Tesla has been ahead of all other automakers for years when it comes to electrification, but there's a whole lot more to the story.
There’s no joy in Bearville these days, as the price of a single TSLA share has soared well into four figures, and Elon Musk has developed yet another side business, selling overpriced short shorts to Tesla fans. Meanwhile, the Big Three have seen their stock prices drop by around a third since the beginning of the year (and their fan merchandise doesn’t include anything much more exciting than a ball cap).
“How can this be?” The shirtless bears ask. “Should we have been listening to the people who’ve been telling us that Tesla is a tech company, not just an automaker?”
There’s no question that Tesla has many of the characteristics of a tech company, from its software-oriented culture to the explosive nature of its stock price. However, the simplistic automaker-vs-tech-firm dichotomy doesn’t tell the whole story. Most tech companies, after all, don’t build their own enormous Gigafactories, nor do they tend to operate networks of dedicated hardware locations (the Superchargers) around the world.
Matthew DeBord, writing in Business Insider, argues that Tesla is neither fish nor fowl, neither a floor wax nor a dessert topping. The Paradox of Palo Alto may be both an automaker and a tech firm—but it’s also much more. Tesla isn’t just building a better automobile, or a high-tech renewable energy system—it’s creating an entirely new industry.
Superficial observers have criticized Elon Musk and Tesla for diversifying into what they see as unrelated products: cars, solar panels, home batteries, grid-scale storage products, tunnels, flame-throwers, and more. However, long-time observers of electromobility understand that EVs cannot be some sort of drop-in replacement for ICE vehicles. They’re part of a system, which includes renewable energy, storage, smart grid technologies, vehicle autonomy, and various software products to make it all work together. That’s what Tesla is building, and every one of its products and services is a necessary piece of the puzzle (okay, maybe not the flame-throwers).
Many have compared the EV ecosystem to Apple’s media empire, or to the “value chain” or “stack” that empowers smartphones and other tech gadgets. This analogy is valid as far as it goes, but to find an example that really parallels what Tesla is doing, we have to go back to the early 20th century.
DeBord describes the transition from a transportation system based on horses and sailing ships to one based on oil-fueled vehicles. This technological shift wasn’t a matter of simply replacing one product with another. Cars could drive on roads that were built for horse-drawn carriages, but to reach their true potential, they needed a vast and complex system that included not only paved highways, but oil refineries, gas stations, steel mills, rubber factories, insurance products, fuzzy dice…the list goes on and on.
Building all these things took decades, and the efforts of thousands of different companies in hundreds of seemingly unrelated lines of business. Technological change happens much more quickly these days, but even so, the new clean energy/electromobility ecosystem won’t be built in a few years. Naysayers bray that, 17 years after Tesla’s founding, EVs have barely cracked 1% of the auto market in most countries—they’re missing the point. Once the pieces of the new ecosystem start to fall into place, the transition will be rapid, and the day will come when gas-powered cars are sitting out in the rain, as unloved and unwanted as all those cathode-ray-tube TVs were a decade ago (let’s assume all those horses lived out pleasant retirements on farms somewhere).
One big difference between what happened in the 1900s and what’s starting to happen now is that a single company is dominating the transition. Big Auto and Big Oil are timidly nibbling around the edges of the pie (while still hoping to wish, or lobby, the whole thing away), but in general, they’ve given Tesla a free hand to gobble up most of what’s on the plate. As our society is transformed over the next couple of decades, plenty of others will profit, but Tesla appears likely to be the one setting the rules, and indeed defining the game. Savvy investors can see this, and that’s why TSLA stock has soared to such heights.