Howes: Tesla plays auto game by Silicon Valley rules
Lest there be any doubt, the electrified race for supremacy in self-driving cars is being played by Silicon Valley rules.
How do we know this? By Tesla Inc. Chairman Elon Musk’s recognition that his long-awaited Model 3 compact is “in production hell,” that it’s complicated by “bottlenecks” and by confirmation that parts of the cars are being “hand-built.”
This amazing accomplishment is being greeted, well, differently by investors than it would if, say, General Motors Co. Chairman Mary Barra copped to the same kind of chaos with its electric Chevrolet Bolt ... or just about any other eagerly anticipated model in its lineup.
Tesla mostly gets a pass, as it does for losing money on every car it produces. The nearly 4 percent slide in its shares Monday, the first trading day after The Wall Street Journal reported the messy Model 3 launch, has since recouped most of the loss, judging by the market close Wednesday.
To free “resources to fix Model 3 bottlenecks” and increase battery production to help hurricane-ravaged Puerto Rico, Musk tweeted that Tesla’s anticipated demonstration of its self-driving truck would be delayed until Nov. 16.
Detroit (and its foreign-owned rivals) would get crucified for a similar mess. Analysts, the news media and, especially, investors would show scant tolerance for misses of that magnitude from traditional auto industry players — and all of them would demand answers.
Tesla? Not so much. Never mind that Musk, the automotive wunderkind, might risk missing what Barclays Research calls the “iPhone moment” for the Model 3, Tesla’s long-awaited entry into the volume-priced electric car segment.
You know, the segment already occupied by GM’s Chevy Bolt, Nissan Motor Corp.’s Leaf and a slew of coming electric entrants from global automakers. As a rule, they don’t botch production launches with the same aplomb as Musk’s hand-built production hell.
They also have broader distribution networks under existing state franchise laws; more disciplined production systems with longer lead times to ensure more consistent quality at launch; and greater transparency with investors, analysts and the news media.
This will be fascinating to watch. Tesla’s Model 3 is one of the most highly anticipated car launches in a long time. It’s supposed to be sheet metal and electric powertrain proof that Silicon Valley innovation can beat Detroit and Stuttgart, Tokyo and Seoul at their own game.
It’s not that simple. Hundreds of thousands (Tesla won’t confirm the number anymore) of would-be Model 3 owners paid $1,000 deposits for the chance to buy a copy. How long will they be willing to wait? How highly do they value the Tesla brand if rival automakers flood the segment with similarly priced electrics delivering similar performance?
And what does all this augur for the next step — delivering self-driving vehicles powered by electric powertrains to the market? Deutsche Bank, for one, said in a recent report that GM, not Tesla, is the smarter bet to claim market share in the autonomous vehicle space.
“GM’s AVs will be ready for commercial deployment, without human drivers, much sooner than widely expected (within quarters, not years), and potentially years ahead of competitors,” Deutsche Bank’s Rod Lache wrote in a note, according to CNBC. “We believe that businesses built off of this platform will ramp much faster than is widely expected. This is a massive market opportunity.”
Investors are noticing, finally. Shares in GM have gained roughly $10 apiece over the past three months, rising to $45.47 Wednesday from $35.50 in the middle of July — and once again making GM the most valued American automaker. Deutsche Bank rates it a buy and predicts the shares will broach $50.
Tesla is not, nor will it be, the only electric play in the global auto business. As much as its charging infrastructure and power-generation capability differentiate its investment thesis from traditional automakers, its vehicles soon will face stiffer competition than they have so far.
If the likes of GM, to name one, perform in the self-driving space as some analysts are beginning to think they will, Silicon Valley rules won’t shield Tesla from the kind of scrutiny it deserves — and the smart money people may begin to hedge their bets more than they already are.
Equity markets and consumers motivated first by self-interest, not loyalty, can be harsh disciplinarians. That’s a lesson this town and its automakers had to learn the hard way.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.