Out in front

The Tesla phe­nom­e­non is a mor­tal threat to car in­cum­bents every­where

The Daily Telegraph - Business - - Front Page - Am­brose Evans-Pritchard

Tesla is to­day worth as much as the en­tire Euro­pean car in­dus­try. It is a text­book mis­align­ment that will self-cor­rect over time.

That does not mean the up­start pi­o­neer of elec­tric ve­hi­cles is there­fore in a pure mo­men­tum bub­ble. The price moves look less un­hinged if you gauge Tesla as a Sil­i­con Val­ley dis­rupter with a near unas­sail­able lead in data ac­cu­mu­la­tion and ar­ti­fi­cial in­tel­li­gence, rather than a hy­per­in­flated car com­pany.

This week’s par­a­bolic spike lifts Tesla’s mar­ket value to $300bn, up four­fold since the March lows. It has been tur­bocharged by short-cov­er­ing, this time af­ter Elon Musk smashed es­ti­mates by ek­ing out a profit through the worst of the pan­demic (helped by car­bon cred­its).

Tesla has racked up four quar­ters in the black and earned its ticket into the S&P 500 in­dex, adding more fuel to the vir­tu­ous cir­cle. How­ever, my as­sump­tion is that the stock will fall back to earth along with the Nas­daq FAANGs as the eco­nomic fun­da­men­tals of a trun­cated re­cov­ery in­trude later this year.

Tech guru Richard Wind­sor, a Tesla cham­pion, says the price is too rich even for him. “Now would be a good time to take some or all of the money off the ta­ble,” he said. Yet the Tesla phe­nom­e­non re­mains, a mor­tal threat to car in­cum­bents every­where.

Ger­man tech­nol­ogy in­vestor Frank The­len, from Freigeist Cap­i­tal, says the com­pany is in a “pos­i­tive spi­ral” akin to Google’s lead once it had es­tab­lished a self-re­in­forc­ing lock­hold through con­trol over ter­abytes of data.

Tesla al­ready has 900,000 ve­hi­cles on the road equipped with sen­sors. Th­ese are build­ing up a data bank, con­stantly learn­ing how to over­come the pit­falls of robotic self-driv­ing. No­body else is close. Mr The­len thinks Tesla has al­ready reached an “iPhone sor­passo”, send­ing the likes of VW or BMW into ter­mi­nal run-off.

An­thony Gins­berg, from ETF spe­cial­ists HANetf, says Tesla is poised to cream off chunks of value-added across the in­dus­try by sell­ing its in­tel­lec­tual prop­erty and bat­tery tech­nol­ogy to Old Autos through

‘Volk­swa­gen will get there. The threat of ex­tinc­tion con­cen­trates the mind won­der­fully’

leas­ing agree­ments. Tesla’s di­rect car sales tell only a frac­tion of the big­ger story. Per­son­ally, I think the Ger­mans will bounce back, but they have left it dan­ger­ously late. VW’s fu­tur­is­tic chief, Her­bert Diess, warns that the Ger­man in­dus­try could suc­cumb to the Coven­try syn­drome, go­ing the way of the Bri­tish car in­dus­try in the 1970s. Down­fall can be swift. Britain was the world’s big­gest ex­porter of cars in the 1950s, be­fore be­ing crip­pled by strate­gic er­rors and complacenc­y.

There is no ex­act par­al­lel with Ger­many but one has to ask: what were VW di­rec­tors smok­ing when they told each other that Tesla would fall flat on its face try­ing to en­gi­neer a good car? And what were Daim­ler ex­ec­u­tives smok­ing when they ditched their 10pc hold­ing of Tesla in 2014, con­clud­ing that the com­pany was go­ing nowhere?

So far the omens are not good for chal­lengers in the US mar­ket. Porsche’s Tay­can has flopped this year, while Jaguar has sold just over 1,000 of its I-Pace sports util­i­ties.

The soft­ware is not in­te­grated. The “com­pan­ion apps” that give the best EV’s an edge – and will be a big source of fu­ture rev­enue – are not fully func­tional in most mod­els. Mr Wind­sor says a Land Rover driver needs three dif­fer­ent apps: one to plan routes; a sec­ond to re­mote start the ve­hi­cle; a third to check the user guide.

The max­i­mum range of the Tay­can and the Audi e-tron is around 200 miles. Most Tesla mod­els sur­pass 300 miles. The cheap­est Model 3 can run for 250 miles. The Euro­pean Bat­tery Al­liance has launched a “Man­hat­tan Pro­ject” to crack the tech­nol­ogy, with a large in­fu­sion of EU state aid.

Mr The­len says the bat­tery gap is too wide to close. “No Ger­man elec­tric car can even be­gin to com­pete with Tesla mod­els that are al­ready eightyears-old,” he said.

That may be go­ing too far, but what is clear is that the Euro­peans lag hor­ri­bly on au­ton­o­mous ve­hi­cles. Tesla’s self-drive pro­to­types cer­tainly have prob­lems. The Mo­bil­eye on a rob­o­taxi re­cently mis­took a slightly ob­scured 35mph speed sign for 85mph. Deep learn­ing has a way to go. But the com­pany has elim­i­nated so many of the early glitches that th­ese ve­hi­cles are al­ready eight times safer than hu­man driv­ers.

VW’s Diess is betting the farm on EVs – com­put­ers on wheels, as he calls them – mo­bil­is­ing €30bn for break­neck in­vest­ment to close the gap. “The era of the clas­sic car-maker is over. What passes for suc­cess to­day could soon be worth noth­ing,” he says.

His hair-rais­ing pep talks to VW staff should be taken with a pinch of salt. His aim is to shake the man­age­ment struc­ture to its foun­da­tions. It is “Tesla or us”, he says, and the bat­tle for crit­i­cal scale and as­cen­dancy will be de­cided within four years. It will be an up­hill strug­gle. VW’s 5,000 soft­ware spe­cial­ists know how to pro­gramme IT com­po­nents from dozens of sup­pli­ers, but not how to in­te­grate the in­ter­net into ev­ery as­pect of the car. Its man­u­fac­tur­ing sys­tem is geared to the one thing the com­pany does su­perbly well: build­ing com­bus­tion en­gines.

Volk­swa­gen will get there now that it has aban­doned all hopes of fos­sil re­demp­tion. The threat of ex­tinc­tion con­cen­trates the mind won­der­fully. To­day it is worth a third of Tesla. My guess is that VW will be worth just as much be­fore long.

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