Can Tesla Take Over Auto Industry?

6 months ago by Steven Loveday 49

Tesla Model 3

The Model 3 is a major turning point for Tesla, and the next few years should paint a much better picture of where the company will fit in the grand scheme of the automaking world.

To say that Tesla’s automotive production stats pale in comparison to the Big Three automakers would be an understatement, yet the Silicon Valley electric automaker’s market cap and rapid progress is a completely different story.

Tesla caused quite a stir on Wall Street as its market capitalization passed that of Ford and General Motors. What this actually means is a point of much contention among analysts and investors. The most substantial question is:

Will Tesla be able to play a leadership role in the automotive industry as a whole?

While other automakers are slowly but surely joining the electric vehicle revolution, as well as moving forward with technology like autonomous cars and over-the-air software updates, Tesla only makes fully-electric vehicles (and anything else that CEO Elon Musk dreams up). The Palo Alto startup is widely seen as a niche automaker. Some actually refer to Tesla as a tech company, rather than a car company.

Tesla

It was really only a handful of years ago that Tesla introduced its Roadster … not even a decade.

The Big Three have a huge advantage when it comes to cash flow. Between the three automakers, there is about $83 billion in excess to throw around. Collectively, Ford, GM, and Chrysler have invested about $30 billion on new jobs and infrastructure over the past eight years. Tesla may have a market cap of some $50+ billion, but its cash balance of $3 billion is not much to work with.

It seems the electric automaker is constantly adding something new to the mix … expanding, spending, planning for the future. At this point, keeping the cash flow high is not a priority for the company, because in order for its vision to reach insurmountable heights, the big investments need to happen now.

Many continue to argue that Tesla has yet to make a profit. This is true in part, as a whole, but recently the automaker has been able to show a profit. Tesla functions much like that of Elon Musk’s personal story – in which everything that is made along the way, is pumped right back into the next big thing, with a goal of being “future proof.”

It will be a long time, if ever, that Elon Musk’s carmaker can sell more cars than the Big Three. The scale of Ford, GM, and Chrysler is tremendous in comparison. The three automakers, in combination, sell about eight million vehicles a year in the U.S. alone. GM sells close to 10 million per year worldwide. Tesla is looking at annual production of about 500,000 vehicles per year, after 2018. Ford will likely double that number in just F-Series pickup trucks sold per year in the U.S. in the coming years.

It’s really much to soon to forecast what will become of Tesla in the grande scheme of the automaking world. The industry is transitioning more rapidly than ever before, and Tesla is really a brand new company when compared to these automakers that are well over 100 years old. In another 100 years, things will look vastly different. Perhaps the question should be:

Can Tesla achieve a level of success that exceeds that of any other automaker, in a markedly shorter period of time?

At the rate that Tesla has grown and influenced thus far, and considering the company’s inconceivable market cap successes in less than a decade … anything is possible.

Source: Library for Smart Investors

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49 responses to "Can Tesla Take Over Auto Industry?"

  1. Volt says:

    Tesla is not here to take part, they are here to take over.

    1. mx says:

      The big three are paper tigers.
      What is interesting is the supplier chain now moving into EV components. The paper tigers simply “integrate” the stuff from the supplier chain.

      This will be Tesla’s main competitors.

    2. Paul Smith says:

      Tesla doesn’t have to catch up to them. As Tesla continues to grow at a prodigious rate, and as the Big Three lose the EPA under Trump, they will lose sales to ever other manufacturer and pass Tesla on their way down.

  2. tftf says:

    “At the rate that Tesla has grown and influenced thus far, and considering the company’s inconceivable market cap successes in less than a decade … anything is possible.”

    Well, have a look at marketSHARE, not just market cap:

    https://twitter.com/asymco/status/824631894549688320

    Tesla will spend billions just to get to 1% marketshare one day.

