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Good analogy - I agree that's the traditional use of the term. But that has changed radically over the years as manufacturability has long since become very integral to the engineering and design-.
The surprising piece for me relates to Elon/Tesla commitment to manufacturing from the beginning would have produced a very close working relationship between manufacturing and design (it's all part of engineering now). Apple does this in spades- The media broad-strokes them as a design house that farms out manufacturing. But the nuance is they invest massive resources to do in-house manufacturing of every design decision - (including all in house CNC and many other processes including assembly)- then scale that work externally (due to the massive end product volumes).
My surmising is Elon/JB actually have a good tight Design-Manufacturing loop in place- but pushed the envelope on this one (FWD) coupled with Elon's open-honest communication style [juxtapose that with Apple/Jobs for example- they have the same problems but you never see them; also giving insight as to why their product releases are so long].
Honestly as an investor, I prefer Elon's style- can calibrate the level of investment much better. Seeing the goals more clearly. Example comparison- Apple was/is a total blind-faith during their high growth years. Much more difficult. I'd rather be exposed to the goals and challenges even if they are missed from time to time.
My perspective is essentially all positive on MX issue. And disagree with others (including Elon) they should have pulled back the challenging elements. I see the MX as a statement to the competition- it's not good enough to make a battery powered car- ya gotta push your entire design-manufacturing capability to keep up (Lutz-Putz 'un-manufacturable' be damned). It's this kind of chutzpah that give Tesla the premium product margins they deserve and perhaps more importantly motivates the employees to push beyond the normal ala SpaceX. I'm with the Rocket-Man on this one.
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When Elon talks about hubris, I think he is in part talking about how he thought he understood all the challenges of manufacturing but didn't. Before he began working with Tesla, he didn't have any experience with large scale manufacturing of physical things. Software is easy to manufacture, you can copy as many times as you want with a few mouse clicks. SpaceX manufactures rockets, but it's more of an experimental prototype build operation. They recently announced "mass production" of Falcon 9s, which will be 40 rockets this year.
Tesla is the first company he has been associated with that has tried to make things in large numbers. I've been in R&D for nearly 30 years. Some things I've worked on will never see mass production. For example what I'm working on now has seen massive sales growth over the last couple of years, and they sell about 15 of these units a year. It's specialized test equipment for the integrated circuit manufacturing market.
When manufacturing and R&D are separate there is always the temptation to design something and "throw it over the wall" to the production guys. The R&D guys are usually visionaries who dream up big ideas and the manufacturing people are usually very practical and down to earth who are solid and reliable, but not all that creative. The marketing guys aren't as big a factor at Tesla, but they are usually more imaginative than the R&D engineers. When they are in the same room they can end up talking past one another if there isn't a referee forcing them to communicate.
One project I worked on had such a wildly optimistic marketing guy the engineers couldn't reel him in. I finally had to explain to him what he wanted to do was a violation of the laws of Physics. He just pouted.
Elon and most of the top management at Tesla are visionaries. The story is the falcon wing doors was an idea Elon contributed to early on. He and other top management probably down on the side of the R&D guys who think like they do more often than the manufacturing guys who may be seen as entrenched in old ways of thinking and unimaginative.
To their credit, they went back to look at their mistakes and poor communication and input with the manufacturing guys was probably #1 on their list of mistakes with the Model X and they were willing to admit it. I suspect the shake up in management on the manufacturing side has to do with getting some people who have more experience knocking together the heads of R&D people who want to just throw ideas over the wall. And are better at communicating manufacturing problems to R&D. A lot of people are seeing this as a problem, but I see it as a good sign they are serious about making sure the problems for the Model X never happen again.
I also wouldn't be surprised if there isn't some work ongoing to make the Model X easier to build, but keep the features. There is talk of production numbers for the Model X getting up to the Model S soon, but until the X is redesigned to be easier to build, it's going to continue to be built in smaller numbers than the S.
Tesla is the first company he has been associated with that has tried to make things in large numbers. I've been in R&D for nearly 30 years. Some things I've worked on will never see mass production. For example what I'm working on now has seen massive sales growth over the last couple of years, and they sell about 15 of these units a year. It's specialized test equipment for the integrated circuit manufacturing market.
