The Tesla Killer: How a $40 Million Company Quietly Crushed Musk's Dreams

We’ve all had experiences where you just know something is right the moment you see it.

Whether it’s your dream home, where everything is already perfect and in the right place; or a car, or a job, or a significant other… sometimes you just don’t need further investigation beyond that first glance to decide you like something.

In our day-to-day lives, love at first sight can happen at any moment, but it rarely, if ever, happens when it comes to investing.

There are no perfect stocks or companies out there; definitely nothing that can be called perfect after just a cursory look.

Every investment, no matter how apparently prospective, needs to be vetted down to the smallest detail before decisions are made.

I know this to be true, as does any rational human… which made the conversation I had with the CEO of a small tech company all the more bizarre.

You see, I talk to a lot of these guys. They all have something to sell, which makes it necessary for me to be on guard all the time and know how to separate fact from fiction.

So when this guy told me he had a product that was going to dominate the distributed energy storage industry, I had an immediate doubt.

A big one.

Rule #1 to Winning Big: Beat the Biggest Rivals

“You guys are competing with Tesla’s Powerwall?” I asked.

Of course they were. Distributed energy storage was exactly the niche that Tesla founder Elon Musk had created — at least as far as most people knew — when he made headlines announcing the groundbreaking new product last year.

The Powerwall revolutionized domestic energy management in a few ways.

It allowed homeowners to store power — meaning they could buy it from power companies at certain times to take advantage of lower rates for on-demand use, as well as store the power they generated using solar panels or other forms of domestic power generation.

With wide adoption, such a system would take enormous pressure off the power grid, as well immunize homeowners from power outages.

Clues foretelling that wide adoption, thanks in no small part to Elon Musk’s famous knack for promotion, became evident almost immediately.

In its first week, Musk boasted more than $800 million in pre-orders for the domestic power storage system.

A few weeks later, he stated that the demand for the product had become so huge that it would gobble up the entire production capacity of his equally famous Gigafactory — the world’s biggest battery production facility — even though it had been built to supply the growing demand for lithium batteries stemming from expanded Tesla auto sales.

It was the right thing at the right time, and the trajectory seemed all but guaranteed.

Thanks for the Hype, Elon. Now Step Aside

And yet the guy on the phone was calmly telling me that he was going to dominate this industry. Musk’s industry.

“The Powerwall has its problems,” he started to respond. “Your average house needs two of them. Takes a team of guys a whole day to install. They’re pretty, but the cost of two will buy you a pool, so you’re not going to have millions of customers no matter what.”

“You’ll have enough. Just like their cars. Then they’ll build a cheap one to sell to the masses.”

He talked for a few more moments about how his batteries were smaller, cheaper, with a higher capacity… How they could be installed by two inexperienced people in just a few hours.

It all sounded great, but I’ve seen plenty of examples of small companies that supposedly make more efficient, cheaper products in order to compete with major brands.

They usually fail anyway, just because those big brands will out-market, out-sell, and eventually drive the upstarts out of business.

“Our batteries are better, without a doubt, but that’s not where our advantage lies,” he continued. “It’s our power control that make the difference. The brains behind the hardware. What Musk doesn’t tell you when he talks about Powerwall is that it’s only a battery. You still need a control system to use it. They don’t build those. A third party does.”

“So you build the whole package, then, battery and power control system?”

Scalable Profits, Major Clients, Universal Compatibility

“We do, but we don’t necessarily sell the whole package every time. Our biggest clients make their own batteries and use our power controls to manage them.”

Ok, now this was getting interesting. Clients.

Like I said a moment ago, I’ve seen plenty of supposedly “better” products from startups. They usually disappear.

They usually disappear because of a lack of commercial acceptance — a lack of clients.

“How big are your clients?”

“I’m not allowed to disclose the identity of the largest one, but I can say that it’s a major German automotive company.”

I was at my computer when he said those words, so I Googled “German automaker” and “batteries,” and what did I see?

Third or fourth in the results was an article, dated just this past March, about how Daimler AG, owner of the Mercedes-Benz brand, just told Tesla that it would no longer be needing an external source of batteries for its electric car line.

Could this be the major client this CEO was talking about?

The Clues Are Everywhere, Once You Know What to Look For

I listened to him talk as I did a second search, this time using the ticker symbol of the company whose CEO was on the phone.

Scrolling down the March news, there it was: dated March 11, an announcement of a development contract with a “German automotive subsidiary.”

Chills ran up my back at this point because I felt almost as if I was privy to secret information.

A tiny company, with shares trading in the $0.20 range, with a market capitalization of less than 0.2% of Tesla, sealing contracts with massive, globally renown brands for a product that Tesla itself needs.

It seemed too good to be true — essentially a venture-stage company with fewer than 40 employees, and yet its product was about to become a common feature in some of the most recognizable vehicles on the road.

I got off the phone with him and got down to thinking. Is it really this good? Could this company really have $50 million in revenue potential next year — a sum bigger than the firm’s entire current value?

The CEO told me to expect more news flow in the coming weeks, but what happened the very next day was what sealed the deal for me.

I received a frantic phone call from one of my business contacts, a venture capitalist who calls periodically with new ideas.

The Dominoes Begin to Fall

“They halted trading,” he said. “News is pending, but I can tell you right now that it’s about a financing. A major fund is getting behind them.”

I flipped over to my finance page and immediately confirmed that he was right.

The financing was a major step for this company, which was still in its pre-profit stages, to get its products to full-scale commercialization.

At this point, I was sold. Moreover, I was getting antsy… the way I usually get when I start to feel like I’m going to be late for something important.

The smart money was already talking… meaning this boat would leave without me if I took too much longer.

The next day, a Saturday, the company made another news release. Its first commercial power control units had been delivered.

The recipient: the very same German car company which had just told Tesla and Elon Musk to take a hike.

The name of the company was still not mentioned due to a confidentiality agreement, but there it was. Plain as day.

The press release stated that this first batch would be followed by large-volume deliveries starting in the second half of the year.

The CEO hadn’t been lying. With news like this making the wires on a regular basis, it wouldn’t be long before the stock took off on organic trading momentum alone.

Once earnings started to catch up to the headlines, this stock, now on the cusp of $0.30, would head for the dollar mark.

And that would still only be scratching the surface.

On a Multi-Year Timetable, This Company Could Be Worth Billions

This market, anticipated to reach $16.5 billion within the next eight years, could very well come to rely on this company’s power control system the same way the PC universe once relied on Microsoft.

This sub-$40 million company could grow to 20 times its size well before that happened.

I Had a Feeling

I started this recounting by talking about how sometimes you just know when something is right.

When it comes to stocks, having that gut instinct is valuable, just as long as you take the time to make sure that it’s more than just a first impression.

Talking to the guy who had everything to gain from this company’s success, I knew I had to be diligent, no matter how convincing this CEO may have been.

Today, more than a week (not to mention two major headlines) later, I can say with confidence that my first knee-jerk response was right on the money.

This may well go down as one of my best discoveries yet… and the fact that it’s already up close to 50% since I first picked up the phone only adds to my confidence.

This really is venture-level investing for the everyday trader.

Get the name of the stock by clicking here, and please, use this information wisely.

Fortune favors the bold,

Alex Koyfman

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His flagship service, Microcap Insider, provides market-beating insights into some of the fastest moving, highest profit-potential companies available for public trading on the U.S. and Canadian exchanges. With more than 5 years of track record to back it up, Microcap Insider is the choice for the growth-minded investor. Alex contributes his thoughts and insights regularly to Energy and Capital. To learn more about Alex, click here.