Musk offered this position during a recent podcast appearance with Third Row Tesla:
“Incumbent car companies make most of their money from selling spare parts to their existing fleet at high margins, and they’ll sell the new cars at a de facto zero margin or even at a loss...If you are a new company, you do not have a fleet, so you have no fleet with which to subsidize the sale of your new cars. This is the primary reason there has not been a successful car company startup in the United States.”
Musk estimates about 10% of Tesla vehicles are currently out of warranty compared to 80% of Ford Motor Company (NYSE: F) or General Motors Company (NYSE: GM) vehicles. The few Teslas that are out of warranty need less servicing because of their electric nature.
“This [fleet-model inertia] is a very difficult thing to overcome,” Musk said. “In order to overcome it, a car has to be significantly more compelling than other vehicles such that people are willing to pay a premium… otherwise, there is no chance.”
Tesla is seizing its chance by crafting a role within two key industry themes.
“In order for a car company to be successful, it has to succeed on two fundamental technology discontinuities: one being electrification, the other being autonomy,” Musk said, noting that electrification alone is not enough. “The combination of those two is the only opening for a new car company to make it.”
Tesla shares have been on a tear in recent months, moving from the $255 level in late October to the $860 level today. The stock started 2020 trading around $430.