One of the investing mistakes that some make in high growth glamour stocks is extrapolating today’s growth rates and profitability forward without accounting for future competition. High growth markets with high returns on capital attract competition. And too seldom is the impact of increased competition accounted for in future results.
Tesla is the largest car company in America even though it produces a fraction of the cars that Ford or GM produces. That is partly because investors aren’t baking enough competition into their calculations of future profits. The same scenario appears to be playing out with Netflix—though a rational investor might have assumed much more competition much sooner in the case of Netflix.
In the case of both companies, competition is coming and the outcome could be ugly for both companies. In the case of Tesla, the WSJ reports here that the Jaguar I-pace comes out this fall and Audi, BMW, and Mercedes all-electric vehicles start rolling out next year.
Customers like Tom Richmond could become a problem for Elon Musk and the future of Tesla Inc. TSLA -0.12%
The Florida consultant is selling his Tesla Model 3 and replacing it with a Jaguar I-Pace, a new all-electric sport-utility vehicle arriving in a few weeks that, he said, has a romantic British sports-car heritage, luxurious interior and runs on electricity.
“I mean a Jag—how could you not?” said the 60-year-old from St. Petersburg, Fla. “You sit in any one of them—it is just the lap of luxury.”
The I-Pace, which starts at about $70,000 and arrives in U.S. showrooms this fall, represents the first of a long-promised assault by European luxury auto makers to challenge Tesla with their own high-end, long-range electric vehicles. They are gunning for one of America’s most popular vehicle categories: SUVs.
On Monday night near San Francisco, German auto maker Audi AG NSU 0.27% revealed the production version of its electric SUV called the e-tron. It aims to begin selling the spacious, five-seater in the U.S. next spring starting at about $75,000, slightly less than the $80,000 base price of Tesla’s Model X SUV.
Read more here.
Jeremy Jones, CFA
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