When manufacturing and R&D are separate there is always the temptation to design something and "throw it over the wall" to the production guys. The R&D guys are usually visionaries who dream up big ideas and the manufacturing people are usually very practical and down to earth who are solid and reliable, but not all that creative. The marketing guys aren't as big a factor at Tesla, but they are usually more imaginative than the R&D engineers. When they are in the same room they can end up talking past one another if there isn't a referee forcing them to communicate.
One project I worked on had such a wildly optimistic marketing guy the engineers couldn't reel him in. I finally had to explain to him what he wanted to do was a violation of the laws of Physics. He just pouted.
Elon and most of the top management at Tesla are visionaries. The story is the falcon wing doors was an idea Elon contributed to early on. He and other top management probably down on the side of the R&D guys who think like they do more often than the manufacturing guys who may be seen as entrenched in old ways of thinking and unimaginative.
To their credit, they went back to look at their mistakes and poor communication and input with the manufacturing guys was probably #1 on their list of mistakes with the Model X and they were willing to admit it. I suspect the shake up in management on the manufacturing side has to do with getting some people who have more experience knocking together the heads of R&D people who want to just throw ideas over the wall. And are better at communicating manufacturing problems to R&D. A lot of people are seeing this as a problem, but I see it as a good sign they are serious about making sure the problems for the Model X never happen again.
I also wouldn't be surprised if there isn't some work ongoing to make the Model X easier to build, but keep the features. There is talk of production numbers for the Model X getting up to the Model S soon, but until the X is redesigned to be easier to build, it's going to continue to be built in smaller numbers than the S.
I share some of my thoughts regarding Q2 earnings and also the Gigafactory in my weekly newsletter, www.teslaweekly.com . I'll post an excerpt here:
"Tesla reported Q2 2016 earnings this past week and the big takeaway, at least for me personally, was Tesla showing fiscal discipline. Tesla's capital expenditures came in much lower than expected and Tesla is also keeping their operating expenses in check as well. One of the biggest reasons for this can be attributed to Tesla's "do more with what we have" attitude that was emphasized even greater with the new CFO, Jason Wheeler. Prior to the new CFO, Tesla was leasing/buying buildings (ie., Fremont, Lathrop, etc) aggressively in preparation for Model 3. But since Wheeler took his position, Tesla is now touting their new physics "first principle" approach to manufacturing and volumetric density of factories. In other words, rather than needing new buildings, Tesla has found a way to design their current factories to handle a much larger production load (ie., create more floors and use all the vertical space in the factory). As a result, Tesla is able to save hundreds of millions of dollars and is in a much stronger fiscal position entering Model 3 production.
Last weekend I was able to visit the Gigafactory and take a tour. I was allowed to record the entire tour (45 minutes) and here's a link to the YouTube video.
The Gigafactory is massive in size and it's a clear demonstration of Tesla and Elon's mega-vision to change the world and "move the needle" in transitioning the world to sustainable energy. The Gigafactory is Tesla's secret sauce to make the Model 3 affordable. Other car companies take a $20k car, make it electric and charge $35k-40k. But with the Model 3, Tesla is taking a $45k car (in terms of performance, handle, features) and charging $35k. This is why there are already 400k(?) reservations for the car and will be the most significant car in history, next to the Model T.
I was surprised to find out that the Gigafactory architectural and design team is very small, 10-15 people, and very young (most seemed to be in their 20s). One shared that he works super long days but he loves the excitement and challenge of his job.
First cell production is slated to start at the end of the year. And it seems like there were be separate sections in the Gigafactory for stationary storage cell production and auto cell production. Once stationary storage cell production starts ramping next year, we'll likely to see the ramping of the Powerpack and Powerball products."
