And Tesla remains the #1 EV sales leader within the USA.
But has more EV competioners now.
And demand for EV within the USA is declining.
Chart at link.
A 26.8% decline from previous year.
So is the $30 billion credit to maintain the Tesla division until the robotaxis arrives?
Will the Tesla division continue to exist after Tesla RoboTaxis business has been developed? What about existing drivers with EVs. Will parts & repair work continue by Tesla?
It is too early to start writing Tesla’s obituary. They have a big pile of cash on hand, and lots of good companies have debt. Apple for example. They still sell lots of cars but their economics are more like a traditional auto company than a fast growing tech company.
Tesla made two blunders in a row: Cybercab and Cybertruck. Those are recoverable mistakes. And they developed some interesting tech like 48v architecture, drive by wire, and ratcheted steering that can be applied to future vehicles. Optimus is shaping up to be a blunder too, but we’ll see. I think Tesla has a good future if they decide they want to start making cars again.
Apple tried to do too many things, too many models, and sank like a stone. Steve Jobs came back and simplified and got them back to their roots, and the Mac was cool again. (The iPhone and later iterations came after the mother ship was righted.)
Starbucks over expanded locations, tried too many new menu items, got confused in the customers’ minds. When the 2008 crisis hit Schultz stepped back in and simplified, closed hundreds of locations, set up barista training schools (again). The company prospered.
You may remember AirBnB business cratered during then pandemic, so they decided to get into media production (?), and complex high end vacation programs. It almost tanked the company. They pulled back on the wild ideas, stuck to their knitting, and are doing well.
Should I go on? Lego had a nice toy business going, but got enthused about “new stuff” and started building theme parks, bespoke toys for rich kids, and lots of other distractions. They decided after a near death experience in 2008 to retrench and do what had brought them success, and they’re back, baby.
I could give you lots of examples of companies that went off the deep end but never came back, and now they’re history - mostly in the MBA textbooks. Sometimes doing what brought you to the party - and doing it well - leads to a long and happy life.
Nice walk through memory lane! Some of the stories you tell were “Diworsification” applied to business instead of to investing. Yet progress happens. How does one tell one from the other, “Diworsification” from “Innovation?”
I’m going to innovate, consult AI instead of relying on my mind:
GoogleAI:
Distinguishing between corporate “diworsification” (expanding a business into unfamiliar areas in a way that dilutes its value) and genuine innovation comes down to strategic alignment, core competencies, and customer focus. While both involve entering new territory, they possess fundamentally different DNA.
Here is how you can tell them apart:
1. The Core Link (Synergy vs. Distraction)
Innovation builds upon or strengthens the company’s core advantage. It represents an expansion where the existing business makes the new venture stronger, or vice versa (e.g., Apple moving from computers into smartphones using its proprietary software ecosystem).
Diworsification occurs when a company buys or builds a business that shares no operational, technological, or logistical DNA with its core. The new venture acts as a distraction, forcing management to divide their focus across industries they do not fully understand (e.g., a beverage company buying a clothing brand).
2. The Problem-Solving Focus
Innovation is outward-looking and customer-obsessed. It seeks to solve an unmet need, create a brand-new market, or dramatically lower costs for an existing user base.
Diworsification is often inward-looking and executive-obsessed. It is frequently driven by a desire to smooth out seasonal earnings, find a use for excess corporate cash, or expand an executive’s empire, rather than serving a specific customer pain point.
3. Competency and Capability
Innovation leverages adjacent capabilities. The company uses its existing distribution networks, technical talent, or brand equity to give the new venture an unfair competitive advantage from day one.
Diworsification requires the company to build or buy entirely new capabilities from scratch. Because they lack localized expertise, they are highly vulnerable to existing incumbents in that new space.
Ultimately, true progress requires risk, but innovation is calculated risk-taking within a circle of competence, whereas diworsification is gambling outside of it.
Thanks Googie! I couldn’t have said it better. One point I would add is that there is neither an escalator to Financial Heaven nor to Innovation Heaven. Expect duds and setbacks on the way.
Sure. Lots of companies have diversified (not diworsified) and done well. Westinghouse and GE has several quite disparate divisions. Amazon went from selling books to everything to computer space to logistics, and Disney grew from cartoons to films to theme parks to cruise lines and television networks.
I just note that in none of those successful cases did the mother ship start to go backwards, nor the company go cash-flow negative, nor have pronouncements from the chief that the original business was, for all intents, dead.
It just seems an odd pivot, and so quickly after such initial success, and for the guy to have other large distractions like SpaceX and others. Certainly a case that will be written about.
I can’t say for Westinghouse and GE but Amazon and Disney remained in their original business. Amazon: online sales. Disney: family entertainment. Then Amazon used an internal technology to create a new business, AWS.
Tesla starts as a car company. The Cybercab is a car. What changes is ownership and usage. The new technology is FSD which is at the core of Cybercab and Optimus Robot. Cybercab and Optimus Robot share the battery technology developed for cars. They share the AI neural networks, they share the inference chip. The semi is a vehicle. Battery storage is just bigger than batteries in cars. VPPs are more of the same.
AI: " While AWS makes up less than one-fifth of total revenue, it generates the vast majority of Amazon’s operating income.
I have a feeling that Cybercab and Optimus Robot will generate more operating income than EVs can. Increasing Returns vs. Decreasing Returns.
GoogleAI:
EVs (Decreasing Returns): Scale brings margin compression, high capital intensity, and raw material cost floors.
Cybercab & Optimus (Increasing Returns): Network effects, zero marginal cost of software duplication, and autonomous labor leverage.
Many competitors posted double-digit drops in EV sales in the U.S. this quarter as the industry reels from the loss of the federal tax credit and regulations that encouraged more EV sales. The Chinese market, too, is in a tough spot, as domestic competitors remain locked in a perpetual price war, putting pressure on Tesla. Meanwhile in Europe, Chinese imports are starting to push out demand for other foreign brands. All of this explains why European, Japanese, and American automakers are struggling.
Against that backdrop, a 2.1% slide is remarkably mild.
EVs (Decreasing Returns): Scale brings margin compression, high capital intensity, and raw material cost floors.
Cybercab & Optimus (Increasing Returns): Network effects, zero marginal cost of software duplication, and autonomous labor leverage.