Tesla's Life-Prolonging Investments

Handicapping Tesla Motors anticipated demise is a parlor game that gained new impetus with recent negative developments impacting the company. On the eve of the annual TU-Automotive gathering in Novi, Mich., next week, Tesla Motors and its CEO, Elon Musk, is testing the patience of regulators, investors and the media by lashing out at his critics in the midst of some very visible struggles.

(Tesla's industry impact will be a key topic of depate at TU-Automotive, June 6-7. Here is the agenda: https://automotive.knect365.com/tu-auto-detroit/agenda/2 )

Delays in Tesla Model 3 production and reports of fatalities occurring in Tesla vehicles using autopilot are piling on top of financial shortfalls and autopilot-related legal action putting CEO Musk in a foul mood. Musk’s recent anti-media and anti-analyst rants (from the latest earnings call) have given investors pause and called into question the long-term viability of the company. But it should be clear by now that Tesla and Musk won’t be leaving any time soon and there are important lessons in value creation for the wider automotive industry. It all boils down to connectivity and data.

The mounting crashes and fatalities are not a great sign for the company. Musk’s Twitter-enabled fuming is a predictable reaction, but should not be confused with some organizational downward spiral - in spite of ongoing reports of senior executive departures from the company.

Musk has made multiple core strategic decisions that have positioned Tesla to endure well into the future and these investments are worthy of emulation. To the world it looks as if the fatal crashes, legal judgements and financial misires have stretched and stressed the Teflon-like Musk image to the breaking point.

In fact, these stresses occur against the backdrop of a care maker making its cars at the former NUMMI plant in California, possibly the most expensive place in the world to be making cars. It starts to look like Musk has run out of wiggle room. 

A closer look reveals Tesla maintaining a steady upward trajectory – with the company’s electric vehicles outperforming all German luxury contenders in the German market, to say nothing of California new Tesla registrations surpassing those of BMW’s workhorse 3 Series and Mercedes’ C-Class.

Tesla skeptics and critics tend to overlook the near-decade-length technology head start the company has on the industry regarding vehicle hardware and software architecture and distribution strategy – to say nothing of the company’s approach to connectivity and, eventually, new usage models like car sharing. Tesla is arguably the first and only car company to truly benefit from a network effect – the same network effect that the Germans (Audi, BMW and Daimler) have in mind in their joint venture with HERE, or that Intel is after with its acquisition of Mobileye.

But all of these Tesla challengers are playing catch-up. Tesla’s vehicles are an in-your-face, head-turning statement on wheels – at a time when a lot of consumers are fed up with new cars that are instantly out of date and that instantly lose massive amounts of value. But as important as that curb appeal is the enduring strength of the Tesla platform which continues to evolve to absorb semi-automated driving and, eventually, networked car sharing. 

When it comes to Musk's recent bluster, there is a big difference between telling the media and investors to jump in a lake, as Musk has so recently done, vs. telling customers and potential customers to take a hike. Tesla buyers are Musk's and Tesla’s core of support. Criticism of the media and analysts only serves to burnish his image as a champion of consumers who are desperately seeking something better than what they see on the typical dealer lot. 

Musk is on “our” side, right? And Musk still has some cards to play on top of some key, core investments.

One wild card still in Musk’s hand is China. He has yet to realize the full potential of the China market on his business due to various hiccups that have occurred during the market entry process. If Musk can make China happen in a bigger way, all short sellers and hedgers will be hosed.

Tesla and Musk also, by now, have a massive advantage from already gathered (and growing every day) driving data. There are many car makers that would pay handsomely for access to this massive aggregation of semi-automated driving data. More than any other car maker, Tesla is in position to monetize vehicle data beyond the wildest imaginings of any other car maker - particularly because his vehicles are operating and gathering driving data throughout the world, not just in particular cities or states or under specified driving conditions.

Not only is this wealth of data suited to digitizing the business of insurance such that Tesla might ultimately offer its own underwriting, the data provides critical insights into how cars are driven and how humans respond in different driving environments. Only Waymo can claim the billions of driven data miles that Tesla has collected.

Tesla also appears to have largely solved the challenge of building an adequate charging network – an issue that continues to bedevil the rest of the global industry given competing standards and insufficient charge point availability. Tesla has also solved the software updating challenge years before the rest of the industry and has even demonstrated the ability to add value to its cars post-vehicle-sale. 

To top it off, Tesla operates under a very green halo – if you ignore the very high cost of creating the cars and the charging infrastructure and generating the necessary power. Musk’s advantage in data collection, semi-automated driving, direct vehicle sales, connectivity, software updating, vehicle architecture and the overall business model represent an overall redefinition of the valuation of the auto industry overall and a road map for competitors.

As attendees at TU-Automotive next week listen to discussions regarding mobility, data monetization, cyber security, electrification and artificial intelligence they will do well to consider the ongoing impact Tesla is having on the industry. Musk may be tweeting away some of his anger and frustration of late, but all the while he is building enduring value that will continue to attract consumers and investors for the long run.

Roger C. Lanctot is Director, Automotive Connected Mobility in the Global Automotive Practice at Strategy Analytics. More details about Strategy Analytics can be found here: https://www.strategyanalytics.com/access-services/automotive#.VuGdXfkrKUk