Does Tesla have a sustainable competitive advantage (yet)?

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 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!


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