Nothing can stop the company. Except…
The parabolic outbreak of the Tesla stock leads to a change in the perception of the company. Financial media outlets and Wall Street analysts started to change viewing Tesla as a manufacturer for electric vehicles and are now talking about battery technology. From my point of view, they are still lacking important pieces of the story that will make Tesla one of the most successful companies within this decade.
Mission and Leadership
Tesla wants to solve one of the most important problems we as humanity face. The transition from fossil fuels to sustainable energy production and consumption. Most mission statements are too ambitious or too vague so investors and employees often themselves don’t believe in accomplishing the mission. Tesla’s leadership team and their success not only convinced investors but ever more important they manage to attract the most talented people to join the company. Having the most talented people on board is in itself a strong competitive advantage. At the same time, Tesla managed to implement a culture of rapid innovation. The innovation manifests within their products.
The most important product that Tesla produces is Gigafactories. Musk oftentimes mentioned that Teslas long term competitive advantage will be manufacturing. Each version of the Gigafactory brought significant improvements to the manufacturing process and the sheer paste of constructing and ramping production is industry-leading. Tesla’s mission is to accelerate the transition to renewable energy production and consumption. So it might even be possible, that one day Tesla will sell their Gigafactories to other companies. But for now, let’s have a look at the product portfolio, that Tesla currently offers.
Tesla is most recognisable for its electric cars. The cars are praised to be fun, extremely safe (Tested by NHTSA) and offer great value for the price. Once you experienced driving in a Tesla, every other car feels inferior. Tesla also is among those electric vehicles companies, that managed to improve the range of their cars overtime at scale. Other companies are still trying to catch up and cannot even compete with the 2012 Tesla Model S.
The expertise in battery technology is a crucial part of the business and probably the most exciting part of Tesla. Everyone is waiting for the Battery Day and some speculation says, that Tesla is going to start producing their very own batteries. Vertically integrating battery technology and especially battery manufacturing is key. Within the next few years, Tesla will most likely become the biggest battery manufacturer, which will enable them to mass produce any kind of electric vehicles and their energy storage products. Those storage products range from small batteries for private households to huge installations that power cities.
With the acquisition of SolarCity Tesla paved their way into the solar business. They created the first solar product in the world, that doesn’t ruin the aesthetics of your house. Solar completes the energy cycle, which allows customers to produce their own energy, store it in the battery and consume it while powering their cars.
On top of Tesla’s hardware business comes a layer of software components, that will also be a gigantic product lineup. The big enabler for the software business is called Autopilot. The Autopilot software is currently worth around USD 8.000 and the price is inflating steadily. Musk oftentimes mentioned that the price will rise with further improvements to the software. It‘s is very likely that Tesla will solve autonomous driving with their current approach. It’s easy to upsell to existing and new customers with a very high margin. Most of the fleet already has all the necessary hardware components, so many customers can make their car full self-driving at the touch of a button.
Ride hailing, Infotainment & Connectivity
Once they solved full self-driving they can launch their Uber-like ride-hailing service. This is a pure software product, that gives Tesla the possibility to earn money with each ride that is provided by a self-driving Tesla. In addition to that Tesla already has a great infotainment system, which will be even more useful once the driver doesn’t have to focus on the road. Additional services and apps will be provided and Tesla might introduce a similar system like Apple or Google. Connectivity is already an additional source of income for Tesla since you can subscribe to internet connectivity for USD 10 per month.
Tesla also started providing car insurance in the US and is most likely expanding their business, which will make buying a Tesla even more compelling, because the total cost of ownership might decrease. Also Insuring the driverless Tesla network for a fraction of the price, that Uber or Lyft have to pay might also lead to an advantage in pricing, which is already there, because there are no drivers to pay.
Tesla quietly introduced Autobidder. A marketplace software for buying and selling energy. This type of software will enable private energy producers and businesses to trade spare energy during peek times. Each vehicle and battery pack can function as a public storage mechanism, which leads to decentralised energy production. Tesla’s software will take care of the energy flow and make sure, that a marketplace for renewable energy will be created. Again Tesla might take a cut from every transaction.
Looking at the products makes it obvious that Tesla is not a pure car company. Instead, Tesla is competing within the largest industries. Energy production and energy consumption, automotive, insurance, software technology.
The size of each of those markets is enormous and Tesla will probably take a huge stake within all of those markets. Understanding these changes the way investors should evaluate Tesla as a company.
Tesla is competing within all those industries without all the legacy infrastructure. Instead, they have everything in place to run their business like a state of the art tech company. Tesla products can be updated over the air as your smartphone does. A new version, an updated operating system allows the company to improve their products over time and at the same time get feedback from their products. This is the reason, why Tesla will win autonomy. Other companies like Volkswagen are struggling to get a similar setup in place, which Tesla already successfully uses for years.
Momentum & financials
With the rise of the valuation, Tesla got even more attention. The whole storyline is changing from Tesla is a pure electric vehicle play to, Tesla is going to win the battery business and probably will sell their batteries and their technology to other manufacturers. Still, most of the media outlets do not see the whole picture of Tesla. But the change of perception and the rising stock prices helps Tesla to expand even faster. While having a comfortable cash position and being cash flow positive Tesla made a deal, that allows the company to raise 5 billion USD if they want to. So depending on how the progress in Berlin and Austin, they might decide to build another Gigafactory or expand their existing ones.
If Tesla can keep stomping those gigantic factories from the ground up within less than a year, it is easy to predict that within the next few years Tesla will be able to continue to ramp their production and their product line extremely fast.
The best part of the Tesla story is the army of Tesla fans. The company doesn’t have to spend money on advertising at all, because their products are so great, that they sell themselves. Most Tesla customers become evangelists for the products, which creates the most authentic salespeople, who love their Teslas and convince their family and friends to also buy Tesla cars.
Tesla is on track to disrupt the worlds largest industries because they combine a compelling mission, the world most talented people, game-changing products and an extremely comfortable financial situation. Combining all the factors makes it almost impossible to think of a scenario, where Tesla will not be the most successful company of the decade.
Except for one thing: Elon Musk as a person has such a strong influence on the company and the success of Tesla, so we all should hope, that he can run the company for another decade.
PS: No worries. In a recent interview, he mentioned that he is thinking a lot about his successor.