I love Tesla (TSLA). Who doesn't? Even passionate short-sellers and Elon Musk critics often offer a caveat that their bearishness is on execution, not mission. Mind you, there's some excusable irony that the namesake of Nikola Tesla, the genius behind alternating current, is using his name to build DC-powered products more aligned with his nemesis, Thomas Edison. Nevertheless, Tesla is a brand that anyone can get behind, as it has impressively revolutionized the world's opinion of EVs, making them faster, sleeker, and more tech-enabled than their carbon-contaminating counterparts. Tesla's core tenet a mission to end our dependency on fossil fuels, which touches all of us who believe in such things.
However, Tesla is not just a car company. Tesla has its hands in many next-generation technologies, which afford the business opportunities for expansion into various areas. In addition to cars, Tesla is pioneering solar cells, power storage, AI, and more.
Could Tesla compete with Apple?
Apple (AAPL) has arguably enjoyed a virtual "monopoly" of sorts in the luxury consumer electronics for over a decade. It is ubiquitously accepted as the leading smartphone product on the market, even considering Samsung's and Google's recent offerings. As Apple has ironically shifted its focus away from product innovation and toward sales and marketing, consumers are actively seeking alternatives. Even Elon Musk has commented on Apple's failure to innovate of late.
It's arguable that Apple's brand is fading while Tesla's is booming. I, for one, believe Tesla could compete in smartphone sales.
The case for Tesla as a smartphone company
In my opinion, more than any other company on the planet today, Tesla has an opportunity to compete in the luxury smartphone space, presently enjoyed only by Apple. This opportunity offers massive growth potential for a brand as ubiquitously loved as Tesla. It's my hypothesis that if Tesla isn't already quietly working on a smartphone, they will eventually pivot to do so, as the opportunity is too great to pass on.
Some would argue that such a pivot doesn't fit into the "Tesla vision". Ironically, though, Tesla himself first predicted smartphones in 1926, so who knows, if the company's name is any indicator? (Again with the irony - I know!)
Whether smartphones are on its radar or not, Tesla has many of the necessary puzzle-pieces already put together:
- They've already built all the tech necessary to begin making smartphones
- They've begun taking the first steps toward a developer marketplace
- They have the retail outlets in place to demo the products to consumers
- They have an industry insider on the team now
1. How Tesla's tech == smartphones
There are various ways Tesla's tech is largely overlapping the technology of smartphones. While not technically a smartphone, a Tesla 3 has many of the core components necessary to build one. Tesla's team has the core competency to build highly intuitive touchscreen interfaces, which could easily pivot to smartphones if the company chose to.
- Tesla Model 3 dashboards are essentially tablet computers. They're also beautiful, intuitive, and fully proprietary: everything one would expect from a high-grade smartphone.
- Tesla has created its own fork of Linux for its dashboard operating system, rather than relying on Android. While not necessarily indicative of intent to move into electronics, this choice certainly paves the way.
- Tesla cars are equipped with built-in cellular connectivity, which is used for access to Tesla's web-based services and data streaming.
- Finally, the decision of Tesla to move away from Nvidia and begin manufacturing its own chips is a further indication that they are platform-minded.
2. How Tesla can bridge the App Marketplace moat
The app marketplace was once a massive barrier to entry for the smartphone space. This was even a hindrance to Android, an early entrant, and ultimately proved to be a nail in the coffin for Windows Mobile, which never attained ubiquitous adoption among app developers.
However, Tesla may be able to more easily overcome it via the industry shift toward using app-building tools like React Native and Angular Velocity vs. native development in platform-specific software development kits (SDKs). If Tesla were to release an SDK today, it could likely be wired up into React Native et al, and a reasonably-sized marketplace established within months, instead of the years it took in the past.
Tesla has already taken some steps in the direction of building out a formal SDK, releasing much of its software as open-source to developers - which is an indicator they may want to attract 3rd-party apps into the Tesla ecosystem.
3. Tesla's established consumer retail infrastructure
Tesla has over 100 stores in the US, and close to 150 internationally. That's in total a similar count to the number of Apple Stores that existed in 2008. Tesla stores are not dissimilar to Apple's, with a bright, airy, open feel, company evangelists meandering around with tablets, eager to answer questions, and halo products strewn around on the sales floor for people to play with.
It's the same low-pressure sort of environment that draws people in and creates a sense of excitement. Consumers love the Tesla store experience. With the added advantage of Tesla cars acting as halo products, I believe Tesla consumer electronics would fly off the shelves faster than they could stock them.
4. Tesla's chairwoman is in telcom and networks
Tesla's new board chairwoman, Robyn Denholm, hails from Telestra, an Australian mobile phone company, and previously Sun and Juniper, providers of networking devices that are components of mobile networks.
While not necessarily indicative of intent, having a Telcom exec on the team could help pave the way into the smartphone space, if Tesla went in that direction.
Tesla beyond smartphones
If Tesla can successfully compete in the smartphone space, there's a lot of additional opportunity for them in other areas of consumer electronics.
Home automation and security, and other areas of IoT are all obvious opportunities for Tesla, which is currently building next-generation solutions for home electricity. Furthermore, as a leading developer of AI, Tesla could even venture into the world of personal assistants and home entertainment.
It's not a very big stretch to consider a Tesla brand that permeates all home and personal electronics categories.
We'll have to wait and see
Will this scenario come to fruition? The market certainly seems to be begging for a true competitor to Apple (i.e. not another Android device), and no other company in the world is poised to do so as Tesla is.
However you slice it, smartphones and the margins they bring, would certainly pay for a whole lot of "real" innovation for Musk and Tesla. There's no argument that leveraging the brand in this way would be a bad concept to test.
The main problem with the smartphone path is it doesn't cleanly fit into Tesla's core tenets. Could the vision be expanded to imagine a pan-electronics device manufacturer? The name certainly doesn't exclude such a thing. Would the world still get behind such a brand?
There's likely only one person in the world who knows for sure if Tesla's vision would ever look in this direction. I guess we'll have to wait and see if this is anywhere in Elon's master plan.
Disclosure: I am/we are long TSLA.