Tesla is Doing to Automotive What Apple Did to Smart Phones

There was no shortage of new electric vehicle companies at last week’s Los Angeles Auto Show press event.

I walked away thinking that many of these companies will fail. Not only do these EV-makers have to compete with all of the legacy automakers attacking the category, they also have to figure out how to challenge the leader - Tesla.

Tesla is “Apple-ing” the EV business by building core competencies similar to those established by Apple in the smart phone market.

These competencies, growing manufacturing capability, and increasing levels of recurring revenue have allowed Tesla to enjoy gross margins never seen by other automakers. As sales and production continue to scale, costs should continue to decline, driving margins even higher.

Many traditional automotive pundits focus on declining market share by Tesla in the EV space as more competitors enter the category. I agree. Tesla market share will decline. However, in a growing segment like electric vehicles, market share is an irrelevant metric. What’s more important is the share of total market revenue along with the share of total market profits. For example, Apple is capturing 40% of overall smart phone revenue and 75% of the operating profits. But Apple only has a modest 13% smart phone market share. Like Apple, Tesla seems to be striving to capture share of revenue and profits in the EV space versus an unhealthy emphasis on vehicle market share.

Technology analysts seem to understand this better than the traditional automotive expert. Their experience covering companies like Apple allow them to better understand how software and exponential scaling can drive disruption in industries, particularly insular ones like automotive. This is why I like the technology expert’s perspective of Tesla more than an automotive expert’s analyses. Dan Ives from Wedbush believes Tesla will captured $2.5 trillion of electric vehicle revenue in a $5 trillion EV market. More importantly, Ives analysis is based on Tesla EV market share of only 10% in 2025, growing to 30% by 2030.

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