    1. ROFLOL says:

      Come one, all that feverish trolling isn’t going to help your short position. Billions are lost in shorting Tesla’s stock and no amount of trolling will bring all that lovely money back.

      Just take your losses like a man and try to find some real value in your life!

      1. tftf says:

        I’m stating facts.

        It takes DECADES to move market share (beyond a few digits) in the car industry:

        “Decades, not years, are the measurement scale to shift marketshare among competitors beyond single digits in the car sector.”

        “It took all of Japan’s largest car makers about two to three decades to meaningfully catch marketshare from domestic car makers in Western Europe and North America – that included building local factories (most consumer tech companies don’t need this spread-out supply chain, they can airlift and distribute their lighter and smaller goods globally from central manufacturing hubs in Asia).

        The inner workings of the car industry require large manufacturers (and their largest suppliers) to have factories on at least three continents: North America, Europe and Asia.

        As we all know, Tesla has at best one and a half plants in the U.S. by the end of 2017 (the main Fremont factory and some additional supply is planned out of their battery factory in Nevada, e.g. Model3 drivetrains and possibly additional components in the future).”

        (…)

        There is no dominant car maker, the largest players share similar market shares (namely VW Group, Toyota, GM and Renault-Nissan-Mitsubishi. All of them make about 10 million cars per year at the moment).

        ______

        Very different from the tech industry with fast disruption.

        1. ROFLOL says:

          Cut and paste. You clearly come well prepared. Won’t do your wallet any good though, trolling on these forums has yet to have a measurable effect on stock values.

          Like I said: don’t be a sad shorter, look for some real value in your life.

          1. Nix says:

            ROFLOL — It is even worse than that. He is cut and pasting junk from his own desperately seekingalpha posts.

            It is the same as if I were to post something here, and then quote it to prove that tftf is a complete fool.

            1. Nix says:

              “tftf is a complete fool.”

              There, I just did the same thing as he did…

              I guess he thinks that if it is put in quotes it makes it fact…

          2. goodbyegascar says:

            It amazes me that stock shorters would waste their time posting their negatively biased opinions on websites like “Inside EVs”.

            Do they honestly expect to turn electric car enthusiasts against a company like Tesla?

            Crazy.

            1. Jelloslug says:

              By posting the same thing over and over on different sites search engines catalog it and post it higher and higher when people search for terms like “Tesla”.

              1. goodbyegascar says:

                So he is just gaming the system? That doesn’t add any value, only extracts value.

                Seems parasitic.

                1. Jelloslug says:

                  It makes his opinion more visible in searches which makes them seem more valid.

                  1. tftf says:

                    Had you read any of my articles you would realize that I predict EVs as a catgeory have a great future from 2020+, but Tesla will suffer.

                    Or are you typing your comments on an Atari or DEC or Commodore or Tandy computer? I doubt it.

                    Computers won as a category, but predicting a winner back in 1980 was harder.

                    Tesla has horrible finances and it will soon have lots of competition.

                    1. ffbj says:

                      It costs a lot of money to take over the auto industry. Competition? Where is it, oh that’s right soon…lol.

                    2. philip d says:

                      Your personal computer analogy is flawed. There was another small disruptive company that entered the personal computer market that outlasted other small players like Commodore, Tandy and DEC.

                      They’re still around today. You should invest in them. They’re listed as AAPL on the NASDAQ.

                  2. Pushmi-Pullyu says:

                    tftf said:

                    “Had you read any of my articles you would realize…”

                    …that all your so-called “predictions” about Tesla are FUD, and always 100% wrong or close to it?

                    Thanks, I’ve held my nose and read far more than enough of your B.S. to realize that. No need to wade back into that cesspool.

        2. Here we go again says:

          “It takes DECADES to move market share (beyond a few digits) in the car industry:”

          It “used” to take DECADES. The ICE market is not the EV market. EVs are computers on wheels. 100-200 moving parts vs 10,000+. The main constraint of the EV market to date has been battery prices. It is very soon going to be production constrained, which may even cause a temporary plateau for battery pricing. The old guard rarely masters disruption. Tesla is planning several more gigafactories. Is there one traditional automaker considering even a megafactory?

