“Think about the value creation of Tesla right now. The company has resources and very smart people. The Model 3 is the best selling vehicle in Europe - all vehicles, not just electric vehicles. Most months, the Model 3 is the best selling vehicle in California as well. The company has pioneered a direct selling model that has eliminated the middle man. Configuring a Tesla and buying it is very easy. Tesla maximizes the use of software for customer service, quality, engineering, feature usage and battery management. Their vehicles are highly differentiated from the rest of the industry. And the company can scale quickly because of complexity reduction.”
The above Tesla assessment is not my own. These are the summarized thoughts of Jim Farley, CEO of Ford Motor Company. During an internal meeting with 20,000 Ford employees recently, Farley presented what The Detroit Free Press described as sobering and chilling data about the challenges ahead for Ford. Farley went on to say, “If Ford was a trillion dollar company [like Tesla], our stock would be $250 per share [Ford stock hovers around $20 per share today]. We need to be honest with ourselves about the market, the strength of our competition, and the work we need to do together.”
In the last TaaSMaster update, I stated that Tesla doubters eventually have to stop doubting. In the transition to EVs, new auto retail processes, vehicle service solutions, recurring revenue business models, higher vehicle gross margin, Tesla is winning. This fact can no longer be denied. It seems Jim Farley agrees as well.
Tesla winning today is very different from Tesla winning tomorrow. The company has no innate right to win forever. Legacy automakers like Ford that recognize the industry disruption occurring today along with aggressively shifting the company’s business strategy can win in the future automotive space as well. There is a fallacy in thinking only Tesla can win with all others losing. Winner-take-all rarely occurs in business. For example, legacy technology company, Microsoft, has a very strong Azure cloud business today in a market created by Amazon with their AWS cloud business. The future automotive sector will be no different. Some legacy automakers will win too.
Jim Farley is not the only automotive CEO directly confronting disruption. Recently, Herbert Diess (CEO Volkswagen Group) stated, “We have to accept that Tesla sets the new benchmarks [on EVs]. He [Elon Musk] will challenge us, but we will try to follow as fast a possible.”
Also, there’s Mary Barra (Chair and CEO General Motors). Barra recently stated that GM can “absolutely” catch Tesla in U.S. EV sales by 2025. While catching Tesla by 2025 seems aggressive to me, I believe GM is the best positioned legacy automaker to thrive in a disrupted automotive category. This is why GM is part of my taGMan stock portfolio (Tesla, Apple, Google, Microsoft, Amazon, Nvidia, General Motors).
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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.