Also, I've recorded some more thoughts regarding the Gigafactory and posted a video here:
"Tesla reported Q2 2016 earnings this past week and the big takeaway, at least for me personally, was Tesla showing fiscal discipline. Tesla's capital expenditures came in much lower than expected and Tesla is also keeping their operating expenses in check as well. One of the biggest reasons for this can be attributed to Tesla's "do more with what we have" attitude that was emphasized even greater with the new CFO, Jason Wheeler. Prior to the new CFO, Tesla was leasing/buying buildings (ie., Fremont, Lathrop, etc) aggressively in preparation for Model 3. But since Wheeler took his position, Tesla is now touting their new physics "first principle" approach to manufacturing and volumetric density of factories. In other words, rather than needing new buildings, Tesla has found a way to design their current factories to handle a much larger production load (ie., create more floors and use all the vertical space in the factory). As a result, Tesla is able to save hundreds of millions of dollars and is in a much stronger fiscal position entering Model 3 production.
Last weekend I was able to visit the Gigafactory and take a tour. I was allowed to record the entire tour (45 minutes) and here's a link to the YouTube video.
The Gigafactory is massive in size and it's a clear demonstration of Tesla and Elon's mega-vision to change the world and "move the needle" in transitioning the world to sustainable energy. The Gigafactory is Tesla's secret sauce to make the Model 3 affordable. Other car companies take a $20k car, make it electric and charge $35k-40k. But with the Model 3, Tesla is taking a $45k car (in terms of performance, handle, features) and charging $35k. This is why there are already 400k(?) reservations for the car and will be the most significant car in history, next to the Model T.
I was surprised to find out that the Gigafactory architectural and design team is very small, 10-15 people, and very young (most seemed to be in their 20s). One shared that he works super long days but he loves the excitement and challenge of his job.
First cell production is slated to start at the end of the year. And it seems like there were be separate sections in the Gigafactory for stationary storage cell production and auto cell production. Once stationary storage cell production starts ramping next year, we'll likely to see the ramping of the Powerpack and Powerball products."
Also, I've recorded some more thoughts regarding the Gigafactory and posted a video here:
It's going to be increasingly important for TSLA investors to intimately understand Uber, since Uber might just become Tesla's top competitor.
Here's a good starting primer on Uber:
2015: Uber Replaces Tesla as Chief Disrupter
Here's a good starting primer on Uber:
2015: Uber Replaces Tesla as Chief Disrupter
From my newsletter...
"It’s becoming increasingly important for TSLA investors to understand and acknowledge Uber as a competitor. Both companies are betting their future on autonomous driving and both companies are focused on disrupting transportation, not just personal transportation but also trucking. Further, both companies have sharp and ambitious CEOs driving their companies to bold goals.
This past week Uber announced a pilot program of 100 semi self-driving taxis in Pittsburgh. Part of me wonders if Uber is feeling threatened by Tesla’s aggressive push toward self-driving cars, and as a result is responding by taking bold risks in deploying their own driver-assist technology. Uber’s CEO, Travis Kalanick, acknowledged last week that building an autonomous car “is basically existential for us.” In other words, Uber needs the best autonomous tech in order to stay the leader in not just the ride-hailing market but also the other markets that they are entering (ie., delivering of goods and services).
Uber also announced that they acquired Otto, a SF-based company trying to enable self-driving trucks. Coincidentally (or not), the timing is around when Elon Musk shared in his updated master plan how Tesla is developing a truck trailer prototype. Both companies are, in my view, eyeing the global transportation and logistics market totaling almost $5 trillion. The market is so large, the company that successfully disrupts global logistics and takes a dominant market share has the opportunity to become the world’s most valuable company.
As the Uber vs Tesla battle heats up, keep your eyes out on Uber trying to catch up to Tesla with autonomous driving technology. And look out for Tesla to start laying the foundation to move people and goods from point A to B with the combination of autonomous electric vehicles, supercharging and/or swap stations, trucks and minibuses, and ride-sharing."
"It’s becoming increasingly important for TSLA investors to understand and acknowledge Uber as a competitor. Both companies are betting their future on autonomous driving and both companies are focused on disrupting transportation, not just personal transportation but also trucking. Further, both companies have sharp and ambitious CEOs driving their companies to bold goals.
