Why You Shouldn’t Hop on the Tesla Train… and What You Should Do Instead
Yesterday, Hertz Global Holdings Inc. (HTZZ) announced plans to buy 100,000 electric vehicles (EVs) from Tesla.
Investors seized on this unexpected news to boost Tesla’s market cap over the $1 trillion mark. As I write this, the stock price is also still strutting its spectacular trillion-dollar valuation.
“[Hertz’s purchase is] the single-largest purchase ever for electric vehicles… and represents about $4.2 billion of revenue for Tesla,” yesterday’s Yahoo! Finance report read.
Despite this impressive achievement, I’d caution against making a brand-new investment in Tesla shares.
For all of Tesla’s innovative prowess and creativity, the company cannot escape mundane issues like rising input costs.
Elon Musk admitted as much when he said that Tesla would be hiking its prices for the fifth time this year, “due to major supply-chain price pressure industrywide… Raw materials especially.”
The price of a Model 3 Standard Range Plus, Tesla’s cheapest vehicle, has jumped from $37,000 back in February to $41,990 today.
Surprisingly, that steep 13% price hike may not be enough to compensate for rising input costs. As I have noted previously, the prices of the main metals that make up a battery-electric vehicle (BEV) are soaring. The chart below tells the tale. It shows “back of the envelope” estimates of the raw metal costs of a Model S.
When I created the original version of this chart in February, it showed that the approximate metal costs of a Model S had surged from $2,800 in May 2020 to $4,300.
Since then, that metal input number has jumped another $600 to $4,900 per Model S.
The “Secret Ingredient” Behind My Biggest Stock Picks
That $2,100 year-over-year cost increase may not seem like a big deal for a car that retails for $80,000. But bear in mind that Tesla effectively netted just $1,442 per vehicle last year… and that net profit included regulatory credits equal to $3,160 per vehicle.
Over the next couple of years, Tesla’s income from regulatory credits will probably dwindle to almost nothing. So, if we removed those credits from the income statement and then added in the rising prices of battery metals, Tesla’s approximate $1,442 profit per Model S would flip to a per-vehicle loss of more than $2,300.
In other words, rising metals prices could squeeze Tesla’s margins enough to wipe away the profit completely.
So, sure. Tesla might be a font of creativity, and one cannot deny the appeal of its cars. But when it comes to the best place to put your money… look elsewhere.
Instead, think of it like this: Hertz’s purchase of Tesla’s EVs will certainly pave the way for other such companies to do the same… and directly contributes to the emerging green energy and battery metals megatrends I’ve written about before here.
At the epicenter of both of these trends is copper – and here are a few reasons why:
Flying on Copper’s Wings
The average EV uses almost half as much copper as the average American house. And EVs aren’t the only “green” products that are “metal hogs.”
- Wind energy uses five to 10 times more copper per unit of electricalenergy than does the conventional burning of coal.
- Photovoltaic solar power uses six times more copper per unit of electrical energy.
- A Tesla Model 3 requires 240 pounds of copper, which is nearly four times what a midsized internal combustion vehicle requires.
Therefore, as the renewable energy boom gains momentum, it will produce an echo boom in demand for key battery metals like copper.
Because EVs require large quantities of metals like copper, nickel, lithium, and manganese, mining companies have become the newest heartthrobs of the global auto industry.
The car companies are realizing that if they wish to ramp up EV production, they must secure long-term supplies of the “battery metals” that make their new ecofriendly autos possible.
Mining companies are delighted by the trend – and I have my eye on one of them in Fry’s Investment Report. You can learn how to get access to that play, and the full suite of recommendations that bloom from the other megatrends I’m following, by clicking here.
