Last week I gave you a heads-up that Elon Musk was preparing to share Tesla’s intellectual property with competitors. Given the controversial nature of the company and the stock, I wondered out loud about how the move would be interpreted by the investing establishment. No doubt the sacrifice of Tesla’s patent moat was regarded as a consummate act of stupidity by the horde of skeptics that has put the stock under siege for months.
When he made the official announcement last Friday, however, nothing happened. Strangely, during the last month neither good news nor bad news has had a motivating effect on the stock price. The market did not react to Musk’s sudden postponement of the gigafactory launch, nor to the happy start of right-hand drive sales in the U.K. Was anybody even listening anymore?
An Absence of Fear
After digesting the patent news over the weekend, there were no analyst downgrades on Monday morning. And the absence of negative press created a positive spark that launched TSLA out of its post-earnings doldrums.
Good news was now good enough to catalyze a virtuous cycle in the stock price… and good news abounds. Tesla is installing one Supercharger every weekday. States like NJ and NY are coming around. Musk’s recent pow wow with BMW and Nissan means that Tesla’s supercharger technology may soon become the global charging standard. Why would that matter?
King Musk
Because CEO Musk may be following in the footsteps of King Gillette, the founder of the eponymous Safety Razor company. In his first year of operation Gillette sold 51 razors and 168 blades. 12 years later, the company sold 450,000 razors and 70 million blades. That’s the power of developing an installed base.
Interestingly, Gillette managed to dominate the market for blades for its first 17 years in business even though its razor was five times more expensive than other brands and cheaper generic blades were also available. Why? The perceived quality of the Gillette brand created a bond with consumers that was stronger than pricing considerations alone.
As I mentioned last week, Elon Musk is a fanatic when it comes to quality and exceeding consumer expectations. This approach has been proven to build brand loyalty and also catalyze exponential growth, even for a product line that carries premium pricing.
Gillette was a luxury brand for almost two decades before it became a razor for everyman. I think Tesla Motors will have a similar course of development. The cars are the razors, the batteries are the blades.
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