This past week Uber announced a pilot program of 100 semi self-driving taxis in Pittsburgh. Part of me wonders if Uber is feeling threatened by Tesla’s aggressive push toward self-driving cars, and as a result is responding by taking bold risks in deploying their own driver-assist technology. Uber’s CEO, Travis Kalanick, acknowledged last week that building an autonomous car “is basically existential for us.” In other words, Uber needs the best autonomous tech in order to stay the leader in not just the ride-hailing market but also the other markets that they are entering (ie., delivering of goods and services).
Uber also announced that they acquired Otto, a SF-based company trying to enable self-driving trucks. Coincidentally (or not), the timing is around when Elon Musk shared in his updated master plan how Tesla is developing a truck trailer prototype. Both companies are, in my view, eyeing the global transportation and logistics market totaling almost $5 trillion. The market is so large, the company that successfully disrupts global logistics and takes a dominant market share has the opportunity to become the world’s most valuable company.
As the Uber vs Tesla battle heats up, keep your eyes out on Uber trying to catch up to Tesla with autonomous driving technology. And look out for Tesla to start laying the foundation to move people and goods from point A to B with the combination of autonomous electric vehicles, supercharging and/or swap stations, trucks and minibuses, and ride-sharing."
Tesla winning one to zero IMO, so far. Autonomous driving technology and ICE do not mash together well. Uber needs to hook up with EV manufacturer...
I've always thought Uber as a middleman like the dealership until fully autonomous vehicles are the norm. Glad Uber sees this too and is actively expanding to other services. You don't want to be a cab driver in 2025 or you'll be spending your day in the unemployment line.
I've believe Uber feels more threaten of TSLA than the other way around.
I've believe Uber feels more threaten of TSLA than the other way around.
Agree. Uber's moat isn't that hard to overcome. It is relatively easy to build a ride sharing app. Once self driving is solved what stops car manufacturers from flooding the market with self driving inventory? Even if Uber matches them it will drive down margins, and Tesla's approach of letting users add their cars to a self driving fleet when not in use would further crush Uber and other manufacturers are sure to follow.
lolachampcar
Well-Known Member
Uber came to be by picking someone else's low hanging fruit.
Once Tesla gets autonomous driving approved, of what value would Uber be? As a buyer of Volvo ICE? As a builder and operator of the repair stations supporting this fleet? That would be a huge departure for a company who's existence is based on not owning assets.
Once Tesla gets autonomous driving approved, of what value would Uber be? As a buyer of Volvo ICE? As a builder and operator of the repair stations supporting this fleet? That would be a huge departure for a company who's existence is based on not owning assets.
I think the ideal ride sharing model is what Musk outlines, let owners buy and maintain the cars but allow them to generate income when not in use by adding to fleet and perhaps Tesla could also add some of its own to balance demand when necessary. I don't see how Uber competes with this? Uber is going to spend a fortune buying and maintain their own fleet and adding self driving functionality to the cars they buy? Or maybe they create self driving kits that they pay to install on cars other people own who then do the same thing as Tesla and send them into the fleet when not in use? Or is Uber hoping that Tesla owners will choose to lend their self driving cars to the Uber fleet rather than the Tesla fleet when not in use?
So with Uber self-driving cars (ICE or EVs), they'll become a Taxi company sans drivers?
While it may get them out of the issues they are having now with contractor/employee status, it will give them other headaches (fleet maintenance, increased overhead, insurance, etc...).
Interesting times...
Now the self driving trucking thing....
While it may get them out of the issues they are having now with contractor/employee status, it will give them other headaches (fleet maintenance, increased overhead, insurance, etc...).
Interesting times...
Now the self driving trucking thing....
Uber has a much weaker base than Tesla in this game. Tesla has a largish R&D team, manufacturing facilities, as well as a fair number of ties to other auto parts and auto tech companies to draw on. Uber has some R&D, but a lot less than Tesla and they have no manufacturing facilities of their own.
Another thing is Uber is likely going to generate a lot of ill will when autonomous driving comes along because all their human drivers will be out of work. Tesla on the other hand won't be killing any jobs at Tesla to implement autonomous driving. If anything they will be adding jobs.
