Tesla is not Ford 100 Years Ago, It is Standard Oil 100 Years Ago
Although Tesla’s automobile production numbers are closely tracking Ford’s original numbers in the early 20th century, our favorite silicon valley mega-unicorn has a story that is more similar to Standard Oil’s. Millenials may have heard of John D. Rockefeller from the popular Manhattan tourist destination, however, few know the origins of his immense wealth. He established Standard Oil in 1870, the largest oil refinery in the world at the time. To put things into perspective, the civil war had ended just five years prior to Standard Oil being founded. The timing couldn’t have been better since Ford started producing the Model T on their assembly lines in 1908, effectively making automobiles affordable to middle-class America. The proliferation of gas powered automobiles drove the development of infrastructure needed to support vehicular travel such as roads and gas stations. Standard Oil profited so greatly that the Supreme Court dissolved the multinational corporation under the Sherman Antitrust Act into 34 separate companies. Today, Standard Oil is only survived by ExxonMobil and Chevron.
Tesla faces a similar ecosystem devoid of competition. They are rapidly expanding their Supercharger network to meet the future demands of an electric vehicle market that is primed to explode. They will soon be providing batteries from its Gigafactory and recharging a majority of electric vehicles, regardless of manufacturer. Tesla has successfully secured its monopoly in the same fashion that Standard Oil did a century ago.
Tesla’s highly anticipated Model 3 has over 400,000 reservations (1). Earlier this month, Elon Musk received the first production Model 3 after it was gifted to him by the original first customer in line (2). Tesla is currently ramping up projection and is expected to be producing 500,000 vehicles in 2018 and over 1 million annually by 2020 (3). Combined with other car manufacturers, there will be an exponential growth of electric vehicles roaming the streets and highways of the country. Tesla started 2017 with 5,000 Supercharges globally. They expect to double that number by the end of the year (4) including more than 1,000 Superchargers in California alone during this same period.
Additionally, Tesla has announced that it will be revealing an electric heavy duty, long-range, semi-truck in September. These will also require additional charging infrastructure along America’s main interstates.
Tesla surpassed Ford in market valuation in April as “investors bet on the future” (5). With growing production numbers and insatiable demand, Tesla’s horizon is looking ever brighter. Earlier this year in a shareholder letter, they mentioned that two to four more Gigafactories will be announced by year’s end (6).
These will definitely be necessary as mainstream automobile manufacturers transition their fleets to being completely hybrid or electric, such as Volvo’s recent announcement (7). As battery prices drop and Superchargers become more accessible, the electric car will soon be affordable and practical for middle-class America, a goal not too dissimilar from Henry Ford’s a century ago.
Sources:
- https://electrek.co/2016/08/05/tesla-model-3-reservations-400000-cash-flow-customer-deposits/
- https://www.theverge.com/2017/7/9/15943152/tesla-model-3-production-car-pictures-elon-musk/
- https://www.forbes.com/sites/neilwinton/2017/05/16/tesla-model-3-production-targets-provoke-sceptics/
- https://www.tesla.com/blog/charging-our-priority/
- https://www.nytimes.com/2017/04/03/business/tesla-ford-general-motors-stock-market.html?_r=0/
- https://electrek.co/2017/05/01/tesla-gigafactories-4-more-year/
- https://www.nytimes.com/2017/07/05/business/energy-environment/volvo-hybrid-electric-car.html/
2 comments on “Tesla is not Ford 100 Years Ago, It is Standard Oil 100 Years Ago”
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Hi Jacob – Tesla’s history and the scope of Elon Musk’s businesses certainly tell an interesting story. In some ways, Musk was forced to build out capacity for battery production and superchargers to support the EV business, so it’s not surprising to see his current monopolies.
It reminds me a lot of the Netscape/IE browser wars of the ’90s, where Microsoft was accused of leveraging their Windows monopoly to fend off competition from browsers, except that Tesla appears to be more open to interoperating with other EV vendors (at least on the surface) than Microsoft was to give equal footing to browser vendors. For EV companies, the barrier to entry is just the size of the investment to get charger critical mass; Tesla doesn’t block them from that. Similarly, EV companies could invest in battery manufacturing capacity, although they will initially be far behind in volumes (and behind the experience curve). 3rd parties could also enter these businesses, although it would be hard to compete with Tesla’s free charging platform.
What is your opinion on the likelihood that Tesla could face antitrust action in the future like Standard Oil and Microsoft did?
Hey Jacob,
Interesting perspective, though I’m not sure Tesla’s goal is to own a monopoly of the supercharger network over the long term. I think early on Tesla emphasized building out the supercharger network in order to entice the first time buyers to buy Teslas. Tesla focused first on building out its network to be able to allow drivers to drive across the country using the super charger network and second they offered free charging at these stations if you owned a Tesla. Over the last few years Tesla has actually made available their supercharger patents and IP to 3rd parties with the hopes of others to adopt and build-out the network. It’s a bit of a what came first scenario: the chicken or the egg, Tesla’s motivation for building out the supercharger network seems more like to drive demand for its cars and not necessarily to own the entire charging infrastructure. Also, to that point…as almost all Tesla owners have charging capabilities at home that are not owned by Tesla per se, it adds to the point that the overall market share of EV charging stations that are owned by Teslas are actually quite small. Finally, the supercharging business is not a great business, its capital intensive, it has small barriers to entry, low margins and a commoditized business. As EV’s continue to proliferate, 3rd party players like existing gas station owners will undoubtedly convert to super charging stations and in the those cases they’ll probably make more money off selling products and services while you wait for your car to charge, than off of charging itself.
Johnny