As Tesla’s stock price has pulled back from its highs, a “party’s over” narrative has been making the rounds. Basically, the thesis is this: TSLA stock has soared because Tesla has had the growing EV market more or less to itself, and that’s about to change. Big Auto is finally getting serious about electrification, and a wave of startup e-automakers will soon be shipping product. As Tesla becomes just one EV-maker among many, its days as a high-flying growth stock will draw to a close.
The challenge of increased competition is real, but, as I’ve explained elsewhere, the threat is far smaller than the conflict-obsessed media makes it. The legacy automakers are on a completely different track from Tesla and its proteges, and their gradual-transition strategy is a slow-moving threat at best. As for the new kids on the block such as Rivian, Lucid and Aptera, Tesla welcomes them to the neighborhood. Yes, they may claim their pieces of the pie, but the pie will expand.
Many have made the point that Tesla is “more than just a car company,” but the real insight behind that statement goes deeper than a list of product lines. Tesla’s most important product is not vehicles, batteries, solar panels or even Robotaxis. The real product, which it has been cranking out at a dizzying pace, is disruptive ideas. Elon Musk and his team of scientists and engineers might best be described as an innovation engine. They are continually coming up with new ways to reduce costs, increase revenues and open up new markets.
This is not an unprecedented situation—similar idea factories can be found at Apple, which reinvented itself when it introduced the iPhone, and Amazon, which started as an online retailer and has now become the dominant player in the growing field of cloud computing. Looking further back, we can find analogies in Bell Labs and NASA, each of which developed an incredible number of innovations that shaped the modern tech world.
Tesla has been an innovator in the battery field since the beginning. The auto industry’s Old Guard scoffed at Tesla’s decision to use Panasonic 18650 format cylindrical cells in the Roadster, but they must have gotten the job done, because the company continued to use them in Models S and X. Pundits hungrily awaited news of a spectacular new cell breakthrough, but for years the 18650 cells, and the next-gen 2170 cells, which represented only an incremental improvement, were the best thing going. Could it be that sometimes, the best innovation is not to innovate?
As Tesla Product Planner Ted Merendino told me in 2013, “Tesla has one of the largest cell characterization laboratories in the world—we have just about every cell you can imagine on test.” JB Straubel reiterated that in an interview with SAE the same year. “If anyone has a more cost-efficient cell architecture, we’d be all ears. Right now nobody has proven they have a more cost-effective cell architecture than ours.”
Finally, in 2020, Tesla introduced a truly revolutionary new cell. The new 4680 cell packs as much as double the energy storage capacity as the previous cells, and incorporates several innovations, including a tabless design and a new cooling system. Elon Musk hopes the new cells will enable a cost reduction of as much as 56%. Achieving even a fraction of that would enable Tesla to reduce prices, increase range, or both.
The new cells aren’t the only potential game-changer Tesla has announced recently—far from it. New underbody castings, structural battery packs, new self-driving features, manufacturing process innovations...the list goes on and on.
Any one of these concepts could lead to a substantial boost in performance, and/or a reduction in costs. And Tesla has a steady stream of such incremental improvements in store. That pipeline of disruption is the underlying reason that TSLA shares have reached such improbable heights. As long as this dream team of brilliant, forward-looking people keeps coming up with new ideas, Tesla, along with SpaceX and the rest of Musk’s constellation of companies, should keep growing, and TSLA should keep advancing.
Written by: Charles Morris