Hogfighter
Professional Lurker
Love your posts, Dave. Ditto the hangout with Andrea.....she's missed on the CCs.
Regarding the 3.....it's going to be the anti-X, production difficulty-wise. I've always found it ironic when a guy makes an honest mistake, he immediately get canned....when he's the one person in the world least likely to make that same mistake again.
Regarding the 3.....it's going to be the anti-X, production difficulty-wise. I've always found it ironic when a guy makes an honest mistake, he immediately get canned....when he's the one person in the world least likely to make that same mistake again.
callmesam
Member
Yeah, it's crazy to me that Uber is currently valued at twice the market cap of Tesla. What moat does it have that still exists when self driving tech is solved? Tesla doesn't appear as valuable because it is actually spending a fortune laying the foundation for a real business empire. Superchargers, stores and service centers around the globe, building up massive manufacturing capabilities in EV, battery and pack assembly and soon to be high efficiency PV production, pushing the cutting edge of large scale manufacturing automation. Uber's CEO is right when he is says self driving technology is an existential threat to Uber, but unless Uber is the only one to solve self driving technology (laughable) I don't see how that threat dissipates.
Want to share a few thoughts on some of the comments above regarding Uber vs Tesla.
First, Uber has a very strong "moat", in my opinion because it's a two-sided market (see Two-sided market - Wikipedia, the free encyclopedia). When you bring two sides of the market together, you enjoy network effects and often a "winner takes all" position. Think about Ebay... is it just a website? No, it's a lot more than that. They bring together sellers and buyers, but they have more sellers and buyers than anywhere else... thus everyone goes there because it's significantly better than other sites.
In a similar way, Uber brings together both sides of the market and gives a very compelling value proposition to each side of the market. To the rider, they're given the most cars around them at the best price. To the driver, they're given the most rides (and thus most money). Anyone else that tries to get into the ride-sharing business will have a very difficult time overcoming this.
For example, let's say you open up ride-sharing app #1 and there's 100 cars within 5 minutes of you. Then, you open up ride-sharing app #2 and there's 3 cars within 15 minutes of you. Are you ever going to open up ride-sharing app #2 again? Probably not.
Let's take another example, but maybe more realistic. On day #1, you open up ride-sharing app #1 and it takes 5 minutes for your driver to arrive. On day #2, you open up ride-sharing app #2 and it takes you 9 minutes for your driver to show up. So, you try it again, on day 3 you try app #1 and it takes 3 minutes for your driver to show up. On day 4, you try app #2, and it takes 8 minutes for your driver to show up. After a while, you stop using app #2 altogether.
What makes app #1 give a higher value proposition (ie., quicker pick up times) is because they have more drivers, but the reason they have more drivers is because they have more riders as well. Both (number of drivers and riders) feed off of each other, and the service gets better and better, thus network effects. It's what makes Ebay the winner-take-all of their market.
Same thing goes for Facebook. Facebook doesn't own anything. They use other people's content. But they bring everything together.
Google as well. Think about Google Search, they use everybody else's content. They just deliver it to you in the most valuable way.
Uber doesn't need to "own" anything to become one of the most valuable companies in the world. Already, Google and Facebook have proved that you can make billions of dollars and not "own" the content... or in Uber's case, the cars.
Making cars, historically, has been a low-margin business. Ultra-competitive and not a very good business model... since you're also liable for future malfunctions of the car... and car manufacturers have to spend billions of dollars in recalls and lawsuits many years after they produce the car. Lot of people might think Tesla is in a great business making cars. But I don't see it that way. They're in a ultra-competitive business that tends to drive margins very low.
The real money maker is in what happens after the car is sold. If you can profit on every mile the car is driven for the life of the car, then you can make a consistent cash flow and it can be multiple times more profitable than being just a car manufacturer.
Now, what happens when autonomous driving comes to the scene? How does Uber compete?
Very simply, they buy autonomous cars. And they also let people "lend" their autonomous cars to their network.
