Who will win the looming electric car war – Tesla or Mercedes?

Welcome to the first in a new series of AtlasTrend articles where two listed companies will compete head to head to determine which company’s shares offer a better risk adjusted investment.

The rules are simple. Five rounds, with a winner for each round and then an overall winner. In our first head to head contest – who will win the looming electric car war?

The following information does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation and needs.

Let’s meet the two competitors

First we have Tesla. Founded in 2003 and headquartered in Palo Alto (at the hub of Silicon Valley), Tesla is a pioneer of the plug-in electric vehicle (“PEV”) industry. Led by visionary billionaire Elon Musk, Tesla currently manufactures the world’s best selling plug-in electric car, the Model S. Tesla forecasts it will deliver approximately 80,000 PEVs in 2016 and has a stated goal of producing 500,000 PEVs per year by 2018.

In this contest, Tesla is pitched against Daimler, the manufacturer of Mercedes vehicles. Mercedes’ origins stretches back to 1886 when it built the world’s first petrol powered car. Since that time, Mercedes has become a premier luxury car manufacturer selling approximately 2 million passenger cars a year across the world. Renowned for its technical prowess, many of the innovations we have in our cars nowadays were developed by Mercedes including ABS brakes and airbags.

Why are we putting Daimler and Tesla in a head to head contest?

Although PEVs are currently a very small component of total vehicles sold (less than 1% global market share), major car manufacturers and suppliers are estimating this will increase rapidly over the next 10 years. Mercedes recently said it expects 25% of all its cars sold by 2025 to be electric cars which is a major strategic development for a company that has been making and selling petrol powered cars for over a century. Based on this percentage, Mercedes may sell upwards of 500,000 PEVs per year which is remarkably similar to Tesla’s target as well.

What many people believe to be a niche market may very soon become an all-out electric car war. The winner of this battle could deliver great investment returns for shareholders as PEVs become mainstream over the next 5 to 10 years. We believe Tesla and Daimler are the two companies best placed to benefit from this growth.

Round 1: Who is the current leader in PEVs?

Tesla is widely recognised as the leader in the design and manufacture of electric cars that customers love. It has the most technical experience having spent years on the crucial development of battery technologies (in partnership with Panasonic) to provide sufficient power and driving range for electric cars to compete with petrol powered cars.

In the aptly named location of Sparks (Nevada USA), Tesla has been building the world’s largest lithium-ion battery with operations partially commencing in June this year. This factory is immense and at full capacity in 2018, it will produce enough batteries to supply Tesla’s manufacturing target of 500,000 PEV per year.

Right now, Mercedes is quite someway behind. Although the company sells cars with electric power, they are of the plug-in hybrid variety rather than a pure plug-in electric car with no internal combustion engine. However, Mercedes is keen to rapidly catch up and recently announced it will introduce 10 PEVs in the coming years. Unknown to many outside the industry, Mercedes has been heavily investing in battery factories and already owns the largest battery plant in Germany. It also has plans to invest one billion euros to further increase battery production. However, the pace of ramp up and whether this is sufficient to supply up to 25% of Mercedes’ production by 2025 is currently an unknown factor.

Winner: Tesla a clear winner right now. It has several years’ head start on PEVs compared to Mercedes and importantly has access to enough batteries to reach its 500,000 car production target provided its Gigafactory battery plant is completed successfully on schedule.

Round 2: Who has superior autonomous driving technology?

Let’s face it, driving can be a bit of a chore sometimes. Being stuck in traffic jams, driving the same roads on your regular commute, none of it is exciting. That is why autonomous driving technology will be a key selling point for all cars, particularly PEVs which will be viewed as more technologically advanced compared to traditional cars.

In the battle of autonomous driving technology, Tesla and Mercedes have taken a very different approach. Tesla’s Autopilot driving technology is viewed as one of the most advanced available in cars. Some critics suggest this has created a false sense of security about the system’s abilities including a recent incident when a driver tragically lost his life when his Tesla in Autopilot mode failed to distinguish a large truck which resulted in a full speed collision. The driver was reportedly watching a movie on a portable DVD vehicle when the accident occurred.

Mercedes has also launched its version of autonomous driving technology called Drive Pilot which it claims has more lines of computer code than a A380 aircraft. However, it appears to have more limitations than Tesla’s technology including much greater emphasis on ensuring the driver is paying attention to the road. Digging a little bit deeper, the reason doesn’t seem to be Mercedes being technologically behind. Rather, it is Mercedes’ preferred approach to roll out autonomous driving technologies in a measured way and ensure drivers are still in control until fail safe technologies are available in the near future.

Winner: Tie. The simple fact is, we believe both companies already have the technology for fully self-driving cars but they currently lack enough testing to be considered full fail safe systems. Tesla will probably be more aggressive with the roll out of their technology compared to Mercedes’ safety first stance. None of this will matter too much because in the next 5 years full self-driving technology will start to make its way into Tesla and Mercedes cars.

To find out the winner for the remaining 3 rounds (who has the greater financial firepower, who has the better valued shares, who has the X factor) and the overall winner sign up for free here. You’ll gain access to the remainder of this Trending Insights report plus many more investing ideas exclusive to AtlasTrend members.

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About Kent Kwan

Kent Kwan is a Co-Founder of AtlasTrend, an investment platform that makes it easy for anyone to learn and invest in trends impacting our world. Kent has over 17 years experience in financial markets including as Chief Investment Officer at Arowana International Limited, and roles at JP Morgan and Macquarie.