Featured Post

This is the Kodak Moment for the Auto Industry

Plug-In Drivers Not Missin' the Piston Electric vehicles are here to stay. Their market acceptance is currently small but growing...

Sunday, August 7, 2022

Tesla's Biggest Advantage

In many ways, Tesla is unlike other car companies. It's not just that they aren't saddled with a legacy combustion business; there are EV start-ups like Lucid and Rivian that are similar in this respect. So what is it that makes Tesla different? 

We've previously written about some of these differences here (Tesla's moats) and here (Tesla is far more than a car company.) These moats certainly are important; however, this entry is not going to repeat those. Rather, this entry is about an additional advantage, one that isn't structural, and perhaps it's their biggest advantage.

A Matryoshka of Tesla Superchargers

Tesla was founded in 2003 (almost 20 years ago). Prototypes of their first car (Tesla Roadster) were officially revealed on July 19, 2006, during an invitation-only event at the Santa Monica Airport.

Just getting to this Roadster prototype phase in 2006, the company had already learned several lessons the hard way. The plan was: use a Lotus Elise body, an AC Propulsions motor, and commodity 18650 battery cells assembled into a battery pack that they'd design. The plan was simple, the execution not-so-much. 

Unknown Unknows

While creating Roadster, they ran into problems. Problems that they didn't even know existed until they tried to make something. The battery pack didn't fit into the existing Elise design. The motors controllers from ACP were hand-tuned analog devices; fine for a prototype, but not consistent nor scalable. Another unforeseen problem, there were no existing transmissions that could handle the torque that these powerful motors delivered. 

These problems were all eventually (mostly) solved and the Tesla Roadster came to the market in 2008. There was nothing like the Tesla Roadster out there. It was quick, sporty zero-emissions fun, but it was far from perfect. There were issues with hub flange bolts, 12V low-voltage auxiliary cables, and other things, but owners didn't care; they loved these cars. They were early adopters and they were willing to work through these issues. 

Tip of the Spear :: The Earliest Early Adopters 

This tolerance for quirks and imperfections is a part of being an early adopter. In fact, I'd argue that it's more than just tolerance. For early adopters, understanding these quirks and how to sidestep them to make a product do amazing things despite the quirks is part of the appeal. The earliest of the early adopters (sometimes called innovators) have a sense of wabi-sabi (侘寂), loving something because of its imperfections; not in spite of them. They are in a club that not just anyone can join, paving the way into a new future. 

Because there was nothing else like the Tesla Roadster, this little niche flocked to Tesla. Tesla's initial customers loved the products and the company and their imperfections.

The Benefit of Time and Iteration 

By building a product, the unknown problems became known. Known problems can be fixed. This is what Tesla did. The innovation-flywheel turned a little faster with each revolution. These were the first steps to scalable, affordable, vehicle production.  

When you are trying to solve a big problem (such as how to make a fast, affordable, long-range EV) you run into a lot of smaller problems along the way. The problems often have layers and you must keep "peeling the onion" to solve them. It's a recursive nest of problems until you finally solve a fundamental issue, solving this allows you to pop-the-stack; reversing back up the layers, unwinding the problems of each layer with solutions from the layer below.

Innovation Flywheel

The faster that you can move around this loop, the faster your products improve. Tesla does not restrain themselves to 'model years' because this slows down their innovation time. Instead, the vehicles have detailed computer models that let employees test things out in virtual space first. If the computer models show that this would be a better product (better range, performance, cost, build time...) then it is prototyped and tested. A small change could go from idea to rolling out the door in new cars later the same day

As changes are made, the software in the car is updated to recognize this change and self-test this new functionality as each car rolls off the line. Each car is its own unit test system. This helps ensure quality and it allows the cars to self-diagnose issues when service is scheduled. This built-in self-test provides a safety net for innovation. If a change introduces an unexpected second-order effect, one of the thousands of self-tests can catch it before the vehicle goes out the door. 

Now Versus Then

Tesla has had the advantage of time. They've had more than a decade of runaway to make mistakes. The 2012 Model S won Car of the Year when it came out. If a startup were to release a car like that today, it would be panned as slow, short-ranged, inadequately thermally managed..., compared to the Model S of today. 

Tesla's biggest advantage is that they didn't have to compete with anyone else that was a pure-play EV manufacturer for the first decade and a half of their existence. Or said another way: Tesla's biggest advantage is that during their stumbling, skinned knees, learning, ramp-up mode, they didn't have to compete with, well, Tesla. 

Tesla's biggest advantage is that they didn't have to compete with Tesla. 