Auto makers won't have much advantage over Uber in this regard but Uber can just buy the cars themselves. Auto makers don't make much margin anyway, so Uber will be paying cheap for these cars. They can then deploy them on their system. Or even cheaper, Uber let's people buy their own autonomous cars and then share them on the Uber network. Uber takes a cut and the car owner takes cut.
Just because Tesla makes autonomous cars themselves doesn't mean they have an inherent advantage in the ride-sharing market. The reason being is because Tesla doesn't have channel where millions of people can hail a ride in a super fast manner. Again, this channel is super difficult to create especially when you have a dominant market player. Think trying to create a social network when there's Facebook, or think about trying to create an auction site when there's Ebay, or a search engine when there's Google. People go to the best. They don't have time to waste. People are going to go to Uber because they have millions of cars ready to pick them up in minutes. They have the most cars and they're the fastest. Tesla can release their own app, but who would use it unless it is better (i.e., faster, quicker, etc) than Uber? And how can Tesla be faster than Uber if they don't have millions of drivers/cars like Uber?
Some might say that Tesla's solution would be cheaper to the end user. But I'm skeptical. Uber could work with a manufacturer and add autonomous driving (assuming that they develop the technology like they're planning) to low-cost cars. A Model 3 is still an expensive car, much more so than a Nissan Sentra or Toyota Corolla. I don't think Tesla would have much cost advantage.
Now, let's take the case where the Tesla/Model 3 releases autonomous driving in a few years and it's the best out there. Uber can simply buy Model 3 cars, or can have people buy them and "lend" them to the Uber network. So, Uber benefits. Sure, Tesla can try to release their own ride-sharing service, but the biggest problem is that they can't start with the scale that Uber has. Perhaps Tesla could start in on small urban area (ie., San Francisco) but it's likely that it would need to be heavily subsidized by Tesla until they can reach the scale that Uber has. In other words, until Tesla can pick up a rider as fast as Uber, Tesla is at a disadvantage.
Here's another thought. It's going to take a while for Tesla to release autonomous driving and get it approved by the regulators. Probably 4 years, best case scenario to get it approved by regulators. In that time, Uber is likely to only continue to grow and saturate the market. If you think Uber has a dominant position now, what until 4 years from now as the ride-sharing/hailing market grows and grows. At that time, their position might be so dominant that it might be futile for Tesla to even try to launch a ride-sharing service. Instead, Tesla might just give up that market and just let owners lend their cars to Uber (or whatever service exists). Actually, owners already will be able to lend their cars to Uber (whether Tesla offers their service or not) since they own the car.
Now, here's the problem if Tesla cedes the ride-sharing market to Uber. Then, Tesla becomes just an auto-maker. Sure, they have other branches, like Tesla Energy. But still in the auto market, they become just a manufacturer. And that's not a very sexy place to be (in terms of making money), since it's just a small part of the overall market of transporting people from point A to point B. And Uber is in likely position to capitalize on the bigger part of that market, and thus realize much more profits than Tesla (or even all the auto manufacturers put together).
There's another battle going on as well, which is transporting GOODS from point A to point B. Uber is already in the lead (over Tesla) as well... since they're already delivering food, etc. Amazon is probably one of the strongest competitors here, as they ramp up their own transportation services as well. But transporting goods from point A to B is one of the world's largest markets, and whoever can disrupt this will become one of if not the largest company in the world. So Uber getting into trucking (with the acquisition of Otto) is not good news for Tesla or Tesla investors. Sure, Tesla might win. Heck who knows who's going to win at this point, but it's going to be a heated battle with lots of casualties. And currently, the odds are against Tesla being successful in the ride-sharing market against Uber or in the transporting goods market against Uber/Amazon/etc.
Unless, Elon pulls something amazing out of his hat.
First, Uber has a very strong "moat", in my opinion because it's a two-sided market (see Two-sided market - Wikipedia, the free encyclopedia). When you bring two sides of the market together, you enjoy network effects and often a "winner takes all" position. Think about Ebay... is it just a website? No, it's a lot more than that. They bring together sellers and buyers, but they have more sellers and buyers than anywhere else... thus everyone goes there because it's significantly better than other sites.