        3. Mark C says:

          It took less than 2 years for the Japanese portion of the US to jump dramatically when the oil crisis hit in 1973~74. The “Big Three” took a bloodbath AGAIN when they had little to nothing that was really fuel efficient in ~2008.

          They just don’t want to leave their most profitable core competencies to venture into the future. The future won’t stop for them, they’ll have to conform or die, gov’t prop, die, gov’t prop, etc

          1. Dav8or says:

            Yes and I’m driving a “Big Three” designed and assembled EV that blows Tesla away right now. Today. Not soon… not any Tweet now… but today.

            What awesome machine from the silicon valley puppet master are you driving and how much did you pay for this all that awesomeness?

    2. Toni says:

      Percent of market share by sold units is a meaningless metric! It does not take into account that different cars have different prices and carry a different margin for their manufacturer! It basically considers that selling a Ferrari (for example) is the same thing as selling a Toyota Yaris.

      1. Zach says:

        This. They have about a third of the large luxury sedan market in the US right now.

      2. tftf says:

        So will be the Model3 be sold at Ferrari prices?

        1. Rob Stark says:

          Not it will be sold at Mercedes C Class prices with overall Tesla average selling price equal to Mercedes.

          Not GM,F,nor FCA.

  3. Alaa says:

    DEFINITELY.

  4. Get Real says:

    We know that squeezed in the shorts tftf is getting desperate from the carpet-bombing and lame spam he keeps spewing into every Tesla related article now.

  5. Nelson says:

    Tesla will continue to take market share away from the incumbents until one goes belly up and Tesla buys their factory in a fire sale. NUMMI part 2.

    NPNS! SBF!
    Volt#671

    1. G2 says:

      +1
      (Pssst; we are looking at you Chrysler.)

    2. Rick Danger says:

      Yup. Tesla will be right there to snatch those closed factories up for cents on the dollar.

  6. G2 says:

    Correct me if I’m wrong, but Tesla is not intended to ‘take over the auto industry’, but to fundamentally change it to electric drive. In that mission one could argue they are well on their way.

  7. Chris O says:

    Between the need for zero emission and autonomous driving the car industry will see more changes in the next 10 years than in the past 100 years. Everything is in flux, century old business models an entire industry is based on are quickly becoming obsolete, the ICE age is drawing to an end.

    So gentlemen place your bets: will today’s top dogs be tomorrow’s winners or will disruptive innovators eat their lunch?

    Looks like the market has placed its bet and clearly a major shake up is expected.

    1. Stimpy says:

      As the GM exec recently touting diesels in these very comments made clear to everyone else, I think a shake up is the safe bet!

  8. Longvsshort says:

    My guess is that SCTY liabilities plus M3 delays and quality issues will bring a slow end to Tesla hype and hope and that Elon Musk personally will gradually distance himself from this particular endeavor but will with hindsight take some justified credit for the automotive electrification that will play out in the next one to two decades but that he will focus elsewhere.

    1. Rick Danger says:

      My guess is that your guess is wrong. 🙂

  9. ffbj says:

    It seems like a distinct possibility, combining Tesla’s brilliance with legacy car companies buffoonery.
    Tesla has a developed a cache’ that makes them an object of desire, while legacy cars are merely an inferior transportation choice.

  10. Rob Stark says:

    1) Tesla has a cash balance of $4B not $3B.

    2) GM just sold 1.2M units of its volume. Adam Opel AG and Vuaxhall Motors.

    3) The apt comparison is BMW and Daimler Benz but more so Daimler Benz. As Tesla is becoming a conglomerate with a heavy truck division like Daimler but not a motorcycle division like BMW.

