Could Tesla affect the Rolls-Royce (LSE:RR) share price? Here’s what I think.
Currently, numerous Tesla competitors occupy a strange position in the market. Although they compete against a company with immense resources, many Tesla competitors have high valuations. For many bulls, it seems the thinking is, If Tesla is worth a lot, companies in the same sector as Tesla might be worth a lot too.
We’ll have to see whether that thinking proves correct. Given Tesla’s bullish valuation, the market expects Elon Musk’s company to capture a lot of market share in the future. If that happens, many Tesla competitors might not have as much market share themselves. On the other hand, companies with great execution in the future could always beat expectations.
Speaking of Tesla competitors, some investors believe Rolls-Royce could become one. Here’s why some think that and what I reckon it could mean for Rolls-Royce share price.
When people hear the name Rolls-Royce, many think of aviation and aircraft engines. Indeed if Rolls-Royce and Tesla were to compete in a big way, I reckon it could be in the area of electric aircraft such as ‘flying taxis’. Given where emission regulations are going and how battery technology is expected to improve, electric flying taxis will likely be economically competitive one day.
Since manufacturing quality aircraft engines is one of Rolls-Royce’s specialities, I think it’s only natural to think the company might enter the market to sell electric engines for those flying taxis in the future. If Rolls-Royce management decides on that path, I reckon the company could also come up with a flying taxi of its own one day.
Given Tesla’s has immense financial resources, some investors think the company could also enter the electric aircraft market one day. If Rolls-Royce and Tesla both were to sell electric aircraft at some point, the two would could indeed be meaningful competitors.
Whether that ever actually happens, however, is very uncertain. When asked about the potential for electric planes in the near term, Elon Musk said,
I think it’s incredibly difficult to bring an aircraft to production and meet all the regulatory requirements worldwide. It’s a very difficult thing… It takes a massive amount of effort to do any one of these things, so you can’t do them all.
Given Musk’s comments, perhaps it’s not likely that Tesla will compete in the electric aircraft market in the near future. Nevertheless, the market could be so huge that I believe it could still be a possibility in the long run.
How I reckon it could affect the Rolls-Royce share price
Because I don’t see Rolls-Royce meaningfully competing against Tesla any time soon, I don’t think the Rolls-Royce share price will benefit from being perceived as a Tesla competitor.
Many believe electric planes that carry hundreds of people are decades away. Although electric taxis could become viable sooner, they could still be a quite a number of years off.
Nevertheless, I’d still hold Rolls-Royce stock. I think the current Rolls-Royce share price is attractive given the company’s long-term potential in future green fields.
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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.