Elon Musk Admits Apple Is a Competitor
At this year’s Code Conference, Elon Musk spoke about a whole range of things. From artificial intelligence to landing on Mars, Musk was pretty open with his thoughts.
His most interesting comments were about driverless cars.
As the CEO of Tesla Motors Inc (NASDAQ:TSLA), Musk is one of the people trying to make self-driving cars a reality. His firm even uploaded driverless software to a select group of Tesla “Model S” vehicles. The results were pretty fascinating.
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Although Tesla hasn’t perfected self-driving technology (yet), the company is getting pretty close. However, it isn’t the only company getting close. Rivals like Apple Inc. and Alphabet Inc are rumored to be in pursuit of their own self-driving projects.
Musk addressed those rumors on Wednesday.
“Google’s done a great job at showing the potential of autonomous transport, but they’re not a car company,” Musk said to Recode’s Kara Swisher and Walt Mossberg. “So they’d potentially license to other companies.” (Source: “Elon Musk: Google won’t compete with Tesla on self-driving cars—but Apple will,” Recode, June 2, 2016.)
That’s an indirect way of saying he doesn’t view Google as a threat. But when pressed about Apple’s strategic moves, Musk admitted they might pose a direct threat to Tesla.
However, he also said that Apple might be a little too late to the party: “I’d think there will be volume production no sooner than 2020,” he said about Apple. “Is that too late?” (Source: Ibid.)
But it’s not like the market is restricted to just these three players. There has been a surge of entrants to the driverless technology market, including four or five billion-dollar startups funded from China. The added competition seemed to bother Musk.
“There have been so many announcement of autonomous EV startups that I’m waiting for my Mom to announce one,” he joked. “It’s like, Mom, you too?” (Source: Ibid.)
Beneath the wit, there was a certain recognition that increased rivalry could damage Tesla’s prospects. After all, Musk says his company was meant to fundamentally alter transportation, and technically, it has.
All the major automakers are rushing to build driverless tech and electric vehicles, because Tesla shifted its priorities. The Model S earned rave reviews from various publications, not to mention the distinction as the best-selling car in its class.
That created a sense of urgency traditional automakers might lose out on if they don’t catch up with Tesla’s groundbreaking work. However, the company may have shot itself in the foot. What happens when other automakers do catch up?
GM, Ford, Toyota, and Fiat all have infrastructure that Tesla is only just building. These companies are established automakers operating at economies of scale. They would be able to out-price Tesla in a heartbeat once the technology gap is closed.
Don’t get me wrong; none of this is to say that Tesla can’t survive. The company has a strong enough brand to make it in a competitive market, but anything short of a market-conquering future would mean that TSLA stock is overvalued.
Tesla’s share price is currently 220X above its prospective earnings. Investors are extremely bullish on Tesla’s future and so am I, but the elevated price-to-earnings ratio might be an impossibly high expectation.