Does Tesla have a sustainable competitive advantage (yet)?


(Alex Sherwood) #1

Now that the will Tesla go private? drama’s over, I just thought I’d share this commentary from a16z’s Benedict Evans. In case you’re not familiar with them, a16z is one of Silicon Valley’s most successful VC firms & Benedict Evans is one of best analysts in tech, in my opinion anyway!

This is a long read (at about 21 minutes) but it’s well worth it, if you’re thinking about investing in Tesla or just looking for a mental model to use to understand disruption in general. The first section of the post (until he starts the in depth analysis at ‘First, batteries and motors’) is quite relevant to Freetrade investors for example. I’ve use highly.co to highlight the bits that stood out to me, in case you fancy checking those out.

My interpretation is that he thinks that Tesla still has a mountain to climb. Most of the analysis of Tesla that I’ve read so far has focused on their manufacturing challenges but Evans discounts that as pretty much irrelevant in the long term.

Solving ‘production hell’ is just a condition of entry - it’s not victory. If it can only do this, it’s just another car company, and that’s not what has anyone excited. It’s what the cars are that matters.

Instead he focuses on:

  • Innovation in battery manufacturing - not a competitive advantage.
  • Innovation in software & software integration (longer range cars & enabling Over The Air updates) - disruptive but possibly not enough to dramatically increase sales
  • Innovation in experience (cutting out dealers & the Over The Air updates themselves) - disruptive in the short term but possibly not creating ‘winner takes all’ effects
  • Building out charger networks - not a competitive advantage
  • Innovation in autonomy (self driving cars) - this has the most potential to create a ‘winner takes all’ effect & Tesla is well positioned to start collecting the data that’s so crucial to make it work. But it’s doing this the hard way (no 360 degree LIDAR) & the quantity of data may not be the deciding factor here - so this is still very much up on the air

The key point in all of this for me is his comment that -

the history of the tech industry is full of companies where having a lovely product, or being the first to see or build the future, [are] not enough

I get the impression that a lot of people who are investing in the potential of Tesla might be doing so because Tesla saw the vision first. But obviously we don’t know if Tesla will be the first to fully build the future & they’re still a long way off.

This analysis hasn’t put me off considering an investment in Tesla. But I think it provides some really good benchmarks to use (& not use) to measure their progress against. I hope that other users find it useful too!


(Denislav) #2

@alex.s thank you for sharing the article. I am someone who has been thinking in investing in Tesla and this will be something I will read definitely. One of the companies which has kept me thinking if it’s right to invest in or not. What a surprise… :joy:


#3

Good piece. Note that a16z is an investor in Lime bikes and Lyft, two companies which are arguably attempting to take apart “car ownership” with micro mobility and ride sharing respectively.


(Alex Sherwood) #4

Looks like he read your mind or perhaps you’re not the only person to mention that :wink:

For what it’s worth, I don’t believe that this is a zero sum situation either.


(Ian) #5

I think the road (excuse the pun) to full autonomy may be longer than expected. The article below provides an interesting read on AI in general. If it’s accurate then achieving level 5 autonomy might be harder than expected.


#6

I agree that autonomy looks like it is hard. If you think about it, driving in city X is clearly going to be different to cityY and the data collected is very asymmetric too (lots in city X, none in city Z), so you can imagine that deployment of autonomy will happen at different speeds in different places, and that it is going to have to co-exist with human-driven vehicles for many years. And I reckon the switch to electric is imminent and much quicker, which means that all of those micro-mobility things (ebikes, scooters, and other car/bus-like form factors) will get going soon. (To be fair to Evans, he has said all of this before many times, though possibly not in that piece.)

Now that might look ideal for Tesla - it’s good at electric and it isn’t good at autonomy yet (well, no-one is). But without ever having looked at the company’s fundamentals, it feels over-priced and still massively high-risk if it can’t keep getting cheap credit. And imho Elon is a bit crazy, and that adds as much to the risk side as his talents add to the reward side. So TSLA remains a no for me.


