Tesla, Apple, and EV Consolidation

Kevin Rooke
October 6, 2020

Last week, EV Volumes wrote that 13 different electric vehicles around the world have now surpassed the 100,000 sales mark.

Together, those 13 vehicles account for 3.05 million BEV sales, or 36% of the estimated 8.5 million BEVs and PHEVs that have been sold to date (7.5 million by end of 2019, and 989K in 1H 2020).

It's almost unprecedented in the global car market for such a small number of vehicles to control such a large percentage of vehicle sales.

And while some believe that this consolidation is a temporary effect of an immature EV market with few participants, I think consolidation will continue. The incoming wave of new EV competition won't dilute market share for today's popular models, instead it will force automakers to think differently about how they build cars.

Automakers will slash their vehicle line-ups, build fewer car models, and increase their software offerings to serve customers with different needs.

The State of the Global EV Market

Among the 8.5 million EVs sold to date, Tesla's Model 3 alone has sold 645,000 units in just 3.5 years. That's 7.6% of all EVs ever produced, and probably closer to 15% of all BEVs produced.

A few notes:

  • The 8.5 million figure above includes both BEVs and PHEVs
  • There is a small % of EVs that are no longer on the road for one reason or another

Disclaimers aside, a small number of EVs control an enormous chunk of the EV market.

This is a stark contrast to the ICE vehicle market, where automakers produce dozens of different vehicles and variants for consumers with different preferences.

A few examples:

  • GM sells 22 different SUVs across their 4 vehicle brands (Chevrolet, Buick, Cadillac, GMC)
  • Ford sells 7 different kinds of F-150 trucks

Some people look at this market share contrast and instinctively predict that today's most popular EVs will lose market share as new competitors emerge. I think these people are wrong.

Software is tilting the car market towards consolidation, helping software-first EV automakers like Tesla streamline their manufacturing and grow market share. It will continue to force automakers to change the way they build cars, and protect the software leaders against competition.

Why Do ICE Automakers Have So Many SKUs?

It's quite possible that automakers like Ford and GM have over 100 active vehicle SKUs when you consider all the variations they offer for all their different car models (without even considering minor variations like paint color). Each car needs a unique set of parts that either limits manufacturing speed or requires more production lines.

So why do they do it? Why not cut down on SKUs and sell 10 cars instead of 100?

Well, car buyers all have different needs and wants. And that hasn't magically changed with the advent of electric cars. People still want different cars for different use cases.

What has changed is the way EV automakers (Tesla is the best example) are building cars. They're leveraging software to build identical cars that serve different needs for different people.

Tesla And The Apple Playbook

If you re-read the last three paragraphs and replace each mention of 'car' with 'phone', you might think back to Apple's launch of the iPhone.

Instead of buying a camera, a phone, a calculator, and an iPod separately, Apple built them all together with the iPhone. With software.

Phone buyers all still wanted different things, Apple just packaged those things together in identical phones that didn't require extra manufacturing.

The beauty of this software-first approach isn't just that you can combine multiple use cases into one product, but that you can selectively add and subtract use cases at any time, depending on the exact needs of the exact customer.

Millions of customers now buy identical phones, and customize it to suit their needs by downloading their favorite apps. This allows Apple to mass-produce the exact same phone for everyone.

Similarly, Tesla is already building a suite of software services that turn their identical cars into personalized ones that serve different needs for different customers.

  • Want live traffic maps? Want an internet browser? Want free music streaming? Buy Tesla's premium connectivity package.
  • Want faster acceleration? Buy Tesla's acceleration package.
  • Want a car that can drive itself? Buy Tesla's full self-driving package.

All these software packages can be purchased at any time, and none of them require additional hardware.

Cars Aren't Just Like Phones

The software solutions above are already helping Tesla streamline vehicle manufacturing and reduce the number of SKUs they offer. But on some level, phones and cars are different.

Some people simply need cars of different shapes and sizes for large families, luggage and gear, or to haul a trailer. Phone shapes on the other hand, are almost identical.

Cars and Computers

Perhaps a better analogy is to compare software-first cars with personal computers.

Pickup trucks, sedans, and SUVs mostly do the same thing, but for certain groups of people (construction workers, large families, outdoor enthusiasts) only a specific type of vehicle will do.

In the same way, tablets, laptops, and desktop computers mostly do the same thing, but for certain groups of people (designers, video editors, data scientists) only a specific type of computer will do.

Software can reduce the number of SKUs a manufacturer must produce, but no matter how powerful your software is, a handful of SKUs are still required to satisfy all the form factors that customers need.

How Will Software Affect Vehicle Market Share?

Although software can't completely eliminate the need for multiple SKUs, the transition to software-first manufacturing will force automakers to slash bloated vehicle line-ups, and offer more services and features over the air.

Once again, not all features can be built with software, but Tesla has proven that some can. And until others can replicate their software services, Tesla will have a manufacturing edge, as they can satisfy more and more customer needs without additional manufacturing complexity.

For this reason, I expect the car market to continue consolidating until 2-3 dominant players emerge. Eventually, it will look similar to the personal computer market today.

The most popular sedan may see 30-40% sedan market share, just like the iPad sees 30-40% tablet market share.

A handful of vehicles will also dominate the SUV and pickup markets, just like a few computers dominate today's laptop and desktop market.

It's easy to assume that since historical car data points to a splintered market with hundreds of competitors, the EV market will follow suit. But the data is proving otherwise.

Fewer EVs With More Market Share

The most popular electric cars already have far more EV market share than any ICE car has in ICE market share, and I that trend is growing stronger over time.

Tesla's 645K Model 3 sales make up 7.6% of all EV sales to date.

On the other hand, the world's most popular ICE cars (Toyota Corolla and Ford F-Series) each do only 1.5% of all ICE sales (roughly 1 million sales in 2018, in a global car market with over 68 million vehicle sales).

Even more impressive, in 1H 2020, the Model 3 did 14.4% of all EV sales globally, with almost 10x more market share than the leading ICE car in the ICE market - despite the recent introduction of cars like the Audi E-Tron, the Volkswagen ID.3, and the planned launches of many others.

With powerful software that already enables self-driving, internet browsing/streaming, and acceleration upgrades on demand, Tesla can focus on mass-producing identical Model 3s for a wide variety of customers.

Meanwhile, other OEMs are forced to serve those same customer needs with different hardware, making manufacturing more complex, inviting competition, and splintering their vehicle market share.