Tesla Fan Boys are Wrong for their Disdain of Legacy Automakers

And Legacy Automotive Old Guys Need to Wake Up. Tesla Matters!

Why is it that the Tesla fan believes all legacy automakers are doomed to fail in the race toward an electric and autonomous vehicle future? Conversely, it seems many traditional automotive supporters think Tesla’s success is nothing more than “smoke & mirrors” and doomed to fail, eventually! To the Fan Boys (mostly Tesla investors that I follow on Twitter), a winner-take-all, zero-sum-game of Tesla winning while all others lose is not realistic. While I admire Elon Musk for doing what is very hard with Tesla (which I’ll write about in the future), others also can be successful following Tesla’s path. Microsoft followed Amazon’s AWS cloud technology with their own, very profitable Azure cloud business. Similarly, Walmart did not succumb to Amazon’s onslaught in retail. Walmart responded. And today the company has a valuation of $410 billion. While this is smaller than Amazon’s value, it’s still #10 in valuation on the S&P 500. Similarly, Tesla will not destroy all legacy automakers. General Motors, The VW Group, and potentially a few new players in the space (Amazon, Apple, Rivian) will have a fighting chance to be strong in a new world of EVs and autonomous vehicle mobility businesses.

Interestingly, many in the old legacy automotive world continue to disdain Tesla. Even in the face of tremendous engineering prowess, significant product advantages, manufacturing capacity expansion, and improving financial performance, they focus on simple comparisons of Tesla to traditional automotive metrics. “The company is not profitable without regulatory credits” they say. Or they believe once the top legacy automakers enter the EV race, Tesla’s days will be numbered. Frankly, profits for Tesla are irrelevant for now. As the company’s business and capital expenditures expand, cash and cash flow are critical. And over the past few quarters, Tesla has been able to conduct business and build new vehicle capacity with the cash on its balance sheet ($14.5 billion in Q3 2020). With a stock valuation of $618 billion, Tesla also has an additional tool to add to its capital position with new stock offerings.

The old line automakers entering the EV race will not make Tesla become an afterthought in the space. Tesla’s head start in EV development and manufacturing, as well as autonomous driving technology should not be underestimated. First mover status has its advantages. Many of these advantages will be difficult to challenge to a level that would make Tesla irrelevant.

Each camp (the Tesla Fan Boys and Legacy Automotive Old Guys) should welcome the other. There’s room for many companies to play a future automotive game. Competition will lift all boats. Unfortunately there’s a certain “idolatry of innovators” for Elon Musk (a phrase from Yale professor, Scott Galloway). For the Tesla fan boy, if it didn’t come from Musk, it is not worthy of consideration. And for the legacy automotive old guy, anything Musk produces or says is met with suspicion. The truth for both sides is actually somewhere in the middle.

Full disclosure — I own shares of both Tesla (from the new world) and General Motors (from the old world).

Originally publish on my TaaSMaster Newsletter.

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