Why Tesla Critics are Mostly Short-Sighted Morons
This is part 1 of a 3-article series:
Part 2 (coming soon): What Steve Jobs Understood That Elon Musk Seems to Miss (I get a bit critical in this one)
Part 3 (coming soon): The Marketing Plan I Would Recommend To Turn Tesla Into The Most Trusted, Loved, and Remembered Brand On Earth
Why Write About Tesla?
As a marketer and advertiser, I often find myself creating strategies and imaginary campaigns for companies I admire. It’s more fun and more productive than playing video games, I promise. Tesla is one of those companies. I’m sharing these thoughts because I hope you’ll find some value in the process.
Who am I to give advice to one of the most innovative companies in the world? I’m not telling them what to do (but, Elon, if you read this, we’d love to work with you). For the rest of you, I think you’ll find an innovative approach to marketing that will be extremely helpful in most any company.
Before I get into the “What would Harmon Brothers do if Tesla hired them,” I feel it’s important to lay a foundation of why I believe Tesla can be so disruptive.
Full Disclosure
Let me say right up front: I’m a fan of Tesla. I own the stock and I believe in Tesla’s future.
This doesn’t mean, however, that I can’t be critical of Tesla, and it doesn’t mean I’m blind to the challenges they are facing (I’ll dive into those more in part 2).
But, I believe very few people have even begun to wrap their heads around just how disruptive Tesla is. Investors get excited about companies that have the potential to be worth a billion dollars. You’ll think I’m crazy for saying it, but Tesla has the potential to be worth well north of a trillion dollars.
Yes, I said it- one trillion dollars.
Now stick with me. I’ll explain.
Tesla is Currently in a Rough Patch
2019 has been a rough year for Tesla. Media outlets have been all-too-eager to throw rocks at Tesla and Musk whenever and wherever possible. Here are a few examples:
Most of the criticisms can be summarized like this:
- Tesla has been bleeding cash for too long.
- They’re too slow to reach profitability.
- The stock is over-inflated based on the number of cars they make.
Most of these criticisms are overly simplistic and only look at the company through a single lens: They’re ONLY viewing Tesla as an automotive manufacturer.
This chart is a couple of years old, but it illustrates the argument well:
“Why is Tesla’s market cap so high when their sales are so low?! It must be over-valued!”
To understand Tesla’s potential, you have to broaden your perspective beyond just auto manufacturing.
Tesla is in the Process of Disrupting MANY Industries
Look at this list of industries we know Tesla is currently working to disrupt:
- Automakers — Sexy, affordable, high-performance EVs
- Car dealerships — Direct-to-consumer sales (no legacy carmaker can do this)
- Battery manufacturing — Gigafactory
- Ride-Sharing — Autonomous Robo taxis
- Energy Production — Solar
- Gas Stations — Supercharging network
- Trucking — Tesla Semi
- Energy Storage — Power wall
Let’s take a quick look at each of these industries:
Automakers — $953B/yr
If this were Tesla’s only innovation, they would be an interesting company and a likely target for acquisition by one of the bigger automakers. But Tesla’s critics would all be right-Tesla’s valuation is way too high for just an innovative car.
Many (if not most) of the incumbent automakers are quickly closing the gap and will soon have cars that rival Teslas.
Tesla’s plan is much, much bigger.
Car Dealerships — $343B/yr
It’s a well-documented fact that Tesla chose NOT to sell their cars through third-party dealerships. Musk likes to go against the grain, and for good reason.
Dealerships provided a needed service back when car companies didn’t have a way to reach the masses by themselves. The dealerships connected the manufacturers to the customers.
Today, however, the internet has largely eradicated the need for dealerships, but dealerships have powerful lobbies that push legislation to protect their place in the market. They’ve been largely successful too. None of the legacy car manufacturers can sell direct-to-consumer because of their pre-existing relationships with the dealerships.
Tesla is an outsider. They are not encumbered by those pre-existing relationships. Tesla sells direct to consumers via their website and also via their own stores in states where they have been able to overcome the legislation from legacy dealerships.
Okay, okay, why does this matter?
Apple wasn’t happy with the experience customers had to go through to buy their products at places like Circuit City. Apple built its own stores to control the entire customer experience. This was a critical move in its path to becoming one of the world’s most valuable companies.
Surveys have shown that consumers would rather go to the dentist than visit a car dealership. It’s that bad. Do you think any car manufacturer is happy with the customer buying experience? Absolutely not, but Tesla is the only one doing something about it.
Imagine what a HUGE competitive advantage it will be when Tesla becomes known for the best cars AND the best buying experience!
This single disruption will probably be worth billions.
Battery Manufacturing — $36.2B/yr
Lithium-Ion Batteries are forecasted to almost triple over the next 8 years to over 109 Billion, and Tesla is a major player in both manufacturing and innovation.
Once completed, Tesla’s Gigafactory in Sparks, Nevada will be three times the size of Central Park.
