Bank of America(BoA) predicts Tesla’s US EV market share may decline to 19% by 2024 from 69% in 2021. The claim mainly comes from the intensified competition from new startups & big carmakers and Tesla’s poor build quality. Indeed, 2022 will be the tipping point of EV commercialization as the gold rush accelerates. BoA’s scenario may be possible. Nevertheless, what could be other possibilities?
Quality of what?
What may we learn from the transition from feature phones to smartphones? Even 22 years later, no one precedes the indestructibility reputation of Nokia 3310. Anyone can argue its “quality” is much better than any smartphone. Arguably, it’s still the best great phone for many specific occasions. However, I won’t bet Nokia 3310 to take back its old glory as the top-selling phone in Y2K. So, no one cares about the “quality” anymore, right? No, this is because smartphones have much more to offer. So, comparing oranges to apples may be misleading for a paradigm shift. Smartphones are much more complex than feature phones, e.g. new apps are added every day. Nokia 3310 or any feature phones never deal with those complexity & changes. Then, what’s the “quality” to be compared? Let me know if you know a reasonable apple-to-apple comparison. And more importantly, even there is one, does it even the top pain point for smartphone users?
I bet the poor-quality argument is already less relevant for the new EV business. Because users start to expect more from EVs as they do for smartphones. Sure, consumers will not buy a car only because it’s smarter. However, more people will reject a car with a fixed feature set & disconnected from the world because there are better choices now. Sure the computation is only a small part of a car today. But A) it’s already a key differentiator, B) it’s growing fast & C) complexity is inflating exponentially.
The rich king
Indeed as the competition intensifies, the market share of the prime brand will shrink. But how could the “Apple of EV”, Tesla deal with the “shrinking” market share & intensified competition?
Before extrapolating that, we might want to check if the market grows at a much faster rate. The answer is almost certain as the world is pushing for EVs to be 50% of new car sales in 2030. So, how may a brand with about 20% of market share stay as a lucrative business?
OK, then how? What iPhone has been doing may be a way to roll. Apple has been doing very well between 20–30% of market share for 20+ years. Furthermore, in Counterpoint’s calculation, Apple captures 75% of the global smartphone profit in Q2 2021. There is no surprise Tesla “behaves” like Apple in many ways, such as being highly vertical integrated. Like what Tim Cook said: Apple loves to integrate HW, SW & service to create magic.
Next frontiers
“The foundation of the economy is labor. Capital equipment is distilled labor. So what happens if you don’t actually have a labor shortage? I’m not sure what an economy even means at that point. That’s what Optimus is about.” — Elon Musk, Tesla 2021 Earnings Call
A lot of people can talk about “good strategies” all day long. But, only very few dare to say no to the business as usual. On Jan. 22, Elon Musk said Tesla will not introduce any new model in 2022 because of constraints of the supply chain & resources. Also by reducing complexity in hands, Tesla may focus on the bigger problems to be solved. This will never happen to a rational carmaker. No CEO will even think about that simply because of the risk of losing market share. I like the bet nevertheless. Because while the wolf pack is rushing for new models, Tesla is already focusing on the next big thing: Full Self-Driving & Optimus, a humanoid robot. It takes courage to lead.
Sure, there are still many breakthroughs on the path of self-driving commercialization. Even one can do selfing driving, but no one gets closer to handling 99.9999% of real-life situations. Among all, Perception is the most difficult problem to crack even with the current cutting-edge tech. Tesla has ramped up to 60,000 FSD cars on the road of the US. Not only no one has come close to the scale on the distribution, but the huge real-time dataset will also be the gold to improve FSD at a pace no other may match. Furthermore, if Tesla can solve that by camera and ML, that may be transferred to power robots directly.
Anyway, the market has evaluated Tesla as a top tech company rather than an ordinary car company. Tesla just happens to make EV “to accelerate the world’s transition to sustainable energy”. On the way, it may also create robots that may increase labor capital for a new economy.
Full Disclosure
The opinions stated here are my own, not those of my company. They are mostly extrapolations from public information. I don’t have insider knowledge of those companies, nor a whatever expert.
