It might seem crazy to ask whether Tesla’s a car company - they certainly make cars, and on paper, cars are about 82% of their YTD revenue as of the third quarter of FY2017. However, I’m going to argue that they might not be a car company, but rather an energy company that makes cars, and there’s a few things that make me believe that.
This post has been reposted from my blog.
For starters, there’s Tesla’s approach to their intellectual property. While they did start out patenting things out of fear of being steamrollered by large automakers, they ended up deciding to allow any good faith use of their technology. The automotive industry is desperate to get viable electric vehicles that people want to buy - something that Tesla makes today - out the door, and Tesla could have easily used their patent warchest to maintain their lead over the traditional automakers, as well as any other newcomers like Lucid Motors or Faraday Future. However, their goal was to “accelerate the advent of sustainable transport” - not to make cars. In addition, outside of their patents, Tesla’s long had a rather welcoming approach to competition. One of the more recent examples was, in response to a September USA Today article about Mercedes-Benz electric vehicle investments, a tweet by Elon Musk wishing that they’d invest ten times as much. There’s been a few other times, as well, where Musk has welcomed competing EV offerings on the basis of them displacing fossil fuel vehicles and introducing people to electric cars, even if Tesla loses the sale.
Tesla’s also been building out a large-scale nationwide DC rapid charging network for their electric vehicles, the Supercharger network. This network has been designed primarily for long distance travel, although Tesla is now expanding the Supercharger network into urban areas, so that people who don’t have access to home charging can use Supercharging as their primary means of charging. Meanwhile, other automakers either don’t build any infrastructure, citing the need for internal combustion customers to be able to use it to justify it (even though the entire point is to make an EV practical in place of an internal combustion vehicle), or do small-scale lower-power rollouts that may be practical for extending the range of a short-range EV within a city, but are either impractical (on the coasts) or nonexistent (elsewhere) for long-distance travel. (It is worth noting, however, that Volkswagen is being forced to build an open-standard network as part of their settlements with the EPA and CARB over emissions defeat devices on TDI-powered vehicles. Time will tell if it becomes actually useful for nationwide long distance travel, ) And, while there are some independent charging networks like ChargePoint, EVgo, and Blink, none of them really seem to be interested in building out a true nationwide charging network, instead providing their services to clients that want to offer charging at their location. Additionally, while Tesla uses a proprietary standard for Superchargers, they’ve long said that any automaker that can accept a 90 kW charge rate and is willing to pay for their customers’ use can use the Supercharger network. And, they became a core member of CharIN, the group responsible for developing the CCS standard, which most of the Western automotive industry has settled on as the DC fast charging standard of choice.
However, Tesla’s purchase of SolarCity a year ago brings things into another light. Tesla at the time stated that it was to offer all-in-one solutions - here’s your solar roof to generate free electricity, your PowerWall to store surplus electricity, and your Tesla car to use your free electricity. They’ve since committed to powering all Superchargers using solar and battery storage, along with disconnecting most Superchargers from the grid entirely. Given sufficiently low production costs of batteries and solar panels, both of which are now being produced in the US through Tesla’s factories in partnership with Panasonic, this may well end up far cheaper in the long run than taking power from the grid, but there’s a lot of expense in building this out.
It’s also worth noting Musk’s approach to business - to quote him, “it’s worth looking at industries which a lot of people think are impossible or think you can’t succeed at - that’s usually where there’s opportunity”. With Tesla, he’s proven that an electric sports car can be done, he’s proven that an electric luxury sedan can be done and be highly desirable, he’s proven that an electric crossover with absurdly complex doors can be done (although not without their problems), he’s proven that a nationwide DC fast charging network can be rolled out and be legitimately useful for long distance travel almost anywhere in the US, and he’s on the brink of proving that an entry-luxury electric sedan can be done and has proven that it’s highly desirable. Now, the rest of the automotive industry is starting to catch up, especially in the wake of emissions scandals forcing them to actually care about electric vehicles, and he seems unthreatened by this, instead moving into new segments like trucking, one of the hardest segments to electrify. The trick with Musk’s mentality is that, while it’s great for breaking into new segments, it’s easy to get bored once you’ve proven that something is possible - you’d rather focus your attention on the next impossible problem.
And, ultimately, that’s why I think Tesla isn’t a car company - I feel that eventually, they’ll simply be bored of cars, and if other automakers become better at making electric cars than them... why bother spending billions of dollars and countless man-hours iterating on a solved problem, when you can direct those efforts towards an unsolved problem? Right now, there’s still impossible problems to be solved, that require them to keep making cars even if they’re bored of it - level 5 autonomy is one of Tesla’s stated goals, and a larger fleet of cars in the wild with the Autopilot Hardware 2 sensor suite, intended to enable that level of autonomy, helps develop this. But, as far as actually making an electric car? Tesla can be argued to have solved that problem. So, I’d be unsurprised to see Tesla eventually decide that the car industry is not for them, and transition away from manufacturing cars altogether, rather than perform significant updates on their products.
But, how does that make Tesla specifically an energy company, you might ask? After all, their energy technologies also seem to be solved problems, or very close to being solved (especially as both their solar panel and battery manufacturing ventures are in partnership with Panasonic, which isn’t a startup like Tesla), so the same argument could apply - that they’d get bored with the energy portion. However, there’s always room to make major improvements to both of those technologies, and even if they didn’t improve, I’d argue that it’s somewhat different - now that the technology’s developed, and the Supercharger charging network is in place, the development effort required to keep iterating may well be far lower than developing new cars (note that eventually regulation changes force development of cars), and also, their various energy businesses can actually act to support Tesla’s other moonshot projects like the semi, both technologically and potentially financially.
Financially? Sure. I think Tesla’s ideally positioned to become a supplier to the automotive industry, especially if their cars age out and reduce demand on their manufacturing infrastructure. In fact, in their earlier days, they were a supplier, supplying complete powertrains for the Toyota RAV4 EV and Mercedes-Benz B 250 Electric Drive, and batteries for the Smart Fortwo Electric Drive. In addition, their energy storage business has a significant amount of growth potential in the face of increasing proportions of renewables on the grid and a need for grid stability, their Supercharging network could be adapted to CCS (or the CCS standard could be modified to adopt Tesla’s connector) and be used to charge many future non-Tesla vehicles, and Tesla’s SolarCity unit (which does function as a much less bleeding-edge business than the core Tesla brand) has tons of room for growth as rooftop solar becomes more popular, especially in combination with battery storage.
Ultimately, I see there being two Teslas - the first being a core of energy generation, storage, and a form of distribution, and the second being a bleeding-edge R&D firm that’s focused on automotive technology. Even if the energy portion is significantly smaller on the balance sheets than the R&D firm’s products (and I’m not sure that it is - how much of its products are counted as car revenues, instead of energy storage, for instance?), the energy portion is the stable one, and the one that can support the R&D firm through its business changes. I actually wouldn’t be surprised to see, once Tesla runs out of moonshots for the R&D side of things to do (note that Musk has irons in the fire elsewhere, too, with SpaceX and The Boring Company, for sometimes literal moonshots), to see Tesla transition into a stable renewable energy company and an automotive component supplier, without a focus on the impossible (and without Musk at the helm).