sahmed: Hey @katieburke! Welcome to our first Mobility Reading Group, a weekly forum for discussion of insightful essays, blog posts, reports, tweets and random musings about the future of transportation.
For our first chat, let's talk about Tesla. We saw the first Tesla Model 3 that rolled off the production line last week, and Elon's hype is as strong as ever.
Which brings me to the reading: "Why Tesla is Overhyped -- and Overvalued," by Brent Goldfarb at Vox's The Big Idea blog, published at the end of June. While some of the facts of the situation have changed, like the company's valuation, it still gets to the key point anyone paying attention to the startup carmaker asks: Is Tesla the real deal?
My first nitpicky point is that while I have no issue with any of Goldfarb's analysis, and I share his frustration with the overuse of the term "disruption" these days, I can't help but feel like he's being a little too professorial in clinging to the literal definition of the term. He asks, is Tesla really disruptive enough to deserve such a high valuation? My response: Does it matter? These valuations approximate some degree of potential, but when it comes to luxury products that have that crucial "cool" factor, it seems like a company can ride for a while off of increasing sales and cachet. So at least for now, it seems like there's no way for Tesla to go but up.
katieburke: Thanks @sahmed! I'm excited to dig in to this topic for our first discussion -- Tesla touches on multiple facets of the emerging mobility landscape and the obstacles it faces. The fact that Tesla has been selling cars for nearly 10 years is a testament to its ability to push a relatively static industry.
However, the rollout of the Model 3 marks a potential inflection point for Tesla, and Goldfarb's analysis of the automaker's "bets" sums up why it will be in trouble if its affordable model is a flop. Most of what has made Tesla special in the past (attractive electric vehicles, over-the-air updates, semiautonomous driving) is now being done by major automakers with bigger budgets and mass-manufacturing capabilities. As you point out, Tesla still has its "cool" factor (no doubt the Model 3 is much sexier than the Chevy Bolt). But could a poorly executed rollout disillusion its new customer base? And Model S and Model X sales aren't exactly booming, not to mention they haven't had a substantial redesign since their introductions. What does Tesla have to fall back on if investors lose faith?
sahmed: It's gotta be hard to be successful when every vehicle launch is existential for the company.
What I haven't seen anyone game out is what Tesla's next move is if Model 3 sales disappoint. Goldfarb insinuates that Musk "only began to peddle the autonomous-vehicle disruption story as the EV disruption story became less plausible," and believes that the future of autonomous is in Uber-ing "low-margin golf carts." As brilliant as Musk may be, I can't think of a single instance where a luxury brand transformed into a utility brand.
katieburke: I'm not convinced the future will be a ride-hailing network of golf carts everywhere (cutting the cord between Americans and car ownership won't be an easy task in rural areas), but utility is definitely key for survival. I do see Tesla's potential ability to mass manufacture lithium ion batteries as a way to achieve that, but given their most recent sales letter, the Nevada gigafactory has yet to be an asset.
sahmed: If Tesla can crack the battery energy storage issue, then I definitely see a path forward for it as something of a boutique carmaker that makes its money in the battery ecosystem. Kind of like how Amazon is a retail giant whose most profitable sector might very well be its web server business.
It doesn't seem like anyone can agree on how to judge Tesla and Musk. If it's just another carmaker, then it's purely sales that give us a measure of its valuation, but if it's something... else? Then what can investors truly judge its potential on?
To be honest, I don't know if Elon's decided what Tesla's main business is.
katieburke: Which brings up another potential issue — could Tesla achieve the same level of progress without Musk? Is it a company that can sustain itself and continue to improve under different leadership? Though Musk has said he has no plans to leave his position as CEO, eventually that situation will happen and could potentially change the identity of the automaker entirely.
But I'm getting ahead of myself here. To bring it back to the Model 3… thus far, the rollout plan seems to be going OK, production is ahead of schedule and the first car is off the line (albeit under the ownership of Musk and not a Tesla customer). It would be an amazing milestone in automotive history if Tesla pulls this launch off, but it still has a number of hurdles to clear (mass production, meeting orders on time, overall customer satisfaction with product and service) before it can declare victory.
sahmed: From a Wall Street standpoint, victory is pretty clear-cut: meeting or exceeding sales targets. It was fascinating to me to see that Tesla's stock price took a hit because it came in at the lower end of its first-half sales target, but still within range (closer to 47,000 vehicles sold in a 47,000-50,000 vehicles sold predicted range).
From a cultural perspective though, I think Tesla's image in the public eye is directly tied to the idea that it's a carmaker that can bring EVs into the mainstream in a way equivalent to Henry Ford with the gasoline automobile. More than any other factor, I'd be interested in seeing if the Model 3 becomes a fixture on the road in a place like Idaho.
katieburke: To really go mainstream, assuming production etc. goes well, Tesla would need to actually advertise. The Mustang became a cool, affordable and massively popular car in the 1960s as a result of a carefully planned and well-executed marketing plan. There are a lot of obvious differences between the Model 3 and the Mustang, but to achieve the mass appeal Tesla is looking for with this car, it's going to need to take a page or two from the playbook of the companies it's disrupting.
sahmed: That's actually a really interesting point: You don't just become a cultural icon because you make a good product. When we start hearing Top 40 songs about Tesla on the radio I think we'll really know Elon's dream has been achieved (although he'll probably be growing an organic garden on Mars by then).