#7

Yes, the thing is to create a system that can learn and adapt, and autonomous cars are just one application or usecase. Once there’s a system that can learn and adapt like humans, well then that will be transferable to other applications or usecases.

I think we’ll see autonomous drone deliveries before autonomous cars that work properly everywhere because you have less variables when airborne, like no humans crossing the road and so I’d think you can program the majority of the situations it’ll encounter and so you’ll need less of what’s referred to as “deep learning”.


#8

My very limited understanding is that this is one of the hardest hard things for machine learning. Ie: they tend to be very narrow. From the perspective of self-driving systems, “driving in Minneapolis” might be actually a different problem to “driving in Mumbai” or even “driving in Manchester”.


#9

Yes I agree and all I was saying was the challenge is to let the system learn itself. So you seed it with some information and then let it get more intelligent by itself. Rather than constantly trying to code it to understand Manchester or Sydney.


(Jeff puckering) #10

I agree it will take a lot longer than expected. I think level 5 may even be impossible, at the very least uneconomical. The real turning point will be when we are at lvl 3-4 with the majority of Cars on the road. Then the need for lvl 5 becomes irrelevant as traffic becomes 99.99+% predictable.


#11

Some interesting opinioning on where self-driving tech has got to (no idea how accurate the opinioning is). http://radiofreemobile.com/2018/08/30/autonomous-autos-data-shortage/


#12

I have never been in a Tesla though I can see that the cars are amazing. But I don’t see how the company or its leadership are anything near amazing.

Serious, non-trolling question: if you’re buying/holding Tesla, what’s your investment theory? Is it something about his genius? Or Tesla being the only car mfr which truly understands/can win at electric? Or something else? Help me understand.


Tesla is "no longer investable" due to Elon Musk
(Dave Smith) #13

I think other car manufacturers will catch up in the EV market and Tesla will remain fairly niche. I just can’t see them becoming a mainstream brand with their problems with production, build quality, spare parts availability etc.

Their current market cap is bigger than Ford which is quite simply ridiculous


#14

I think other car manufacturers will catch up in the EV market and Tesla will remain fairly niche. I just can’t see them becoming a mainstream brand with their problems with production, build quality, spare parts availability etc.

Their current market cap is bigger than Ford which is quite simply ridiculous

I agree with this.

They will suffer from first mover disadvantages.

The established vehicle firms will ramp up product releases once the build process is matured and there are plenty of qualified engineers in the labour market for them to hire.

I still remember circa 2010 head of a mainstream motor company (possibly GM) took out a front page broadsheet ad, proclaiming that individual cars are dead for metropolitan cities - and sustainable public transport is the future. But that is for another thread I guess. :smile:


(Vladislav Kozub) #15

Would you believe that Monzo and Revolut have bigger market caps than Greggs? Greggs’ turnover is about £1bn and net profit after tax about £60m. Monzo’s revenue is only £2m (that is million, not billion. That is before any other expenses).

Granted, comparing private and public companies is not the best thing to do, but the concept of growth remains. The former two will either get bankrupt or have an explosive growth, whereas Greggs will just slowly go up (or down).

Similarly, Ford’s revenue growth in the past 10 years has been circa 1% per year, whereas Tesla’s was over 160%. Tesla has significant outliers (659% and 387%) but even a 10-years’ median is 73%. Even taking the last four years into account, Ford is 2% and Tesla 57% YoY.

And Tesla is not only a car manufacturer but also a renewable energy company too, that’s product diversification. And just like any other startup, it will either fail miserably sooner or later or fly to the moon.

I personally would not have it as a majority of the portfolio, but everything is better than crypto so a little “let’s hope it will fly to the moon” will not hurt even if the former scenario happens eventually.


Tesla is "no longer investable" due to Elon Musk
(Alex Sherwood) #16