Tesla’s been the hottest stock on the market over the last year, but most people have overlooked what we think is the most important reason for their success. It’s the reason their shares soared 695% during 2020 and they landed on the main stage with their inclusion in the S&P 500. Mentioned in today’s commentary includes: Alphabet Inc. (NASDAQ:GOOGL), Intel Corporation (NASDAQ:INTC), Microsoft (NASDAQ:MSFT), General Motors (NYSE:GM), Ford (NYSE:F).
Now, Tesla’s delivered a blueprint for how to thrive in the post-pandemic world. While major automakers have been spinning their wheels fighting to survive after a gut-wrenching year. Tesla’s moves have Morgan Stanley analysts putting them in a completely separate camp, comparing them to services companies like Roku, Tinder, Apple, and even video game makers. And after turning their focus to building more valuable assets around the cars everyone’s pining after.
Their market cap now stands at more than 5x the value of GM, Ford, and Fiat Chrysler combined. This is why Business Insider says, “Tesla’s services could be worth more than its car business.”
This revenue-driving strategy is a huge part of why many are comparing Elon Musk to Apple’s legendary founder, Steve Jobs.
More and More Revenue Streams
Anyone betting against Tesla at this point hasn’t been paying attention over the last year. In fact, those who bet against them in 2020 lost a total of $38 billion in all.
That’s because not only has Tesla been riding the electric vehicle boom that’s taken over the auto industry…They’ve also gone beyond that to add services and recurring revenue to their model. With this, they’re not just selling a car and banking on one sale every 5 to 10 years.
They plan on driving massive amounts of revenue each month from their various services provided to their customers. Among them, they’ve been building services out for their upcoming autopilot software, car insurance division, and the long-awaited Tesla network – providing access to charging stations around the nation.
Apple has been following a similar path, becoming far more than just a computer company in recent years. With their release of the Apple One bundle, they now provide streaming music, TV shows, and movies, news, and arcade games. By 2025, Apple services are expected to top $50 billion in revenue, even outearning the iPhone at that point.
Thinking Outside The Industry Box
Over the last several decades, major automakers have mainly been seen as one-trick ponies. They may come out with some new bells and whistles every few years, but by and large, we’ve all come to know Ford and GM as fairly predictable car companies.
Tesla, on the other hand, has gone out of its way to not become boxed in like the others. With a bigger vision of bringing green initiatives to their customers in any way possible, they’ve also branched out to produce home energy products.
In April 2015, they introduced a line of home batteries, called the Powerwall, that serve as energy storage systems in homes or businesses. These connect to your solar energy system at home, allowing you to store up power and use it for backup in case of emergencies.
The Future of Ridesharing
For years, Elon musk has been ahead of his time in the auto industry. When other major automakers were busy building just another four-door sedan, he managed to make electric vehicles a sleek status symbol that people were willing to pay top dollar for. With his goal of creating full self-driving cars in the near future, he’s also planning to disrupt the booming ridesharing industry.
Once Tesla owners are able to rent out their fully self-driving cars in the future, some people floated estimates you could make up to $30,000 per year in a robotaxi network when you’re not using your Tesla. However, Musk is also become infamous for overselling the self-driving dream with an overly ambitious timeline.
For example, he once said he expected to have over a million self-driving cars on the road by the end of 2020. Clearly, we’ve fallen well short of that goal, although major progress has been made in that area.
Apple had major news of their own recently, with leaks of an Apple car hitting headlines across the Internet. Like with Tesla though, we are likely still a long ways off from seeing anything actually come to market.
With many predicting an Apple car won’t be unveiled until 2024, realistically you may not be able to purchase one until sometime between 2025 and 2027.
Not to be outdone, however, traditional automakers are racing alongside of Big Tech to get ahead of this futuristic trend, as well. From GM and Ford to tech giants like Microsoft, Google and Intel, some of the most exciting breakthroughs in this industry are already coming to fruition.
Leading the charge is Waymo, a subsidy of tech giant Alphabet Inc. (NASDAQ:GOOGL). Waymo may just be the de facto leader in the emerging autonomous vehicle industry. It’s already had cars driving themselves across the United States for several years. In fact, in Arizona alone, Alphabet’s self-driving cars have logged over 6.1 million miles. To put that in perspective, that means that Alphabet’s autonomous cars have driven the distance between New York City and San Francisco over 2100 times. Or, as the company explains, “over 500 years of driving for the average licensed US driver.”
While these tests are extremely promising for Alphabet’s Waymo, there are still some hurdles to overcome. First and foremost, these lengthy trials took place in Phoenix, a city not exactly known for extreme weather.
While Alphabet’s Waymo gets a lot of credit for these massive accomplishments, a widely loved and wildly popular chipmaker is at its core. Intel Corporation (NASDAQ:INTC) and Waymo teamed up way back in 2017, and have worked together to fine tune their technology together ever since. Through their mutual knowledge of hardware and software, the tech giants have made leaps and bounds towards building the car of the future.
In addition to its efforts with Waymo, Intel has also been on the forefront of developing its own artificial intelligence and vision hardware. Back in 2017, it acquired MobileEye, a supplier of camera-based chips and software to the global mobile industry.
Another giant, Microsoft (NASDAQ:MSFT) is also getting into the game. Microsoft’s Azure cloud-based infrastructure and edge computing is going to be pivotal in this new industry. Not only will it allow automakers to analyze data and optimize their products, it will give them the opportunity to conduct advanced tests and simulations to fine-tune their software in risk-free environments. It’s even partnering with leaders in the auto industry such as Renault and Audi.
Mark Everest, Information Systems Development Manager, Renault Sport Formula One Team noted, “There are so many factors that are constantly changing and can affect race strategy: track temperature, tire performance, what the other drivers are doing. Simulation helps us quickly understand how to configure the car for a particular track.”
Traditional automakers aren’t going to be left behind, either. Both Ford and GM are betting big on this emerging new industry.
In October, auto industry legend, General Motors (NYSE:GM), announced that it’s majority-owned subsidiary, Cruise, has just received approval from the California DMV to test its autonomous vehicles without a driver. And while they’re not the first to receive such an approval, it’s still huge news for GM.
Cruise CEO Dan Ammann wrote in a Medium post, “Before the end of the year, we’ll be sending cars out onto the streets of SF — without gasoline and without anyone at the wheel. Because safely removing the driver is the true benchmark of a self-driving car, and because burning fossil fuels is no way to build the future of transportation.”
Ford (NYSE:F) for its part, has recently revealed plans to launch its self-driving business in 2022. The new vehicles, in partnership with Argo AI, a Philadelphia-based autonomous vehicle startup, will include major upgrades from advanced Lidar technology and high resolution cameras. Ford plans to test these vehicles in Austin, Texas; Detroit; Miami; Palo Alto, California; Pittsburgh and Washington, D.C. as early as this month.
John Davis, chief engineer of Ford’s autonomous vehicle subsidiary explained, “We’re confident that we’re on the path to launching a safe, reliable and affordable service. And, we look forward to telling you more about how this service will ultimately help make people’s lives better.”
By. Paula White
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