Tesla’s Monopoly Inches Closer. New industry data is showing that...
Farzad 🇺🇸 🇮🇷@farzyness
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Mar 15, 2024
~12 min read
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Tesla’s Monopoly Inches Closer.
New industry data is showing that Tesla is trending towards a Monopoly. As an example, Ford is losing $1.6B per quarter on EVs, and Lucid and Rivian, both of which are EV-only start ups, are close to running out of cash and have effectively stopped growing. These results prove that Tesla has a giant lead in making electric vehicles at scale that are both affordable AND profitable, with the kicker being these same EVs could become next-generation transportation units with the advent of AI-powered self-driving technology.
This transition is slated to have the same impact to the car industry that the iPhone had on mobile telecommunications and computing - yet most are still dismissing that this is a possibility.
Let me walk you through why most people are in for a giant surprise as we reach the end of this decade, and it all starts with Tesla’s ambitions in entirely rethinking what a car should be, versus what it is today.
Tesla believes it can get many of the cars in its over 5 million unit fleet, and all new cars being sold today, to become self-driving “Robotaxis” by leveraging the existing 8-camera + on board computer hardware suite that is shipped with every Tesla car today. A software update, potentially with its v12 iteration, will upgrade these cars from manually driven cars to cars that can drive themselves without the need of an attentive driver. The company is beginning to trial this software with its customer base, hoping to have a finalized version by the end of the year.
On top of this, Tesla has been on a mission to dramatically bring down the cost and affordability of an electric vehicle. Thus far, this strategy has allowed Tesla to have the best selling car in the world with its Model Y. With EV tax credits in the US, the Model Y starts at $35k, which is $10k less than the average new car price in the US. This is quite an achievement, especially since Tesla unveiled its Model 3 sedan in 2016, which was slated to launch with a $35k starting price. 8 years later, Tesla is offering the same starting price, with EV incentives, in an SUV form factor and 8 years worth of inflation.
Even with30% inflation over the last 8 years, and a larger form factor, Tesla still makes upwards of 20% margin on its EVs, while offering some of the most affordable EVs on the market. Both the Model Y and the Model 3 can be leased for under $400 per month. In that same period, gas cars are becoming more expensive, as legacy automakers continue to prioritize profits over affordability. EV prices are coming down, while gas car prices are going up. Not a good sign for the gas car industry.
This means that the strategy Tesla is deploying of having affordable, profitable, and self-driving EVs that will eventually become the next generation of transportation, which many have thought is overly ambitious and downright pie-in-the-sky thinking, is beginning to bear fruit.
This becomes quite obvious once we start looking at Tesla’s competition, especially in the US.
Starting with Legacy Automakers, we are already well aware that these companies are pausing, delaying, or canceling their EV plans for the foreseeable future, including brands like Ford, GM, VW, and others.
Once we look at their financials, it’s clear to see why. If we take Ford’s Q4 2023 earnings results, their EV division has stalled at 34,000 units sold per quarter for the last 3 quarters, while their average selling prices have dropped by 12% and their losses increased by 50%, from $1.1B lost per quarter, to $1.6B. On dealer lots, Ford EVs have days of inventory of well over 100 days. Dealers ideally want to have inventories of 60 days or less. The story is the same with other legacy automakers and their EVs.
On the other hand, if we look at Tesla’s results, the company was able to grow their sales over the same 3 quarter period by 5%, while generating $2B of income in the fourth quarter. While Ford lost $1.6B from selling 34,000 EVs, Tesla made $2B from selling 484,000 EVs. Again, the story is the same across every legacy automaker.
But this continues to get more grim for Tesla’s competitors if we look at EV startups like Lucid and Rivian.
For the fourth quarter of 2023, Rivian reported deliveries of 13,972 which is a 10% increase over the same period, but loss per car accelerated to negative -$113k per car. That means that for every car Rivian sold in Q4, they lost about $113k. The story gets worse when we look at Lucid, with deliveries of 1,734 in the same quarter, but losing about -$377k per car.
In either case, Rivian and Lucid are both guiding to flat sales in 2024, which means that the levers they need to pull to lower costs and become profitable will not be available to them for the next 12 months. Even though Rivian in their Q4 filing said they are looking to reduce costs by as much as 50%, it will be nearly impossible without increasing volumes.
Auto manufacturing is heavily dependent on scale. If Rivian is already losing more than $100k per car, and they are not expecting to grow much in 2024, then they will not be able to spread out their costs over more cars in order to increase their profits per car. The company is already planning to lay off 10% of its staff to try and reduce costs, but it is difficult to see how this will be a big enough step in order for the company to become profitable.