They’re going to completely change the way batteries are created, and in a recent investor meeting, Musk announced that Tesla is considering opening up its own mines to better control the marketplace for car batteries.
Imagine a world where Tesla not only controls manufacturing but owns a share of the raw materials. This would give them an enormous competitive advantage over every other car manufacturer, according to Global News Wire.
Ride-Sharing $12.5B/yr
Uber and Lyft currently dominate the ride-sharing marketplace with a combined valuation of around 140 Billion dollars.
Uber and Lyft cost about $1 per mile to operate, most of that cost is because of the driver. By eliminating the need for a driver, and getting rid of gas, Musk claims that self-driving Teslas will cost only 18 cents per mile.
That’s some serious disruption.
But Uber and Lyft are both working on driverless tech too, right? Yes, but Tesla will have over 1 million fully autonomous, self-driving Teslas on the road by May 2020. Once regulatory approval catches up. Tesla can deploy that army of cars as robo-taxis with the flip of a switch.
Uber & Lyft, on the other hand, will have to figure out how to build a new fleet from scratch as they phase out drivers (who currently supply their fleet). Further, Tesla’s fleet will be financed by customers buying their cars. How will Uber and Lyft finance their own fleets?
In the same way that Redbox upended Blockbuster but paved the way for Netflix; Uber and Lyft upended taxis and will pave the way for Tesla’s army of self-driving, autonomous vehicles.
Imagine what will happen when you can send your Tesla out as a robo-taxi so that it earns you money. Teslas will become one of the only cars on the market that appreciate in value. At that point, why would anyone buy any car other than a Tesla?
Yes, other companies will copy this model, but Tesla has a huge head start.
Energy Production — $2.2T/yr
Tesla acquired Solar City in 2016 to help it get closer to creating a world that lives off of sustainable energy. They developed the Tesla Solar Roof which, to date, is the sexiest option in residential solar. If they can make it affordable to the masses, they will become a major player in the HUGE industry of energy production.
Gas Stations — $399B/yr
In the early two-thousands, there was a debate as to whether Hydrogen Fuel Cell cars or Battery Electric cars would become the future. I wrote a college paper arguing that it would be hydrogen fuel cells…I got that wrong!
One of the core challenges I identified in my paper was that both technologies were facing a chicken-and-egg problem: why would any car manufacturer build a car when there aren’t fuel stations to fill it? And at the same time, why would any energy company build filling stations before there are cars that need them?
The chicken-and-egg problem is probably exactly why Elon built Tesla into a car company AND an energy company. Both challenges had to be solved at the same time.
Now Tesla has, by far, the largest network of EV chargers in the world. This will be a massive competitive advantage as other car companies join the EV movement. Imagine if Ford had the biggest network of gas stations in the world. That’s exactly how Tesla has positioned themselves for the future.
Trucking Industry — $800B/yr
Tesla’s move into this space is still completely unproven, but if they can bring the same innovation to this industry that they brought to the automotive industry with superior vehicles, safer vehicles, lower operating costs, and eventually autonomous trucks; they’ll take a sizeable market share here too.
Energy Storage — Industry Size Unknown
One of the biggest challenges with renewable electricity like wind and solar is that it can only be produced when the wind is blowing or the sun is shining. This requires us to rely on non-renewable backup sources like coal and natural gas.
As batteries become more and more affordable, this problem will go away. We’ll be able to generate electricity when conditions allow, then store it in batteries to use later.
Tesla’s Powerwall and Powerpack are industry-leading solutions for this very thing. They work at a residential level and massive industrial levels.
Just over a year ago, Musk offered to solve an energy crisis in Australia and it’s been a massive success. So much so that Australia was able to make back $23 million by selling energy stored in Tesla’s batteries.
Although Tesla missed the mark on their vehicle deliveries in Q2, they broke records by distributing 415MWh of energy storage. The industry is expected to see explosive growth over the next 5 years and I expect Tesla to continue as a leader in this industry.
Summary
I hope you’re seeing why Tesla is so much bigger than the media portray. It’s not just a car company!
Yes, they’re facing enormous problems, particularly with cash flow. I’ll dive more into this in part 2 of this series. In fact, I’ll get quite critical in part 2.
In the long-term, however, I don’t see any reason to be bearish on Tesla. They’re disrupting at least a half a dozen industries, many of which don’t seem to be taking Tesla seriously right now. They’ve shown an incredible ability to achieve what was previously considered impossible.
Like I mentioned in the beginning, I own some Tesla stock and I’m planning to hold it for a long time. I believe Tesla’s future isn’t just bright; I believe Tesla’s future is also OUR future.
Stay tuned for parts 2 and 3 of this series by following me on LinkedIn.
-Benton
Bio: Benton Crane is CEO of Harmon Brothers, the agency behind the internet’s most famous ad campaigns: Squatty Potty, Chatbooks, Purple, Lume, PooPourri, and many others. Benton and his team believe storytelling is the most effective form of communication and their mission is to Share Better Stories.
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Originally published at https://www.linkedin.com.
