tesla - How to Play Tesla’s Inevitable Demise

How to Play Tesla’s Inevitable Demise

[Editor’s note: “How to Play Tesla’s Inevitable Demise” was previously published in June 2021. It has since been updated to include the most relevant information available.]

Fortune favors the bold. Let’s hope fortune favors me when I say it may be time to bet against Tesla (TSLA).

Full disclosure: We own TSLA stock in our Innovation Investor portfolio. How could we not?

Elon Musk & Co. are at the forefront of three of the most disruptive technological shifts in the world today – EVs, solar, and battery storage.

But I’ve been putting some serious thought into finding innovative, disruptive tech companies with the potential for 2X, 5X, or 10X-plus gains.

While Tesla still has the potential for upside, we think there’s a much, much bigger opportunity elsewhere.

I’m growing increasingly bullish on the idea that Lucid Motors (LCID) is about to eat Tesla’s lunch. And as a result, Tesla stock will struggle in the coming years while Lucid Motors stock will roar higher.

It’s a bold claim, I know. I also know the dangers of betting against someone as visionary as Elon Musk, or a company with as much talent as Tesla, or a stock with as much momentum and support as TSLA’s had.

The short-seller graveyard is full of capable folks that got suckered into betting against  Tesla and got absolutely burned along the way.

However, as they say, past performance does not guarantee future results.

While the shorts have been dead-wrong about Tesla stock for years, it may finally be their time to shine.

You see, I’ve been a huge bull on Tesla stock. And I have scored my readers 2,000%-plus returns in the name. So, my sudden bearish stance on TSLA does not come from a place of hate for the company.

Rather, it comes from a handful of unbiased observations that Tesla’s brand equity and perception has been diluted. Not to mention its technology advantages have been narrowed. All set the stage for Tesla to lose significant market share to a newer entrant.

And who might that be? Lucid Motors stock.

Here’s the story.

Behind-the-Scenes Erosion at Tesla

For years, the bull thesis on Tesla has hinged on three critical competitive advantages:

  1. Talent. As an influential visionary, Elon Musk is a top-tech talent magnet. Historically, the smartest engineers on the planet have wanted to work for him and at Tesla. That gave Tesla an unrivaled confluence of talent to build EVs.
  2. Technology. Thanks to its unrivaled confluence of talent and huge head-start in the space, Tesla cars have historically been the best-performing cars in the market. Their market-leading battery technology unlocked longer ranges and faster recharge times.
  3. Brand. Tesla is the only “cool,” sub-$100,000 auto brand in the world. And the company got to that point by developing an aura of exclusivity and uniqueness that made everyone want their cars.

Those advantages are now eroding.

Tesla has actually lost a bunch of talent over the past few years. Some has gone on to work at other auto companies. But most of that talent has actually churned to start their own EV startups, on the idea that they can build cars to rival Tesla cars.

The best-of-the-best of these Tesla-inspired startups? Lucid Motors.

Lucid Motors Brings the Talent

The company is led by Peter Rawlinson, the former chief engineer of the Tesla Model S. Yes. This is the engineering brain behind Tesla’s flagship car – the one that started it all.

Supporting him is an impressive team of former Tesla, Audi, Apple (AAPL), Samsung, Ford (F), Intel (INTC), and GM (GM) execs. We’re talking about folks who helped start Tesla and turn it into what it is today. And on top of that are very influential people behind some of Apple’s hero products, like the iPhone.

This is the most impressive confluence of talent in the EV industry outside of Tesla – and it’s not even close. Lucid Motor’s management team stacks up equally to the titan. And considering the current trend of Tesla losing talent and Lucid Motors gaining it, the latter will have much more talent than Tesla by 2025.

And indeed, with this remarkable engineering and design team behind it, Lucid has developed, tested, and fine-tuned some of the industry’s most impressive technology.

To answer your question, yes, this technology beats Tesla’s EV tech on every key performance indicator.