In a similar way, Uber brings together both sides of the market and gives a very compelling value proposition to each side of the market. To the rider, they're given the most cars around them at the best price. To the driver, they're given the most rides (and thus most money). Anyone else that tries to get into the ride-sharing business will have a very difficult time overcoming this.
For example, let's say you open up ride-sharing app #1 and there's 100 cars within 5 minutes of you. Then, you open up ride-sharing app #2 and there's 3 cars within 15 minutes of you. Are you ever going to open up ride-sharing app #2 again? Probably not.
Let's take another example, but maybe more realistic. On day #1, you open up ride-sharing app #1 and it takes 5 minutes for your driver to arrive. On day #2, you open up ride-sharing app #2 and it takes you 9 minutes for your driver to show up. So, you try it again, on day 3 you try app #1 and it takes 3 minutes for your driver to show up. On day 4, you try app #2, and it takes 8 minutes for your driver to show up. After a while, you stop using app #2 altogether.
What makes app #1 give a higher value proposition (ie., quicker pick up times) is because they have more drivers, but the reason they have more drivers is because they have more riders as well. Both (number of drivers and riders) feed off of each other, and the service gets better and better, thus network effects. It's what makes Ebay the winner-take-all of their market.
Same thing goes for Facebook. Facebook doesn't own anything. They use other people's content. But they bring everything together.
Google as well. Think about Google Search, they use everybody else's content. They just deliver it to you in the most valuable way.
Uber doesn't need to "own" anything to become one of the most valuable companies in the world. Already, Google and Facebook have proved that you can make billions of dollars and not "own" the content... or in Uber's case, the cars.
Making cars, historically, has been a low-margin business. Ultra-competitive and not a very good business model... since you're also liable for future malfunctions of the car... and car manufacturers have to spend billions of dollars in recalls and lawsuits many years after they produce the car. Lot of people might think Tesla is in a great business making cars. But I don't see it that way. They're in a ultra-competitive business that tends to drive margins very low.
The real money maker is in what happens after the car is sold. If you can profit on every mile the car is driven for the life of the car, then you can make a consistent cash flow and it can be multiple times more profitable than being just a car manufacturer.
Now, what happens when autonomous driving comes to the scene? How does Uber compete?
Very simply, they buy autonomous cars. And they also let people "lend" their autonomous cars to their network.
Auto makers won't have much advantage over Uber in this regard but Uber can just buy the cars themselves. Auto makers don't make much margin anyway, so Uber will be paying cheap for these cars. They can then deploy them on their system. Or even cheaper, Uber let's people buy their own autonomous cars and then share them on the Uber network. Uber takes a cut and the car owner takes cut.
Just because Tesla makes autonomous cars themselves doesn't mean they have an inherent advantage in the ride-sharing market. The reason being is because Tesla doesn't have channel where millions of people can hail a ride in a super fast manner. Again, this channel is super difficult to create especially when you have a dominant market player. Think trying to create a social network when there's Facebook, or think about trying to create an auction site when there's Ebay, or a search engine when there's Google. People go to the best. They don't have time to waste. People are going to go to Uber because they have millions of cars ready to pick them up in minutes. They have the most cars and they're the fastest. Tesla can release their own app, but who would use it unless it is better (i.e., faster, quicker, etc) than Uber? And how can Tesla be faster than Uber if they don't have millions of drivers/cars like Uber?
Some might say that Tesla's solution would be cheaper to the end user. But I'm skeptical. Uber could work with a manufacturer and add autonomous driving (assuming that they develop the technology like they're planning) to low-cost cars. A Model 3 is still an expensive car, much more so than a Nissan Sentra or Toyota Corolla. I don't think Tesla would have much cost advantage.