New Start-Ups Have A Bigger Challenge

Today's start-ups don't have a decade-plus of runway to try things, make mistakes, and learn lessons the hard way with sympathetic, enthusiastic early adopter customers. New EV companies have to launch a product that already has a decade of learnings in its initial release. It has to compete with EVs from the legacy automakers as well as Tesla. It is not impossible, it's just much harder. For example, Rivian's truck (RT1) is coming out and going head-to-head with the Ford F150 Lightning in many ways. Looking at the electric truck market, some buyers will be more comfortable buying one from Ford since they know where they can get it serviced and they know* Ford will still be in business five years from now. The road to profit and scale is not impossible for Rivian, but it will be a bumpy ride.

Tesla's Model S was introduced to a very different world than Rivian's truck. When the Tesla Model S came out, it was in a category of one. Model S didn't have to compete head-to-head with the likes of an electric Audi A7.

When the Tesla Model S came out, it was in a category of one. 

2012 Model S compared to 2022 Model S

What is the result of this innovation-flywheel running for a decade? As stated above, if a vehicle similar to the 2012 Model S were released today, it would not receive a warm welcome. To illustrate this point, let's compare the 2012 Model S to the 2022 Model S. 

2012 Tesla Model S

2022 Tesla Model S

Model S 2012
85 RWD
2022 Long Range
Dual Motor
Price (Long Range) $115,050 $99,990*
Price (inflation adj.) $144,069 $99,990
Range (miles) 265 375
0-60 4.3 sec 3.1 sec
Autopilot/FSD None - no cameras
(AP was intro-ed
in 2014)
AP standard,
FSD Upgrade
Rate (kW)
(5 miles/minute max)
(11 miles/minute max)
Gaming Chess, Backgammon,
a few 80s arcade
Equivalent to modern
game console, Steam
client support planned

* price as of 5/1/2022

As you can see in the table above, the Model S has improved significantly over the 10 years of its life. The current cost (esp. inflation-adjusted) is significantly less, yet you get a quicker car, faster charging, more range, better ADAS, and better infotainment technology. 

If Tesla (or anyone else) released a car today with the 2012 S price and specs, they would not win Car of the Year or enjoy the warm reception that Tesla had in 2012. This is the first-mover advantage and Tesla was given nearly 20 years to figure it out. 

Tesla's biggest advantage is that they didn't have to compete with Tesla.


Disclosure: I am long Tesla


  1. Something is a bit odd still, as it seems one can only comment as anonymous. Attempting to use your Google account causes the page to reload and you are allowed to post as...anonymous.

    Oddity aside, I tend to agree that Tesla has had a wonderful bit of runway so to speak while traditional automakers decided where they stand on the electrification front and the Lucids, Rivians, etc. of the world went through the various growing pains of bringing factories and vehicles to production and then trying to scale up said production.

    As it relates to the cost of the Model S today, while I fully agree that the equipment that you receive today vs back in 2012 is vastly improved, I am not as convinced that there is quite as much savings. As of today, the Tesla price quote includes an $8400 "savings" based upon 6 years of gasoline purchases. If you look at the actual price you would pay at checkout, the price is ~$112K give or take and depending on options. I of course made the sensible choice of dropping the silly 21" wheels and went with the 19" and saved over $4000, and received another 15 miles of range!

    Quips aside, it seems to me that Tesla is still largely enjoying the fact that they are the only player in the game. They are clearly spending a lot of money expanding capacity in various geos. I would tend to argue that the price of the car itself has been fairly flat - shady "You save this much!" factored into the cost shown to you is not my idea of cool.

    As you have noted in previous posts, I think true competition in the EV space is when we will start to see downward pressure on the price of the vehicle proper. The competitors in the ~$100Kish car space is increasing. I have no data on how saturated this market space is, but I think between the VW group, Lucid, the Mercedes-Benz Group and others we will be finding out sooner than later.

    The action seems to be in the Model Y space, where Tesla is rumored to be enjoying the savings allowed by the Gigapress and the 4680 cell. However, the price of a 2022 Model Y is up over the 2021 model significantly. I am curious to understand the specifics around this more, but if one were to simply look at the "price of a new car" $62,900 is a tough entry point for a large number of people.

    But back to the article, again, I agree that the "What you get" between 2012 and 2021 is incredible. I tend to feel that a significant amount of any savings Tesla is seeing is going more towards expansion, which is likely a good idea for them as people are still buying their vehicles by the boatloads, and expanding their capabilities means they will stay in their leadership space for longer. I know we like to chuckle at the legacy automakers, but I strongly feel that a couple of those dinosaurs are going to make a very strong push into Tesla's space and they will be forced to say "Game on!" - then the customer will really win!

    1. Thanks for the detailed comment. I have fixed the anonymous comment issue. I was trying to block spam comments and I was trying to block anonymous comments (not force comments to be anonymous). The settings are now corrected.