Tesla (TSLA 0.96%) stock has navigated a path that has many investors excited about the all-electric vehicle space. But the niche is also extremely competitive, meaning few stocks can replicate Tesla's epic run.
In this video from "The Virtual Opportunities Show," recorded on Jan. 18, Fool.com analyst Asit Sharma and Fool.com contributor Demitri Kalogeropoulos discuss one smaller player, Proterra (PTRA +0.00%), that shares some similarities with the successful automaker.
Asit Sharma: Competing in the electric space is very difficult, especially in the mass transit market. These are big vehicles that sell for roughly a million bucks each, I believe. But Proterra came to market realizing that although they are an original equipment manufacturer, they have an expertise in their high-performance batteries. They had developed these batteries to power their buses, high-voltage systems drive train technology.
They realized that maybe it's a better path for them to try to hold that position in the OEM market in North America but also license their technology to other commercial vehicle manufacturers. They say in their investor presentation materials, "Providing our technology to other commercial vehicle segments is a much larger capital efficient opportunity." Yeah, I would think so. Why manufacture if you can license? We'll talk a lot about this on the consumer goods cycling, look at some of the biggest hotel chains which makes their money like Marriott, mostly through licensing their brand name and then managing properties rather than being owners of properties. I like that model at first blush. They also are working on a fleet charging energy management solutions that they can again license out to a whole swath of companies that are now involved in the electrical vehicle space. I think that on the surface, I was getting ready to toss the index card and say, OK, I've seen enough after whatever, a half an hour, guys, I think we can safely pass on this.
I had some various reasons. Their financials look actually decent, they have a business. This is not an idea that's going to come to fruition, so there's some numbers there we can look at and we will next week. But as I read more, Demitri, I thought it's ambiguous. Maybe this is a type of virtual opportunity stock, it's not one that we natively would agree on and I'll let you talked a little bit now. Before we leave today, I'll pull up the criteria we laid out just to refresh everyone's memory, but what point did you want to just address in a few minutes about this stock and then we'll dive some more into it next week.
Demitri Kalogeropoulos: Sure, I'll be quick. This was my first introduction in this stock too, so this was a good exercise that I hadn't heard about it before you mentioned it. I was going to look at the industry but that was one of my big categories, so is it located in a big growth industry that could potentially have many years of fundamental tailwind behind it.
At first blush, there were some things about the business that made me think, OK, it's probably not necessarily in that going to fit our mold. For example, we're talking about manufacturing and a lot of industries we were discussing as the big growth ones are the Cloud software or some kind of tech services and things like that, something that's really scalable and can get global very quickly and expand like that.
I could see why, I think it was Barron's who might have mentioned this because a lot of people are looking for the next Tesla, for example, because they think they might have missed out on this Tesla, but I see there's a lot of hallmark. There's some stuff that seems Tesla-ish about this company.
They got a few former Tesla employees that are pretty high up in the management team, for example, but the fact that they are doing the power, the charging stations, and the battery production and stuff like that, it's interesting. But the question I was looking at, yeah, is this a growth industry?
I guess the easy answer is going to be yes, they are as you said commercial electronic vehicles and they're producing powertrains, I guess you would call it. They want to license that powertrain technology, and what they estimate, I went through some of their numbers there, they think that the current powertrain market is about 225 billion right now which is massive, but that's almost 100 percent diesel and gas-based. But the idea is that that eventually over the next, say 15 years is going to probably become mostly electronic.
We got new regulations, the bill was just passed in the US Congress, and the bunch of states, for example, are mandating that public transit's going to be electronic in the next few years. I guess you can definitely see that growth. There's a lot of room, I guess, there. You could see that this tiny company could theoretically achieve if it gets a decent part of that market a lot. Just for some context, they're hoping to get around $2.5 billion in annual sales by 2025. It's still pretty small, but that's some idea.
Sharma: We'll talk some numbers next week. This was something else that sent up a little flag in my head, not necessarily a red flag or yellow flag, but I was looking at the past few years of performance and they're growing steadily, not exploding, but the forward projected rate through 2025 is pretty high. It's like 68 percent compounded annual growth rate from here to that year which made me think, hey, this is something we probably should dissect and see if that's really a growth estimate that holds water and what it might mean for those financials.
