- Over the course of about two decades, Tesla has established a micro-monopoly over the electric car market.
- But to survive, it has had to charge a lot for its vehicles, which runs counter to CEO Elon Musk's master plan to kill off the internal-combustion engine.
- It's possible that Tesla will never face meaningful EV competition, despite numerous companies jumping into the action.
- But eventually, Tesla could end up monopolizing data, and that would lead to problems for the company.
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Silicon Valley's biggest problem is that it hates competition. And by hates, I mean structurally despises it, from soup to nuts: venture capitalists pretty much want to invest only in startups that promise to completely dominate markets, raking in as close to 100% of potential gains as possible.
It wasn't always like this: The first wave of technology firms, from Hewlett-Packard to Apple to Microsoft, emerged from the model of fierce, government-monitored competition, leading to a lot of innovation and a beneficial mix of great products and great prices. That's how we got computers on our desks, on our laps, and in our pockets when, decades ago, they required entire buildings.
The second wave of tech innovation, based on the internet and later mobile computing, turned venture capitalists into venture monopolists. That why we now have so few companies providing vast numbers of uses with essential digital products and services. And this state of affairs has been valorized, notably by PayPal co-founder Peter Thiel, who infamously (and influentially) argued in 2014 that the conventional wisdom concerning monopolies is bogus.
"All happy companies are different: Each one earns a monopoly by solving a unique problem," he wrote in a Wall Street Journal op-ed to support his book, Zero to One: Notes on Startups, or How to Build the Future. "All failed companies are the same: They failed to escape competition," he added, riffing on Tolstoy's insight.
An unhappy Elon Musk
It isn't worth debating whether Thiel is right or wrong. A successful business wants to aspire to the condition of monopoly, full stop. But that raises the question, "Is that good for customers?" And while the answer can be yes, a dynamic, capitalist economy has usually encouraged robust competition on the assumption that the key to consumer happiness is a fair market price, not a price established by one player and then charged as what economist term a "rent."
Thiel's PayPal partner, Elon Musk, has found himself in a situation that, with just a bit of a stretch, fits the definition of a monopoly. Tesla is selling nearly all the electric cars that consumers are buying. Various competing products from startups and incumbents aren't making a dent in Tesla's business. And Tesla is taking advantage.
In general, the auto industry is a good example of how competition has led to a lot of consumer choice and a degree of predictability about prices. A Toyota Corolla is going to be a good car, and it's going to cost about $20,000, base. Likewise, a Honda Civic. There's abundant demand for cars at that price, and so the market in the US has performed superbly in inviting companies to meet that demand.
In the electric-vehicle space, however, demand isn't being met. It's almost impossible to buy an affordable, new EV, one that costs less than $500 per month on a typical auto loan. Tesla's cheapest Model 3 sedan is $38,000.
Musk is aware of this, and he isn't happy about it. His overarching goal is to get as many EVs on the roads as possible, Tesla-badged or otherwise. But for now, Tesla needs to sell expensive EVs to survive. Ironically, survival has yielded a monopoly, and Wall Street recognizes it: That's why Tesla's shares are up over 8,000% from the company's 2010 IPO and the market cap now exceeds every other carmaker's, along with those of some of America's biggest companies.
Musk doesn't care about money
If Musk had his way, he'd keep building factories and EVs all over the world, using Wall Street as an ATM to fund the expansion, and get millions of electric vehicles on the road in the next decade while losing money on everything. To be honest, that could be construed as a virtuous monopoly. Amazon, after all, has at times been content to remain profitless while offering consumers almost everything they want, from swift deliveries to rock-bottom prices.
However, Tesla is on the way to owning the entire EV market and capturing all of its future global growth, as a matter of course. Barriers to competitive entry are very, very high — it's monumentally expensive to develop and manufacture just one automobile — but the established carmakers who have the money and expertise haven't taken any meaningful market share away from Tesla, and it's unclear whether startups such as Rivian and Lucid have the potential to catch up.
In the jargon of investing, Tesla doesn't just have a protective moat — it has a veritable ocean.
In this respect, Tesla is the greatest monopoly Silicon Valley has yet produced. And nobody seems particularly troubled by it. Except for Musk, who'd like to sell a cheaper car, and folks like me, who value market competition for its own sake. Thiel would insist that competing to compete is bad business because you end up competing away your profits and eventually go out of business, but so what? No business should be forever, and a business's erosion of profits just means that consumers are getting what they want or need at a great price.
Well, there is one other concerned party: the federal government, which is supposed to regulate the business realm to avoid monopolies and steward capitalist competition. Tesla is too small, and in too broadly competitive a market (autos generally, not just EVs) to attract antitrust actions. I've called Tesla's achievement a micro-monopoly, which is different from the real thing, but Tesla is preparing to scale up significantly, with new factories coming online, under construction, or planned for three continents.
It's the data that matters
So it's fair to assume that the micro-monopoly could be macro, in a decade or so. It wouldn't shock me if, in that scenario, Musk builds a $10,000 EV and sells it at a big loss, simply to execute his master plan. Imagine a world where one in four Americans, perhaps more, drives a Tesla. The traditional auto industry consolidates into two or three mega-manufacturers. Consumer choice is drastically reduced.
And now we have to consider that the largest business opportunity in transportation isn't selling cars. It's acquiring data, through networked vehicles. No one is sure who's going to end up owning this data, but for Silicon Valley, the paradigm is obvious: The network facilitator does. Facebook makes money off your updates, Google makes money off your searches.
This is the point at which Tesla could run into trouble with its monopoly power. The simple reason is that some critical aspects of its vehicle systems won't work without donated data. Autopilot, Tesla's semi-self-driving technology, already requires the entire fleet to donate data to shared learning.
Interestingly, a challenge to Tesla's monopoly, if this all comes to pass, would probably delight Musk. Because that would mean that Tesla got as big as he dreamed it would be, and the internal-combustion engine was killed off by competition malfunctioning for just long enough to save the planet from global warming. Maybe monopolies aren't so bad, after all. Just make them temporary.
This is an opinion column. The thoughts expressed are those of the author(s).
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