Wall Street Analyst: Tesla's technology advantage remains a 'decisive barrier for legacy carmakers'

On Tesla's last quarterly earnings conference call, CEO Elon Musk largely avoided questions from Wall Street analysts in favor of a retail investor (and youtube personality) Galileo Russell. In turn, analysts largely dismissed Tesla's rosy outlook for the road ahead. However, one Wall Street analyst is gaining a newfound appreciation for Tesla's inherent advantages over legacy carmakers.

Above: Tesla's Model S (Image: InsideEVs)

An investment bank analyst from Berenberg said (via Proactive Investors), "Imminent competition from traditional Original Equipment Manufacturers (OEMs) is often cited as a key threat to Tesla, but this underestimates the full extent of Tesla’s technology advantage, which manifests in the entire electronic architecture design... [Tesla's] clean-sheet development builds the infrastructure around the technology, enabling minimized-time-to-market product improvements."

Berenberg added, "This is a decisive barrier for legacy carmakers. Tesla’s centralised, integrated, technology-driven architecture enables flexibility and OTA (over-the-air) software-upgradeability across the entire domain. In contrast, traditional architectures implement technology additively to the legacy infrastructure, resulting in decentralised electronic control units (ECUs) systems that creates excess complexity and incompatibility."


Above: A look at Tesla stock's long-term price action stretching back to 2012; each bar on the chart represents a full week of trading (Source: The Street)

Can't legacy automakers catch up to Tesla? Berenberg argues, "Although OTA technology has existed for some time, it has only been deployed by Tesla to its fullest extent... In the traditional industry, OTA capabilities reach little more than telematics and infotainment system updates, even in the most advanced premium cars. The OEMs’ problem is a design concept that shoehorns technology piecemeal into an inflexible infrastructure, resulting in little-to-no interECU communicability or compatibility and a lack of security."

Tesla's battery tech has also leapfrogged efforts from legacy carmakers. Berenberg notes, "We expect Tesla to remain the battery technology leader, as traditional OEMs have shown little effort to commit meaningful capital to battery technology... Tesla’s temperature management is the most sophisticated in the industry, allowing better resilience to capacity degradation, and consequently better residual values.”

Above: Tesla's Model S (Image: InsideEVs)

Regarding the Model 3, Berenberg also remains upbeat expecting "Model 3 gross margin to positively surprise... Substantial gains from lower labor content, as well as capital and material use efficiencies, should allow Tesla to comfortably achieve a margin above 25% throughout the product cycle." In light of these industry advantages, Berenberg maintains a $500 price target on the stock.


Source: Proactive Investors