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Why Tesla Might Never Match Apple’s Profit Magic, According to a Nobel Laureate

While the innovation and growth of Tesla have been nothing short of impressive, the leading economist and Nobel laureate, Paul Krugman, firmly believes that Tesla will never reach the profit-making echelon of tech giants like Apple and Microsoft. The reason? The nature of the car industry simply doesn’t allow for the establishment of a monopoly that’s unchallenged.

Products like Apple’s iPhone and Microsoft’s PCs have reaped the rewards of the network effect, where a significant market share is achieved because consumers flock to a product for its exclusive benefits, perceiving that others are gaining from its use. Tesla’s vehicles, according to Krugman, are unlikely to ever benefit from this phenomenon.

Tesla, despite its pioneering strides in the electric vehicle sector, won’t evolve into an unassailable monopoly, says Krugman. “Tesla is not going to be Microsoft, even if everything goes the way it should. It’s not going to be Apple,” he stated.

He added, “This is not network externalities, where basically people use something because everybody else is using it, and it’s very hard to break out of it, and so you get decades of extremely high profits.”

The last year has seen Tesla’s share price taking a sharp 65% dip. The tech stock weightage coupled with rising interest rates is blamed for this plummet. However, the unconventional and at times controversial behavior of Tesla’s CEO, Elon Musk, hasn’t gone unnoticed by shareholders, some of whom believe it has also contributed to the stock’s decline.

Last year, Musk was in the spotlight for a dramatic $44 billion takeover of Twitter, the subsequent layoffs of over half its workforce, and his vocal support for right-wing conspiracy theories. Such actions have led to comparisons with other tech CEOs, especially Apple’s co-founder, Steve Jobs.

Krugman points out that Musk’s style contrasts starkly with Jobs, who was known for his disciplined vision and laser focus on product development. “Jobs had a vision. And also, let me say that at least a certain point, it mattered that Steve Jobs was perceived as a really cool guy… that was something that people wanted to buy into, which helped to establish his position,” noted Krugman.

The Nobel laureate doesn’t believe that even if Musk had shown a discipline comparable to Jobs, Tesla could sustain profits in the same way Apple has. He said, “It’s just — it’s not his fault. It’s just not that kind of industry.”

The car industry is indeed a different beast with unique challenges and complexities, and Tesla’s journey is a testament to that. The vision, strategies, and leadership styles that led to the tech giant’s success might not be the magic formula for the auto industry. Only time will tell if Tesla can rewrite the industry’s profit playbook.