Here’s How Tesla is aiming to be the ‘Apple’ of the Auto world

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Elon Musk‘s brainchild Tesla Motors saw a surge in its stock prices on Monday, pushing the company’s worth above $50 billion for the first time in its short history. The markets now value Tesla more than Ford which is at $45 billion.

At first glance, this doesn’t make any sense. Ford sold 2.6 million vehicles in 2016 and earned $4.6 billion for the year. On the other hand, Tesla shipped a comparatively tiny 76,000 vehicles and recorded a loss of $675 million.

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The fact that Tesla stock is worth more than Ford stock is a sign that Wall Street has very different predictions for the two companies. Tesla CEO Elon Musk has set aggressive growth goals for his company, aiming to produce 500,000 vehicles in 2018 and close to 1 million vehicles by 2020. But even if Tesla meet these targets, that still wouldn’t justify valuing Tesla higher than Ford, which already sells more than 2 million vehicles a year, including hundreds of thousands of highly profitable trucks.

So Ford’s market price seems to also be indicative of the fact that investors are pessimistic about Ford’s prospects. The main reason for this which many observers expect is that over the next decade or two the car industry will shift from human-driven, gasoline-powered cars to software-driven electric vehicles. Car companies believe they’ll be able to navigate this transition gracefully, but Wall Street doesn’t seem to believe it.

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According to Wall Street experts , they see Tesla, not classic companies like Ford, as the future of cars. To understand what the market might be thinking, it’s worth remembering what happened to the cell phone industry a decade ago. Back in 2007, the cell phone market was dominated by Nokia with 435 million units followed by Motorola with 164 million units. Apple released the first iPhone that year but it sold fewer than 4 million units.
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So it would have been easy for a naïve analyst at that time to dismiss Apple as a small insignificant player. What that analyst would have missed, of course, was that the nature of cell phones was about to change rapidly. The kind of old-fashioned “feature phones” that accounted for the bulk of Nokia’s sales was about to be rendered useless by the iPhone and a new wave of Android-based smartphones.

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Nokia executives, however, weren’t too worried. They didn’t have the revolutionary iPhone, but they had plenty of engineers and strong relationships with mobile network operators around the world. They assumed they’d be able to build a rival smartphone operating system and be a major player in the smartphone business.

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But making an iPhone-quality smartphone proved to be a harder nut to crack than they expected, and Nokia was caught flat-footed. Efforts to create its own software stumbled out of control, and a partnership with Microsoft to use Windows Phone software failed to gain traction. As a result, the company was forced to sell its mobile phone division to Microsoft in 2014 — a humiliating end for a company that once had sort-of-monopoly in the cell phone industry.

We don’t know if something like this is in the cards for Ford and other conventional automakers as well, but it would be one way to explain why Tesla is so highly valued compared to Ford. Ford executives think they can easily pivot to making electric, software-driven cars, just as Nokia thought they could adapt to a smartphone world.

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