The Tesla Upgrade We’ve Been Waiting For
When will Tesla (NASDAQ: TSLA) shareholders insist upon the company turning a profit?
Earlier this month, Jefferies analyst Philippe Houchois sent Tesla’s price tumbling when he issued the following warning…
“Achievements to date and vision are impressive, but we don’t think Tesla’s vertically integrated business model can be scaled up as profitably and quickly as consensus thinks and valuation multiples imply.”
Furthermore, as I reported on Tuesday, “Tesla will need a cash infusion to continue its massive R&D binge.”
Surely, Elon Musk is beginning to feel the heat.
But here’s what no one sees coming…
I believe that Musk is preparing an offer to buy Indian car manufacturer Tata Motors (NYSE: TTM).
The companies’ symmetries are far too juicy for Musk to resist.
Of course, a Tesla buyout announcement would “break” Tata Motors’ chart.
As you should know by now…
When charts “break,” profit opportunities abound (click here for proof).
Here are three reasons why Tesla should feast on Tata Motors like a lion would its prey.
Reason #1: Size Matters
The U.S. is one of the world’s largest and wealthiest nations.
But its auto market is actually one of the most sluggish…
Last year, automakers sold 17 million new cars in the United States.
That’s a growth rate of just 0.4% from 2015.
Meanwhile, in India, 3 million vehicles were sold in 2016 — up 7% from the previous year. And with a population of 1.4 billion people (compared with 324 million in the U.S.), there’s a lot more room for growth.But here’s the catch…
The country also suffers from perhaps the world’s worst air pollution.
Air pollution was responsible for 1.1 million deaths in 2015, according to the 2017 State of Global Air report, a joint study by the Health Effects Institute in Boston and the Institute of Health Metrics and Evaluation in Washington state and British Columbia.
That’s higher than any other country except China.
Here’s where Tata comes in…
It’s the largest automaker in the world’s second-largest country by population. And the company has just made a big splash, debuting its first electric car in September.
By purchasing Tata, Tesla would plug into a massive auto market salivating for electric cars — and scoop up a company that’s already making them.
That’s what I call a win. (But it’s nothing compared to the potential coming from the next “chartbreaking” stock. Click here for details.)
Reason #2: A Luxury Upgrade
As well as its core business in India, Tata owns two of the world’s iconic luxury automobile brands — Jaguar and Land Rover.
In the year ending March 2017, they boasted combined sales of 604,000 vehicles — up 16% from the previous year.
That’s more than Tesla’s total sales goal for 2018.
Of those sales, 174,000 came from Jaguar cars and 431,000 were Land Rover SUVs. Sales were up 32% in China and 24% in North America, with slower growth of 16% in the United Kingdom and 13% in Europe.
Owning Land Rover would give Tesla an established high-end brand in SUVs. Since this is a new frontier for Tesla, it would kick-start the company’s expansion into this market segment.
The Jaguar brand would broaden Tesla’s reach in Western and Chinese markets, where it could use its technology and Jaguar’s design capability to penetrate even further into the world’s largest automobile market.
Pretax profits of the Jaguar Land Rover Division were $2 billion in the year ending March 2017, making an important short-term contribution to profits from Tesla’s high-end automobiles.
With three brands and strength in both sedans and SUVs, Tesla would be much better positioned to take on the high-end auto giants, while building on Tata’s strong position in the Indian market at the low end.
A Tesla-Tata tie-up is virtually assured, which would “break” Tesla’s chart.
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Reason #3: The Takeover Case in a Single Tweet
All big profit opportunities require patience… and government assistance. At least when it comes to the electric vehicle (EV) market.
Think about it…
Without subsidies, EV adoption would be been stuck in neutral indefinitely. So credit the government for enabling the latest surge in adoption in developed markets, including the United States.
When it comes to India, the government is also a factor, in an altogether different way for Tesla.
As my colleague Jonathan Rodriguez spelled out, the sales potential in India is off the charts. The country is set to be the world’s third-largest auto market. And the government would like to transition to all-electric cars by 2030.
However, foreign companies can’t simply waltz into the county to start capitalizing on the opportunity.
As Musk referenced in a mid-June tweet to a Tesla enthusiast — onerous import penalties of as much as 100% make it impossible to compete. Especially since India is such a price-sensitive market.
As Chetan Maini, the creator of India’s first EV put it, “About 85%of the market is filled with value-conscious customers, [which] has the largest potential for growth.”
Yet even before slapping on any import fees, Tesla’s cheapest sedan is grossly overpriced.
That’s where Tata comes in. By acquiring the company, Tesla would immediately skirt the import issue.
At the same time, it would provide an established ecosystem to support expansion into India via a lower-priced vehicle.
Bottom line: Major roadblocks stand in the way of Tesla entering the lucrative Indian market. And the only quick way around them is via an acquisition. Bet on it!
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Ahead of the tape,
Chief Investment Strategist, Wall Street Daily