HaaS and the future of TSLA…

Part of what makes it fun to work at Social Capital is the amount of time we take to think through the broad continuum of technology. The impacts of technology don’t stop after a Series A or a Growth round. Disruption, impact and getting to scale happen at all parts of the technological lifecycle — spanning a company’s existence as both private and public entities.

In thinking through the broad impacts of technology, we increasingly find ourselves investing in public markets as well. I don’t view these as distinct efforts — I view them as a broad reflection of our world view on change, opportunity and leadership. In fact, many of our private companies drive a better understanding of many public companies (and vice versa).

All of this preamble brings me to TSLA.

Three or so years ago, I made a massive miscalculation about TSLA and didn’t quite understand what it was all about. If you listened to the peanut gallery, you would have thought it was a car company and should be valued as a car company. We (or, really, I) fell for this. And after much reflection, we (erroneously) shorted it around $50/sh. It then ceremoniously ripped in our face to $100 and right before we capitulated and covered, it went down briefly enough where we could cover some of our losses and get out somewhat, but not entirely, unscathed. It was a great lesson that confirmed for me several things:

. Never stand in the way of a revolutionary, visionary Founder

. Do not stop at the first layer of detail — you must confront your biases and ask the more nuanced questions

. Believe in the future and the cycles of technology that will converge markets faster that you may think — making competitors out of disparate entities faster than you can imagine

So what is the future of TSLA?

In the intervening few years, we’ve spent a lot of time thinking about cars, software, autonomous vehicles, the future of asset ownership etc. and at the intersection of all of this, is our current view of TSLA. In our opinion, TSLA is the birth of the first HaaS company at scale. What is hardware-as-a-service? It is the realization that thru efficient assembly, modern technology and massive amounts of software, the economics will make it more obvious for a consumer to subscribe to an asset, like a car, than own a car.

Autopilot was the coup de grace for me on this HaaS line of thinking. With 100k’s of cars collecting millions of data points likely every hour(!), their software will become iteratively better, bordering on amazing, over time. At this point, it will be up to TSLA to simply decide that instead of selling a consumer a car, they can allow that consumer to subscribe to a car — or really, a massive fleet of cars.

Now imagine those fleets of TSLAs roaming the streets autonomously waiting for you to use your app and hail the closest car. While TSLA may still make the cars, their real value will be in elegantly managing the subscription, having the best software and the predictability of their service (same cars, same smell, same music playing when you immediately get in etc.).

It seems obvious to me that with the push around autonomy, it just won’t be TSLA driving to this future. BMW, Mercedes-Benz, Toyota and any other car company who wants to survive will need to become a software company first and view the building of the car as no different than Apple viewing the latest iPhone: as a physical case for iOS. These physical cases for iOS can, must and will change but make no mistake — the value is in iOS — no matter how much marketing is spent to convince you that you are buying the next great improvement to their screen or camera or some-such.

In a few years, I expect that GOOG, AAPL and TSLA will each have massive autonomous fleets on the road. You will be able to pay with you Apple Pay account, auth with Gmail, etc.

I suspect at this point, it will only take one ambitious city manager who wants to run for mayor to realize that fleets of autonomous cars are the solution to a non-trivial percentage of transportation for their citizenry. And then every other ambitious city manager will follow suit and we will transform how cities transport their inhabitants forever.

In this world, I’m most hopeful and confident in TSLA. I know pretty conclusively that if TSLA offered me a subscription service to their fleet of cars, I’d sign up in a heartbeat. And for every ounce of enthusiasm for TSLA, I’m also conceptually short, in equal measure, the auto industry who doesn’t understand this move to software and HaaS. Separately, I think Insurance as we know it changes fundamentally…probably for new entrants or consolidation amongst a few at lower economics and value (remember that the entire auto insurance market is predicated on the calculations and errors of humans).

Lastly, the landscape becomes even more interesting when you factor in the plans of Uber, Ola, Didi etc. It’s not clear to me how any of that plays out — when the competitive set is TSLA v. GOOG v.AAPL v. BMW v. MB v. Uber v. Ola v. Didi etc., but I suspect that we, as consumers, will definitely be a predictable long-term winner.

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