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Tesla’s real competitors might be in Silicon Valley, not Detroit

Tesla’s biggest competitors are likely not auto companies, but well-funded tech companies, according to Morgan Stanley’s Adam Jonas.

Though its cars are often often billed as electric versions of high-end sedans, Tesla’s total addressable market in fact overlaps with several companies outside the automotive space, particularly when it comes to autonomy and other cutting edge areas.

For example, out of 30 companies with permits to test autonomous driving technology on California roads, only 11 are established automakers, Jonas said in a note Friday.

The eight most recent permits issued went to firms outside the auto industry, he added.

Large automakers have invested in alternative fuel-based vehicles, but many have suggested that executives at these companies might naturally be reluctant to spend cash from sales of profitable internal combustion vehicles on money-losing electrics.

“We are not convinced that the shareholders of typical auto companies will reward those firms for deploying capital to develop technologies and business models that may be diametrically opposed to their prevailing and profitable businesses,” Jonas said.

Moreover, a “typical economic downturn” can deplete an automaker’s cash pile within 6-8 quarters, Jonas said.

Established auto players have made investments in autonomy and electrification already. For example, Ford recently announced a $1 billion investment in Argo AI, which makes technology for autonomous driving, and GM bought an autonomy technology firm called Cruise Automation in 2016.

But large, stable, technology firms such as Apple, which has a massive pile of cash, are involved in developing many of the technologies that could either directly compete with Tesla’s present or future products, or sit adjacent to them.

These include “artificial intelligence, machine learning, computer vision, robotics, virtual reality, facial recognition, energy storage … even satellites and space exploration,” Jonas said.

These firms have already demonstrated the ability to build teams and attract top talent in the autonomous area, Jonas noted. Tech companies with deep experience in monetizing data could also offer products or services similar to Tesla’s at a loss, in order to access valuable vehicle user data.

Jonas has written previously that Tesla’s addressable markets can be valued in the trillions and extend far beyond selling cars. There is tremendous potential upside for investors, but there are many players that could just as easily crowd new opportunities.

“Time will tell if there is room for coexistence, but Tesla investors must understand that as the addressable market expands, the company runs the risk of encroaching deeper into hallowed and competitive turf,” Jonas said.


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