Disruption in the marketplace is what happens when legacy companies are sailing along doing the same old, same old when someone comes along and steals their lunch. That’s what Tesla has done to the automotive sector, where it is now valued by investors more highly that Ford, GM, or Chrysler. (The GM thing changes day by day as the market changes, but Tesla is right there with GM with regard to market valuation.) Last week, Elon Musk tweeted that the Tesla Semi, an electric truck for hauling cargo trailers, would be revealed in September. Musk said the project was coming along nicely and that the result was “seriously next level.”
That led Piper Jaffray analyst Alex Potter to issue a report to the investors who follow him downgrading the value of legacy truck maker PACCAR and truck engine manufacturer Cummins. PACCAR is the corporate organization that owns Kenworth and Peterbilt trucks in the US. It also owns DAF, the Dutch truck maker, and British truck manufacturer Leyland.
Potter said those stocks were already overvalued due to “cynical optimism” but added that pressure from Tesla could cause their stock prices to fall. Potter has recently increased his guidance on Tesla to $368 per share, the highest of any major analyst. His note also warns that transmission manufacturer Alison is in danger of lower stock prices in the near term.
Regarding PACCAR, Potter wrote, “Tesla’s presence looms large; laugh all you want, but this trend cannot be ignored. In the automotive segment, Tesla and others have wrought substantial disruption, forcing incumbents to change their hiring practices, increase R&D spending, and ultimately, suffer lower multiples. PCAR may be less at risk than others — and it’s probably too early to start ringing alarm bells — but with the stock trading near the high-end of its historical valuation range, we wouldn’t be adding to positions.”
Turning his attention to Cummins, he was more scathing. “Cummins makes diesel engines, but companies like Tesla (among others) are aiming to supplant CMI’s products. These Silicon Valley disrupters are not confining their ambitions to sedans; instead, they have announced plans for electric semis, electric pickups, electric buses, and various other products that defy the preeminence of diesel engines. CMI enthusiasts will note that EVs won’t replace diesel trucks in the coming 2 years (not in a material way, at least) and we agree. But when/if electric drivetrains are proven viable in the first commercial vehicle segments, we think incumbents’ valuations could fall rapidly thereafter.”