Tesla / GM / Ford



Forget that Elon Musk is crazy, forget the Wall Street valuations, GM or Ford must merge with Tesla or be permanently left behind, on the way to the scrap heap.

It’s not where we are today, but where we are tomorrow. And twenty-five years of disruption tell us you can be too early, but nothing is as bad as being too late.

The automotive industry is looked at as a manufacturing business. That’s old school. Cars in the electric world will be all about software! Remember back in the last century, during the computer boom, how many different manufacturers there were? Packard Bell and Gateway even made major inroads. But manufacturing is a low-margin business. The winners were all software companies. Look at Microsoft, Google, Facebook, and Apple’s specialty is the integration of software and hardware. As for Amazon…it’s got great software, but it also possesses first-mover advantage. The first mover, if it continues to innovate, often dominates. As long as it reaches scale. Furthermore, the main driver of Amazon’s profits isn’t the delivery of goods, with so much human labor involved, but AWS, Amazon Web Services. And now Amazon is losing market share there because it’s become about adding software to the hosting package, read Monday’s Wall Street Journal story for edification:

Amazon’s Cloud’s New Boss Is Girding to Defend Turf in the Field Company Pioneered Adam Selipsky, in interview, says AWS aims to offer more cloud software as Microsoft and Google challenge its market dominance

Forget Rivian, forget all the American electric car startups. But don’t forget their Chinese brethren, already in the marketplace, and not only in China, a huge market. All these new companies have to push a heavy rock up a hill that includes not only software but manufacturing. And one of the reasons Amazon does so well is because it’s a trusted name. Do you really want to risk your hard-earned capital on an upstart that may not only work imperfectly but will leave you high and dry when the company goes bankrupt? I don’t think so.

Tesla is here today. As is its charging network. The company is selling as many units as it can produce. Unlike Detroit, Tesla is selling to Hertz AT FULL PRICE, assuming it can even deliver the quantity.

This is where GM and Ford shine, manufacturing. This is why Tesla needs one of them. To ramp up and dominate, so the company rides into the future as the undisputed leader, not only technologically, but in sales.

Detroit, i.e. GM and Ford, have expertise in manufacturing. They just don’t know much about software. Volkswagen, the first mover in the electric sphere amongst legacy manufacturers, has been hobbled by software issues in its march forward:

VW’s Hopes of Catching Tesla Hinge on a $30 Billion Tech Reboot – Internal battles, technical glitches, and a complex structure have hampered the German auto giant’s software efforts” (Bloomberg)

It’s harder than it looks. I.e. it may look like an electric car, but equaling Tesla’s experience is nearly impossible. So far, GM has put out the Bolt, a tiny auto with battery problems, and Ford has recalled its Mustang. Unfortunately, despite American nationalism, the Japanese still make the most trouble-free cars, which is a reason for Tesla to shy away from GM and Ford, but without scale, you’re doomed. That’s how Microsoft won, via scale, providing the operating system for IBM computers. The best does not always win, assuming the competitor is good enough. But when it comes to cars good is not good enough. No one wants car problems anymore, that’s so last century, middle of last century.

So AOL merged with Time Warner. Talk about a disaster. Gerry Levin’s vision was correct and the upstarts knew more than he did about the future, it’s just that AOL was built on air, soon to be superseded by the World Wide Web. Electric cars are the future. That’s been decided. And unlike AOL, it’s already here, the vision is complete, there’s not a major disruption right around the corner.

Forget Mary Barra, forget everybody in Detroit. They’ve missed the memo time and again. They’re managers, not innovators. And the last twenty-five years have proven that innovators disrupt the storied class, very slowly, derided, and then seemingly overnight. This is what Clayton Christensen said. Yeah, at first you pooh-pooh the competitor, and then it gets good enough and eats your lunch. All those people are buying Teslas despite continuing manufacturing defects. Sure, Tesla has gotten better in manufacturing, but it is still not Major League.

But if Tesla’s blueprints could be used in Detroit? Problem solved!

And also GM or Ford’s problem solved. They risk being legacy companies that go down to zero. The digital sphere is littered with companies like this. Do you remember BlackBerry?

So, a merger would be a win-win. It would demonstrate vision. And solve each company’s respective problem.

As for the self-driving “problem,” don’t you get it? It’s not the accidents/injuries/deaths, this is how it works in software, it takes a while to get it right. But when you do… Come on, were you computing in the eighties? The software was buggy, constantly improved, and then the companies got it right. Tesla is on the bleeding edge here. We will have self-driving cars. The company that gets there first will have a huge economic advantage. Meanwhile, GM and Ford, and the rest of the auto industry are afraid of regulators, who are clueless and inactive in the most revolutionary auto leap forward. Electric cars are a small step compared to self-driving cars. You need to be in this sphere.

But that’s software. All those bells and whistles in Teslas… Those are Easter eggs demonstrating the company’s ability to write software, they’re so good at it that they can spend money and time adding fun features just for the hell of it, to entertain their customers.

In the future, you will be buying a computer, not a car. It will look like a car, but under the skin, it will be a computer. This is bedrock, not up for discussion, this is not a far distant vision, this is now! So who is prepared for now? Certainly not GM or Ford. As for the otherworldly manufacturers, there are not as obvious merger candidates, GM and Ford are the ones for Tesla.

Yes, Tesla’s valuation is through the roof, so GM or Ford can’t purchase it. And there’s no reason for Tesla to do the reverse. It should be a no-cash transaction. Then again, there are tax issues, so many issues investment bankers specialize in.

Sure, Ford just got an almost ten billion dollar win via the public debut of Rivian, but money won’t buy you love and it won’t buy you software stability, no, that takes effort.

This is the way to go. Otherwise, GM and Ford are at major risk. As for Tesla…can it scale up in time? Doubtful. But having GM or Ford’s manufacturing infrastructure…

Oh, one more thing, the Tesla brass ends up in control. Give the Detroit CEO a title, and then shortly thereafter squeeze them out with a golden parachute.

You don’t win by committee in tech. It’s all about a singular vision, usually from the founder/CEO. You let the old guard have power at your peril.

Every day more people are warming up to Tesla. They’re on the road, the purchase is seen as much less of a risk. But imagine if they were made in concert with Detroit and were everywhere?

Then you’ve got a done deal. Dominance. For decades.

Go for the prize.


Visit the archive:

Listen to the podcast:


Subscribe to the LefsetzLetter

Print Friendly, PDF & Email

Posted Under