A deeper look into the portfolio: Tesla

18/07/2018

Summary

Business Strategy: Tesla is the leading provider of electric vehicles that is aggressively working to deliver autonomous vehicles

What about Tesla?

In the portfolio since: March 2017
Country of origin: United States of America
Core business: High-performance electric vehicles, powertrain components, battery packs
Market target: Private individuals, transportation industry

Business Strategy: Tesla is the leading provider of electric vehicles that is aggressively working to deliver autonomous vehicles

The company is both a beneficiary of Artificial Intelligence (AI)-enabling technology such as sensors and compute technology as well as an AI software platform company in terms of its development of autonomous driving and other tech-oriented capabilities.

The company first used AI (deep learning) to train its radar system to see the world with a level of detail previously not possible. The company used this technology to enable a new form of advanced collision avoidance that works through varying weather conditions.

Next, the company has been gathering billions of miles of driving data through its fleet of cars that are all connected to Tesla’s servers. This driving data provides the company with a vast trove of information to train for its future autonomous driving system – something other auto manufacturers are struggling to acquire.

The move toward electrification and self-driving combined will likely change the relationship between the manufacturer and car owner in meaningful way. Electric cars, due to fewer moving parts, have different maintenance requirements than internal combustion engines. This leaves less opportunity for dealerships to make money on service. As such, traditional auto Original Equipment Manufacturers (OEM), with dealer distribution models, will find it difficult to push fully electric models in a way that is consistent with their current distribution strategy.

In short, we believe we are entering a period of meaningful disruption in the entire automotive and transportation value chain.

Tesla is an automotive company that is using AI to enable advanced driver assist and self-driving cars. Tesla’s efforts in this area has the potential to impact the automotive, energy, transportation, and insurance industries.

Application examples:

Metrics

The investment team’s analysis regarding Tesla:

Key drivers of Tesla share gains

-	Distribution advantage
	- Unique distribution model aligned with reduced maintenance needs for EVs
-	Autonomous driving
	- Tesla has over 3.8B miles of data from its fleet including 1.3B miles driven with autopilot
	- Autonomous driving will become a key differentiator for Tesla to drive incremental demand
-	Manufacturing advantage
	- US $5B investment in battery giga factory gives Tesla significant advantage over other OEMs
	- Tesla’s factories are highly automated with production lines leveraging robotics and AI extensively

Grassroots^® Research Input

-	June 2017: Despite only 0.2% share of EV vehicles of US vehicles sold in 2016, our consumer survey results indicate 34% of US consumers are considering an EV for their next vehicle purchase.
-	January 2016: In an online survey of ~1,000 US consumers, nearly half indicated they would pay extra for highway-only self-driving technology as featured in Tesla vehicles in the next vehicle they purchase.

Outlook:

-	Tesla is one of the leading innovators in making autonomous vehicles a reality. The company leverages artificial intelligence throughout its products, from algorithms for battery management to automating manufacturing processes to self-driving capabilities.
-	Tesla is on track to demonstrate a car driving from California to New York in full autonomous mode in the next year and also recently showcased a prototype of its first commercial self-driving semi truck.

Grassroots^® Research is a division of Allianz Global Investors that commissions investigative market research for assetmanagement professionals. Research data used to generate Grassroots^®Research reports are received from independent, third-party contractors who supply research that, subject to applicable laws and regulations, may be paid for by commissions generated by trades executed on behalf of clients.

Allianz Global Artificial Intelligence - invest in the future today