Industry Voices: Why Tesla is Automakers’ Best Friend

Opinion piece by Masahiro Aono, CEO of ACCESS Europe GmbH

Before we look at why automakers should see Tesla as their best friend, let’s examine the core of the difference between Tesla and other automotive manufacturers.

Is it that Tesla has a charismatic CEO, or that it was the first to make EVs in high volumes (FYI: the first Porsche was an EV, the Phaeton Egger-Lohner C.2, manufactured in 1898), or that it is generating ongoing subscription revenues from car owners?

Although important, I don’t think the above fully explains the Tesla difference. Looking at the table above, we can see that most traditional carmakers have market caps equal to less than six months revenues, while Tesla is valued at 7.5 years of revenues! I believe the reason for this, and the main difference between Tesla and almost all other manufacturers, is that Tesla is valued as a tech stock, while others are valued as manufacturing companies. It’s the stock analyst’s belief that Tesla can grow like a tech company that accounts for Tesla being valued at 7.5 years of ’22 revenues, while Ford is valued at just 4.5 months revenues.

When a typical car can now have more lines of code than a fighter jet, I’m sure every automaker CEO thinks that they are leading a tech company that’s moving towards a software defined car future. This shift has a number of drivers: software-based systems can provide enhanced safety features such as automated emergency braking and lane-keeping; it can also provide more efficient fuel economy and meet the increasing demand for in-car entertainment systems and connected services, such as streaming music and navigation. Finally, the development of autonomous driving technology is perhaps the key driver towards the car becoming a software product.

How are carmakers meeting this challenge?  One example is Volkswagen’s launch of the CARIAD software group, whose initial goal was to produce 60 % of all software in VAG’s future vehicles. The CARIAD division aims to employ thousands and has a multi-billion-dollar budget to fulfil the promise of the software defined car. As Herbert Diess, the chairman, stated at a Volkswagen annual press conference: “Software will account for 90% of future innovations in the car.”. Similarly, the Mercedes Benz User Experience, or MBUX, which is advertised as “seamlessly integrated into your digital life and customizable with individual display styles” and “the system adapts intelligently to the individual driver” is another major in-house software initiative from an automaker.

However well Tesla is doing ten years from now, I believe its main impact, and why carmakers should now see it as their best friend, is that it has shown the route for manufacturers to profit from the evolution of cars to being a software product. When other carmakers follow the Tesla route and become rated as a tech stock, the financial benefits will be huge and enable them to drive the next wave of in-car innovations.

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