From 2007 to 2018, Apple’s revenue and market capitalization grew roughly tenfold1—making it the most celebrated technology growth story of the 21st century. As we look at Tesla in 2018, we see the outlines of another Apple in the making. Tesla resembles Apple in three key areas: a strategy of vertical integration, an imminent product inflection, and a business model transitioning from hardware to services.
Tesla picks up on Apple’s vertical integration strategy but takes it further. In addition to hardware, software, and retail, Tesla also owns and operates manufacturing facilities as well as a global supercharger network. Vertically integrating battery pack production at its Gigafactory is why Tesla is the only high volume EV manufacturer today. Had Tesla waited for the supply chain to catch up, it wouldn’t have been able to launch and scale the Model 3 for years. In our view, this is a key reason why no auto maker has released a viable competitor to the Model 3 thus far and why no company will be able to do so until 2020 at the earliest.
Not surprisingly, Tesla has yet to break into the mainstream—like the Mac line from the early 90s, its cars are simply too expensive. Just as central processing units (CPUs) and memory prices were too high for the mainstream in the 90s, battery costs today are too high relative to the mature internal combustion engine. According to our research, however, the cost of lithium ion batteries will fall below $100/kWh, achieving cost parity with gasoline cars by 2022, as shown below. Interesting to note, Elon Musk stated that by the end of 2018, Tesla likely will be at $100/kWh, placing it roughly three years ahead of competition.
It’s hard to overstate the significance of this cost decline. Returning to the Apple analogy, the transition to mobile computing destroyed the moat around the PC ecosystem that had been built over decades—what mattered was, “Who is best at mobile?” Likewise, the transition to EVs obsoletes decades of gasoline power technology—the key question becomes, “Who has the best electric platform?”
Not surprisingly, Tesla has yet to break into the mainstream—like the Mac line from the early 90s, its cars are simply too expensive. Just as central processing units (CPUs) and memory prices were too high for the mainstream in the 90s, battery costs today are too high relative to the mature internal combustion engine. According to our research, however, the cost of lithium ion batteries will fall below $100/kWh, achieving cost parity with gasoline cars by 2022, as shown below. Interesting to note, Elon Musk stated that by the end of 2018, Tesla likely will be at $100/kWh, placing it roughly three years ahead of competition.
It’s hard to overstate the significance of this cost decline. Returning to the Apple analogy, the transition to mobile computing destroyed the moat around the PC ecosystem that had been built over decades—what mattered was, “Who is best at mobile?” Likewise, the transition to EVs obsoletes decades of gasoline power technology—the key question becomes, “Who has the best electric platform?”
Tesla and Apple share a remarkably similar narrative. Both companies sell hardware differentiated by a unique user experience made possible by deep vertical integration. Both companies thrived under the leadership of an uncompromising and often unpredictable CEO. Both have been ridiculed for being different, have been put on “death watch”, and have attracted the scrutiny of the SEC. Yet both companies have delivered when it matters most—making products that competitors can’t match and that customers camp out overnight to buy.
Every successful growth company goes through a golden era when its organizational competencies, its product lineup, and market conditions align, resulting in years of rapid revenue growth. For Apple, that time was from 2007 to 2012. For Tesla, we believe the golden era is just beginning. As shown above, Tesla’s revenue growth is tracking closely to Apple’s from the mid 2000s. The Model 3 production ramp and a rich product pipeline could be signaling the beginning of a growth inflection for Tesla.
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