Why Tesla isn't really a tech company

I find I have to be the sad clown: laughing on the outside, crying on the inside. – Tony Soprano

Car manufacturers such as Ford, Toyota etc. are catching up fast. These are huge monolithic organizations, with thousands of models on the road going back decades. Each of these models is supported by long term fleet agreements which they have to honour, and intricate supply chains that need to be managed. I guess I’m saying they have a lot going on, and it takes some time to turn the ship.

In contrast, Elon and Tesla have been in the enviable position where they ploughed all their resources into developing one model at a time, bringing them to the market quickly, and growing their market share at a steady pace.

It was always going to take incumbent car manufacturers a while to catch up. But given their hundreds of years of experience in logistics, supply chain management, client support, and actually building cars at scale, Tesla should not be surprised when their market share shrinks when they actually have to compete with behemoths like Ford.

In the future, Tesla will just be one of around 15 firms selling electric vehicles, and that’s going to cut into their market share. Currently Tesla have 65% market share*, and I believe that although reduced demand for Tesla vehicles is a result of a slowing global economy, rival car makers will chip away Tesla’s market share significantly. 

Reduced market share, will have an impact on Tesla’s growth, and given shares are priced on expectation of future growth, this gives an indication of what we can expect from Tesla in the future.

We should ask ourselves. Is the market valuing Tesla correctly? Often, Tesla is spoken about in the same breath as Amazon, Microsoft, & Apple. But why do we compare Tesla to these companies in the first place, and value it as a tech company?

Amazon, Google, Microsoft etc. are tech firms in the true sense of the word, with a diversified product offering, are well established in many market segments from retail to institutional, offer everything between cloud based services to hardware; their revenue streams are robust, from retail subscription services to decade long full vendor contracts with the world’s biggest companies.

Tesla on the other hand, is a mono-product firm. When you only make cars, and derive all your revenue from the vehicle business, you are not a tech firm, you are a car manufacturer, and your share price should reflect that. 

Given that Elon used Tesla as collateral to finance his Twitter purchase, I wonder when the next margin call will be?

*S&P Global Mobility Sales data Nov 2022