Another issue arises when we look at how much cash both of these companies have on hand. Rivian has about $8B of cash on hand, while Lucid has a little under $1.4B. At current cash burn rates, Rivian has about a year and a half of cash left, while Lucid has roughly 6 months. Without raising money for their operations, both companies will be forced to either liquidate their assets, dramatically slash their production capacity (further increasing their cost per car), or file for bankruptcy.
In Rivian’s case, it could be likely that they are able to raise cash in order to make it to the release of their next generation, more affordable vehicle, while Lucid’s only real hope is to be taken private by the Saudi fund that owns 60% of the company. To be clear, I’m a big fan of both company’s products, but if you can’t make money selling stuff, you’re not going to be around for very long.
But in all cases above, the biggest issue facing all these automakers is that their scale of production for electric vehicles is not quite there yet. Tesla is making about half a million cars per quarter, while its competition is making less than 10% of that amount.
While almost all of Tesla’s competitors are struggling to enter the EV space, Tesla has reached a 2 million per year run rate of EVs with only 4 models - the Model S, 3, X, and Y. They’ve been able to achieve this with little to no advertising, and up until very recently, with above average prices relative to the broader markets.
A notable exception here is BYD, which has surpassed Tesla in pure EV sales per quarter. However, it is important to note that BYD primarily sells its cars in the Chinese market, sells its cars at a much lower price point than Tesla, and has yet to prove it can make a profit on its EV line up. However, because of the company’s ability to offer EVs at very affordable prices (the company’s Seagull, its compact car, sells at about $11k US in China), BYD has already taken massive market share away from Legacy car companies, especially players like Volkswagen.
What’s of note here is that Tesla is selling about the same number of EVs per quarter as BYD, but without an affordable compact car, and up until very recently, its Cybertruck pick up. However, for Tesla’s ability to reach Monopoly status, it is much less about the Cybertruck and much more about the compact car.
Based on Tesla’s guidance, they are aiming to build an EV platform that reduces costs by as much as 50% by revolutionizing the manufacturing process. This should allow the company to build an EV that’s somewhere around the $25k starting price, before any federal or state EV incentives, that will be sold in the millions of units per year, with the company having a long-term target to reach 20 million cars sold per year.
This means that for the first time in a long time, a US buyer could have access to a brand new car, that happens to be electric, that is under $25k with loads of software-driven features, high safety scores, and driving dynamics that are far superior to comparable gas vehicles due to its EV drivetrain.
Even with this product in the wings, the biggest piece that will virtually secure Tesla’s monopoly is not solely due to its ability to make a very affordable car - but make a very affordable car that can drive itself.
If we look at the auto landscape, there are no players that exist that are solving for self-driving technology that are low cost and high scale. With BYD’s claim in August of 2023 that full self-driving is essentially “impossible”, we are only left with players, outside of Tesla, that are solving for self-driving technology with very expensive hardware. Players like Waymo, Baidu, Zoox, and others rely heavily on LIDAR, Ultrasonics, and a bunch of other sensors that very rapidly increase the cost of admission for self-driving manufacturing.
As impressive as these technologies are, the cost of manufacturing a self-driving car with these sensors runs somewhere in the six digit range, with estimates varying between $120k per car, upwards of $300k. This is because the companies have decided to solve self-driving cars with brute force - throw every sensor you can at the problem, map every road that the cars operate in, and figure out how to make it all work without running over people. Miraculously, many have figured out how to make this work, but at the expense of scale.
It is MUCH more difficult to build many self-driving cars that are this expensive vs a company that can make the same car for under $20k, including all the hardware that’s needed to operate said cars. In addition, the roll out of these vehicles becomes increasingly difficult as every road that’s meant for these cars to operate in has to be mapped, and every little change has to be recorded so the cars don’t accidentally end up in ditches.
This approach sets an artificial cap on self-driving technology. Regardless of how impressive the technology is, if it’s too expensive to make, and too cumbersome to roll out, it is not a viable business in the long term. The breakthrough needed is not the self-driving technology itself - but the manufacturing system that allows you to make self-driving cars that can be a viable business in the long term.
This is Tesla’s bread and butter - creating manufacturing systems that convert state-of-the-art technologies into mass-market realities. And this is precisely what Tesla is achieving with the development of its Full Self Driving technology and its compact car.
