In recent years many car manufacturers have sought to shed their “old-school” appearances, with companies such as Tesla and Rivian branding themselves as tech startups rather than automakers. But how is the market responding to these developments? On this episode of Inside Automotive, host Jim Fitzpatrick is joined by Kevin Tynan, senior automotive analyst for Bloomberg Intelligence, to discuss how industry disruptors have subtly become industry insiders.
Tynan believes that the market’s reaction to the automotive industry’s technology obsession has been one of disillusionment. Valuations for innovative automakers, such as Rivian and Tesla, have seen drastic declines since their peaks in 2021 as investors and consumers waited for a transformation that never happened. Those same car manufacturers, Tynan adds, are also no longer hiding under the guise of a tech startup. For example, Tesla has long claimed to possess a superior business model compared to other automotive brands, pointing to its enviable profitability as evidence. However, in 2023, affordability issues and a surplus inventory forced the brand to not only backtrack but to adopt identical strategies used by other automakers, aggressively cutting car prices in the name of boosting demand. “The idea that Tesla was doing anything different has kind of gone away,” Tynan argues. “They’re operating margin is now in line with other automakers, so the idea that they were different because they had better margins is now gone…”
Tesla has also been forced to contend with declining interest in technological advancements such as vehicle autonomy. Tynan notes that company CEO Elon Musk has gone so far as to say that the brand will be a “zero” if its vehicles cannot achieve higher levels of self-driving. Musk’s comments are interesting for two reasons. First, they suggest that Tesla would have no profitability or value without its reputation as an innovator. Second, the comments imply that other automakers who have yet to develop their own self-driving software are also “zeroes.” Tynan argues that both notions are peculiar since the company’s (still impressive) profit margins closely match those of other automakers, while its innovator disguise has already disappeared. “As much as people want to believe it or assign valuations to Tesla like they recreated this industry, it’s really not true,” he comments. “Look at what they’re doing right now, having too much inventory and cutting prices? That book was written by Ford 100 years ago.”
This does not mean that automakers will or should stop competing for technological advancement. Tynan notes that there is plenty of room for improvement in both electric vehicle design and self-driving software. However, he dismisses the idea that Tesla will reach the pinnacle of success all on its own; rather, it will take consistent work from the automotive industry as a whole to create and scale innovations. “We saw globally Toyota, Volkswagen, you know, peak at around 10% of the global market. I just can’t believe somebody’s gonna double that with the way competition and scale is already existing within this industry,” Tynan concludes.