I assume that all the major manufacturers have electric cars for sale by 2025, and they’re much more able to ramp up production than Tesla is because of their existing factories.
It’s not clear to me that it’s easy to retool a factory from making ICE cars to making electric (w/ 2000 vs 20 moving parts in their drivetrains, respectively). Perhaps it’s better than starting with nothing, but it’s still going to be a huge cost.
Waymo (ie. Google) has a significant lead on Tesla, and would probably sell to all the other car manufacturers. Plus the last few years have shown that autonomous driving is very difficult to get to the truly valuable level.
I agree that Tesla does not have a clear lead over Waymo (and others). My rough impression (having not looked into it in detail recently) is that Waymo and Cruise are able to achieve a higher level of autonomy in more narrowly scoped areas, whereas Tesla achieves lower levels of autonomy, but across its whole fleet worldwide, w/ no geographic limitations.
However, one advantage Tesla has is that it’s already booking revenue from selling its full self-driving package. When people choose the 7k full self-driving option [edit: announced today that it’ll be 8k starting July 1st], that’s cash that hits Tesla’s accounts right away. And then they recognize the revenue over time, as they ship more pieces of the package. One might also expect the take rate of the package to increase over time, as “full self-driving” becomes less of a promise and more of an actuality.
And every car they sell (even those w/o the paid full self-driving option) sends data home to train their neural nets.
So, in two ways, Tesla has a continuous path from here to full autonomy: 1) financially they’re able to incrementally profit more and more (w/ software-like margins) off of progress towards full autonomy, and 2) they’re able to ship incremental features to their fleet, and iterate w/ huge (and by far market-leading) amounts of real-world data.
So there don’t have to be any discontinuous leaps in progress for Tesla to get to full autonomy. They just have to keep hill climbing (or descending the gradient, if you prefer).
Their margins are currently riding on not having significant competition, which is changing quickly and the rate of change is increasing. Electric cars are currently a luxury choice, thus having a high margin. But once you are trying to sell to the entire US market, prices are going to have to drop, and margins will drop with them.
I’m skeptical that the competition will be too much of a challenge. It’s the classic Innovator’s Dilemma, as Liron mentioned. Tesla’s batteries have the lowest cost per kWh of any manufacturer, because it’s been one of their core competencies and they’ve focused on it obsessively. Other manufacturers will have to dump huge amounts of money into R&D and reworking their supply chains and factories to become competitive. All while losing money in the meantime because their costs are so much higher.
And other manufacturers (at least the US ones), are not in great financial positions to make that kind of investment right now.
It’s hard to imagine other manufacturers truly competing with Tesla in the near term, unless they go all in w/ a bet-the-company approach. Presumably some will, once it’s clear that that’s their only hope. But I wouldn’t be too surprised if many of those end up as the Blackberry or Nokia to Tesla’s iPhone.
(One additional Innovator’s Dilemma type factor preventing incumbents from switching to the new approach, is that, at least in the US, manufacturers have relationships w/ dealerships that legally require them to only sell through those dealerships. And dealerships have traditionally made most of their money through service. But electric cars need less service, due to having fewer moving parts. So dealers will be less inclined to sell the new EVs and will be a source of friction for manufacturers wanting to switch over from making ICE cars to making EVs.)
While I do think that Tesla can sell more than they currently are, the stock price already has that very factored in. Their market cap is $150B right now, which, assuming an insane $10k profit per car and a normal car manufacturer PE ratio of 10, shows sales of 1.5M cars/year, a 10x ramp up in car sales, again with an insane profit margin.
While I agree that big gains are priced in, do note that: 1) Tesla has consistently grown revenue at 50% per year since 2013 (first full year of Model S sales), and 2) The autonomy features they’re already selling are a big boost to margins and will become a bigger boost over time (as they recognize more of the sales as revenue, and as the take rate increases).
So, in the medium term, one might expect Tesla to have margins somewhere in between those of a traditional auto company and those of a software company. (In the long term, their margins will depend on whether they capture a large share of the transportation-as-a-service market, and if so, whether the winners of that market end up with commodity-like margins or monopoly-like margins. My guess is the latter, but I’m not super confident about how that will play out.)
It’s not clear to me that it’s easy to retool a factory from making ICE cars to making electric (w/ 2000 vs 20 moving parts in their drivetrains, respectively). Perhaps it’s better than starting with nothing, but it’s still going to be a huge cost.
I agree that Tesla does not have a clear lead over Waymo (and others). My rough impression (having not looked into it in detail recently) is that Waymo and Cruise are able to achieve a higher level of autonomy in more narrowly scoped areas, whereas Tesla achieves lower levels of autonomy, but across its whole fleet worldwide, w/ no geographic limitations.
However, one advantage Tesla has is that it’s already booking revenue from selling its full self-driving package. When people choose the 7k full self-driving option [edit: announced today that it’ll be 8k starting July 1st], that’s cash that hits Tesla’s accounts right away. And then they recognize the revenue over time, as they ship more pieces of the package. One might also expect the take rate of the package to increase over time, as “full self-driving” becomes less of a promise and more of an actuality.
And every car they sell (even those w/o the paid full self-driving option) sends data home to train their neural nets.
So, in two ways, Tesla has a continuous path from here to full autonomy: 1) financially they’re able to incrementally profit more and more (w/ software-like margins) off of progress towards full autonomy, and 2) they’re able to ship incremental features to their fleet, and iterate w/ huge (and by far market-leading) amounts of real-world data.
So there don’t have to be any discontinuous leaps in progress for Tesla to get to full autonomy. They just have to keep hill climbing (or descending the gradient, if you prefer).
I’m skeptical that the competition will be too much of a challenge. It’s the classic Innovator’s Dilemma, as Liron mentioned. Tesla’s batteries have the lowest cost per kWh of any manufacturer, because it’s been one of their core competencies and they’ve focused on it obsessively. Other manufacturers will have to dump huge amounts of money into R&D and reworking their supply chains and factories to become competitive. All while losing money in the meantime because their costs are so much higher.
And other manufacturers (at least the US ones), are not in great financial positions to make that kind of investment right now.
It’s hard to imagine other manufacturers truly competing with Tesla in the near term, unless they go all in w/ a bet-the-company approach. Presumably some will, once it’s clear that that’s their only hope. But I wouldn’t be too surprised if many of those end up as the Blackberry or Nokia to Tesla’s iPhone.
(One additional Innovator’s Dilemma type factor preventing incumbents from switching to the new approach, is that, at least in the US, manufacturers have relationships w/ dealerships that legally require them to only sell through those dealerships. And dealerships have traditionally made most of their money through service. But electric cars need less service, due to having fewer moving parts. So dealers will be less inclined to sell the new EVs and will be a source of friction for manufacturers wanting to switch over from making ICE cars to making EVs.)
While I agree that big gains are priced in, do note that: 1) Tesla has consistently grown revenue at 50% per year since 2013 (first full year of Model S sales), and 2) The autonomy features they’re already selling are a big boost to margins and will become a bigger boost over time (as they recognize more of the sales as revenue, and as the take rate increases).
So, in the medium term, one might expect Tesla to have margins somewhere in between those of a traditional auto company and those of a software company. (In the long term, their margins will depend on whether they capture a large share of the transportation-as-a-service market, and if so, whether the winners of that market end up with commodity-like margins or monopoly-like margins. My guess is the latter, but I’m not super confident about how that will play out.)