Yesterday Tesla Inc. [NASDAQ:TSLA] opened at US$351. By the end of the day’s trading they closed at US$355. A small 1.13% gain. Nothing huge percentage wise. But for a company with a market cap of US$59.25 billion, a substantial increase.
Looks like investors didn’t read yesterday’s Money Morning. Shame.
If you missed yesterday, we reinforced a view we’ve had on Tesla for some time. We haven’t been right with that view. But it’s a view we’ve stuck with, because we believe we’ll be proven right.
We should probably add that we continue with this view not because of hubris. Not because of sheer arrogance. But because we’re convinced we’re simply right.
And that in the coming year…or two…we will be beautifully vindicated as Tesla’s misfortune plays out exactly as we expect.
Still, if you’re unfamiliar with our Tesla views, here’s a quick refresher from yesterday,
‘We still maintain Tesla is the most overpriced company in the world. They are a good company with a good product. But the market is pricing in hype and hope, not actual results.
‘However while we think Tesla sucks as an investment at current prices, there’s an upside to the EV story no matter how it plays out. In fact thanks to Roadmap E, Tesla and the changing dynamics of the car market, there are a couple of ASX listed stocks that could be set to shine.
‘We’ll explain which stocks we’re talking about, why they’re on track to dominate the EV market, and how hard they might run tomorrow…stay tuned for more.’
Here we are. A day later. Another day with Tesla showing gains in a market that refuses to see the company for what it is.
And if you’re at all confused about Tesla, let’s make it clear. They are a niche carmaker. They’re a wonderful company with grand ambitions. But they have yet to deliver on any target…ever. They are yet to achieve any production figure they’ve ever set. They were late with the Model S. They were late with the Model X…they are late with the Model 3.
This is a company that continuously disappoints the market. Repeatedly they fail to meet their targets. Yet somehow the market rewards them for their ‘efforts’ and the stock price rises.
And lets again not forget this is a company that’s yet to make a profit.
But it’s not all bad. Tesla isn’t about to disappear. This isn’t a company that’s going to go ‘under’ and not exist in another few years. They’re an essential part of the car market now and the very reason electric vehicles (EVs) are becoming mainstream.
You only need to look at the Frankfurt motor show to see the evidence of Tesla’s innovation and progression. Almost every single major carmaker in the world is now rolling out EVs across their entire range.
BMW, Mercedes, Renault, GM, Volkswagen (and the rest of the Volkswagen Group). Everyone is going ‘full EV’ over the next 7–10 years.
That means soon enough you will have more than a handful of EVs to choose from. When you go to buy a new car in 2025, you will have thousands of different models of EV to choose.
That’s a great outcome for consumers. But it’s even better news for a couple of ASX listed stocks that most people have never heard of.
What makes a good battery?
When it comes to the future of EVs the most important component is the battery. Without an electric battery an EV is just a…‘V’.
It is a shell with no power. Just like petrol or diesel powers your car today, an electric battery will power the EVs of tomorrow.
And the most common and abundant battery is going to be the lithium-ion battery.
Now, most people see the name ‘lithium-ion’ and assume lithium is the most important material. That’s why we’ve seen some hype and hysteria around lithium stocks over the last couple of years.
And yes, lithium is important. But there are other materials that lithium-ion batteries need to work. Without these materials, lithium-ion batteries simply do not work.
Perhaps one of the most important materials needed in a lithium-ion battery is actually graphite. The use of graphite in electric batteries is a common occurrence, but what most people don’t realise is that graphite can occur naturally and synthetically.
On one hand you can dig graphite from the ground, where it occurs naturally. Or you can make it synthetically.
Both ways offer benefits in terms of cost to produce and end efficiency and conductivity within the battery. But the reality is that in a future of mass market EVs, both natural and synthetic graphite will likely have their place.
That means that every Tesla that hits the road with a lithium-ion battery will also have graphite in said battery. It also means that every VW, Audi, Mercedes, Porsche, Skoda, and BMW that hits the roads a decade from now will have graphite in its battery.
Look beyond the carmakers
While today there may only be a handful of EVs on the road in the near future it will be in the millions. Millions of EVs on the road with batteries, all needing graphite as an essential component.
That may come in the form of natural or synthetic graphite. And it may be a market where both can comfortably survive.
If VW plans to have every car across every brand electrified by 2030, we think there’s only one way for the graphite market to head.
And if we’re right, then there are a few select graphite companies that are set to benefit from this boom. One is Syrah Resources [ASX:SYR]. This is a mining company whose sole focus is the mining and production of natural graphite for the EV market.
Syrah operates a mining complex out of Mozambique that is set to become the world’s largest production centre for graphite. And effectively the centre of graphite supply for the upcoming boom in EVs.
This is a company with a market cap of just over $1 billion. It’s one of the most important companies for the future of EVs. Their materials are crucial to making sure Teslas, BMWs, VWs, Mercedes — possibly all EVs of the future — can move from A to B.
They’re a company that barely anyone has heard of, that is crucial to our future of transportation.
Whether or not Tesla succeeds as a company is irrelevant now. If you’re really looking to bank on the future of EVs, then look beyond the carmakers. Look to the companies that will power the future.
Editor, Australian Small-Cap Investigator