Loup Ventures: Tesla vs. the Auto Industry / Gaming Space / Mobility as a Service


By Loup Ventures

This week we wrote about Tesla’s Q1 production and deliveries report, why the gaming space has been a safe haven, and the complexity of delivering true mobility as a service.

Tesla Is Crushing the Auto Industry

This year is going to be ugly for the auto industry, and Tesla is showing signs that it has a powerful demand advantage over its competitors. March quarter delivery numbers were up 40% year over year to 88.4k compared to the overall US auto industry down 29%, despite the Tesla-specific headwind of the elimination of the $1,875 US tax credit in the quarter. Tesla is winning because they have a product that is measurably better than both gas and electric competitors. Looking forward, things will get more difficult for the company along with all automakers in the June quarter. For the balance of the year, we expect Tesla to continue to report 15-25% better delivery results versus its peers.

Long-Term Bull Case Takes a Step Forward

We believe there’s a long-term take away from the painful March quarter when it comes to Tesla’s future. Specifically, it will likely get progressively more difficult for traditional auto to catch up to Tesla, as demand is outpacing the broader industry. As the company scales to meet demand, Tesla’s price performance gap versus other car makers will widen. This is because other car markers are producing EVs at subscale, which creates a dilemma:

  • If traditional auto releases a car with features and range at parity and sells the car at cost, it will be priced 10-25% higher than a comparable Tesla. This will soften demand and lead to further market share loss.
  • If traditional auto subsidizes vehicle cost to gain market share they will lose money with limited margin cushion. The more they sell, the more money they lose. Taking it to the logical end, we believe car companies that have been around for 50 plus years will eventually (10 years from now) be forced to restructure or go out of business.

No Update to Full-Year Guidance

As expected, the company did not update its goal of delivering 500k vehicles in 2020. We see this as a non-event and believe the company’s measure of success this year should be related to performance versus the auto industry. We remain confident that the March quarter delivery results, growing almost 70% faster than the industry, is a material read on how the balance of 2020 will play out. In future quarters, we do expect the growth gap to close and for Tesla to be growing 15-25% faster than overall US auto.

Bracing for June

The company did not give June guidance. We’re opting to withhold our estimates until late May when we have a more clear picture of the global economy. We can say the number will be measurably below the just reported March deliveries of 88.4k. Currently, lead times for a US delivery of Model 3 are 8-12 weeks, compared to a 1-3 weeks a month ago. This suggests that two-thirds of deliveries will be pushed into the September quarter.

December Should See Bounce Back

Taking the optimistic view that the world will be returning to normal starting in October, Tesla should see a dramatic bounce back in deliveries for the December quarter. The biggest unknown will be production contribution from Shanghai, which is still in the early ramp phase.

Gaming to the Rescue as Other Entertainment Struggles

The gaming space has been a relatively safe place for investors over the past few weeks. Since Feb. 24th, the Nasdaq is down 15.7%; in that same time period, the three major game publishers (Activision Blizzard, Electronic Arts, and Take-Two Interactive) are down an average of 3%.

With people largely confined to their homes, entertainment spending will shift towards services in the living room, including gaming, streaming services, and digital movie rentals. Game publishers are poised to benefit in a few different ways:

1. A temporary increase in time spent and consumer spending on gaming. 

With consumers spending more time at home, we anticipate a transition in entertainment spending towards games and in-app purchases. We expect the increase in time spent on games along with the relatively low cost that they carry to drive spend on gaming and related services. Take, for example, Call of Duty Warzone, a free-to-play battle royale game published by Activision and released on March 10th. The game reached 6 million players in its first 24 hours, 15 million players by day 4, and 30 million players by day 10. By comparison, it took Apex Legends (Electronic Arts) 3 days to reach 10 million players and Fortnite took two weeks to reach 10 million players. According to Comcast, gaming downloads are up 50% generally and 80% during new releases since March 1st.

2. Accelerating the transition from physical game sales to digital downloads.

We estimate that about half of all AAA titles are sold as physical copies and half are sold as digital downloads. With gamers staying at home and avoiding trips to the store, the share of digital downloads is likely increasing. For consumers, the convenience of downloading games should accelerate the transition to nearly 100% digital downloads. This is good news for game publishers, as they earn higher margins on digital downloads, but bad news for retailers like GameStop, Walmart, Target, and Best Buy.

3. Esports is stealing the spotlight.

Most esports leagues have found ways to continue operating over the last few weeks, a benefit over other sports leagues that have suspended their seasons.

  • League of Legends’ NA LCS and LEC temporarily suspended its season before resuming play online.
  • The Call of Duty League shifted all scheduled events to online competitions.
  • The Overwatch League canceled all March and April in-person events and moved matches online.
  • The NBA 2K League postponed the start of the season but continued preseason competitions remotely.

Online competitions represent a rare opportunity for esports to steal the spotlight. Consider NBA 2K games replacing the NBA’s canceled games (and the associated telecasts), providing some relief for starved basketball fans.

While it’s still too early to tell the viewership impact, esports leagues are poised to benefit from less competition and more downtime for gamers. Esports is a massive growth opportunity for all three major publishers and the broader gaming ecosystem. The next few weeks should give the franchise leagues a boost in popularity.

Mobility as a Service Isn’t an App, It’s a System

Written by guest author Kenny Fennell. Kenny is a consultant with WSP’s New Mobility Group. His work focuses on emerging mobility pilots, policy, and planning. Prior to this role, he worked in the City of Detroit’s Office of Mobility Innovation. Views shared here are his own.

Public and private sector stakeholders are realizing that Mobility as a Service (MaaS) is much more than an app. In fact, delivering MaaS relies more on out-of-app, rather than in-app, features. Delivering these features across the network of diverse stakeholders involved in MaaS will require a new way framework: Systems Thinking.

First, An Intro to Systems Thinking

Systems Thinking is an analytical approach that considers how a system’s individual components interrelate both through time and within the context of a larger system. In part, Systems Thinking is driven by the philosophy and tactics of fields such as Human-Centered Design, Design Thinking, Service Design, Customer Experience, and related fields. We can narrow Systems Thinking down to two primary parts: 1) Component Dynamics: Understanding how an individual component delivers its value proposition to customers through the combination of front-end customer-facing and back-end non-customer facing operations and 2) System Dynamics: Understanding how individual components interrelate both to other components and the greater system of which they are a part. It is easy to see how Systems Thinking is necessary to deliver MaaS with various public and private components requiring a number of services on the front- and back-end.

The Individual Components and Overarching System of Mobility as a Service

The individual components of MaaS are categorically defined as follows, ranked in order of least to most foundational to delivering MaaS’ ultimate value proposition: seamless movement, anytime, anywhere (i.e. freedom):