Why Every Tesla on the Road Today Is Already Obsolete
Bombs in the mail... Dow down another 600 points... Michael Moore publicly proclaiming that Donald Trump is outsmarting everyone...
With all these stories making headlines in the span of 24 hours, one could be forgiven for thinking the sky is falling.
Unless one is a Tesla (NASDAQ: TSLA) shareholder, that is, in which case yesterday was just about the best day ever.
In what must have been a shock to fans and detractors alike, the electric carmaker announced earnings of $2.90 per share, flying in the face of analysts' expectations of a $0.19 loss.
After-hours trading immediately responded, sending shares up as much as 11%.
Musk haters were left scratching their heads, while his fans, who have stuck by him through every globally televised joint puff, every stutter-ridden public address, and every loopy promotional stunt, were running to the bathroom to clean themselves up.
As a neutral observer of Tesla, I have to say I'm both impressed and hopeful that this success continues because, let's face it, this country could use a world-beating automotive brand.
Which makes it all the more difficult for me to say this: Within the next few years, Tesla will need to redesign its electric motors, which will mean substantial retooling in its fabrication plants and very likely a substantial redesign of all of its models.
And because this redesign will be based on technology Tesla does not own, not only will Tesla have to spend billions modernizing the heart of every vehicle it produces, but it will also have to either pay billions in royalties to the company that does own the technology or buy the company outright.
You read that right. Tesla's electric motors are all hopelessly out of date and effectively obsolete. But this isn't a problem that's localized to Tesla products.
Just about every electric motor in the world today suffers from the same design failure that plagued the very first electric motors, built way back in the first half of the 19th century.
Every single electric motor, from the tiny one that makes your phone vibrate all the way up to the giant, 40,000-horsepower monsters that propel seagoing vessels, has the same defect.
The problem relates to efficiency and is actually fairly easy to explain. Electric motors are built to function at a single, optimal speed, measured in revolutions per minute.
Any deviation from that set speed and the amount of energy going into the motor no longer produces the same amount of mechanical motion.
Think of it as a bicycle with just one gear: It only really works well under a very limited range of external conditions.
The same holds true for electric generators, which are really nothing more than electric motors operating in reverse. Instead of putting charge in to get the shaft to spin, you apply an external force to spin the shaft, and charge is produced.
With today's generators, spinning that shaft at a specific speed is necessary to take maximum advantage of the production capacity. Go too fast or too slow, and you're wasting your effort.
The amount of wasted effort this creates globally is staggering, because our reliance on electric motors and electric generators is even more staggering.
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It's the Most Important Mechanism Known to Man. Period.
More than half of the energy mankind produces is consumed by some form of electric motor. That energy, in dollar terms, is worth more than $3 trillion — which surpasses the annual GDP of the UK.
On the flip side, the numbers are even more dramatic, as 99% of the energy we produce comes from electric generators.
Every coal-powered plant, every nuclear plant, every hydroelectric dam, and every wind turbine employs these generators and therefore wastes billions of dollars per year running them at speeds it cannot control, or resorts to big, heavy, energy-sapping gearing mechanisms to achieve the ideal spin rate.
Like I said earlier, this is a problem that's been with the electric motor since literally the first one ever created, back in the 1820s.
It took nearly 200 years for the flaw to get ironed out, but today, for the first time ever, we have a solution.
The company that made this discovery has on its hands an innovation worth tens of billions, but because it's a tech startup, nobody even knows its name... Not yet, anyway.
Well, almost nobody. Thanks to some recently sealed collaboration agreements with some mid-sized North American partners, the first products incorporating this revolutionary patent are already finding their way into the market in the form of retrofitted wind turbines and high-speed train motors.
The results have been extremely impressive, which means fairly soon, you're going to start seeing major companies falling in line as well.
The Biggest Names in the Business Are Watching Closely
I'm talking about the likes of General Electric (NYSE: GE), Honeywell (NYSE: HON), Northrop Grumman (NYSE: NOC), and yes, Tesla itself.
There is simply no way around it. Just think about it: If your business literally revolved around electric motors and generators and you suddenly got the opportunity to get 6%, 8%, even 10% more bang for your buck, while enhancing service life and substantially decreasing maintenance costs, wouldn't you do it?
In all likelihood, you wouldn't even have a choice, because if you didn't do it, your competitor would, and sooner or later, you'd be out of business.
The company behind all of this is small, but it's already well on the road to flipping the industry upside down.
Today, its market cap is well below $50 million. A few years from now, if things continue down the path they're on today, it could be 200 times as big.
When I learned all of this just a few weeks back, it took about half an hour for all of the implications to sink in.
And then I got to doing more research on what the company does and what it could mean.
If you want to read more about this, click here.
Within that link you'll get the rest of the story, including the company's name and ticker symbol (yes, it's publicly traded).
Fortune favors the bold,
Coming to us from an already impressive career as an independent trader and private investor, Alex's specialty is in the often misunderstood but highly profitable development-stage microcap sector. Focusing on young, aggressive, innovative biotech and technology firms from the U.S. and Canada, Alex has built a track record most Wall Street hedge funders would envy. Alex contributes his thoughts and insights regularly to Wealth Daily. To learn more about Alex, click here.
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