After seeing Tesla reaching a one trillion dollar valuation – more than all of the legacy automakers combined – many think the Tesla ride is over. It has just begun. Here is why I think so.
But first, everything Tesla should be viewed from the company mission: Accelerate the world's transition to sustainable energy.
Everything that fits into that, Tesla could do in the future. They won't do everything under that mission umbrella, but if no one else does, Tesla likely will if it's important to achieve the mission.
Today cars are Tesla's main product, but if you think of it as only a car company you can't understand the company and its future.
1) Electric vehicles will replace all ICE vehicles
Electric vehicles will not just put a dent in the vehicle market. Not even just capture 40 or 50 percent of it. EVs will completely take over. Cars, trucks, buses, and many other vehicles will all go one hundred percent electric. The internal combustion engine, ICE, will go extinct.
The main reason for this is that EVs will be a much cheaper way of transportation.
- Lithium-ion batteries make up a large chunk of the cost of an EV, but the cost is dropping fast. Down 90% since 2010, and will continue to drop according to Wright's Law.
- Other parts of an EV are going through the same development. It is mostly "the shell" of the car that is the same as in an ICE car.
- An EV has far fewer parts than an ICE car so fewer things can break, which means less maintenance cost.
- Electricity is cheaper than gasoline.
The total cost of ownership is already lower for EVs, but most people fixate on the sticker price. When an EV is both cheaper to buy and own than the comparable ICE car, and also an overall better car, why would anyone buy ICE cars? They won't! So the addressable market is huge.
Read more about this on Warp News:
2) Tesla has an unassailable lead
Tesla has the leading EV technology, the best charging network, the best software, and the happiest customers. They have spent zero dollars on marketing, and sell more EVs than any other company.
But that is not worth much if the other companies soon can catch up.
The traditional automakers were late to realize the shift to EVs, but now they are spending billions (even though their plans still are way to unambitious).
But Tesla is innovating and moving faster than any other company on Earth, not just in the automotive business. They have the best engineers in the world and that lead will expand as they are the company engineering students most want to work for (in competition with SpaceX.)
If this changes eventually someone, of course, will catch up, and catching up is easier (copy the success) than holding the lead, but without something very dramatic happening I can't see that being the case in the coming 10-15 years, and probably longer than so.
(Prediction: The strongest competitors will be Chinese, not the traditional automakers from the U.S. or Europe.)
3) A realistic goal of 20 million cars per year
In 2014 Elon Musk said the goal was to sell 500,000 cars in 2020. Not possible said Morgan Stanley, and many, many others. Tesla reached the goal.
Now the new goal is 20 million cars in 2030. Morgan Stanley and many others are more positive now, but don't believe in the 20 million-goal.
I think it is a realistic goal. Not easy to achieve obviously, but possible.
- By 2030 all or almost all new car sales will be electric.
- Tesla is and will be the leading EV company for (at least) the next eight years.
- A market share of 20-25 percent for the leading company in a (partially) new market is nothing strange.
- This is not just a lofty goal, Tesla has, in detail, prepared how to get there.
Let's just make a quick calculation. If Tesla sells the cars at an average price of $30,000 and makes an average profit of 15 percent (both those numbers are low), that means revenue of $600 billion and a profit of $90 billion. That in itself will make it the largest company in the world, by revenue.
4) Robotaxi is a future trillion-dollar industry
Self-driving vehicles will be the largest transformation in transportation since the invention of the car. Again Tesla is in the lead.
Self-driving is an AI problem. To train the neural network of the AI you need tons of data. Since almost every Tesla vehicle in traffic has the necessary hardware (cameras), Tesla is likely getting more data in a day than all other self-driving companies have produced ever.
Add to that the world's best AI engineers and programmers and you have a very powerful mix.
Tesla will be first in solving autonomy which means they will be able to launch an enormous network of robotaxis.
With a cost of just over $0.10 per mile for Tesla, and with taxis and Ubers about $2-3.50 per mile, you don’t need a calculator to understand that this can mean massive revenue, and profit. And it won't be just the taxi and ride-hailing market that will be affected.
ARK Invest thinks the robotaxi market could be worth over $10 trillion by 2030 (yes, that is a t.)
5) Not just a car company...
Energy – solar cells, batteries, software
Tesla sells residential solar, battery storage, and energy software. They are selling and also building their own solar parks, large-scale battery storage, and software to optimize the system.
All this will be connected. A super-efficient energy system, and Tesla will take a cut of the revenue and disrupt the large energy utilities. The only thing I've not heard Tesla's plans on is the grid (the actual wires). Please let me know if I have missed this. The grid is a mess in many countries, not the least in the United States (see Gretchen Bakke's The Grid and Russel Gold's Superpower). It wouldn't surprise me if that is a problem Tesla will take on.
If we look at the world's largest companies by revenue, six of the top 20 are in the energy business. (Two of the top ten are automotive.)
Elon Musk has said that Tesla's energy business will be as big, or bigger, than automotive.
