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The Reason Tesla Met With BMW Is...

But wait, there’s more!

Then came the shocker. On the conference call, seemingly casually, Elon Musk started talking about a meeting that had taken place just the day before between Tesla and BMW.

As to the contents of this meeting, while it was plenty vague and certainly incomplete, he said they had been talking about cooperating in various ways, in particular about Tesla’s charging network. It had always been clear that Tesla had been offering the rest of the industry, at least in principle, the chance to join forces on the charging network side.

Clearly, until now the rest of the industry had rejected Tesla’s charging technology, which goes beyond just the physical plug. One can imagine numerous reasons for this, but at the top of the list could easily be the issue of control. When you’re dealing with a connector/plug standard, it’s important that a competitor can’t mess with it.

After all, it takes approximately five years to develop a car, and you are committing to a long-term standard in the automotive industry that goes well beyond five years. People take decades to get used to things, and you have to install things both at home and at public charging stations. Messing with this plug and standard is a huge issue.

From a strict investment standpoint, it had become clear that Tesla’s charging network was a major advantage. Even if someone else were to deliver a car with 265 miles of pure battery-electric range, all other things equal, a consumer would prefer a car that could be recharged quickly on longer routes.

It was a huge part of the Tesla investment value equation. The idea was that Tesla could use these superior chargers to sell a lot more cars, at much better margins, than otherwise.

Let’s say that Tesla and BMW cut a deal to share these chargers in the future. BMW would obviously pay Tesla for this, as infrastructure is not free. You have to pour the cement and generate the electricity. It’s a construction business.

However, Tesla is not lacking for financing right now. It seemingly has access to as much capital as it wants. Recently, it raised close to $2 billion on a valuation not too far from $30 billion. It’s not as if Tesla can’t spend as much money as it wants on building its charging network. This was the genius of Tesla, and my bull case for the stock.

Where Tesla is constrained is that it can’t hire engineers fast enough, and automotive engineering projects simply take a lot of time. Testing new automotive systems -- batteries, bodies, motors, electronics -- takes years.

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