How can a $4B deal create $160B market value? It just happened as Hertz allegedly ordered 100K Tesla’s Model 3 for rent, and making Tesla a $1.1T company. It’s a $4.3B deal because Hertz will pay the full price. A confirmation of Tesla has no demand problem, but a product ramp problem. Tesla’s stock price rose 17.2% in the week & adding $161B to Tesla’s market cap. It’s fair to say, Tesla has reinvented the car & made a very successful 0 to 1 maneuver.
Because of Biden’s ambition of 50% EV by 2030, EV transition is accelerating. The golden age of new & smarter cars has begun. No doubt Tesla will still lead the pack for a while. But, the 1st 10x will make the car market “fun” again as all top OEMs & new EV startups are rushing in to innovate. For example, Lucid just unveiled its first production car & became a potential worthy Tesla opponent. And, Rivian is 20% “Amazon inside” & likely leading EV pickup. Which has been growing to 20% of the new car market in 2020. With the mid-game is almost formed, what could be the 2nd 10x for the end game?
Unbundling EV manufacturing from design
TSMC democratizes the IC industry by providing chip manufacturing as a service. Which enables NVIDIA, AMD, etc. to complete with the giant, Intel. So, what if there are EV manufacturing service providers to make it easy for EV startups to innovate quicker & more flexibly?
The front runner of this game, Foxconn just showed 3 EV prototypes: a luxury sedan, an SUV & a bus in Oct. But why? tl;dr Foxconn has to find its “next Apple”. Even Foxconn has been “unbundling iPhone manufacturing” from Apple, there is pressure from the lower cost players & decreasing margin due to the shift to China vendors. So for its survival & future growth, Foxconn has to become “the TSMC for EV”.
To accelerate that, Foxconn has collaborated with Yulon, a Taiwanese car OEM to build the capability & capital. 3 EV prototypes in one year are impressive & a great start. And as a new EV player, Foxconn has to take any chance, even for small wins. Which can be a good match for agile EV startups, and may even help a bit on “the production ramp problem” later.
Leapfrogging bonus
For the developing countries, this is your chance to build your own EV brands to fit your car market better & accelerate EV adoption early. You need an industry strategy, investment & the right partnership. So, your country can grow better by skipping internal combustion engines with less CO2 emissions 🙏.
Unbundling the brain from the body
In 2015, Huawei Watch was launched “under my watch” & followed by the gold-plated edition. Around the time, my colleagues were working on a luxury smartwatch, Tag Heuer Connected. Despite a necessary attempt to innovate, it could not get the best of the premium status & bleeding edges of tech. To be fair, they are conflating needs. For example, I may pay a premium for a timeless value. But, the latest & greatest tech. only last a year at most for “smart devices”. For cars, there is a similar problem. Even for EV, they are likely on the road for ~10 years. However, a computer system is kind of “old” in ~ 2 years. So, is there even a way to reconcile both?
Tl;dr someone has to unbundle the new brain from cars. So, they can be developed in parallel and renewed independently. Today, there are 3 tier players by their capabilities on this aspect.
- Innovator: fully unbundled the computing from the car. For example, Tesla’s HW 3 is one computer to rule all models & Tesla has been updating SW frequently to add new features. That’s what I call being “smarter”.
- Follower: partially unbundled. Many western car OEMs start to adapt a single compute HW platform for different brands in the same model year. Which simplifies their HW & SW product development & supply chain management. Therefore, they can do SW updates occasionally at a lower cost multiplier.
- Laggard: developing computing & car still. For example, some Japanese OEMs still plan & organized in this way. This could be a big risk to fall into Nokia’s traps. And there is no easy way besides increasing the vast variety of component stocks to avoid shortage problems.
Many industry experts keep telling me: “cars never work this way”. But, Tesla has successfully disrupted the market in such ways. Dear car OEMs, the question is to catch up or decline. Today, there is still time. But, the opportunity window may close earlier.
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.
