-conscious Californians who make up the heart of Tesla’s buyers. Much like the smartphone market, new features, which in this case mean the all-electric aspect of the car, start out at the high end and over time trickle down to lower-tier models. When I was a boy, I remember that some of our early cars did not have power windows, air conditioning and several other features that all come standard today.
While Nissan has attempted to market its Leaf electric car, it is only now boosting production. Part of the reason for the lukewarm reception is cost, given the cost of lithium-ion batteries, while another is the limited driving range. Tesla’s Model S has a driving range rated at 265 miles, which is well below today’s more fuel-efficient cars. Despite Tesla’s success, electric cars account for only 1% of U.S. light vehicle sales this year.
As more manufacturers bring these types of cars to market, competition and economies of scale will bring prices down. Consider the i8 plug-in hybrid sports car that BMW touted at the Los Angeles Auto Show that has a starting price above $135,000, has a carbon-fiber body architecture and is propelled by electric motors in the front and a three-cylinder gasoline engine in the back. While BMW is using this model to target influential trendsetters, early next year it is launching its second electric model, the BMW i3, which is a small “city car” that will start at about $40,000 in the United States.
When I see situations such as these, and I have seen them time and time again during the last 20 years, I look for those companies in the food chain that have key, if not essential, components and technologies. In this case, it’s the lithium-ion battery, but that’s also been the source of the fires in Tesla’s Model S. With more manufacturers bringing more electric models to market, odds are the lithium-ion battery issue will be worked out, and I will be keeping my eyes and ears open to see which suppliers step up and address the problem. It’s that company that I’ll be recommending to subscribers of my investment newsletter PowerTrend Profits.
PowerTalk with James Nolan, EVP of R&D at InterDigital
With the growing talk on the Internet of Things from companies like Cisco Systems (CSCO), Qualcomm (QCOM) and others, I thought it made sense to go back to my April PowerTalk conversation with James Nolan, executive vice president of R&D at mobile intellectual property and licensing company InterDigital (IDCC). Aside from helping steer InterDigital’s technology path and therefore keeping a close eye on what’s going on in the industry and where it’s going, Nolan touched not only on smartphones and the Connected Home, but also the Connected Car and mobile security, mobile operating systems and more. If you missed it the first time, this insightful PowerTalk will be one you won’t want to miss again.
Read my PowerTrend Brief from last week about the investing potential of China and the euro zone. I also invite you to comment in the space provided below.