- Over the course of about two decades, Tesla established a micro-monopoly in the electric car market.
- But in order to survive, he had to charge a lot for his vehicles, which goes against CEO Elon Musk’s blueprint to kill the internal combustion engine.
- Tesla may never face significant competition for electric vehicles, despite the fact that many companies are jumping into the action.
- But ultimately, Tesla could end up hogging the data, causing problems for the company.
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The biggest problem with Silicon Valley is that it hates competition. And by hate, I mean the structurally, nutty soup misconception: venture capitalists pretty much want to invest only in startups that promise to completely dominate the markets, reaping as much as possible 100% of the potential gains.
This hasn’t always been the case: The first wave of tech companies, from Hewlett-Packard to Apple to Microsoft, emerged from the model of fierce, government-watched competition, leading to a lot of innovation and innovation. a beneficial blend of great products and great prices. This is how we put computers on our desks, on our knees and in our pockets when decades ago they required entire buildings.
The second wave of technological innovation, based on the internet and later on mobile computing, turned venture capitalists into venture capital monopolies. This is why we have so few companies today that provide a large number of uses with essential digital products and services. And this state of affairs has been valued, most notably by PayPal co-founder Peter Thiel, who sadly (and influently) argued in 2014 that conventional wisdom about monopolies is wrong.
“All happy businesses are different: each earns a monopoly by solving a unique problem,” he wrote in a Wall Street Journal editorial in support of his book, Zero to One: Notes on startups or how to build the future. ” All the companies that have failed are the same: they have failed to escape competition, ”he added, trusting Tolstoy’s ideas.
An unhappy Elon Musk
It’s not worth considering whether Thiel is right or wrong. A successful business wants to aspire to monopoly, period. But that begs the question, “Is this good for customers?” And while the answer can be yes, a vibrant capitalist economy has generally encouraged robust competition on the premise that the key to consumer happiness is a fair market price, not one set by one player and then billed as what economists call a “rent”. . ”
Thiel’s PayPal partner Elon Musk found himself in a situation that, with just a bit of stretching, fits the definition of a monopoly. Tesla sells almost all the electric cars that consumers buy. Various competing products from startups and incumbents are not making a dent in Tesla’s business. And Tesla is taking advantage.
In general, the auto industry is a good example of how competition has led to many choices for consumers and a degree of price predictability. A Toyota Corolla will be a good car, and it will cost around $ 20,000 base. Likewise, a Honda Civic. There is a plentiful demand for cars at this price point, so the US market has done a great job in urging companies to meet that demand.
In the electric vehicle space, however, the demand is not being met. It is almost impossible to buy an affordable new electric vehicle, which costs less than $ 500 per month on a typical car loan. Tesla’s cheapest Model 3 sedan is $ 38,000.
Musk is aware of this and he’s not happy with it. Its primary goal is to get as many electric vehicles as possible on the roads, Tesla badges or not. But for now, Tesla has to sell expensive electric vehicles to survive. Ironically, survival has given rise to a monopoly, and Wall Street admits it: This is why Tesla shares have risen more than 8,000% from the company’s 2010 IPO and market capitalization. now exceeds that of all other automakers, as well as those of some of the largest American companies.
Musk doesn’t care about the money
If Musk was successful, he would continue to build factories and electric vehicles around the world, using Wall Street as an ATM to fund expansion and putting millions of electric vehicles on the road over the next decade while losing money on everything. To be honest, this could be interpreted as a virtuous monopoly. After all, sometimes Amazon has been content to go profitless while providing consumers with almost anything they want, from quick deliveries to the lowest prices.
However, Tesla is well on its way to owning the entire EV market and capturing all of its future global growth, of course. The barriers to competitive entry are very, very high – it is extremely expensive to develop and manufacture a single automobile – but the established automakers who have the money and the expertise have not taken significant market share. to Tesla, and it’s unclear whether startups like Rivian and Lucid have the potential to catch up.
In investment parlance, Tesla doesn’t just have a protective moat – it has a real ocean.
In this regard, Tesla is the biggest monopoly Silicon Valley has yet produced. And no one seems particularly troubled by this. Except for Musk, who would like to sell a cheaper car, and people like me, who enjoy the competition in the market for herself. Thiel would insist that competing to be competitive is bad business because you end up competing for your profits and subsequently going bankrupt, but so what? No business should be forever, and the erosion of a business’s profits just means consumers are getting what they want or need cheaply.
Well, there is another party involved: the federal government, which is supposed to regulate the sphere of business to avoid monopolies and to manage capitalist competition. Tesla is too small and in a market that is too widely competitive (automobiles in general, not just electric vehicles) to attract antitrust action. I have called Tesla’s realization a micro-monopoly, which is different from reality, but Tesla is preparing to expand in a meaningful way, with new factories online, under construction, or planned on three continents.
It’s the data that matters
It is therefore fair to assume that the micro-monopoly could be macro, in ten years or so. It wouldn’t shock me if, in this scenario, Musk built a $ 10,000 EV and sold it at a great loss, just to execute his master plan. Imagine a world where one in four Americans, perhaps more, drives a Tesla. The traditional auto industry is grouped into two or three mega-manufacturers. Consumer choice is drastically reduced.
And now we have to consider that the biggest business opportunity in transportation is not the sale of cars. It is about acquiring data, via networked vehicles. No one knows who will ultimately own this data, but for Silicon Valley, the paradigm is obvious: it’s the network enabler. Facebook makes money with your updates, Google makes money with your searches.
It is at this point that Tesla might have problems with its monopoly power. The simple reason is that some critical aspects of its vehicle systems will not work without data. Autopilot, Tesla’s semi-autonomous technology, is already forcing the entire fleet to donate data to shared learning.
Interestingly, a challenge to Tesla’s monopoly, if all of this came to pass, would likely delight Musk. Because that would mean Tesla has grown as big as he dreamed it would be, and the internal combustion engine has been killed by competitive malfunction for just long enough to save the planet from global warming. Maybe monopolies aren’t that bad after all. Just make them temporary.