Elon Musk has last laugh on critics as Tesla set to dominate the auto industry

It has become something of an international sport to laugh at Elon Musk after he lost the title of the world’s richest man in the middle of a controversial US$44 billion (A$64 billion) takeover and big restructuring of Twitter.

Now, however, it is looking much more likely that Musk will get the last laugh as the extent to which his electric vehicle (EV) company Tesla is set to dominate the world’s roads is becoming apparent.

In the past week, Musk also won the court case around his 2018 Twitter comments that he had financing lined up to take Tesla private.

Also, late last month, Musk announced Tesla’s US$3.6 billion investment into its Nevada gigafactory, which has propelled the company’s shares up more than 30%.

Tesla shows exceptional cost efficiency

It was the massive investment into the gigafactory that really crystallised how far ahead of the pack Tesla is in terms of battery mass production and cost.

Musk has declared that Tesla is now the industry’s leader in profitability and manufacturing efficiency and will be the world’s dominant car maker.

The Nevada factory expansion will include high-volume production lines for Tesla’s new semi-electric truck but also enough batteries to produce 1.5 million light vehicles a year – with a stretch goal of multiplying that a further five times.

That would have sent a real shiver through the rest of the automotive industry given that Tesla is already close to the bottom of the cost curve for battery production which is already forcing other car makers to sell their EVs for less than cost just to compete.

Falling Tesla car prices a sign of strength

Tesla’s falling car prices – something the Twitter critics saw as a sign of desperation to finance the acquisition – was really just a sign that Tesla is still very dominant in the EV market and can easily reduce its fat margins to cause pain for competitors.

Tesla makes 17% in pre-tax margins, which are roughly double the average for the rest of the industry.

Analysts including Adam Jonas from Morgan Stanley who pored through the details of the investment have calculated that Tesla is producing battery manufacturing capacity at about a third of the cost of its main competitors.

That means it has already cut its battery investment cost per GWh in half and is well on the way to its long-term aim of cutting battery production costs by 69% of 2020 prices.

Toyota could be in real trouble

That is truly ominous news for other EV manufacturers in China and the US, but it is terrifying news for manufacturers, which have been left behind in the race.

Analysts have pointed to Toyota as being in serious trouble due to its lack of EV production success and focus on ICE (internal combustion engine) cars.

While Toyota has been widely admired for many years for its leadership and manufacturing cost control, there is now widespread speculation that it is so far behind the rest of the world in EV production that it will struggle to recover.

At the same time, its massive ICE manufacturing facilities could become stranded assets with plummeting value.

Changes at the top for Toyota

The first real signs that Toyota is responding to the threat came with the announcement that Akio Toyoda will step down as chief executive of the world’s top-selling car maker on 1 April, with incoming chief executive Koji Sato facing the task of catching up on EV manufacturing from virtually a standing start.

That is a tough ask in the face of falling prices for EVs and the fact that Tesla is winning the race against many competitors with its second-generation platform, with the third generation on the way – plus cheaper batteries and better performance and features.

By the time Toyota gets its EV manufacturing humming – which could take some time – it could be selling cars into a world with a significant supply of cheaper and better EVs with prices that even the world’s biggest car manufacturer might struggle to match.

Can Musk still make Twitter work?

As for Musk, his main regret might end up being that he has sold too many shares in Tesla to prop up his overpriced Twitter acquisition.

Even there, though, he may have the last laugh with a lot of speculation that his live experimentation with Twitter could eventually produce a gold mine as well.

Speculation has included the social media platform becoming a super-app, including the ability to process payments in normal currency and potentially cryptocurrencies as well.

That would broaden the revenue streams for Twitter away from just advertising.

Twitter already has the ability to process online payments and Musk was a co-founder of PayPal, so the speculation makes a lot of sense, although he has a long way to go yet to justify the extraordinary A$64 billion acquisition price.

Still, there were plenty of mockers in the early days of SpaceX and Tesla, so Musk has a proven history of making long term investments that pay off.