Tesla Has Many Moats Whether Musk Believes In Them Or Not

Tesla CEO Elon Musk

MAY 28 2018 BY EVANNEX 13

ELON MUSK SAYS HE DOESN’T BELIEVE IN MOATS, BUT TESLA HAS PLENTY OF THEM

It was an exchange that bounced around the internet echo chamber until it took on a surreal shape, mixing metaphors as diverse as medieval castles and peanut brittle. It started with an offhand comment by Elon Musk on Tesla’s recent earnings call: “I think moats are lame… What matters is the pace of innovation.”

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Charles Morris. The opinions expressed in these articles are not necessarily our own at InsideEVs.

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Above: An example of a moat surrounding a castle (Image: Twisted Sifter; Photographer Unknown)

Musk was not referring to a water-filled ditch, but rather to a Warren Buffet-coined business term that describes a competitive advantage that protects a business against rivals. Buffet responded that moats were still valuable things, citing the example of See’s Candies, which enjoys an unbreakably strong cult following. The mischievous Musk responded that he planned to start a candy company, and humorless pundits reacted in horror. Please, Elon, not another side project!

The irony here is that Tesla enjoys a number of competitive advantages that certainly fit the definition of a Buffetian moat. As Patrick C, writing in Cars With Cords, points out, a “moat” can be a trade secret, a patented product, or even a powerful brand. He lists no fewer than 24 moats that Tesla enjoys – assets that enable the company to do things other EV-makers can’t do. Some of them are wide and deep, but others are shallow, and could easily be crossed by a competitor that chooses to make a serious investment in the EV realm.

So far, no other automaker has done so. Tesla has been able to build a network of moats unmolested simply because the rival armies have been busy gorging on dinosaur carcasses far away. If and when the hordes do decide to lay siege to Tesla’s electric castle, they will have to get over, under or around several moats.

Tesla’s direct sales model, which is now legal in all but a handful of states, could prove to be a formidable moat. Buying a car from a traditional dealership is an unloved process that’s often equated with going to the dentist. This is a moat that the legacy automakers cannot bridge, even if they wanted to – while they secretly might like to try direct sales, their dealers are a powerful group that can’t be written out of the equation. While auto dealers may be unpopular with consumers, they’re beloved in state governments – more than a few of them are state and federal lawmakers. Several of the laws that allow Tesla to sell direct were written specifically to exclude Tesla from the general prohibition on direct sales.

Above: Tesla owns its own stores often located in unconventional places like malls and high-end shopping districts (Instagram: moslowyo)

The lack of dealerships gives Tesla a number of competitive advantages – it doesn’t have to share the profit margin on its vehicles, and it has complete control of the customer experience. These are moats that the legacy brands, wedded to the dealership model, will not be able to cross anytime in the foreseeable future.

Tesla’s connectivity features enable over-the-air updates, allowing the company to correct problems, and even add new features, remotely. This is a moat that other automakers could cross by developing their own wireless service systems (or in some cases, by upgrading an existing system, such as GM’s OnStar), but this would require a major change of mindset. Patrick C points out that dealerships might well object to an OEM implementing such a feature, as after-sale service is the province of dealerships, and a major profit center for them.

Tesla’s superior connectivity has also allowed it to build up a vast amount of usage data that it is using to develop future self-driving features. The Californians are so many years ahead in this department that it’s difficult to see how the Michiganders will ever catch up.

These are far from the only moats protecting the Tesla castle – some of the company’s moats have moats: Tesla’s partnership with Panasonic, its Supercharger network, its Gigafactory, its superior software and battery technology, its vertical integration, synergies with Tesla Energy, the solar division and SpaceX. Any automaker planning to assail this fortress had better bring a bevy of boats and bridges.

Above: Galileo Russell also discusses the irony behind the current tiff between Elon Musk and Warren Buffett surrounding moats (Youtube: HyperchangeTV)

The broadest and deepest moat of all is Tesla’s brand, which is one of the strongest in business history, right up there with Harley-Davidson and the Grateful Dead. The company’s adherents are every bit as devoted as the most fervent lover of See’s peanut brittle, and even people who wouldn’t know an EV from ET have heard of Tesla. Every time another automaker unveils a new electric model, the first question any reviewer asks is, How does it compare to Tesla? “As more automakers bring EVs to market, they will be playing the game on Tesla’s court,” writes Patrick C.

The undisputed quality of Tesla’s vehicles is only one reason that people are lining up to buy them. Patrick points out that people appreciate Musk and company’s commitment. “Tesla is not reluctantly making EVs just to meet a state mandate. They didn’t recall and crush EVs from the late 90s. They don’t have a 100-year history of making gas-burning cars that have put billions of metric tons of CO2 into our atmosphere. They haven’t participated in a conspiracy to shut down public transportation. They were not caught cheating on emissions tests.”

“People are inspired by Tesla,” Patrick continues. “Their many fans give them free advertising. Fans make ad videos, write blogs, record Tesla podcasts and YouTube channels. Tesla held a competition for the best fan ad and there were hundreds of submissions. One couple loves Tesla so much, they had a Tesla-themed wedding.”

So, how can Elon say that moats are lame? I think what he really meant to say can be found in the second part of his statement: “What matters is the pace of innovation.” Moats aren’t worthless, but you can’t depend on them – they can always be breached by a determined attacker. To keep the barbarians at bay, Tesla will have to keep improving its technology, introducing new features and new products, and opening up new markets. This ongoing arms race may be frustrating for those who would like to see the company settle down and start delivering quarterly profits, but it’s the way things have always been, from the Middle Ages to the internet era. Uneasy lies the head that wears a crown.

