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1/ The decision by @elonmusk to enter the car insurance market with $tsla is simply nuts, and an illustration of how arrogance can lead a company astray. @TeslaCharts @ElonBachman @Polixenes13 cnbc.com/2019/04/24/elo…
2/ Perhaps it made some sense for Rockefeller and Standard Oil to vertically integrate into everything in the 19th century -- after all, the economy was immature and there was a real shortage of management capability.
3/ But today, most segments of the auto value chain are pretty mature and competitive. Car insurance has dozens of competitors and I can attest that margins are already competed down to very low single digit numbers.
4/ To enter a new business successfully you need a real advantage or new approach. Tesla was initially successful in automobile manufacturing because it saw a market for luxury BEV's that no one previously had thought existed.
5/ Simply being unhappy with the price-value equation of a product or service is not enough reason to vertically integrate without some plan for how one might do better
6/ Tesla has already made this mistake several times. A great example is when its customers were unhappy about the cost and delays in body repairs on their Tesla's. It turns out these were mostly due to design choices Tesla made and the lack of parts production from Tesla
7/ But rather than admit it was the root cause of the problem, $tsla blamed body shops and promised its customers it would vertically integrate into body repair, and made wild promises about same-day repairs. To my knowledge, Tesla has done little or nothing to follow through
8/ Now, Tesla customers are complaining about high insurance rates. These are due to high repair costs insurance companies are seeing for Tesla's (again, a Tesla-caused problem in their design) and may also be due to insurance company fear of Tesla's half-baked autopilot.
9/ There are also questions about whether typical drivers used to their Honda Accord can safely drive a car with a 4 second 0-60 acceleration. None of these issues, though, are the fault of the insurance industry
10/ But again, we have Musk blaming the insurance companies for a Tesla-created problem. And just as with body shops, Musk is promising to offer auto insurance as early as next month.
11/ Left unsaid is how an under-capitalized company with no insurance experience will be able to enter this highly regulated market that requires state by state approvals in just 30 days.
12/ There are only two ways this ends. One way is that this is just another bit of PT Barnum hype from Musk like the body shop promise and it will be forgotten, along with battery swap and the semi, and the solar shingle, etc etc
13/ Or, Tesla could end up with a disaster on its hands, an amateur entry into a mature, thin-margined, and risky enterprise entirely unrelated to its current business and requiring an entirely different set of skills.
14/ The one way we can be sure it WONT end is with an insurance product available in 1 month. Seriously, the California State Insurance commission won't even have take their application out of the envelope by then
15/ And besides all of this of course is the problem of distraction. Tesla does not have enough capital to execute its current business plan. It has existential issues of a demand cliff to deal with.
16/ It has a China factory and a Model Y rollout that its not clear its spending enough money or manpower pursuing. If it really has data in the cars which is useful to the underwriting process, then it should just sell that data to the insurance companies
17/ Or it could partner with and subsidize another insurance company to provide cheaper insurance to Teslas if Tesla thinks insurance companies don't understand them. Any such subsidy would be cheaper to the losses it would suffer trying to enter the segment itself
18/ Knowledgeable business people will see Elon's insurance proposal and immediately consider it a big red flag indicating a company that is totally adrift. Fanbois will cheer, of course, celebrating that their hero will disrupt another industry
19/ I have a second thread where I demonstrate the regulatory problems they face in the example of California
