Culture eats Strategy for breakfast, and Execution cleans up the mess. Tesla’s Q1 2022 result not only sets a new standard of execution at scale & speed but also how a “full-stack innovation” can accelerate the progress of civilization. Check out a few angles worth to extrapolate 🤔.
As we are witnessing the 1st 10x of the smarter car revolution, all carmakers reckon with the new trends from new EVs, software-defined cars, connected car services & mobility as a service. Nowadays, everyone has a grand strategy. But who can deliver better result quicker is still the question. Tesla’s Q1 2022 result not only shows what are almost commercially viable but also set the benchmarks for anyone wants to compete.
New Electric Vehicles
Tesla continues to lead on the total unit cost and “new build quality” at least for a few more years. Even though most carmakers are switching to EV first or only. Toyota finally joins the club aiming to sell 3.5M EVs by 2030 & transforming Lexus into an EV-only brand by 2035. But most of them just retool old popular models to EVs. While this helps them to switch quickly, it trades off the long-term benefits of fundamentally redesigning for a better performance & maximizing production efficiency significantly. It may not seem obvious for now, but the gap will multiply quickly as Tesla scales up. Furthermore, Tesla keeps raising the entry barriers to a new high for “the machines build machine”. For example, Tesla Giga Berlin costs 5+ billion & 2+ years to build. And then, the production ramp can take 9–12 months according to Elon Musk.
Tesla is not a conventional car company, and it won’t become one anytime soon. As the EV adoption accelerate, Tesla may lose its market share on EVs, but still be “the rich king” simply because more than 50% of new cars will be EVs as early as 2035. To accelerate that, we also need “Samsung, Xiaomi, or OPPO of EV” to offer more choices. But, you have to play the game differently as Tesla does because the market has no appetite for wasting time & capital on reinventing the wheels & infra.
2nd 10x
Besides the top OEMs, there will be the next phase change for the longer tail sooner or later. To accelerate, the trick may be “the TSMC of EV” to manufacture EVs as a service. It will enable more choices for niche & regional optimized brands to serve unique needs & markets better. For example, Mega Casting, Mega Press, etc. for cars are almost like the EUV chip manufacturing tech for the chips. They used to be the capital-intensive game for Intel, till TSMC levels the playing field for NVIDIA, AMD & more to extend the boundary of the tech & market. To democratize EV innovation & accelerate its adoption, we’ll be lucky if someone starts providing EV design & manufacturing as a service sooner rather than later. Foxconn might be able to do the magic right.
Car Services
In the past few years, services have become critical pieces to fortifying the Apple empire as iPhone plateaus. Coincidentally, Tesla is after the similar game early. In Q1, Tesla is almost breakeven at -0.6% on services & others. Tesla takes about 4 years to get here from -35% in 2018. With a 50% growth rate on a 0.9 M new car base in 2021, the car service business is going to be a wider moat for Tesla sooner.
For example, the current car insurance is mainly based on demographic risk models. Behavioral risk models are not only more effective to reduce risk premium for the majority of good divers, but also motivate good driving behaviors. The problem is how do you measure it. Today, mobile phones can provide good signals already. But, the built-in telemetry provides even better signals in real-time. Tesla Insurance has recently launched in Colorado, Oregon, and Virginia, and continues to expand. Tesla is on the track to reinventing the car insurance industry in the way established insurance & car companies can not. It’s a $300B industry in the US, and Tesla is digging the goldmine in a way no one ever does.
Bonus: car insurance is a necessary risk hedging mechanism for the mass commercialization of Self-Driving and Robotaxi services. The strategy is simple to understand, but it’s too difficult to get all established players to disrupt their core business. Luckily, Tesla does not have any respect these “traditions”. It’s still too early to tell if Tesla can reach a volume production for Robotaxi in 2024 as Elon Musk hits. But by judging the way Tesla organizes and the complex dynamic among car, taxi service & insurance players. It’s pretty easy to guess who may executive & iterate faster.
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.
