The Future of the Auto Industry is Data. Which Means Tesla Has Already Won.
The car business used to be about engine displacement, styling, accessories and performance. But Elon Musk's company has changed the paradigm as well as the power plant.
General managing partner, G2T3V and Chicago High Tech Investors
For the last several decades, marketing in the U.S. automotive industry has been mainly about distinctive style, speed and performance, and, to a lesser extent, safety. From time to time, any given manufacturer will run ads that stress one differentiating factor or another and thereby try to temporarily set themselves apart from the pack. This approach has rarely been successful in large part because the claimed distinctions - even if potential buyers understood and valued a duel overhead cam engine and the like - were mostly smoke and mirrors. As we said in the early days, the only difference between a car salesman and a computer salesman was that the car salesman knew he was lying. In addition, the sheer glut of car ads basically turned everything gray.
And in the last 10 years, cars have gone from being a badge of status, conspicuous consumption and patriotic pride ("See the USA in your Chevrolet") to expensive, carbon-spewing sources of pollution. Millennials aren't even rushing to get their drivers licenses. They see a car as a costly burden of fuel, finance, and insurance that spends more than 90% of its useful life parked and depreciating. Much like cable, which these days is a grudge buy, everything about owning a car is a drag or worse. We are well on our way to viewing our vehicles primarily as nuisances and incidental tools for occasional transportation -- which could be leased, rented by the hour or the mile, shared, summoned on demand or done away with entirely. Any and all emotional connection is largely long gone. There's a simple reason that no one has ever washed a rental car - we simply don't care about it.
And then there's Tesla. Delivering the first car to Elon in 2008, an amazingly short 12 years ago, the $109,000 Tesla Roadster was the bomb. Clean and California cool - it brought sexy to an industry desperately resistant to and in need of new thinking and new blood. But more importantly, it elevated the public's perception of what an electric car could be in exactly the same way that Apple changed the game with computers. Apple magically transformed personal computers (and later portable music, cellphones and digital watches) into items of desire. Steve Jobs restyled the boxy, gray, gear sold in hobby shops into offerings of pure white wonder sold in stylish and beautiful retail temples. He reduced IBM to the GM of personal computers. Tesla was built on the same conceptual marchitecture.
Tesla made it exciting and aspirational to think about owning a car again even if you couldn't remotely afford to do so. Interestingly, and much like the early Camaros and Mustangs, the cars themselves were surprisingly cheaply and modestly appointed on the inside, but no one really cared. They represented innovative and radical change, a triumph of technology, and the idea of a new kind of luxury (and exclusivity) which their owners could share in. Detroit, in the meantime, is the "same old, same old" surviving on pickups and SUVs which are dying breeds and simply digging itself deeper into a dark hole every day. Trying to catch up with the past is a fool's errand.
All the major manufacturers will soon roll out luxurious electric cars, which will be solid, beautifully styled, quick and expensive. But the really significant guts of the cars, the foundational AI and autonomous features, will be yesterday's news. Think of a decked-out golf cart tied to a two-year-old Android phone. The race and the game have already shifted from steel and sensors to smarts, and the smarts depend entirely on the size of the data pool your machine learning algorithms can draw from, so that they can keep getting smarter and smarter. Detroit will be sniffing around and stirring the ashes of Tesla's old campfire while Elon's army is already over the next hill. In racing, you learn early on that the other guys never wait for you. The race to build the smartest car may already be entering its final stages. Good gets better, bad gets worse.
It's all about scale and numbers and, as of the end of 2019, close to 900,000 Teslas have been sold, and these vehicles are feeding boatloads of experience data, driver behaviors, performance reports, etc. every single day into the smart systems in Palo Alto. It's a machine learning flywheel that just continues to accelerate. No one in Detroit has even a tiny fraction of this number of cars on the road. GM may be spending a couple of billion to build a new EV plant, but it'll take years to get the production and sales numbers up to any material level. The volume of new vehicles that any of the big guys will be fielding over the next several years is just another drop in the bucket while Tesla is building an immense wall of data and an insurmountable moat. There's no shortcut in the process and there's no compression algorithm for actual roadside experience and data.
In fact, it wouldn't be much of a surprise to see Tesla developing an entirely new revenue stream of selling its data to the laggards in Detroit much like the early mapping companies tried to do before Google ate their lunch. Data never dies.