What Does Tesla Actually Want to Be?

When I look at Tesla one thing that stands out to me is how big it's vision is.

This is admirable - we do all like ambitious companies after all - but what subsequently puzzles me about Tesla is it's approach to that ambition. More specifically, the amount it allocates to be spent on research and development.

To explain my point, let's have a meander through the car world to gather up some rough financial comparisons between manufacturers.

At the base of the tree you have your upstart luxury car manufacturers like Aston Martin - and Aston Martin spend a plucky $450-550m a year on R&D in their bid to play a role in the luxury part of the market.

The cars that result are pretty, but only serve part of a small part of the wider market.

And even within the luxury car segment there are levels - and the top spot within that segment is held by The Daddy of the luxury car market - Ferrari.

With a market cap of $76b and an R&D spend of about $1bn, Ferrari have always reaped the benefits of being the premier brand in the luxury segment of the market.

This has been achieved through a focus on quality, quality and quality. Their cars are known for exceptional quality and performance - and in buying a Ferrari, you know what you are buying. Those Astons might be pretty, but there is a higher risk buying those compared to a Ferrari.

It's even pretty on the inside

Moving up into the more mass market world, the next marker I have picked out is Ford, with a market cap of $52bn and an R&D spend of about $8bn.

And finally, I have picked out the biggest car manufacturer in the world in terms of volume - Volkswagen - with it's $53bn market cap and $24bn spend on R&D.

Into this scale we can insert the figures for Tesla, which amount to a market cap of $1,430bn and an R&D spend of $4.5bn a year, giving us the following list :

• Aston Martin - 6,000 cars/year - $0.45bn R&D - $0.85bn market cap
• Ferrari - 14,000 cars/year - $1bn R&D - $76bn market cap
• Tesla - 1.8m cars/year - $4.5bn R&D - $1,430bn market cap
• Ford - 4.4m cars/year - $8bn R&D - $52bn market cap
• Volkswagen - 8,7m cars/year - $24bn R&D - $53bn market cap

Now many will highlight at this point that Tesla is more than just a car company and so we shouldn't be too hasty to judge it's relative market cap - but before we focus on that angle, let's just do a quick sweep through the car side of the Tesla business.

And here we quickly hit my big complaint about Tesla on the car side - the cars are in desperate need of a refresh - and no I don't count the rough lines of the Cybertruck as a visual refresh. What I am talking about here is generating excitement for new arrivals to the brand through new exciting models.

A good starting point would be to deliver the long promised Roadster - but equally it would be possible to add a hatchback to the product line, add a supercar (and maybe a racing team), or just to take the existing models in new and exciting directions.

And if we are allowed the luxury of comparing to a car company like Aston Martin, the cars produced by Tesla (in my opinion) are falling behind:

A refreshed Aston Martin lineup

An evolution for Tesla

Whilst here it is unfair to compare visuals between a car company that builds cars in the thousands versus one that builds in the millions, there is a broader point to this comparison - which is that Aston Martin have refreshed their complete lineup, whilst Telsa's still feel pretty much the same as they always did.

In defense of Tesla, their primary focus has been self-driving - and this self-driving aspect of Tesla is a major differentiator in the highly competitive car world.

But let's also be honest - Tesla has a $1.43tn market cap and spends $4.5bn a year on R&D. Unless I have misread either of those numbers somehow that sounds like a bit of a problem - particularly given that Volkswagen is spending about five times that sum.

More specifically in terms of my particular point of criticism - would it really be that hard for Telsa to fork out a bit more money on the R&D side in order to start doing those exciting things with their lineup of cars?

It is a $1.4tn company - use that valuation, raise some capital and just start spending money on exciting new avenues.

Now here, we can return to a much highlighted point - namely that Tesla is not just a car company - and it is also in the business of selling battery storage, solar panels and has new business ventures in mind such as the Optimus robot.

But really this only deepens my focus on one question - why isn't Tesla spending more on R&D?

Starting with the car side of the business - would it hurt to push R&D spend up to $10bn a year and to see what can be done with that money?

You could make the case that Tesla is more efficient with it's spending, but even then would it not be more efficient still as it spends more?

Then on top of that increased spend on the car side - what is really stopping a $5bn spend a year (to match existing spending) on those new exciting bets like robotics or any other new avenues where big sums of R&D can open up new markets.

On the self-driving side Telsa does not use Lidar and instead has a bet that visuals will be enough - but now it is no longer a plucky underdog, what is really stopping it from providing both options?

With a shift into robotics, it would seem that industry-wide spending on robotics seems fairly low - and so a heavy investment by Tesla into this industry feels like it would succeed, but is the current spending level really enough to do that?

Personally I find it hard to accept the idea that $4.5bn of R&D is enough, and for reference, let's remember that R&D spend at Samsung is $24bn a year, and even Sony outspends Tesla at $5.5bn.

To use a quote from Must himself :

First of all, I think moats are lame," Musk declared. "They're nice in a sort of quaint, vestigial way. But if your only defense against invading armies is a moat, you will not last long. What matters is the pace of innovation.

Instead it feels like Tesla, having done cars, is a bit bored of it and rather than deepen the spend to really capitalise on it's position, it feels like it would rather move onto the next thing and let the car business float on it's current momentum.

But the problem is that others are spending big - and competitors in the self-driving space are catching up thanks to their own R&D efforts.

What matters is that pace of innovation, but Tesla is starting to get left behind. And if they don't up that spending, they might be left behind by the pace of innovation happening across the business world.