There is major disruption going on in the auto industry by Tesla. Here is how Tesla is disrupting all the legacy automakers.
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Tesla and Other EVs - Disrupting Legacy Auto
Friday, January 27th, 2023 was a very interesting day for electric vehicle companies. First, most of them rose in share price by 10% or more, and Lucid went up by 100% or more. There are reasons for this, which I'll get to, but many are wondering why this happened, and I'll start with my view on Tesla and the other EV companies first.
First, EV (electric vehicle) cars are where the future is going. If you are paying attention to sales of the Model Y and Model 3 you can see that for Tesla, these vehicles are going to continue to climb in sales numbers and eventually be #1 and #2 world-wide.
When you see a company like Toyota, that has dominated sales for so long, you can see that they aren't moving fast enough to transition to EVs. They are getting disrupted and this is similar to other companies in the past who had a technology that was working and then were disrupted by another small company doing something better than they were.
You can read more about this in this book:
* The Innovator's Dilemma by Clayton M. Christensen
The auto industry is ripe for disruption, and Elon Musk saw this. For decades, gas cars have stuck to the same tried and true formula - have dealerships, make little improvements over time, and collect profits.
All EV companies have an opportunity to do well if they continue to innovate. In fact, even Lucid, which is an EV startup, has this chance. They have great technology. Their stock was recently halted in trading due to rumors that the Saudis are going to buy the company.
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- The Price War Between Tesla and BYD is Just Getting Started.
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- Should You Buy a 2023 Tesla Model Y?
Why the Auto Industry is Getting Disrupted
The disruption of legacy auto and the rise of EV stocks is happening for a few reasons. The first is that EVs are much more technological than gas cars. When you have a gas car, you have an engine. Modifications can be made to that engine to make the car faster, but you have an engine that runs on gas.
Gas is going to eventually run out. Nobody knows when, for sure, but it will happen. That is the first strike against legacy automakers or anyone making an internal combustion engine vehicle.
The second strike against legacy automakers is that their vehicle software is well behind Tesla. Tesla has spent years and years making their software and having it update over the air without issue. Other automakers are only adding center screen consoles and adding software because they are responding to Tesla. They aren't doing it proactively.
The third strike against legacy auto is that their gas engines are outdated and can't improve with technology like a phone or computer can. The engines also cause more wear and tear on the car. The engines are also in the front of the car, causing an imbalance of weight for the vehicle. An EV has a battery underneath the car, causing an even weight distribution, making it much harder for the car to roll over.
An EV also has the advantage of simplicity and less maintenance and less fuel costs. This is the fourth strike against legacy auto. Their older vehicles are more costly to maintain. For my Model 3 RWD, my maintenance will most likely be tires and washer fluid. Eventually I'll replace the cabin air filter and, possibly after a couple of hundred thousand miles or more, replace the electric motor or battery. But the battery is slated to last 500,000 miles or more - it's an LFP battery, which means it's long-lasting.
The fifth and final strike against legacy automakers is that they use dealerships where you have to haggle with a sales person. This creates less control for the price of the vehicle, whereas Tesla can simply change the price of all their vehicles with a simple update to their website. This price then applies everywhere.
There are other things Tesla is doing, like Tesla Insurance, which is making Tesla vehicles more valuable. For a good driver, you most likely will not get a better deal anywhere else than Tesla Insurance.
All of these strikes against legacy auto spell doom for them eventually if they cannot make changes to catch up to Tesla. Do you think this is the case?
In Related News: Elon Musk Tells Employees Not To Worry About Stock
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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News.
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