Analysts Believe Tesla Motors Inc (TSLA) Could Dominate TaaS Market?


The transportation-as-a-service market will grow rapidly around the world in the next decade.  This was highlighted in an email to clients in the last week by Morgan Stanley  analyst Trip Chowdhry.  Tesla Motors Inc (NASDAQ:TSLA) could have several advantages over others in the space.  In the years to come there will be tremendous pressure from Governments  to reduce emissions. One key element towards this mean could be transportation-as-a-service or TaaS.  While in the near-term weaker oil price could hurt the sales of electric vehicles, longer term that is not likely to be an issue. That is primarily due to the shift towards reducing carbon emission, which has assumed greater significance.

Chowdry believes that there could be tremendous growth in TaaS for Tesla Motors Inc (NASDAQ:TSLA). For instance, Uber has expanded itself globally and is focusing on the emerging markets, apart from the developed markets. There is no doubt that the company is gaining traction even in the emerging markets such as India. That is partly because the economy is growing, and business-related travel is helping the growth in TaaS growth. Some analysts from Morgan Stanley (NYSE:MS) and Trip Choudhry believe the TaaS market could be worth about $1 trillion by the end of 2028. The size of the market clearly suggests that there will be hectic competition. Let’s look at the competitive scenario.

Rivals Planning Driverless Car

Tesla Motors Inc (NASDAQ:TSLA) seems to understand the market, at least to some extent. That is a primary reason it will shift its focus partly to the affordable car market from the premium electric vehicle market. The Model 3 will be an affordable vehicle, priced around $35,000. The company hopes to launch it in the next year in March. For this, the electric vehicle maker hopes to scale to produce 500,000 vehicles every year. The company is establishing its Gigafactory in Nevada to support the demand. The factory will have enough lithium to sufficiently supply the projected cars per year, that the electric vehicle market expects to deliver by 2020. The company’s Gigafactory will start production in 2017, and the full capacity will be reached before the end of the year 2020.

While Tesla Motors Inc (NASDAQ:TSLA) has plans for a driverless car, Google Inc (NASDAQ:GOOGL) has been developing an autonomous car for quite some time. The company seems to be testing it.  Apple Inc. (NASDAQ:AAPL) is reportedly considering an entry into the autonomous car market. For this purpose, the company has been reportedly hiring key personnel from the industry. However, Apple has yet to announce its intention of entering the sector. It is a fact that the company is sitting with a big cash pile of $200 billion. However, that does not mean that it can take any amount of risk. The company needs to convince itself of a high probability of success to enter.  Aside from the research and development stages, Google and Apple have yet to develop things further.

Advantages Tesla

The advantages for Tesla Motors Inc (NASDAQ:TSLA) to capture a bigger slice of the $1 trillion TaaS market is that the company already has a perfect infrastructure in place. For instance, it has direct sales and created a global network of showrooms, as well as galleries. They are mostly in urban centers in the world. The advantage is that it does not create any conflict of interest and creates a better buying experience for its customers.

The company’s Service Plus Centers are another key factor. At the end of the year 2014, Tesla Motors Inc (NASDAQ:TSLA) had 159 Service Plus locations throughout the world. Service Plus Centers are nothing but an integration of retail, as well as a service center. That apart, the company integrated several sales centers with its service centers. They have another 95 locations in this category, with more in the pipeline. The company also allows sales by customizing and purchasing online.

Another key aspect is the supercharger network. Tesla Motors Inc (NASDAQ:TSLA) has established its own network of Supercharger stations. This allows vehicle owners to charge their vehicles for half an hour for free. The objective is quite clear. That is, if the company establishes its charging stations, then the adoption rate of electric vehicles will grow. To its credit, the company has been ensuring the infrastructure takes care of after sales also.

Analyst Comments

Trip Choudhry picked up Tesla Motors Inc (NASDAQ:TSLA) in the $1 trillion TaaS industry because it believes the company is fundamentally strong. The brokerage believes that the electric vehicle maker can emerge as a multi-product firm due to its revenue streams. For the next ten years, the brokerage expects the company to sustain more than 50% year-over-year growth. Similarly, Morgan Stanley (NYSE:MS) analyst, Adam Jonas, expects the company to commercialize an app-based mobility service before the end of the year 2018. The brokerage believes that the opportunity will be an addition to the existing model of selling human-driven cars. The analyst expects a big potential in the driverless car for Tesla.

Conclusion

While there will be competition from Google Inc (NASDAQ:GOOGL) and Apple Inc. (NASDAQ:AAPL), there is no doubt that Tesla Motors Inc (NASDAQ:TSLA) is at an advantageous position compared to other tech giants. The company has more than autonomous car models. It has established service centers and Supercharger centers to take care of after sales. The other two have yet to make in-roads other than the process of developing of vehicles. Therefore, the advantage is clearly on the side of the electric vehicle maker to dominate the TaaS market.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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