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Tesla is Not a Car Company

Tesla Is Not a Car Company

Ever hear of RCA (the Radio Corporation of America)?

Today, RCA is just a trademark, licensed by a variety of companies to sell a variety of products. But that trademark has a rich history. From 1919 to 1986, when it was acquired by General Electric, it was a stand-alone company. As a stand-alone, RCA was a huge manufacturer of radios, televisions and other consumer electronics.

RCA began its life before commercial radio existed. That is, it began its life before there was anything to listen to on the radio. So, what did it do? It created the first radio network – NBC.

That’s right, RCA founded NBC as a ploy to sell radios.

I’m not sure what was more profitable – making radio (and, later, TV shows) or making the devices that enabled people to hear (and, later, see them). Regardless, was it correct to regard RCA as just an electronics manufacturer during the decades it also owned NBC? After all, it was one of the largest electronics manufacturers in the world.

Do you see the analogy? If not, you should watch Elon Musk’s April 30th announcement of Tesla Energy.

What Telsa Is Really All About

Tesla PowerwallMost media outlets characterized Musk’s announcement as being the announcement of a specific product — the Tesla Powerwall. But that wasn’t the real story. Musk’s announcement went way beyond that. Musk opened by stating that Tesla Energy will usher in a “fundamental transformation of how the world works; about how energy is delivered across Earth.” I believe him.

Musk opened by stating that Tesla Energy will usher in a “fundamental transformation of how the world works; about how energy is delivered across Earth.” I believe him. (Though, I don’t suggest that anyone run out and buy Tesla stock.*)

It is true that the radio sales jumped from about $50 million in 1923 to $207 million in 1926. But it’s also true that in the couple of decades leading up to that time, many investors lost a great deal of money investing in radio.

If you care, pundits like Jim Cramer recommend against buying the stock right now even though he recently said,

“[t]here’s 50 million commercial roofs in this country, and if you can get something going in every one of those roofs and then get something going in the 200 million homes, then we would wreck the power grid.”

You Can’t Bet on Tesla as a Slam Dunk

It is not clear that Tesla will be the only winner, the biggest winner or even a winner in the space. Looking to another analogy, did you know there were over 1,800 automobile manufacturers in the United States from 1896 to 1930? Betting back then there would be more than 250 million cars in the U.S. in 2015 would not have been enough to assure a winning investment; you would have had to pick the right company.

Also, keep in mind that history is littered with early entrants to a field who ultimately failed (MIT covered this subject in depth). Similarly, “fast followers” often do better than first movers. This 2009 article from Vatornews lists:

  • AltaVista -> Google
  • Napster -> iTunes
  • VisiCalc -> Lotus 123 -> Excel
  • Word Perfect -> Word
  • Netscape -> Internet Explorer
  • Apple Newton -> Palm Pilot -> Blackberry
  • IBM PC -> Compaq -> Dell
  • Double Click -> Google Ad Sense
  • Ofoto -> Flickr
  • Compuserve -> AOL -> @Home -> Comcast & Verizon
  • Nintendo –> Xbox
  • Friendster –> Facebook
  • Blackberry –> iPhone

Get the point?

Regardless of what you think about Tesla, you should look at this space. When you, Tesla ranks among many companies you may want to consider.

P.S.: think about the name Tesla. I personally think this is a funny hint at Elon Musk’s ultimate goals all along.

*[Editors’ note: Financial Poise’s editorial policy prohibits the recommendation of any specific investment.]

About Jonathan Friedland

Jonathan Friedland is a partner with Sugar Felsenthal Grais & Hammer, a law firm with offices in Chicago and New York City. Born and raised in a New York suburb, Friedland graduated SUNY-Albany magna cum laude in three years and then earned his law degree from the University of Pennsylvania Law School. Friedland clerked for…

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