Tesla‘s recent market growth has proven some of its critics false. By last mid-January, Tesla had reached a market capitalization of 107 billion, surpassing German carmaker Volkswagen to become the world’s second most crucial automobile company after Toyota. Tesla now ranks higher than Ford and GM combined.
Traditional vehicle manufacturers are poised to compete in today’s software-centric world. Unlike the nimble Tesla, they are large, bureaucratic, slow to respond to customers, rely on providing customer financing for unit sales growth, and are culturally different from a software company.
Around 200 car manufacturers began to emerge as a marketplace in the early 1920s, gradually consolidating into some behemoths that raised heavy, capital-intensive barriers to entry that they deemed unavailable.
Tesla currently does at least four things differently than all the automakers that set it apart:
- Continuous Development:
Tesla manufactures cars by developing software on unique hardware, quite as Apple develops iPhone or Microsoft, its Intel chips, and Dell its PCs. Every few weeks, it allows the company to improve its vehicle software. This contrasts with the traditional automotive industry model, where the product is the same when you drive it. With fewer parts, Tesla’s total ownership cost is significantly lower than that of an internal combustion car. There is no necessity for expensive oil changes, setups, muffler replacements, etc. This is known to automakers who make significant profits from their service businesses.
- Cost-Effective Battery Technology:
Tesla’s battery-powered vehicles are much more manageable than their combustion rivals. According to some estimates, they have significantly fewer parts per vehicle than 2,000 for internal combustion engines. This simplicity substantially reduces the total cost of ownership for consumers. Tesla has recently acquired battery companies and will add new types of battery-related technologies to its vehicles, further reducing operating costs. Other carmakers are also rushing to get the right electric battery skills, but it will continue to grow as the market grows.
- Go Green Initiative:
Tesla already has a big lead in some categories from a marketing perspective. Who doesn’t want a car that doesn’t pollute the environment, doesn’t drive to gas stations, and is green? Other automakers are long trying to solve this problem. What should the auto industry do in this situation? In 2021, Tesla offers a growing range of electric vehicles, but they won’t necessarily be software cars. Often these are the cars you are used to with electric motors.
There are security risks with software cars as with any connectivity. However, Tesla could expand its leadership role by modeling how to manage these risks effectively.
- Becoming Energy Positive:
Tesla Motors co-markets sustainable fuel products of other companies with their car. For example, among other options, medium-sized and expensive solar panels from the photovoltaic company SolarCity are also offered. This system can be mounted on the roof, due to its small size or set as a carport, and generates about 50 miles of electricity per day, as it can be installed on your roof.
In case you travel less than 350 miles per week, you too are “Energy Positive” regarding your personal transportation. This is a step beyond maintaining or even using your energy use for transport – you will return more energy to the system than you consume in a vehicle!
Tesla’s speed to innovate in the high-end vehicle market is more like Google or Amazon than car manufacturers. And its rising market valuation is a clear signal to all automakers that they need to develop more innovative business models, similar to Tesla’s, to survive in the market.
Tesla has adopted an effective way to build its innovative capital to garner resources and support to develop its vision. Investors are noticing Tesla’s prospects as its market value now exceeds GM, Ford, and Fiat Chrysler‘s combined market value.
Innovators should pay attention.