We’re talking longer driving ranges, more horsepower, denser motors, faster acceleration, tighter control – the works.

Tesla Is Being Surpassed

Over the past 10 years, Lucid has created an entirely in-house Lucid Electric Advanced Platform (or LEAP, for short). It comprises key competitive technological advantages including:

  • A low-floor, wide-base skateboard EV platform enables the company’s ultra-spacious “Space Concept” interior design and allows for more interior cabin space per square foot of vehicle platform than a Tesla car.
  • An incredibly power-dense drive unit that yields the most efficient battery in the EV industry with 4.5 miles / kWh (versus ~4 miles / kWh for Tesla Model S), and therefore unlocks farther driving ranges of over 500 miles (that’s on par with Tesla’s new super-premium Model S Plaid version), without compromising on performance.
  • An onboard boost-charge technology dubbed “Wunderbox” that enables ultra-fast charge rates and bidirectional power delivery, which includes vehicle-to-grid and vehicle-to-vehicle charging.

This world-class technology platform is backed by 403 patents – over 80% of which are already issued.

In other words, Tesla’s tech no longer stands alone as the best in the industry. Lucid Motors features a technology portfolio that, pound for pound, rivals and even exceeds Tesla’s.

Brand Dilution

Here’s the thing about cars. We don’t all want to drive the same one. Of particular relevance to Tesla, high-income folks want to drive nicer cars. It’s a status symbol of their wealth.

There’s a reason Porsche (POAHY), Maserati, and Lamborghini don’t make $20,000 cars that everyone can afford. They want to maintain premium brand equity. But Tesla has a dream of democratizing of EV ownership. And as a part of that dream, the company is working tirelessly to drive the price of its cars down to $20,000.

On one hand, that’s great because it means Tesla will unlock mainstream EV demand.

But on the other, it’s bad because it means Tesla is diluting its premium brand equity.

After all, there are tons of millionaires out there who simply won’t buy a car that a just-out-of-college kid could afford as their first.

Sure, there’s a difference between the Model 3 and the Model S. But the ostensible difference isn’t that big. (I have to look extra close to discern whether that’s a Model 3 or Model S on the road with me.) And it certainly isn’t big enough to save Tesla from inevitable premium brand equity erosion as its cars get progressively cheaper.

Yet, EV demand in the premium channel isn’t going anywhere anytime soon. If anything, it will only increase – meaning there is a unique and compelling opportunity over the next few years for a new EV brand to eat Tesla’s lunch in the premium channel.

Enter Lucid Motors

Lucid is positioning itself as a so-called “post-luxury” brand that focuses on elegance and modernity over the traditional legacy focal points – opulence and indulgence. The company has designed its cars with this post-luxury vibe in mind. Earthy tones. Sustainable materials. Simple controls. Connected ecosystem. End-to-end customer experience. Tech-forward. Peaceful ambience. These are attributes that consumers place a high value on today. And Lucid Motors knocks them all out of the park. It’s the dream car.

Importantly, for the next few years at least, it will be a car only the rich can afford. And as such, the Lucid Air will be the most in-demand premium EV in the early 2020s…

The Final Word

Lucid Motors has the talent, technology, and brand to not just rival Tesla in the premium EV market but to actually beat it at its own game.

Does that mean Tesla is dead? No. Far from it.

Tesla will grow like wildfire over the next few years, as the company sells a bunch of Model 3 and Y cars all across the globe, expands its solar business, and makes a successful push into the energy storage world.

But at its current valuation, Tesla stock is priced for perfection and then some. I’m growing skeptical that will happen. If it doesn’t, Tesla stock could be stuck treading water for the next few years.

The investment implication?

It may be time to forget TSLA stock. Buy stock in the companies stealing market share from Tesla – like Lucid Motors.

As I said, fortune favors the bold. If we’re right, it could be the most profitable move we’ve ever made.

Be at the forefront of this epic shift in next-gen mobility and make some monster gains.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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