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Tesla Inc (TSLA) “Flex Circuits” Make For Bizarre Auto Industry Threat

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Tesla Inc (NASDAQ:TSLA) is ahead of the rest of the tech world on so many sides that it can be difficult to keep up. The firm’s self-driving, battery and drive train tech may be at the heart of its business, but there’s something else scaring Wall Street on Thursday morning. “Flex Circuits” are apparently the new big disruptor in the technology world.

Tesla appears to be charging ahead in new fields every single day, and Thursday may have brought fear of the firm in a new direction. One auto component company, Lear Corporation (NYSE:LEA), was the particular target of disruption talk.

This is certainly a topic that’s going to divide the bulls from the bears.

Tesla flex circuits won’t kill wiring

It was @ValueMaven42, a Tesla Inc stock bear, that brought the interchange to our attention on Twitter.

Lear Corporation (NYSE:LEA) released its earnings numbers for the three months through June on Wednesday morning before the market opened. During the firm’s conference call, which took place at about 8 a.m., one analyst thought it was time to bring up Tesla Inc (NASDAQ:TSLA).

Chris McNally of Evercore asked, “I’m sort of certain that some analysts in the queue will ask about Tesla’s future use of flex circuits to significantly reduce the amount of cabling, for example. And whether this is an existential risk to your electrical business?”

Tesla Inc Model X charging – Tesla

You can see the full transcript of the call over at Seeking Alpha.

Flex circuits weren’t a new idea to the bosses at Lear Corporation (NYSE:LEA), the firm that was asked to comment on the new Tesla tech. As Frank Orscini of the firm told the analyst, “We’ve actually used flex circuits in the past. We have the technology in our product portfolio.”

The automotive seating and electrical systems supplier probably isn’t too worried about Tesla for now. If anything automobile components of the sort the analyst asked about are a weak spot for the firm.

The truly interesting idea is the drama invoked. McNally doesn’t ask if Tesla might be a threat, he asked whether the firm is an “existential threat“. It’s true, though, that Wall Street analysts have been asking ICE car makers that question since the first Model S was produced. Perhaps it’s time to learn about the impact Tesla could have on the auto components market.

What is a flex circuit anyway?

A lot of readers, even the ones who keep and eye on Tesla stock, may need to take a minute to find out just what Mr. McNally was talking about.

Flex circuits are essentially electrical systems that can bent and molded in more exotic and fit-for-purpose ways than traditional cabling. Tesla recently secured a patent for using flexible circuits to interconnect its batteries back in January of 2013.

Tesla Motors Inc Model X success

Tesla may be able to significantly reduce the amount of wiring needed in its vehicles as a result of this kind of tech. As far as we know, the firm isn’t yet using it in its designs. That could reduce costs, and may even make the cars easier to produce than those with traditional cabling.

This appears to be the source of the claim from Evercore’s Mr. McNally. Though the Lear Corporation people didn’t seem to be taking the threat very seriously. CEO Matthew J. Simoncini told McNally, “trying to find a more efficient way to take wire out of a vehicle, is nothing new.”

Frank C. Orsini, a Senior Vice President at the firm, followed up by saying, “we don’t see the usage of wire shrinking. Wires are very secured way of connecting the signaling and data communication in the vehicle. So, right now, the trends are added circuit content and added module content.”

Tesla could do damage in auto components

There is a valid question to be asked about auto components in the age of the EV. If Elon Musk and his teams end up developing the necessary designs and parts, will there be room left for the traditional parts makers?

Tesla Inc nasdaq:tsla - Elon Musk
Photo: Wikipedia/Creative Commons

That can only, happen, of course, if Tesla Inc (NASDAQ:TSLA) really is changing what the inside of a car looks like. If the bulls are right and the world is quickly switching to EVs, there could be untold chaos in the world of auto parts.

Everything from wire to headlights could be under threat from Mr. Musk’s electric crusade. Even the tires of the car could be at risk. This is the sort of magical thinking, of course, that really shouldn’t be engaged in when picking stocks for a portfolio.

Mr. McNally may just be trying to feel out the risks for the auto parts industry in an EV world. We have no clear information that Tesla is going to use flex circuits to revolutionize auto components. Surely Elon Musk has enough on his plate for the time being.

Is the Tesla stock hype getting too hot?

If you’re holding onto Tesla stock, you probably want to know why the people buying at current prices are doing so. That would help you make a decision about the future of your portfolio. It’s an important part of thinking about stock trading.

Right now there may not be a lot of people buying Tesla Inc (NASDAQ:TSLA) stock for its “flex circuit” potential. These types of conversations, though, should make you think about the future of the stock. Do you believe Tesla can disrupt every industry it puts its shoulder to? Do you think the only thing holding the firm back is resource limitation?

If people are buying into stock because of technological achievements that haven’t even happened yet, that may be a bad sign. Elon Musk runs a great company, and it’s been very successful thus far. That doesn’t make him able to achieve anything, however. While betting on the visionary may seem like a good idea, bear in mind that valuation must bear some relation to discounted future cash flow.

Tesla stock has been through something of a rebalancing in recent months. Because earnings are expected on August 1, expect choppy trading to continue for the time being. Now is not the time to bet on risky half theories about the future. There are already enough risks built into Tesla stock.

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Paul Shea

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