Merging Lane Ahead! Why Tesla Might Have To Merge With Workhorse And Nikola Motors

Tesla Inc's TSLA market share of Electric Vehicles (EV) is in jeopardy. Competition is intensifying from other EV native vehicle manufacturers such as Nio Inc NIO, Li Auto Inc LI, and Nikola Corporation NKLA. Yet, within the next few years, it is likely that Tesla's most intense competition will come from legacy vehicle brands as they move into the EV space at a pace.

In 2021, many legacy car manufacturers publicly committed to begin transitioning away from IC (internal combustion) vehicles to EV. The legacy brands had their hands forced by changing government policy, particularly in Europe. For instance, Norway, France, and the UK have banned the sale of new IC cars by 2030. Further, the Biden Administration in the US has hinted that it could introduce a similar policy aimed at promoting the use of EV over IC. In reaction, legacy brands, having seen the writing on the wall, have committed to a surprisingly quick transition to EV production.

Tesla's CEO Elon Musk has commented in the past that such competition is welcome. According to Muck, the reduction in CO2 emission by the transport sector was worth the company's market share being diminished or even facing bankruptcy.

This sentiment is admirable, but Tesla shareholders expect the company to dominate the personal vehicle market. This improbable expectation is definitely priced into the company's stock, and shareholders will not typically be convinced by such sentiment.

I believe that once the legacy brand truly ramps up its presence in the EV space, it will crush Tesla. That is not to say that Tesla will disappear entirely. There will still be space for them, but nowhere near the expectations of current shareholders.

See also: How to Invest in Tesla Stock

That is unless Tesla merges with their competition. The most likely partners for Tesla would be their equally small, native EV competition. Except for Tesla, native EV manufacturers make up a tiny portion of all EV sold globally. Although perhaps the tide is already beginning to turn. For instance, newcomer Wuling Mini has begun outselling Tesla in China, while Nio, Li Auto, and Xpeng Inc XPEV have started making decent sales. These EV makers have something Tesla does not have, whether technological, market access or simply a 'style' preference. If Tesla can be outcompeted by relatively small competition, imagine the challenge they will face with highly capitalized legacy brands.

The best potential partners for Tesla?

Workhorse Group Inc WKHS could be a good partner for Tesla. Workhorse, the U.S.-based EV maker, shares a similar 'American Made' story with Tesla. The stock price of WKHS has radically dropped in the past few months as it failed to secure a highly touted government contract. In January, WKHS stock was riding high at $40.00. As of writing, the price is holding at approximately $12.50. Workhorse is not exactly dead in the water, but it would benefit from being associated with Musk and his team. On the other side of the coin, Tesla would benefit from a more diversified portfolio without substantially altering the brand's perception.

A merger with Nikola Motors might also be an appropriate partner for Tesla. Where Tesla and Nikola Motors compete is in the heavy-duty trucking space. Both Companies have concept trucks, that are yet to go into production as these vehicles are considerably more difficult to engineer as EVs. Rather than competing for position in this space, if Tesla and Nikola joined forces, the ‘Nikola Tesla heavy-duty truck’ would have an easier time in displacing Daimler DAI and Volvo VOLV as the dominant players in this space. Not to mention, the two companies merging would generate a considerable amount of buzz and attention for their vehicles.