The previous 4 models, the S, 3, X, and Y, have allowed Tesla to build up enough data and expertise to make an 8 camera + onboard computer system. This likely costs no more than $2k all in, and the kicker is it’ll drive just as good as a Waymo car at a fraction of the cost and at 1,000x the scale.
If we fast forward to the end of the decade, and we assume that Tesla’s execution has allowed them to achieve autonomy at the level of a Waymo (or higher), which they can then beam to a fleet of at least 30 million cars, Tesla will easily have the most autonomous miles per year out of anyone in the world by a factor of at least 1,000. And it is the marriage of affordable EVs, that happen to drive themselves, that will allow the company to achieve this.
For a competitor to get remotely close, they would have to do the following:
- Come up with a self-driving system that will cost around $2k
- Put these in cars that cost no more than $20k to produce
- Make millions of these per year
- Make them profitably
Thus far, we have little data that points to any other player being able to make an EV profitably, let alone millions of them per year. The only player that can make many of them, BYD, has concluded that self-driving is impossible. In the meantime, Tesla has launched its v12 self-driving software that is navigating US roads at the level of a Waymo car. Tesla achieved this with about 1 year of development by offloading the code to an AI instead of a team of humans.
As Tesla’s data collecting capacity grows as more and more Teslas populate the world, and as they ramp up their compute capability at its headquarters, the performance of their self-driving vehicles will only get better from here on out.
Given all of this, is it really that unlikely that Tesla will have a Monopoly on transportation? Especially when:
- They are the only player that can make self-driving cars profitably in the millions of units and…
- Because their self-driving cars don’t need a human to drive them, which will remove the most expensive thing from a car today, making per-mile cost of transportation plummet to pennies on the dollar.
The clue here is that Tesla is already beginning to offer licensing partnerships for its self-driving system. The company is clearly confident that they have what it takes to solve for self-driving in a very cost-effective manner. No one is taking them up on that offer, probably because most players are skeptical something like this is even possible. It surely sounds like pie-in-the-sky when a company claims that they’ve figured out how to make cars drive themselves at a fraction of the cost than anyone else can.
Time will tell who is right. I’m willing to bet on the company that has continually achieved feats that most thought impossible. This company probably knows a thing or two about making impossible things a reality. And given the current trajectory of development with its self-driving software and ability to make EVs affordable AND profitable, my guess is that they are much closer to that reality than most realize.
New industry data is showing that Tesla is trending towards a Monopoly. As an example, Ford is losing $1.6B per quarter on EVs, and Lucid and Rivian, both of which are EV-only start ups, are close to running out of cash and have effectively stopped growing. These results prove that Tesla has a giant lead in making electric vehicles at scale that are both affordable AND profitable, with the kicker being these same EVs could become next-generation transportation units with the advent of AI-powered self-driving technology.
This transition is slated to have the same impact to the car industry that the iPhone had on mobile telecommunications and computing - yet most are still dismissing that this is a possibility.
Let me walk you through why most people are in for a giant surprise as we reach the end of this decade, and it all starts with Tesla’s ambitions in entirely rethinking what a car should be, versus what it is today.
Tesla believes it can get many of the cars in its over 5 million unit fleet, and all new cars being sold today, to become self-driving “Robotaxis” by leveraging the existing 8-camera + on board computer hardware suite that is shipped with every Tesla car today. A software update, potentially with its v12 iteration, will upgrade these cars from manually driven cars to cars that can drive themselves without the need of an attentive driver. The company is beginning to trial this software with its customer base, hoping to have a finalized version by the end of the year.
On top of this, Tesla has been on a mission to dramatically bring down the cost and affordability of an electric vehicle. Thus far, this strategy has allowed Tesla to have the best selling car in the world with its Model Y. With EV tax credits in the US, the Model Y starts at $35k, which is $10k less than the average new car price in the US. This is quite an achievement, especially since Tesla unveiled its Model 3 sedan in 2016, which was slated to launch with a $35k starting price. 8 years later, Tesla is offering the same starting price, with EV incentives, in an SUV form factor and 8 years worth of inflation.
Even with30% inflation over the last 8 years, and a larger form factor, Tesla still makes upwards of 20% margin on its EVs, while offering some of the most affordable EVs on the market. Both the Model Y and the Model 3 can be leased for under $400 per month. In that same period, gas cars are becoming more expensive, as legacy automakers continue to prioritize profits over affordability. EV prices are coming down, while gas car prices are going up. Not a good sign for the gas car industry.