  11. F150 Brian says:

    Musk intends to change the world. He is a leader and visionary and I don’t think he cares which company does it.

    Once EVS hit more than a couple % market share, you will see the engineering might of the big dogs come into play. Until then, they are happily raking in profits with just enough effort into EVs to form a basis from which to launch.

    And quite possibly we will see a revolution in energy storage technology that will make involvement in the current generation pointless, or even a burden to move away from.

  12. Four Electrics says:

    Even if Tesla sells 500,000 cars a year, worldwide, that’s probably 300K in the U.S., or 1/60th of total U.S. sales. A drop in the bucket.

    1. AlphaEdge says:

      Last year was a record at 17.6 million, and not the 30 million you’re mistakenly claimed.

      1. ¯\_(ツ)_/¯ sven says:

        I believe you’re the one who made the mistaken claim, AlphaEdge.

        Four Electrics didn’t claim 30 million sales. He said 300,000 sales in the US is about 1/60th of total US sales, which works out to 18 million sales (300,000 x 60).

    2. philip d says:

      I’m surprised you are criticizing Tesla.

      1. Pushmi-Pullyu says:

        “Four Electrics” always bashes Tesla. It’s the only reason he’s here. I hope you weren’t taken in by his FUD about the imaginary Model X he pretends to own? Even the name “Four Electrics” is a lie!

  13. Peter says:

    Tesla has changed the autoindustri no question about that. Would people buy and rate Tesla the best if the car was crap ?
    Would the other carmakers even care about Tesla if the cars from Tesla was crap ?
    The answer if simply NO !
    That means that Tesla has changed the autoindutri for ever and that was Elon’s plan. What happens with Tesla car production is a more open question. But looking at SpaceX chans is good that Tesla also will lift off.

  14. Steven says:

    I will answer that question after Tesla sells their one millionth Model 3.

  15. Pushmi-Pullyu says:

    “Can Tesla achieve a level of success that exceeds that of any other automaker, in a markedly shorter period of time?”

    That’s a pretty vague question; exactly what would qualify as that level of success? Sounds like a matter of opinion to me, not fact.

    Let’s look at the reality: The only auto maker to ever grab the vast majority of the market was Ford. Back in the Model T days, it had at one time 90% of the market.

    I just don’t see Tesla being able to replicate that, much as Elon Musk would like. Ford achieved that remarkable near-monopoly because the company was so successful in developing high speed mass production before any other manufacturer did.

    Elon may have dreams of doing the same, when he talks about using basic physics principles to significantly increase the output of factories. But even if he can, which I seriously doubt, there is one very big difference between the Model T Ford days and today: Ford did not have any large competitors which already had most of the market. Ford wasn’t competing with GM, Chrysler, Toyota, Nissan, etc. etc.; it was competing with horses and buggy makers.

    I wish Tesla all the success in the world. I’m a big fan. But I think it’s going to be impossible for Tesla to grab more than 50% of the market, and I think it probably overoptimistic to think Tesla will wind up with more than, say, 25% of the international market.

    Sure, at the moment the legacy auto makers are almost entirely engaged in resisting the EV revolution and continuing to make their more profitable gasmobiles. But the EV revolution is progressing slowly — excruciatingly slowly for this EV advocate!

    Sadly, at the current very slow pace of growth in the PEV (Plug-in EV) market, many or most of the legacy auto makers will have plenty of time to catch up, when EVs finally start selling enough that legacy auto makers see their market shrinking.

    The EV revolution is progressing so slowly that many argue it’s an evolution rather than a revolution. Sadly, I think they have a good argument. (That doesn’t mean I fully agree, just that I think they make a good case.)

    1. Mark C says:

      Well said, PMPU!

    2. bernietx says:

      I agree with PMPU – 25% might be possible but it will take a long time to find out. The stock valuation assumes Tesla is guaranteed to be bigger than GM; which seems doubtful. But I wouldn’t buy or short Tesla.