Making Safer Cars Is Leading to Stronger Returns for This EV Darling

The past year has been a field day for statisticians...

The coronavirus pandemic has given economists and academics of all stripes a test case for plenty of different statistics and metrics.

Of all the statistics, one of the more unfortunate and surprising ones is that despite less time spent driving, we haven't seen a significant decrease in fatal traffic accidents.

As The Economist recently highlighted, folks drove 13% less miles in 2020 than in 2019. That's a big year-over-year decline.

But for the first nine months of last year, the National Highway Traffic Safety Administration ("NHTSA") reported a 5% year-over­-year increase in deaths.

In more recent statistics, fatalities per mile driven rose by 24% year over year. 

This huge spike wasn't driven by an increase in accidents. In fact, accidents were down across the board, which was in line with expectations for the year.

Instead, the accidents that were occurring were so unusually fatal that this pulled up the death rate for automotive accidents.

One reason for this may be that the lack of traffic allowed drivers to open up the throttle on emptier roads. For example, speeding tickets doubled across California last year. 

This trend is compounded with other minor outliers such as unfastened seatbelts and drug or alcohol use while driving.

It's a shame that accidents are spiking just when technology appears to be emerging to help reduce risks due to human error... 

With the recent news of two severe Tesla (TSLA) crashes, we've heard more debate about the company's Autopilot functionality. The Autopilot feature allows drivers to just monitor their car as opposed to having to actively control it. But unfortunately, the reliability and safety of semi-autonomous driving has been called into question yet again. 

Evidently, we're not yet at the point of having fully autonomous vehicles ("AVs"). However, while headlines that play up one or two accidents may imply otherwise, technology like Tesla's Autopilot can help reduce some of these driver-induced risks. 

Autonomous driving can help eliminate the need for excessive speed. Instead of racing to get to a destination faster or to save time to allow for other activities in the day, people can spend time on these things while in the car. 

Tesla's Autopilot can help mitigate people's desire to "reclaim" the time they miss elsewhere when driving.

The company's technology innovation has been pushing the car industry forward leaps and bounds over the past few years. Tesla has also been the leader in electric-vehicle ("EV") advancements with high-capacity batteries and charging stations.

This has made the company significantly more profitable than most people realize... 

Looking at the as-reported financial metrics, investors would see that the company's return-on-asset ("ROA") levels inflected positive for the first time in 2020. However, they still remaining incredibly low. Take a look...

But the idea that Tesla has just become profitable only holds true using GAAP metrics. Once we clean up the data using Uniform Accounting, a different picture emerges...

Without the financial distortions, we can see the company has been making a profit since 2018. Tesla's Uniform ROA expanded from 4% in 2018 to 5% in 2020.

Thanks to its innovation, Tesla has already seen stronger returns than Wall Street would have you believe. 

The fastest mover in an industry can often dominate while other players are forced to catch up. And based on the real numbers, it looks like Tesla has been banking that profitability for several years. 

But now, the question is whether the company can keep its lead...

We just published a brand-new special report about the AV and EV industries for our Altimetry's Hidden Alpha. In it, we break down our favorite names in the space, and whether we think Tesla is a stock you need to own as this industry continues to boom. 

To learn more about Hidden Alpha – and how to gain instant access to our latest research on AV and EV stocks – click here.

Regards,

Rob Spivey
April 28, 2021