I have been trying to think about the impact of transportation in our lives and how technology can change it. In this article, I will explain which stock (securities) to buy to profit from this. This is not a trading opportunity, but rather something you buy and hold for many years (5+ years).
Even though this website mostly talks about financial independence, I would like to share some of my thoughts on a pivotal industry for the 2020s. Just like Internet was for 2000s, mobile was for 2010s, I suspect (and believe) that transportation will define the 2020s.
For the 2010s, the big sucessful companies were Google and Facebook. Both make most of their money through advertising.
Advertising represents about 1.25% of GDP 1.
Logistic is 8.4% and transportation is 5.4% 2. There is an order of magnitude in terms of opportunity.
Which companies to invest in?
If you have extra money, the tech companies that can profit from this trend are :
Someone could add Google with their Waymo division but it is very difficult to switch from one core business to another (not impossible, but difficult). Google is primarly a Ad company (along with Facebook). You can read more on this in the innovator's dilemna book.
I would avoid any Tesla's copycat (Nikola or Fisker). Those are pre-product companies, with no track record whatsoever.
The interesting thing is that I wrote this article about 7 months ago, before Tesla stock ascention. I'm not suggesting this is a good price now or before, but I rather want to do an analysis in the future prospect for that industry.
What are the competitive advantages of Uber and Tesla:
Tesla is more of a software company than it is of a car company. The same goes with Apple. Nowadays, nobody question the fact that Apple is valued more than any phone companies (think Motorola or Nokia).
In terms of technology, the approach Tesla is doing is very similar approach as Apple did, with the exception that Tesla owns his manufacturing. This makes the execution an order of magnitude harder and also protects against potential competitive threats. Which means, if you can execute, you protect your business even more.
Tesla has the Silicon Valley DNA all over it. It was originally a software battery controller company that would wrap it's IP into a car.
From the 2020 Q2 earnings, we can see that Tesla is well on its way to make ~1.4M cars by the end of 2021. Which is quite astounishing.
I do not want to sound like a perma-bull on Tesla. There is definitely some frothiness going-on and speculation. If you take Apple as an example, the growth wasn't instantaneous. It took more than 15 years (with many pullbacks). Apple in the last 5 years had 5 pullback of at least 30%.
They also have an increasing gross margin (25% now), which is quite a feat for a car company... which again proves the point that this is not a car company.
Tesla is valued at around 100x 2021 earnings. This is not doubt high valuation.
Uber is another of my favorite play in transportation. My guess (mine is as good as yours) is that Uber will have to get acquired if it stays at this size (July 28th with a market valuation 54B$).
A few things going for Uber :
- Uber is the typical network effect product (just as was facebook). THe more people use it, the better the product becomes.
- It is currently unprofitable, but growing fast. THe ride sharing portion is profitable, but the food delivery is not (yet).
- The main cost can (and will) be automatized in the future. That is the drivers. It's not a matter of "if" but rather a matter of "when".
- The acquisition of Postmates sealed the deal making sure Lyft doesn't start competiting with Uber. A Lyft acquisition of Postmates would have made a formidable competitor to Uber, this threat is now put to bed.
- Softbank and Masayoshi-Son are having liquidity problems, so they can't afford to finance all the competition (doordash, Instacart, postmates, etc...). My opinion was that Softbank was distorting the market with it huge amount injected in startups. Those startups needed to grow fast (since they got the money), thus forcing price wars to acquire customers.
- It is entirely possible for Uber to get acquired in the range of 100B$ (especially that all other big tech company valuations are so large nowadays). For example, if Amazon acquires Uber for about 100B$, I have no doubt it can add more value with the synergy of the businesses (Amazon Prime for your Uber anyone? or your Uber driver making some Amazon deliveries )
- Finally, I am extremely bullish on their Uber Freight business. The idea of having a single uniform and efficient platform for truck driver is exciting. They already proved they can build a platform for taxis. Apply the same for trucks and drivers, and also this is just a matter of time before it grows and becomes a winner. Logistics is a big part of our econonmy (and growing). You can take a look at this video.
In a final note, be wary of speculation. Tesla is probably fully priced at this point with limited upside. Only invest money you don't need. But I believe Uber is still being impacted significantly from Covid.
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