I often find myself in conversations about electric cars (which mostly means Tesla). I find it quite puzzling as to how oblivious people are as to the challenges facing competitors in this field.
It seems like the dominant notion is that Tesla is just another car company in a well established market which is dominated by big players.
I would love to put a few words on paper (mainly for friends) so that I can clarify why this outlook on the market is wrong.
***
Tesla is the first car company which does not build cars, but software-ran-vehicles. This makes it a radically different car company from anything we have seen. For Tesla, the car itself can be seen as a wrap around the software managing this vehicle.
What enables this new shift — software running a car — is the electric engine and the battery. This is radically different from a combustion engine. While both move the car forward, the difference is that a standard engine can be seen as an analog device. By contrast, an electric engine is a digital device. And so software is able to control every aspect of this device.
What we end up with is an iPhone in an age of Nokia devices (the gap is even more startling, but i’ll catch on to that later). While Tesla has been building a software enterprise during the last decade, other manufacturers are just getting started. In terms of software development, one year of advancement can be profound. Let alone having a decade head start.
Software is a unique field, in the sense that the delta between one software and another — both aiming to do the same thing — can be astounding. Unlike the gap in regular industries (think of how much better a BMW engine is compared to a VW engine), which usually is around 10 to 20 percent, the gap in software can be much larger (think 10x). So not only does time play a role, but also the talent working on the problem is very deterministic to the excellence of that software.
This changes the source from which the car industry improves itself . What used to be a disadvantage (compare the american car industry to that of the european and the japanese), becomes an advantage due to software development. The US leads the way in terms of competent software engineers and being an american company is a huge advantage (not to be dismissive of the europearn talent pool). This creates somewhat of a problem for non-american car companies because moving your operations outside of your home can be both a managerial challenge and a shift of focus.
You may wonder if a century of manufacturing prowers don’t count. In a world where the curves of the car, the paint job, the frame design, the leather seats, and the dashboard are what differentiates one car company from another — these do count. But these will become a declining factor with time. In essence, the consumer will choose based on other factors entirely.
Software will become the main factor in choosing a car. Calling the car via your mobile device, play video games while you are parked, get firmware updates overnight, feel your car improve over time; these are the things that will make you chose a car.
Any car company which bases itself on battery technology, on speed, design, comfort, is a company in the path towards annihilation (I like to be dramatic). None of these things are big enough differentiators. When it comes to companies like VW (VW is just so big that it’s a great example), they are in quite a predicament. If they offer you an electric car tomorrow morning, they will do so by hurting their bottom line. Which no company likes to do. On the other hand, if they don’t start building a viable product as of yesterday, they may find themselves too late to the game — and be wiped completely (Nokia style). This is a real problem, and if I had to put my money on it, I would say that in 20 years most of the car companies we know are going to either be dramatically different (consolidated, merged, bought) or wiped entirely.
One last thing I would like to address is the advantage Tesla has over new players (there aren’t many that should grab your attention to be honest; Rivian is the one which comes to mind). There, Tesla’s advantage comes mainly from having a head start. In a way — and as odd as this may sound after you’ve read my dyre outlook — the electrification of the vehicle actually flattens the competition in the same way the internet did. If you know you are capable of making really good software, your ability to go into this field is somewhat easier than it ever was. Again, the reason is that no one is going to care much about the car itself, which gives you somewhat of a positive outlook over your prospect of actually making it.
The problem with this scenario is that Tesla is 10 years ahead. Ten years of building cars did very little to Tesla’s genius in production lines (it’s hard but not rocket science hard). What did do a lot is a decade of software development. This is the reason that 10 years in, there isn’t a car which competes with the Model S. You might think that a BMW or a Mercedes does. But these are apples to oranges. If you are Mercedes, no matter how much horsepower you throw at the problem, no matter how much Alcantara leather you wrap your passengers in, you are not competing on the same front.
Tl;Dr:
Any “car” company which will fail to built itself purely as a software company, is on a road towards failure.
PS — this is a pretty crappy article meant to share with friends. Excuse my writing (lack of) talent.