This means that the strategy Tesla is deploying of having affordable, profitable, and self-driving EVs that will eventually become the next generation of transportation, which many have thought is overly ambitious and downright pie-in-the-sky thinking, is beginning to bear fruit.
This becomes quite obvious once we start looking at Tesla’s competition, especially in the US.
Starting with Legacy Automakers, we are already well aware that these companies are pausing, delaying, or canceling their EV plans for the foreseeable future, including brands like Ford, GM, VW, and others.
Once we look at their financials, it’s clear to see why. If we take Ford’s Q4 2023 earnings results, their EV division has stalled at 34,000 units sold per quarter for the last 3 quarters, while their average selling prices have dropped by 12% and their losses increased by 50%, from $1.1B lost per quarter, to $1.6B. On dealer lots, Ford EVs have days of inventory of well over 100 days. Dealers ideally want to have inventories of 60 days or less. The story is the same with other legacy automakers and their EVs.
On the other hand, if we look at Tesla’s results, the company was able to grow their sales over the same 3 quarter period by 5%, while generating $2B of income in the fourth quarter. While Ford lost $1.6B from selling 34,000 EVs, Tesla made $2B from selling 484,000 EVs. Again, the story is the same across every legacy automaker.
But this continues to get more grim for Tesla’s competitors if we look at EV startups like Lucid and Rivian.
For the fourth quarter of 2023, Rivian reported deliveries of 13,972 which is a 10% increase over the same period, but loss per car accelerated to negative -$113k per car. That means that for every car Rivian sold in Q4, they lost about $113k. The story gets worse when we look at Lucid, with deliveries of 1,734 in the same quarter, but losing about -$377k per car.
In either case, Rivian and Lucid are both guiding to flat sales in 2024, which means that the levers they need to pull to lower costs and become profitable will not be available to them for the next 12 months. Even though Rivian in their Q4 filing said they are looking to reduce costs by as much as 50%, it will be nearly impossible without increasing volumes.
Auto manufacturing is heavily dependent on scale. If Rivian is already losing more than $100k per car, and they are not expecting to grow much in 2024, then they will not be able to spread out their costs over more cars in order to increase their profits per car. The company is already planning to lay off 10% of its staff to try and reduce costs, but it is difficult to see how this will be a big enough step in order for the company to become profitable.
Another issue arises when we look at how much cash both of these companies have on hand. Rivian has about $8B of cash on hand, while Lucid has a little under $1.4B. At current cash burn rates, Rivian has about a year and a half of cash left, while Lucid has roughly 6 months. Without raising money for their operations, both companies will be forced to either liquidate their assets, dramatically slash their production capacity (further increasing their cost per car), or file for bankruptcy.
In Rivian’s case, it could be likely that they are able to raise cash in order to make it to the release of their next generation, more affordable vehicle, while Lucid’s only real hope is to be taken private by the Saudi fund that owns 60% of the company. To be clear, I’m a big fan of both company’s products, but if you can’t make money selling stuff, you’re not going to be around for very long.
But in all cases above, the biggest issue facing all these automakers is that their scale of production for electric vehicles is not quite there yet. Tesla is making about half a million cars per quarter, while its competition is making less than 10% of that amount.
While almost all of Tesla’s competitors are struggling to enter the EV space, Tesla has reached a 2 million per year run rate of EVs with only 4 models - the Model S, 3, X, and Y. They’ve been able to achieve this with little to no advertising, and up until very recently, with above average prices relative to the broader markets.
A notable exception here is BYD, which has surpassed Tesla in pure EV sales per quarter. However, it is important to note that BYD primarily sells its cars in the Chinese market, sells its cars at a much lower price point than Tesla, and has yet to prove it can make a profit on its EV line up. However, because of the company’s ability to offer EVs at very affordable prices (the company’s Seagull, its compact car, sells at about $11k US in China), BYD has already taken massive market share away from Legacy car companies, especially players like Volkswagen.
What’s of note here is that Tesla is selling about the same number of EVs per quarter as BYD, but without an affordable compact car, and up until very recently, its Cybertruck pick up. However, for Tesla’s ability to reach Monopoly status, it is much less about the Cybertruck and much more about the compact car.
Based on Tesla’s guidance, they are aiming to build an EV platform that reduces costs by as much as 50% by revolutionizing the manufacturing process. This should allow the company to build an EV that’s somewhere around the $25k starting price, before any federal or state EV incentives, that will be sold in the millions of units per year, with the company having a long-term target to reach 20 million cars sold per year.
