Tesla’s credible brand equity catalyst will be recognized
As businesses, consumers and investors know, brands have value, and that value is often important to investors. In this sense, brand equity is something that Tesla has and it is a plus for its shareholders and exchange traded funds with large allocations to equities, including the ETF ARK Innovation (NYSEArca: ARKK).
The actively managed ARKK held 10.87% of the weight of electric vehicle giant Tesla as of October 28, according to data from ARK Invest. This puts the stock 470 basis points ahead of ARKK’s second largest holdings. Often referred to as one of the âTesla ETFs,â ARKK is positioned to capitalize on Tesla’s growing brand equity.
Recently, âInterbrand released its Top Global Brands 2021 report, as summarized in the table below. At $ 36 billion, Tesla is the 14e most valued and fastest growing brand in the world. Last year alone, its brand value increased by 184%, which is notable because we believe Tesla does not spend anything on traditional brand advertising, âaccording to the ARK study.
Not surprisingly, four other automakers are on this list, three of which (Toyota, Mercedes and BMW) rank ahead of Tesla. However, these companies are much older than Tesla, but Tesla is ahead of Honda in terms of brand equity.
For investors looking for traditional measures, Tesla offers them as well. To cite just one example, the company recently signed a contract with car rental giant Hertz for the delivery of 100,000 electric vehicles.
Tesla also reported third-quarter profits, including an auto gross margin excluding regulatory credits of 28.8%, up more than 1,000 basis points from 17.2% two years ago. At the time, ARK posted a blog explaining that, based on Wright’s Law, Tesla should be able to increase this margin to over 30% by increasing production in Berlin and Austin, TX. This journey will not be easy given the execution risks associated with new factories in new geographies, in our opinion, Tesla’s margin expansion has yet to go, âconcludes ARK.
When it comes to brand equity, Tesla leads an impressive group of companies including Facebook, Intel, IBM, Adobe, high-end fashion houses Channel and Hermes and JP Morgan Chase, the world’s largest bank. American.
Other ARKK holdings on Interbrands Top 100 for Brand Equity list are Spotify (NYSE: SPOT) and Zoom (NASDAQ: ZM). These are respectively the sixth and seventh positions in ARKK, and combine for around 8.5% of the fund’s weight.
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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or interpreted as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.