Now, let's take the case where the Tesla/Model 3 releases autonomous driving in a few years and it's the best out there. Uber can simply buy Model 3 cars, or can have people buy them and "lend" them to the Uber network. So, Uber benefits. Sure, Tesla can try to release their own ride-sharing service, but the biggest problem is that they can't start with the scale that Uber has. Perhaps Tesla could start in on small urban area (ie., San Francisco) but it's likely that it would need to be heavily subsidized by Tesla until they can reach the scale that Uber has. In other words, until Tesla can pick up a rider as fast as Uber, Tesla is at a disadvantage.
Here's another thought. It's going to take a while for Tesla to release autonomous driving and get it approved by the regulators. Probably 4 years, best case scenario to get it approved by regulators. In that time, Uber is likely to only continue to grow and saturate the market. If you think Uber has a dominant position now, what until 4 years from now as the ride-sharing/hailing market grows and grows. At that time, their position might be so dominant that it might be futile for Tesla to even try to launch a ride-sharing service. Instead, Tesla might just give up that market and just let owners lend their cars to Uber (or whatever service exists). Actually, owners already will be able to lend their cars to Uber (whether Tesla offers their service or not) since they own the car.
Now, here's the problem if Tesla cedes the ride-sharing market to Uber. Then, Tesla becomes just an auto-maker. Sure, they have other branches, like Tesla Energy. But still in the auto market, they become just a manufacturer. And that's not a very sexy place to be (in terms of making money), since it's just a small part of the overall market of transporting people from point A to point B. And Uber is in likely position to capitalize on the bigger part of that market, and thus realize much more profits than Tesla (or even all the auto manufacturers put together).
There's another battle going on as well, which is transporting GOODS from point A to point B. Uber is already in the lead (over Tesla) as well... since they're already delivering food, etc. Amazon is probably one of the strongest competitors here, as they ramp up their own transportation services as well. But transporting goods from point A to B is one of the world's largest markets, and whoever can disrupt this will become one of if not the largest company in the world. So Uber getting into trucking (with the acquisition of Otto) is not good news for Tesla or Tesla investors. Sure, Tesla might win. Heck who knows who's going to win at this point, but it's going to be a heated battle with lots of casualties. And currently, the odds are against Tesla being successful in the ride-sharing market against Uber or in the transporting goods market against Uber/Amazon/etc.
Unless, Elon pulls something amazing out of his hat.
@DaveT , great post. I was curious about your comment on Tesla owners sharing their cars on Uber. Is there a law where manufacturers cannot software lock the vehicle to work only certain way.
Many cars require special tools to fix problems and only manufacturers network of dealers carry them. May be, Tesla can find a way where connected Teslas respond only through Tesla network. I would imagine if Apple makes a car, they will do anything and everything to not be compatible with anyone else.
Many cars require special tools to fix problems and only manufacturers network of dealers carry them. May be, Tesla can find a way where connected Teslas respond only through Tesla network. I would imagine if Apple makes a car, they will do anything and everything to not be compatible with anyone else.
It's hard to tell exactly, but it appears Uber has something in the ballpark of 300k active daily drivers working for its global network. This doesn't seem like that significant of a moat in a world where potentially millions of self driving cars churn out annually. Furthermore, unless Uber somehow solves the self driving tech with a significant lead vs the rest (highly questionable, i would happily bet the field > Uber), those manufacturers have incentive to collude against Uber and or demand a partnership where they get a significant chunk of the pie(Ford partnering with Google on self driving, GM partnering with Lyft, Apple partnering with ____, Toyota partnering with ____, Tesla, ect). And I think self driving taxi-like service will be seen as both different and a better class of product. Not only will they be significantly cheaper, but many/most people will probably prefer a self driving car vs trusting their life to a human stranger to drive them around, and even safety aside most people tend to prefer privacy to sharing a ride with a stranger. So if any of these partnerships successfully launch in sufficient production volume self driving cars before Uber they could disrupt the current ride sharing market, hence the "existential threat" comment from Uber's CEO. Now all these big car companies and big tech companies like google and apple are putting a ton of effort into either developing their own self driving technology or developing it via partnership, so why the heck would they sit back and let Uber reap the rewards of that? Think of what happen to Uber if Toyota/Apple join into a ride sharing partnership and are the first to launch a million self driving taxi-like cars into the market?
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