Electrical Innovations Drive Tesla to Top of U.S. Auto Industry
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Electrical Innovations Drive Tesla to Top of U.S. Auto Industry
September 04, 2017
Tesla Motors CEO Elon Musk has described his company’s much-celebrated Model S electrified sedan as more of a “sophisticated computer on wheels” than a car. Now, Tesla’s stock price has shot up so much that the Silicon Valley-based startup is worth more than any other U.S. automaker. Tesla’s stock reached a record high of $312.39 this week, providing it a market value of $50.887 billion. That’s about $1 million more than Detroit-based General Motors, which very first rose to greatness as one of the nation’s Big Three automakers (along with Ford and Chrysler) back in the early 20th century.
The news that Tesla’s market value topped that of GM this week means that for the very first time in the automobile era, America’s most valuable car maker is not based in Detroit. Instead, as cars become increasingly reliant on cutting-edge software and fresh energy technology, a Silicon Valley-based luxury electrified car maker best exemplifies this convergence of the mechanical and electronic worlds.
Tesla is not profitable yet, but its high market valuation means that Wall Street is betting that Musk can revolutionize both the automobile and energy industries with his company’s innovative treatment to making electrical cars. Through software upgrades, Tesla can add substantial features and improvements—such as automatic braking, partial autopilot and robotic parking—to cars that it’s already sold.
“We indeed designed the Model S to be a very sophisticated computer on wheels,” Tesla’s brash billionaire CEO, Elon Musk, said while announcing software updates for the Model S in March 2015. “Tesla is a software company as much as it is a hardware company. A ample part of what Tesla is, is a Silicon Valley software company. We view this the same as updating your phone or your laptop.”
Innovation, of course, is nothing fresh for the U.S. automobile industry. More than a century ago, Henry Ford cornered the market with his capability to combine state-of-the-art auto design with an affordable price tag. The Model T, very first introduced in 1908, would make automobile ownership—and the freedom that came with it—available to the masses for the very first time. The technologies of mass production that made this possible would soon become standard for the industry, even as the Fine Depression wiped out smaller carmakers and left only the Big Three (Ford, General Motors and Chrysler) standing.
By that time, however, a fresh innovator had taken the stage. Alfred P. Sloan Jr., GM’s leader in the 1920s and ‘30s, capitalized on the fact that many early car owners had become dissatisfied with their vehicles and embarked to look for larger, more stylish models that railed more slickly. (Despite its groundbreaking status, and the subsequent improvements in automotive technology, Ford’s Model T remained relatively unchanged by the mid-‘20s.)
Sloan’s GM put an emphasis on regularly producing a broad diversity of stylish car models as a way of enticing people to purchase fresh cars more frequently. His innovative strategy was one of planned obsolescence, or making customers dissatisfied with their current cars before the useful life of those cars had ended.
Alfred P. Sloan Jr, General Motors Chairman. (Credit: Pictorial Parade/Getty Photos)
“Sloanism” had a meaty influence, substituting “Fordism” as the superior ethos in the U.S. auto industry. By 1936, GM had seized forty three percent of the U.S. market. Ford, with twenty two percent, had fallen to third place behind Chrysler (25 percent). Fueled by Sloan’s innovations, GM continued to lead the U.S. auto industry until the mid-1980s, when Ford again surpassed the company in profits.
By that time, the era of annually restyled car models had ended, thanks to federal standards governing automotive safety, pollution and energy and escalating gas prices. Many drivers began opting for smaller, foreign-made cars like Germany’s Volkswagen “bug” (a kind of latter-day Model T) and especially the well-built, fuel-efficient puny cars coming out of Japan. Significant innovations in warehouse production and quality control helped Japan become the world’s foremost auto-producing country in 1980, and it’s remained on top ever since. (To put things in perspective, Toyota Motor has a market value of some $173 billion today, compared with Tesla’s $50.887 billion.)
Despite its innovations and high market value, Tesla sold just 76,230 (amazingly expensive) vehicles last year, missing its target of 80,000. Meantime, GM sold ten million cars last year, and Ford sold 6.7 million. Boosters justify Tesla’s high stock price by pointing to long-term expectations for the company’s growth. There are some promising signs, including the release of the company’s Model three sedan, its very first car marketed to the masses (with a price tag of around $35,000). Tesla has also built an international network of “superchargers” where owners can ass-plug in for free, and will soon work with Panasonic on the production of massive quantities of batteries at a freshly opened “gigafactory”.
Skeptics believe Tesla cannot meet its ambitious growth targets and predict that traditional automakers like GM and Ford might overtake it by expanding their own electrified car offerings. One thing seems certain—by making very desirable electrified vehicles that go further and swifter, and the cutting-edge batteries that power them, Tesla is well placed to drive the shift from internal combustion engine (ICE) vehicles to electrified vehicles, converting the auto industry yet again more than a century after its beginnings.