When the student becomes the teacher

How many of you, when you were little, spent hours with your toy vehicles imagining and dreaming about different kinds of situations?

I imagined that I was taking my family for a ride; it was a great feeling even though it seemed the most normal thing in the world. In my mind, I would go shopping at the supermarket, and when I came out, I would see my beautiful car waiting for me in the car park (which I drew on the floor of my house). Today, as an adult, I can relive those dreams just by taking a few steps to the garage to get in my car and drive it away. I enjoy every situation involving my vehicle, and for that very reason, I want to take care of it so that it always looks its best.

This group of people like me, who want to see their car impeccable, represents a niche market for certain companies, a great opportunity for those trying to gain the trust of the most meticulous owners. But today’s story begins not on the ground, but in the air, during the Vietnam War, when the need arose to protect helicopter blades that were suffering from premature wear and tear due to dust and flying shrapnel in the air. The solution had to be discreet and lightweight. A company called 3M created a transparent film that was flexible enough to absorb the impact of the blades and keep the helicopter functioning properly.

After the success of this product on helicopters, 3M realized that it could be placed on private cars. They began to develop a variation to protect the front of the vehicle from the impact of stone chips, which in cars have a similar effect to that of the blades, eventually causing the paintwork to peel off and forcing the part to be repainted, losing the authenticity of the factory paintwork. This was one of the most frequent claims of car insurers, so the product nicknamed “anti-chip” began to gain acceptance and was a major novelty of 3M.

One of 3M’s distributors was XPEL (NASDAQ: XPEL). This Canadian company had a very important added value, a software called “DAP,” which cut the film with great precision to achieve a more efficient placement. This film came in rolls, and at first, the fitter had to cut it by hand according to the morphology of each vehicle, copying the shape of the panels, which was not easy, and the errors had a high cost due to the waste of material. The software, on the other hand, made the most of the material and shortened the fitting time. Despite offering something unique, XPEL (NASDAQ: XPEL) generated losses from 2001 to 2008. 

After some time of development, they created “XPEL Ultimate” as the film that solved the weaknesses of the 3M product. This new film did not yellow over time and regenerated itself, eliminating the streaks on the film. Thus, they went from being distributors to being manufacturers. With a product superior to that of 3M, the pupil surpassed the master. XPEL (NASDAQ: XPEL) began to lead the market. In 2016, 3M sued XPEL, accusing it of copying the formula. However, there was insufficient evidence to indicate plagiarism, as although they had the same objective, the product was composed differently, and the lawsuit was dismissed.

The application of the product is crucial. If the film and software are great, but if the technician does not do his job properly, XPEL’s effort is worthless. Some argue that the application is more important than the product itself. In fact, a full-body job of this type can cost $4000 to $5000 USD, but only about 10% of that is the cost of the film. This is why XPEL (NASDAQ: XPEL) offers training and rewards the best technicians; the company’s business model is complete, and they sell not only the film but also the training to apply it and the complementary “maintenance” products to improve the life of the film. Thus, they achieved economic growth based on the growth of their product portfolio.

XPEL’s growth from 2009 onwards was exponential, its shares went from being worth pennies to over $100 USD in 2021, and this seems to be just beginning, as the company, through new partnerships and agreements, is venturing into other industries such as construction and architecture, offering protection for different types of materials. Will this be a new beginning that will mean sustained growth for XPEL (NASDAQ: XPEL)?