Tesla recently made headlines when it overtook Toyota as the most valuable automotive company in the world. That fact is pretty unbelievable when you compare the amount of cars each company sold last year:
Toyota sold about 10.7 million cars globally in 2019.
Tesla sold under 368,000.
Of course, Tesla has achieved its value based more on future potential than present accomplishments. The company, under the leadership of its polarizing chief executive Elon Musk, has paved the way in producing electric vehicles, at a time when the world as a whole is moving towards using more sustainable sources of energy.
But earlier this week, Musk made a subtle comment on Twitter that could majorly upend the auto industry. In response to an article in Teslarati highlighting German automakers’ attempts to bridge the gap between Tesla’s technology and their own, Musk tweeted the following:
“Tesla is open to licensing software and supplying powertrains & batteries,” tweeted Musk. “We’re just trying to accelerate sustainable energy, not crush competitors!”
Consider for just a moment the brilliant potential of Musk’s statement.
In addition to leading its rivals in EV production (and the larger style batteries needed to support these), Tesla is also at the forefront of utilizing modern technology in its vehicles. In fact, many have described Tesla as “a tech company that happens to make cars.”
In contrast, though, Musk has repeatedly spoken on the challenges of actually manufacturing cars at consistent quality, as well as delivering them. At one point, he described Tesla’s journey as going from “production hell to delivery logistics hell.”
On the other end of the spectrum, you have legacy automakers, like Toyota, Volkswagens, GM, and Ford. Much due to Tesla’s rise, these companies have been forced to advance their own electric vehicle efforts. This has come at enormous cost and use of resources, as they were basically starting from scratch.
However, the legacy automakers excel where Tesla is weak: namely, manufacturing and delivery. Since they’ve been making cars so long, they’ve developed huge factories, along with consistent and refined processes.
But what if Tesla could reach a deal with automakers to license its strength–software and battery technology?
- Legacy automakers can (almost) immediately catch up to Tesla’s tech, allowing them to focus on what they’re good at: manufacture and delivery.
- Tesla makes lots and lots of money from the licensing deal, allowing it to continue to lead the way in software innovation.
- The general population benefits the most, as the auto industry as a whole moves closer to its goals of using more sustainable energy, and incorporating new technology in its vehicles.
That’s what I call: win-win-win.
It all makes sense
If you’re surprised by Musk’s tweet, you shouldn’t be. In fact, for years Musk has insisted that his primary goal is not to compete with larger automakers, rather, to win them over.
Musk articulated this as early as 2014, in a notable blog post. There he announced that Tesla would not initiate patent lawsuits against other companies who wanted to use its technology. This was done, said Musk, “in the spirit of the open source movement, for the advancement of electric vehicle technology.”
Musk explained that Tesla initially pursued patents in case larger car companies wanted to copy its technology and then use their massive resources to put Tesla out of business. But it didn’t take long to realize the opposite had become true: At the time of publishing the post, legacy automakers’ electric vehicle programs were “small to non-existent.”
“Given that annual new vehicle production is approaching 100 million per year and the global fleet is approximately two billion cars, it is impossible for Tesla to build electric cars fast enough to address the carbon crisis,” Musk wrote. “Our true competition is not the small trickle of non-Tesla electric cars being produced, but rather the enormous flood of gasoline cars pouring out of the world’s factories every day.”
So, here we are. Six years later, and Tesla is no longer the new kid on the block. No longer the upstart car company the others thumb their noses at.
But this doesn’t have to be a zero-sum game. It doesn’t even have to be a competition, at least, not with Tesla.
If the legacy automakers are smart, they’ll jump at the opportunity to negotiate a licensing deal that makes sense for both themselves and Tesla.
Because whoever figures it out first just may set themselves up to be the second most valuable car company in the world.