Similar stories can be told about a few other companies, like Amazon, with its distribution infrastructure.
The question is: where are the strong network externalities in the electric car sector?
Electric cars may well be the future of personal transportation. In fact, they better be, because electrifying everything, powered by renewable energy, is the only plausible way to avert climate catastrophe. But it’s hard to see what would give Tesla a long-term lock in the electric car business.
I’m not talking about how good the Teslas are or aren’t right now; I’m not a car enthusiast (I should have one of those “My other car is junk too” stickers), so I can’t judge. But the lesson from Apple and Microsoft is that to be extremely profitable in the long term, a technology company must establish a position in the market that lasts even when the time comes, as it always does, that people are not so enthusiastic about his products.
So what would make this happen for Tesla? You could imagine a world where dedicated Tesla plug-ins were the only widely available charging stations, or where Teslas were the only electric car mechanics who knew how to fix them. But with major automakers entering the electric car business, the possibility of such a world has already disappeared. In fact, I would argue that the Cut Inflation Act, with its strong incentives for electrification, will actually hurt Tesla. Why? Because it will quickly make electric cars so mainstream that Teslas won’t seem special anymore.
In short, the production of electric vehicles simply does not look like a network externality activity. Do you actually know what it does? Twitter, a platform that many of us still use because so many others use it. But Twitter usage is apparently hard to monetize, not to mention that Musk seems determined to find out how degraded the user experience will be to break its network externalities and drive customers away.
Which brings us back to the question of why Tesla was worth so much. The answer, as far as I can see, is that investors fell in love with a story about a brilliant, cool innovator, despite the lack of a good argument for how that guy, even if he really was what he appeared to be , could found a long-lasting slot machine.
And as I said, there is a parallel here with Bitcoin. Despite years of effort, no one has yet succeeded in finding a serious use for cryptocurrency beyond money laundering. But prices have skyrocketed anyway and are still backed by a hardcore group of true believers. Something similar certainly happened with Tesla, even though the company does useful things.