Once again, Tesla Motors' founder Elon Musk has grabbed auto-industry headlines, this time for hinting at a broad patent release that could mean making Tesla's electric cars more "open source." It may seem a head-scratcher that a company whose success depends on its cutting-edge technology would give away its secrets, but as usual, there is a method to Musk's madness. Tesla's open patent play -- like its dealer franchise battle, Gigafactory and Hyperloop concepts before it -- are increasingly the firm's most important "products." Whereas cars take huge amounts of time and money to develop, Musk's brash re-imaginations of the car industry cost little to produce and generate the same fevered public acclaim as the sleek, pricey Model S. In effect, Musk has monetized the public perception that change in the car business is long overdue.
When you ask auto-industry insiders about Musk's affection for contrarian business models, they invariably roll their eyes. They see Tesla as too small to be anything more than a gadfly, and Musk as something between a well-intentioned amateur and a downright charlatan.
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But bring up the car business with anyone who knows nothing about the car business, and it's clear Musk's new ideas are selling. Tesla may not enjoy even one percent of market share, but its "mind share" exceeds that of the biggest players, and Musk is by far America's best-known car executive. (General Motors' Mary Barra has high name recognition, though not for the right reasons). While Tesla's hype-to-sales ratio is cause for some investor concern, it's success holds valuable lessons for a car industry that has a long record of taking its eye off the ball.
Unsurprisingly, automakers are bullish on the future of their business. Sales are rising globally, and much of the world has a long way to go before coming close to the U.S.'s 800 registered vehicles per 1,000 people. But in the developed markets of Europe, Japan and the U.S., the car business is fighting a defensive game. The Baby Boomers, whose love affairs with the Beetle, Mustang and Cherokee shaped the modern car industry, are buying some of their last cars now, driving the average new car buyer age (and short-term profits) up. But their echo, the much-discussed Millennials will not pick up their slack.
There's no shortage of opinions on "the Millennial question," but among those who work in the car industry, ballooning student debt levels always get the lion's share of the blame. Sure enough, with an average student debt somewhere just north of $30,000, the class of 2014 will enter the market already carrying the average new car transaction price (just over $31,000 last year, according to the National Auto Dealer's Association). With auto credit already stretched tight and job growth sluggish, Millennial disinterest in cars can be expected to continue.
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But there's another factor at play beyond economics. Since Honda and Toyota reset consumer standards in the 1980s and '90s, competition has led to intensive bench-marking, driving both quality and homogenization. Today it is almost impossible to buy a truly bad car, but as a result, cars have become increasingly appliance-like. By every rational metric, this competition has been good for consumers ... yet it's also quietly sucked the excitement out of what was once the most thrilling industry on the planet. As a result, the iconic cars of the Millennial era have been the Dodge Caravan, the Lexus RX, the Ford Explorer and the Toyota Camry; hardly the stuff on which a lifelong romance with autos is built.
Now, with all eyes and investments fixed on Silicon Valley, characters such as Musk and Google's Sergey Brin are re-injecting the car with creativity and personality the industry has been silently hemorrhaging for decades. Musk's Tesla is a throwback to the days when small luxury brands, often named after the men who ruled them, made stunning vehicles in tiny quantities to their monomaniacal owner's exacting specifications. Brin's Google car captures the other classical impulse of the car's golden age, the People's Car, physically resembling the Volkswagen Beetle and sharing its vision of a Model-T-style revolution in personal mobility.
The car industry knows that a vast moat separates itself from the Silicon Valley barbarians, in the form of a century of expertise, as well as a manufacturing footprint, supply chain, logistics and all the other grubby, oily, physical parts of the business. From behind this great barrier, which is all but invisible to technology writers and investors, the car business feels safe.
Yet that sense of security is an illusion. Google, and to a lesser extent Tesla, have shown they can reach consumers outside the traditional automotive paradigm, whether by ignoring the auto media for the Google car or ignoring the franchise dealer model for Tesla stores. As younger generations (and even the young at heart) start to question one aspect of the traditional car-buying experience, more and more might decide that, as the wonderful writer Neal Pollack put it: "Having a car is a huge, expensive hassle that daily puts you in contact with some of the worst aspects of humanity."
That view must do battle with many decades and billions in advertising dollars trumpeting the unimpeded freedom that comes with car ownership, but it seems more than capable of triumphing. Apps including Uber, Lyft and Relay Rides are making access to mobility an increasingly viable option ahead of the autonomous car revolution. If young people increasingly skip new-car debt and pay for access to mobility as they go, the traditional car industry's scale-based logic will turn on itself. If consumer taste changes suddenly, the industry's vast "moat" will become a crushing fixed-cost weight. Flush with investor cash, the new Silicon Valley mobility startups may have only to wait to get all the automotive manufacturing infrastructure at bankruptcy-sale prices.
To the consumers, on whose wallets and pocketbooks the revolution in cars depends, even the broad strokes of this economic-technological storm are mostly obscure. But they can definitely hear the thunder.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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