Here is a great video on Tesla Energy.
Software and entertainment
With the cars driving themselves you need something to do in the car. Tesla already has an entertainment package in the cars that blow every competitor away. There are tons of extra services, entertainment, games, car improvements, and whatnot they could sell, with very high-profit margins.
Tesla now sells insurance in five U.S. states and actively working on expanding to all 50 states, and the rest of the world where they sell cars.
The case for Tesla insurance is simple:
- Tesla knows how good, or bad, a driver is and can adjust rates based on that.
- Tesla rewards good driving with lower rates.
- For most drivers this will mean lower insurance costs, so most Tesla buyers will opt for that. With tens and eventually hundreds of millions of vehicles on the roads, that means billions in revenue.
Homes & other buildings
Tesla is already selling solar roofs, battery storage for homes, and software. Heating, ventilation, air conditioning and warm water seem like a natural extension of that, which was confirmed by the Tesla team on the latest earnings call.
A software that helps you control everything electric in your house, and maybe some of those appliances could be from Tesla, if it's important enough for the overall mission of the company.
6) Automation and AI as a platform – Optimus and friends
In solving self-driving technology Tesla will have come very far in teaching a computer to interact with the world based on what it sees. This can of course then be translated to other areas.
That is why Tesla announced the Tesla Bot, Optimus.
If – when – Tesla solves this problem they can build robots that can replace all physical human labor. All. Physical. Human. Labor.
I'm not saying Tesla will sell all those robots, or that it will happen tomorrow, but again they will be the market leader and take a huge chunk of the pie. The revenue from selling 20 million cars could then look puny in comparison.
But it's the AI platform that really blows your mind. If Tesla successfully solves this problem before and better than everyone else they are not going to use it just for their own products. They will license it for other cars, trucks, buses, boats, robots, airplanes, drones – really everything that moves and needs to interact with the surrounding world.
Over time Tesla is not going to be the only player in that field, but there is a real chance they'll be the largest.
7) Don't bet against Elon
Elon Musk is right now humanity's MVP.
He is obviously a genius, but not just in a narrow field. He combines world-class engineering skills with being a world-class entrepreneur and communicator (inspiring millions of people). He also understands company financials at an advanced level.
In Eric Berger's book about SpaceX's early days he describes it as having the Chief Financial Officier and Chief Technology Officer inside one brain. The decision-making is both faster and more accurate than for other companies.
An important reason Tesla will be the world's largest company ever is what I call The Elon Code. He uses first principles thinking to reason down to atomic level, and that way see what is possible. But then – and this is a neglected part of his thinking – he reasons up from there.
He doesn't reason by analogy, so his thinking is not limited. That is why Tesla is not just a car company. The second part can be enormous in its scope, but appears to Musk as rational and not crazy. With this firm conviction, he then sets about realizing it.
If I asked you to attempt to drive a golf ball off the pier here into a teacup and gave you a million tries, I suspect that in a million times you would not be able to do it.
But if you then took somebody else and they were able to do it nine times out of ten, you’d say ‘wow that person is a great golfer’.
The analogy that I would make is Elon basically did that equivalent.
- Chamath Palihapitiya
8) More will come out of Tesla
The Tesla bot was announced less than a year ago, and it has already the potential to be Tesla's biggest product by far.
If you gather some of the world's smartest people, led by maybe the smartest person, amazing things will continue to happen that neither I nor them can predict.
What can threaten Tesla's assent?
I right now see three potential major risks for Tesla.
- The size of the company will be huge, like nothing we've seen before. Big, dominant companies always draw the attention of politicians and regulators. Elon Musk is already attacked by the likes of Bernie Sanders and Elizabeth Warren just because he is the wealthiest person in the world. But he is poor now compared to what he will be if Tesla becomes as big as I predict. They will want to break Tesla up, bring Musk down and all those fights could slow down and hurt the company.
- Even though Elon Musk has created a company culture that goes very far in reducing bureaucracy and promoting efficiency, over time it will be impossible to completely stop the size from slowing Tesla down. That in itself is not a short- or medium-term existential threat, but could over time help competitors to catch up.
- Elon Musk's health. Nothing points to that being a problem now, but bad things sometimes happen. I think Tesla has a strong enough company culture that this wouldn't be an existential threat, and it could be a very successful company without him. But it of course would be very negative for Tesla, and the world.
How big? Nutty big
I don't know how big Tesla will be, but when you put everything together 'nutty big' seems like a good description. I mean a valuation of several trillion dollars. Like nothing we've seen before.
Is this certain? Of course not. A lot can happen and we see breakthroughs all the time. Something can appear that dramatically changes transportation, energy, and AI. I don't see that as likely in the next ten years or so, but after that, the future is increasingly hard to predict.
Whatever happens, Tesla and Elon Musk are very well positioned, probably better than everyone else to take on those changes. But you never know.
I see what I described above as the most likely outcome, not the only outcome.
But it's not like I'm 50/50, I really think this is going to happen.
When it does the world is going to get a lot better.