Might the disruptor be disrupted? Could Tesla become the Palm, Inc. (maker of the first really good smart phone, the Palm Pilot) to Apple’s iPhone? And if not eventually disrupted like Palm, could Tesla become just one of several automakers in a very competitive automotive EV category? Tesla fans and many shareholders (I own Tesla shares) believe the future automotive space will be dominated by Tesla. However, a future of Tesla winning with all others losing, is beginning to seem very unreasonable. Rarely are markets dominated by a single company. The legacy automaker investments and early EV introductions beginning to hit the market suggest the EV segment will not be dominated by one EV company like Tesla.
Tesla has not dissuaded any of the leading legacy automakers from investing heavily in the EV space. For example, Toyota is planning to sell 5.5 million EVs by 2025. VW is developing 70 new EVs by 2028, with 40% of sales to be full-electric vehicles by 2030. GM has plans to introduce 20 new EVs by 2023. Next week Ford will reveal the upcoming F150 Lightning, an electric version of the company’s profit driving F150 pickup truck. F150 has been the best selling truck in the U.S. for 44 consecutive years, and the top selling vehicle of any type in the U.S. for 38 years. Can anyone imagine Ford ceding truck leadership to Tesla whether its ICE truck leadership or EV truck leadership? I cannot!
Tesla’s advantages are well known. The company has some battery cell and electric motor technology and cost advantages. Tesla is definitely better at software development and integration than most legacy automakers today. Some have noted Tesla’s advantages in electronics and certain individual components specifically designed for electric vehicle usage. Many believe Tesla’s higher level of vertical integration presents a competitive advantage to traditional automakers. And others believe the company has an insurmountable head start in autonomous vehicle development.
With the exception of software integration, I believe most of these advantages are just first-mover advantages that are not necessarily insurmountable by legacy automotive. And as we know from history, first-mover advantages are often fleeting in business. Even when the “first-mover” survives, often the company does not become the singular dominant player in an industry. For every first-mover like Amazon with their massively profitable AWS cloud business, a later-mover like Microsoft with their Azure cloud business is formed to become extremely profitable as well. The future electric vehicle category will be no different. There will be several very profitable EV companies over the next 20 years that probably will include Tesla as well.
Many Tesla fans assume that legacy automakers have no advantages of their own. For example, some believe the legacy franchised dealer system is a disadvantage for automakers. However, auto dealers provide automakers critical infrastructure to manage production, inventory, customer financing, vehicle service, local customer relations and community engagement. Tesla’s direct-to-consumer sales strategy will not easily overcome some of these franchised dealer advantages for legacy automotive.
Even Elon Musk admits that Tesla manufacturing capability must become a competitive advantage. This is where legacy automakers actually have their own first mover advantage. While Tesla delivered nearly 500,000 of four different types of EVs globally in 2020, Ford produced and sold nearly 800,000 of just one vehicle last year - the F-Series pickup truck just in the U.S. market. Imagine the supply chain, logistics and manufacturing technology required for an automakers like Ford with F-Series or the VW Group to produce 10 million vehicles globally.
Thus, let’s not believe in the existence of a zero-sum-game in the future automotive business of EVs, autonomous vehicles and mobility solutions. Tesla will not be a singular winner of this future. And legacy automakers probably will not drive Tesla out of business either. This is why I developed a portfolio of taGMan companies that have a great chance of profiting in the future automotive space.
In addition to the taGMan portfolio, what other companies do I like for the future automotive world, but do not own?
Ford
VW Group
Toyota
Rivian (not publicly traded)
Hyundai Group
Geely Auto Group
What I’m Reading, Watching, and Hearing
Disclaimer
TaaSMaster, LLC is not a registered investment advisor or broker/dealer. All investment opinions expressed by TaaSMaster, LLC are from personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur.