Over the course of about two decades, Tesla has built a micro-monopoly over the electric car market.
But it had to charge a lot for its vehicles to survive, which runs counter to CEO Elon Musk’s master plan to turn off the internal combustion engine.
It is possible that, despite numerous companies getting into the action, Tesla will never face any significant EV competition.
But at some point Tesla could monopolize data, which would create problems for the company.
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The biggest problem with Silicon Valley is that it hates competition. And by hatred, I mean structurally contempt, from soup to nut: venture capitalists pretty much only want to invest in start-ups that promise to completely dominate the markets and get as close as possible to 100% of potential profits.
It wasn’t always like this: the first wave of tech companies, from Hewlett-Packard to Apple to Microsoft, emerged from the model of tough, government-monitored competition that resulted in a lot of innovation and a beneficial mix of great products and products led great prices. We have computers on our desks, on our laps, and in our pockets when they required entire buildings decades ago.
The second wave of technical innovations, based on the Internet and later on mobile computing, turned venture capitalists into risk monopolists. Because of this, we now have so few companies offering a wide variety of uses with critical digital products and services. And that fact has been upgraded, especially by PayPal co-founder Peter Thiel, who infamous (and influential) in 2014 argued that conventional wisdom about monopolies is wrong.
“All happy companies are different: each company gets a monopoly by solving a unique problem,” he wrote in a Wall Street Journal, adding to his book “Zero to One: Advice to Startups” or “How to Build the Future.” support. “All failed companies are the same: they couldn’t escape the competition,” he added, reporting on Tolstoy’s findings.
An unhappy Elon Musk
Peter Thiel is a fan of monopolies.
J. Scott Applewhite / AP
It is not worth discussing whether Thiel is right or wrong. A successful company wants to strive for a state of monopoly. But that begs the question, “Is this good for customers?” And while the answer can be yes, a dynamic, capitalist economy has usually encouraged robust competition, assuming that the key to consumer happiness is a fair market price, not a price set by a gamer and then referred to as “rent” becomes . ”
Thiel’s PayPal partner, Elon Musk, is in a situation that, with a little effort, corresponds to the definition of a monopoly. Tesla sells almost all electric cars consumers buy. Various competing products from startups and established companies do not affect Tesla’s business. And Tesla is taking advantage.
In general, the auto industry is a good example of how competition has resulted in wide choice of consumers and some predictability in prices. A Toyota Corolla will be a good car and cost around $ 20,000. Likewise a Honda Civic. There is a lot of demand for cars at this price point, and so the US market has done well to invite companies to meet that demand.
In the field of electric vehicles, however, the demand is not met. It’s nearly impossible to buy an affordable new electric vehicle that costs less than $ 500 a month for a typical car loan. Tesla’s cheapest Model 3 sedan is $ 38,000.
Musk is aware of this and he’s not happy about it. Its overall goal is to get as many electric vehicles as possible on the road with the Tesla emblem or other means. But right now, Tesla has to sell expensive electric vehicles to survive. Ironically, survival has led to a monopoly, and Wall Street recognizes it: That’s why Tesla’s shares are up over 8,000% from its 2010 IPO and market capitalization now outperforms all other automakers, as well as some of America’s largest companies.
Musk doesn’t care about money
Tesla operates or builds factories on three continents.
If Musk had his way, he would continue to build factories and electric vehicles around the world, and use Wall Street as an ATM to fund expansion. Over the next decade, he would put millions of electric vehicles on the road and lose money on everything in the process. To be honest, this could be interpreted as a virtuous monopoly. After all, Amazon has at times been content to stay profitable and give consumers just about anything they want, from quick deliveries to rock-bottom prices.
However, Tesla is on its way to owning the entire EV market and of course grasping its future global growth. The barriers to entry are very, very high – it’s enormously expensive to just design and manufacture one car – but the incumbent automakers who have the money and expertise haven’t captured Tesla’s significant market share, and it’s unclear whether startups like Rivian and Lucid have the potential to catch up.
In the technical jargon of investing, Tesla not only has a protective moat, but also a veritable ocean.
In that regard, Tesla is the largest monopoly Silicon Valley has produced to date. And nobody seems to be particularly affected by it. Except for Musk, who wants to sell a cheaper car, and guys like me, who value competition in the market for their own sake. Thiel would insist that competing for competition is bad business because you end up losing your profits and eventually going out of business, but what now? No business should be forever, and the erosion of a company’s profits only means consumers are getting what they want or need at a low cost.
Well, there is another party involved: the federal government, which is supposed to regulate the business area to avoid monopolies and capitalist steward competition. Tesla is too small and in too competitive a market (cars in general, not just electric vehicles) to take antitrust action. I’ve called Tesla’s performance a micro-monopoly, which is different from reality, but Tesla is preparing to scale up significantly as new factories go online, under construction, or planned for three continents.
It’s all about the data
Tesla’s autopilot is a data acquisition powerhouse.
So it can be assumed that the micro-monopoly could be a macro in about a decade or so. I wouldn’t be shocked if Musk built a $ 10,000 EV in this scenario and sold it at a huge loss just to execute his master plan. Imagine a world where one in four Americans, maybe more, drives a Tesla. The traditional auto industry is consolidating into two or three mega-manufacturers. Consumer choice is drastically reduced.
And now we have to take into account that the biggest business opportunity in transportation isn’t selling cars. It collects data about connected vehicles. Nobody is sure who will own this data, but for Silicon Valley the paradigm is obvious: the network broker does. Facebook makes money on your updates, Google makes money on your searches.
This is where Tesla could get into trouble with its monopoly power. The simple reason is that some critical aspects of his vehicle systems will not work without donated data. With Autopilot, Tesla’s semi-self-driving technology, the entire fleet must already donate data for mutual learning.
Interestingly, a challenge to Tesla’s monopoly, if all of this comes about, would likely please Musk. Because that would mean Tesla got as big as it dreamed it would be, and a competitive malfunction caused the combustion engine to shut down just long enough to save the planet from global warming. Maybe monopolies aren’t that bad after all. Do them only temporarily.
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