Is the Tesla Model 3 the iPhone 3G for the Auto Industry?

There has not been a more hotly debated stock than Tesla in years:

“Tesla isn’t just a car company.”
“Tesla’s fundamentals (what fundamentals?) are evidence of a stock market bubble.”
“Tesla’s auto-pilot is light years ahead of other car companies.”
“Tesla is worth more than all the big car companies in the world combined yet they only have a small fraction of the revenue.”
“Tesla is the next Qualcomm.”

chart of tesla market value — Source: Axios

I understand both sides. In fact, I’ve played and will continue to play both sides.

In August 2020, I sold my Tesla shares (pre-split) for a 200% gain thinking surely the meteoric rise would soon come crashing down. I wrote about it here.

Then in October, after listening to Tesla’s Q3 earnings call, I bought a few shares (post-split) and am up another 100%. I am also fully prepared to take advantage of a big crash in their share price when it happens.

But could we all be missing the bigger picture?

I recently remembered something I heard a few years ago, which is that Apple’s greatest innovation wasn’t the iPhone, it was the market that developed around the iPhone, mainly the App Store. But that market took several years to gain a foothold.

Even the iPhone itself took a few years to gain widespread adoption after its launch in 2007. It wasn’t until Apple launched the iPhone 3G in 2009 that it went mainstream. This was because it was the first model that was subsidized by commercial phone plans.

No one wanted to spend 600 dollars on a phone that didn’t do much differently than their Blackberry or Droid Razr.

But offer a 2 year contract with the incentive of a 400 dollar discount on the hardware and folks started to give the iPhone a shot. This was the turning point and the world hasn’t looked back since.

Then along came Samsung, Google, Huawei and Oppo to saturate the world with smartphones.

I don’t care about Apple vs. Android and I don’t care whether or not Tesla is the poster child of an Electric Vehicle bubble (it probably is), but I do wonder if we are living through the next tech revolution driven by cars this time instead of phones (pun intended).

Everyone had a phone prior to the iPhone 3G. And everyone has a car right now whether or not it’s a Tesla. But what if Tesla sparks an entirely new industry on top of the auto industry?

The App Store gave millions of developers a huge install base of users to sell their new digital products and become monthly subscribers. It’s now worth more than 50 billion dollars.

Podcasts are killing radio and would never have been possible without everyone walking around with a smartphone.

Bluetooth gave millions of accessory makers a chance to reinvent themselves from old clunky headphones and belt clips to waterproof wireless speakers and the ability to use your phone as a home entertainment hub.

They even facilitated social change. Think about it. The best camera isn’t the one with the best lens… it’s the one you have with you. The smartphone camera killed the point & shoot for Canon and Nikon. So would the amount of social injustices caught on camera these days be possible in an era before smartphones?

Streaming music, e-commerce, GPS, social media, mobile gaming, and dozens of other industries have been built upon the base of the pyramid that is the smartphone.

How many millions of jobs have been created because of the ubiquity of smartphones? How much has the spread of knowledge increased since the first widely adopted smartphone? How many dollars have been made in the last decade due to the smartphone revolution?

And not a single person could have predicted this was all going to happen in 2000 nor has the biggest beneficiary been Apple, it’s been users and creators of every digital platform.

The 2020 pandemic accelerated the rate of acceleration in every industry. Most interestingly though, seems to be the amount of money pouring into electric vehicles, during a time when driving is at historic lows.

The rise of robo-taxis, self-driving software, connected car hardware, features no one asked for but everyone wants, a focus on user experience, all layered on top of the general trend that already existed which was a shift towards renewable sources of energy fueled by charging stations, solar panels, lithium miners, battery producers and so on.

The cost of ownership is decreasing. The range is increasing. The availability of charging stations is coming along nicely. But I don’t think any of these are going to be the thing we notice in 10 years. They are catalysts towards a yet unrealized future.

The Tesla Model 3 was basically paid for by sales of the Model S which was paid for by sales of the Roadster. Model 3s could be thought of as a loss-leader (I think they are somewhere around 20% gross margin). And the Model 3 (or Y) are really the only Teslas that are within reach of the average consumer.

Are Model 3s the next iPhone 3G? More importantly, what industries will be built upon the foundation of the Tesla Model 3?

We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”
-Bill Gates

Will Tesla’s ability to give average consumers the automotive equivalent of an iPhone spark the next 10 years of technological, economic, and social change? I have no idea. But I hope I’m around to see it.