From Tech Maven Fritz Maffry: A Tale of Three Companies

Here’s another installment on the tech sector of the economy from my colleague Frtiz Maffry:

The trends and the issues ahead of three American-based car companies illustrates extraordinary divergence of fortunes, strategies, and valuations that pertain to their businesses.

Tesla is lengthening the gap between themselves and all the other players. They ramped up a successful Model 3 roll-out which is one of the great business feats of the decade, maybe decades. They continue to demonstrate mastery over some increasingly important disciplines that their competitors are not even approaching. Examples include: battery scale, software updates, charging infrastructure with solar, variety of electric formats, and cycle time on the development of new models.

Ford, on the other hand, is in last place; they are making lots of adjustments, but one gets the sense that this is “too little too late,” executed by people not really great at the next stage of the game. Yes, they are selling huge volumes, but the market questions their readiness for the next levels of the competitive contest.  They have a great history, but one that is not aligned with where their competition is believed to be going. Note their stock price and valuation. Now financial analysts are predicting a toughening of the auto cycle as it looks to be heading towards reduced volume and many new dynamics in terms of competition, such as Tesla, autonomous vehicles, and trade wars with China that are impeding go-forward planning.

Tesla

The Model 3 roll out was successful.  Of course it had issues, but on balance it was a feat that should be getting much acclaim. Next, Tesla is planning the crossover based on the Model 3 architecture, which should be a volume driver in the small hatch/crossover segment.

Also, there is further demonstration of advancements and timing of autonomous tech. In addition, the company is adopting the more powerful battery cell format, the 21700. Tesla is poised to march forward rapidly and to utilize new advancements brilliantly. As Elon often highlights, their best product is the factory and the machines that builds all their other products.

Currently, Tesla is in a virtuous reinforcing cycle, and it will be interesting to see if the competitive response can break that in any way; thus far it is looking like Tesla will disrupt more than they will be outdone by the competition.

Tesla is a major factor in creating profit reduction that is almost certainly expected for the automotive segment in general. Elon will start rolling out new product offerings to disrupt large segments where they do not really play currently. Tesla is not a one-trick pony; they will be a ten-trick pony soon.

GM

GM pulled out the stops and went outside their corporate culture to develop the Bolt, and are now readying autonomous tech through their emphasis on Cruise Automation (now a part of GM). Despite an admirable product development effort, they had a lackluster market intro, featuring a poor sales emphasis and a lack of focus on go-to-market. Volumes were low, dealers were not inspired, and brand cachet was nowhere near the level set by Tesla.

This is, of course, another statement of the power that Tesla wields.  Here, GM did so many things right and still are not even close to staying up with Tesla. This foretells how hard it will be for the other makers to stay with Tesla as well, particularly with half-baked efforts or straddling the fence with both internal combustion engines and electrics. On one hand, they developed quite a product with a special effort and design with LG Chem; on the other they were not full-purpose like a company all-out pulling for a great outcome. By contrast, Tesla’s effort was full-on, and the difference in results is telling. Tesla is walking away with volumes, now more than the other players combined.

Ford

We’re not sure they have the right folks at the helm, despite their change-up. They shifted management, and they are changing strategy, but the world might be readying to change faster than Ford itself. They live in an F-150 world, and that may not be where the market is going. They are selling a ton, stock is down, and they are not regarded as particularly potent or on the mark with their initiatives that are required to be ready for competing in the other areas. We think layoffs and weakening results are likely, and obvious difficulty in trying to “catch up” to those who moved ahead earlier with more purpose. They have so much institutional memory that it is hard for them to adjust at the speed their competitors are. Change will be so hard, and they are not used to it. Tesla, by contrast, is not used to anything else.

Uber

Uber is expected to be in position for a $120 billion IPO. They are not in a stable dynamic; what will Tesla and Google do, when neither like to play second fiddle. Uber is going to offer fully electric rides in London, setting up the autonomous future. They made major investments in electric bikes and electric scooters, and they will be enemies of (or own) firms like Lime or Bird soon. In addition, they have to worry about the much larger capitalization of firms like Apple, Google, Amazon who will enter that space.

Something big will break out here; this dynamic of competition, played forward a few moves, points to some huge competitive battles, with the Super Techs dominating because of their deep pockets and ability to take a loss in a segment in pursuit of growth and new markets. Note that Uber is increasingly purchasing/building its own charging infrastructure as strategic, so as to be independent of the whims of utilities and city planners. They have to be ready to roll out and execute rapidly with superb interoperability, and they are preparing for just that.

Earlier I had said that Softbank had a $2 billion investment in Uber, but I believe I was wrong; it is by another source and it’s a $7 billion dollar investment. Yes, that is right, $7 billion.

Lyft

Lyft is gaining share on Uber and is now the “Pepsi” to the Uber “Coke” positioning. They are still behind, but they are now building commercial super duty grade scooters, as is Lime. When the unstable dynamic breaks, they will be a dance partner to one of the Super Techs.

In Trade with China, the Next Chapter Is Considerably More Difficult for All Involved

Companies on both sides of the Pacific will now start going under. The hard nut is that U.S. importers will waste a fortune to plan on a life without a Chinese supply chain and to make the changes necessary to play within those parameters. Then there is the other possibility that they have to invest so much, only to find it was laid to waste based on resolution of the trade wars.

Tens of thousands of US firms will now be facing becoming noncompetitive in very short order. There will be pull-backs on industrial investment in China, and they will start to accumulate in effect. Since the earliest parrying the costs have been negligible; now they will be large and real to both parties. Uncertainty will start to have a cost to both economies.  We still haven’t heard the formula for a compelling win/win.

Still So Little on Manufacturing

Besides my mentioning that this is an obvious area that needs attention, only one article has highlighted this. If China is out of good graces, then a new supply chain with greater footprints of U.S. manufacturing seems as if it should be getting more attention. How far things have to go before there is that rapid transition, it’s hard to tell, but it will be most interesting to watch. It is not really highlighted how much current business planning is stuck in neutral until something further clarifies.

A Little Mention of Space X Valuation if It Were Public

Elon is running a more efficient advanced rocket company, and that company has huge upside. Of course, Space X has a most capable CEO. It is a private company, and Elon likes the flexibility and operating environment that goes with it.  Space X will be interesting to watch, as they are efficient, competent, and moving unlike the military industrial/governmental players before in the segment.

Google owns quite a bit of Space X, and there is vibrant cross fertilization and best practices sharing between Space X and Tesla. This is good for all concerned.

In summary, the feat of the decade from a business innovation standpoint is the ramp up of the Tesla model 3. It will now be the gift that keeps on giving, as technology and process mastery that comes out of that effort will have Tesla ready to take on many other segments with advantage. Farming, trucking, autonomous shuttles, AI, energy and storage; the list just keeps going. Let Elon have a nap and then get ready for the next successful chapters of disruption. Same with Amazon.