This means that for the first time in a long time, a US buyer could have access to a brand new car, that happens to be electric, that is under $25k with loads of software-driven features, high safety scores, and driving dynamics that are far superior to comparable gas vehicles due to its EV drivetrain.
Even with this product in the wings, the biggest piece that will virtually secure Tesla’s monopoly is not solely due to its ability to make a very affordable car - but make a very affordable car that can drive itself.
If we look at the auto landscape, there are no players that exist that are solving for self-driving technology that are low cost and high scale. With BYD’s claim in August of 2023 that full self-driving is essentially “impossible”, we are only left with players, outside of Tesla, that are solving for self-driving technology with very expensive hardware. Players like Waymo, Baidu, Zoox, and others rely heavily on LIDAR, Ultrasonics, and a bunch of other sensors that very rapidly increase the cost of admission for self-driving manufacturing.
As impressive as these technologies are, the cost of manufacturing a self-driving car with these sensors runs somewhere in the six digit range, with estimates varying between $120k per car, upwards of $300k. This is because the companies have decided to solve self-driving cars with brute force - throw every sensor you can at the problem, map every road that the cars operate in, and figure out how to make it all work without running over people. Miraculously, many have figured out how to make this work, but at the expense of scale.
It is MUCH more difficult to build many self-driving cars that are this expensive vs a company that can make the same car for under $20k, including all the hardware that’s needed to operate said cars. In addition, the roll out of these vehicles becomes increasingly difficult as every road that’s meant for these cars to operate in has to be mapped, and every little change has to be recorded so the cars don’t accidentally end up in ditches.
This approach sets an artificial cap on self-driving technology. Regardless of how impressive the technology is, if it’s too expensive to make, and too cumbersome to roll out, it is not a viable business in the long term. The breakthrough needed is not the self-driving technology itself - but the manufacturing system that allows you to make self-driving cars that can be a viable business in the long term.
This is Tesla’s bread and butter - creating manufacturing systems that convert state-of-the-art technologies into mass-market realities. And this is precisely what Tesla is achieving with the development of its Full Self Driving technology and its compact car.
The previous 4 models, the S, 3, X, and Y, have allowed Tesla to build up enough data and expertise to make an 8 camera + onboard computer system. This likely costs no more than $2k all in, and the kicker is it’ll drive just as good as a Waymo car at a fraction of the cost and at 1,000x the scale.
If we fast forward to the end of the decade, and we assume that Tesla’s execution has allowed them to achieve autonomy at the level of a Waymo (or higher), which they can then beam to a fleet of at least 30 million cars, Tesla will easily have the most autonomous miles per year out of anyone in the world by a factor of at least 1,000. And it is the marriage of affordable EVs, that happen to drive themselves, that will allow the company to achieve this.
For a competitor to get remotely close, they would have to do the following:
- Come up with a self-driving system that will cost around $2k
- Put these in cars that cost no more than $20k to produce
- Make millions of these per year
- Make them profitably
Thus far, we have little data that points to any other player being able to make an EV profitably, let alone millions of them per year. The only player that can make many of them, BYD, has concluded that self-driving is impossible. In the meantime, Tesla has launched its v12 self-driving software that is navigating US roads at the level of a Waymo car. Tesla achieved this with about 1 year of development by offloading the code to an AI instead of a team of humans.
As Tesla’s data collecting capacity grows as more and more Teslas populate the world, and as they ramp up their compute capability at its headquarters, the performance of their self-driving vehicles will only get better from here on out.
Given all of this, is it really that unlikely that Tesla will have a Monopoly on transportation? Especially when:
- They are the only player that can make self-driving cars profitably in the millions of units and…
- Because their self-driving cars don’t need a human to drive them, which will remove the most expensive thing from a car today, making per-mile cost of transportation plummet to pennies on the dollar.
The clue here is that Tesla is already beginning to offer licensing partnerships for its self-driving system. The company is clearly confident that they have what it takes to solve for self-driving in a very cost-effective manner. No one is taking them up on that offer, probably because most players are skeptical something like this is even possible. It surely sounds like pie-in-the-sky when a company claims that they’ve figured out how to make cars drive themselves at a fraction of the cost than anyone else can.
Time will tell who is right. I’m willing to bet on the company that has continually achieved feats that most thought impossible. This company probably knows a thing or two about making impossible things a reality. And given the current trajectory of development with its self-driving software and ability to make EVs affordable AND profitable, my guess is that they are much closer to that reality than most realize.