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Written by: Charles Morris; Source: Cars With Cords (hat tip to CleanTechnica); Video: HyperchangeTV

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers, free of charge. Our thanks go out to EVANNEX. Check out the site here.

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13 Comments on "Tesla Has Many Moats Whether Musk Believes In Them Or Not"

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Vexar

What Elon is talking about is taking down Warren Buffett’s various competitive advantages, such as are held in the peanut brittle industry. He has sustainable, competitive advantages for certain. They are widely-known and documented. They remain largely unchallenged, however I would like to see someone take on the Gigafactory advantage. I also think the “no dealerships moat” is something I think everyone but the dealerships would like to see evaporate.

If Tesla didn’t have disruptive, competitive advantages, it wouldn’t be an Elon Musk company. He has begun his assault on premium roofing materials and apparently bricks are next?

Get Real

While true that Tesla has gained many “moats” because the laggard, legacy OEMs have tried to slow-walk or even ignore the inevitable transition to electrification what Musk really means is that a good offense is better then a good defense here.

By out-innovating (in concept, design, and execution of their all-electric ecosystem) the laggard, legacy OEMs, Tesla assures itself of being the brand most closely associated with mid-high end compelling BEVs much like Xerox, Kleenex, etc because the names associated with their products.

CDAVIS

From article: “Tesla Has Many Moats Whether Musk Believes In Them Or Not”
—————-

Musk’s point is that a static moat can be defeated (therefore provides limited defense) by a competitor that has achieved a higher rate of iterative innovation.

This principle of Elon Musk about the importance of iterative innovation is a part of Tesla’s core operative DNA… Tesla’s widest moat.

Tesla offering competitors to join Tesla’s Supercharging Network (currently a very wide moat) cleverly serves to illustrate Tesla’s point.

ffbj

That’s a castle in a lake, not a moat, but whatever. It’s the thought that counts.

I think there are different sorts of moats. Technological moats being more vulnerable, say than industrial era moats, like a railroad might have. The term moat is too general.

JoeInthe UK

Nope, its Bodiam castle, and its definitely a moat. I was there last summer.
The moat is there and in fine shape
As it happens, the castle is ruined 🙂

https://www.nationaltrust.org.uk/bodiam-castle

From wikip “Bodiam Castle is a 14th-century moated castle near Robertsbridge in East Sussex, England. It was built in 1385”

Rafael Sabatini

Yeah, I was there quite recently. It’s a ruin, but fascinating because you get a view into the inner workings of a castle of that era– the garderrobes and fire ducts and defensive measures, etc.

Most of the “updated” castles bear no resemblance to the functioning structure from the middle Ages.

Bodiam also has a nice tea room and gift shop.

dan

I don’t get how lack of dealers is a moat. The people who don’t like their dealers tend to be buyers of low end cars. If Tesla is challenging BMW or Jaguar or Audi, where dealers aim for a concierge like experience, why would lack of a dealer network be an advantage?

Lowest end AMEX cards make you purchase and pay your card by hand. Their platinum card gives you a personal travel agent to counsel you on ideas. The personal service is the premium offering.

When Tesla figures out how to compete with Chevy and Toyota, the dealer issue could be a moat. At the moment, people cross shop Teslas with far more expensive brands.

Get Real

Don’t know if you ever bought cars at MB, BMW, Audie, Jag, Lexus, Cadillac, etc but you can rest assured that many of their buyers feel like they are being ripped off too by the sleazy Stealership sales tactics and what customers really hate are their repair and maintenance costs which is why they have mostly moved to including the first 3 years or so of maintenance for new buyers.

Is it better then Ford, Chevy, VW, etc.
Sure, but that is not saying a lot is it as car salesmen only rank above politicians in the Gallup poll for ethics and trust.

That is right, even bankers and lawyers rate above them:
http://mentalfloss.com/article/510371/10-confessions-car-salesmen

dan

I’ve had experience with both Audi and BMW as well as premium GM brands like Saab. My issues were never with dealers. In fact, they always made my experience better. Ultimately, they have a living to make and a family to feed. As long as I didn’t try to wring every penny out of them, it was always a win-win. It is no different than people complaining about having to tip at a restaurant. If you understand the role that person is playing and you value that service, you won’t complain about paying for it. If you don’t value it, you’re better off cooking at home or eating fast food.

Rafael Sabatini

Yeah, you always hear Tribe Tesla complaining about the dealers, but I actually like being able to get parts locally, on my schedule.

And, do these people not know about the internet? Every car I’ve bought in the last 25 years I’ve never set foot in a showroom… Buy online, have it delivered. No “sleazy salesmen” involved at all. This whole line of reasoning seems misplaced.

Rafael Sabatini

It’s not a moat, it’s a mistake.

Rusty

In New Zealand Toyota is trialing a Tesla-like no dealership model.
No commision sales people. Fixed prices. No stock on site. Long trial drives. On line ordering…
https://www.driven.co.nz/news/news/toyota-nz-introduce-haggle-free-fixed-pricing-model/

windbourne

Several of those moats that you attribute to Tesla is actually the car maker’s doing.
For example, they CAN do OTA, but will have to talk with dealers.
As to vertical integration and panasonic working closely with Tesla on cells, those are choices that those companies made. GM, Ford, Chrysler, etc refuse to invest into EVs, batteries, or even parts.
They are trying hard to follow the Toyota approach, as opposed to learning from others.
And in the next 2 years, those companies are going to fall WAY behind. MY should be the most automated car made and will likely have 98% Tesla parts.