Tesla’s position in the burgeoning electric-car market must be incredibly precarious because every new automotive startup — from the mysterious Apple Car to the more mysterious plans of Faraday Future — is welcomed with a chorus of “Watch out, Tesla!”
Tesla’s market position is solid right now. True, the company is facing challenges, from perfecting its manufacturing processes to ensuring that it can deliver enough vehicles in 2015 to keep Wall Street happy.
But Elon Musk’s startup has money in the bank, has just debuted its much-anticipated Model X SUV, has captivated the car-making world with its new Autopilot semi-self-driving feature, continues to see its stock trade at a high level, and has quickly solved a potential management problem by hiring Jason Wheeler from Google to replace retiring CFO Deepak Ahuja.
Tesla is a car company whose entire history is animated by crises, and there will be new ones to contend with in the future. But the automaker is no longer facing any immediate existential threats.
Not that you would believe this if you follow the news around various electric-car launches and schemes, from established automakers such as General Motors and perplexing upstarts like Faraday Future. For whatever reason, the snap response to the arrival of more EVs is to conclude that Tesla is screwed.
Nothing to worry about
This is baffling and it no way resembles how Tesla sees its market position. Musk would be thrilled to see more EVs come to market. He was likely depressed when numerous electric-car companies, emerging at roughly the same time Tesla did about a decade ago, failed before and after the financial crisis. Why depressed? Because Musk considers Tesla to be pioneering an idea about the future of transportation. He’s not thinking about battling for market share — he’s going long electrification, betting that it will replace the gas-burning engines in cars over the next half century.
Some context: When Tesla first came along, plenty of other electric car makers were aiming to join the revolution. There was Aptera, with an exotic, ultra-high-MPG design drawn from aerospace. There was Coda, with a low-cost EV based on a Chinese car. There was Better Place, which built its business model on battery swapping. There was Wheego and Tango.
Tesla is the last man standing, the sole survivor in a brutal winnowing that has seen startups either go out of business, go bankrupt, or drastically curtail their ambitions. For comparison’s sake, imagine that every conventional carmaker other than Toyota went away in the span of a few years.
This would be a monumental problem. Toyota doesn’t have the resources to build every car that’s needed on Earth.
Nor does Tesla have the capacity to satisfy the ultimate EV demand that Musk envisions. There are currently about a billion cars in the world and roughly 80 million new ones are built each year. If Tesla hits its 2020 production goal, it will build 500,000 vehicles: 0.625% of the total yearly output — a rounding error, practically.
An electric ecosystem
It’s therefore vitally important that a lot of new electric-car companies hit the market over the next decade. Even then, if another 500,000 new EVs arrive by 2020 to join Tesla’s cars, the transformation that Musk hopes for won’t occur unless the big automakers also come to the party. Somebody has to build and sell the other 79 million vehicles that will make the revolution a reality.
One of the reasons why many observers who see a Faraday Future coming to eat Tesla’s lunch think that Tesla should be afraid is that they consider Tesla a disruptive technology innovator. The rules of that game, as it’s played in Silicon Valley, lead to winner-takes-all outcomes. Peter Thiel is the tech thinker who has most comprehensively outlined this extreme attitude, stressing that for tech startups competition is to be avoided in favour of establishing monopoly positions.
Tempting as this might seem for transportation, it would be impractical. No one automaker could realistically supply the base demand — usually termed the “replacement rate” — even in the US, which has about 15 million cars and trucks produced annually. And that’s just passenger vehicles. We aren’t even talking about freight trucks, school buses, and so on.
What we really want, if the Tesla dream of a widespread electrification is to come true, is an ecosystem of electric-vehicle manufacturers. For example, there’s a reasonable chance that Tesla will wind up supplying primarily the upper end of the market — the luxury and near-luxury space — given its brand DNA and business needs. One of the most appealing things about Coda, before it collapsed, was its drive to satisfy the lower end of the market: customers who wanted a more utilitarian EV option.
That’s the way the current car market is organised. We have small, cheap cars and big, luxurious cars. We have many different choices in between. It’s natural to assume that the electric transformation would mirror that mix. And such a setup would spur Tesla to improve itself at a more rapid clip. Such a setup would spur everyone to improve themselves at a more rapid clip, giving us the electric cars we deserve sooner.
Unless, of course, you’re convinced that a more radical transformation is needed, with autonomous on-demand Google Cars forming a vast global fleet that’s managed through Uber-like platforms.
So this is why Tesla doesn’t just have nothing to worry about from competition, but would go so far at this point as to consider investing in competition. And if you think that would be crazy, consider that Tesla wouldn’t even be around today if traditional automakers hadn’t invested in Musk’s disruption. Toyota and Daimler took stakes in Tesla — now exited — when Tesla was struggling.
The last thing Tesla wants is to be in a market of one. Someday, it wants to be in a market of dozens of electric-car makers and mobility providers, changing profoundly the way we get around.
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