Tesla Motors Inc vs. Apple Inc. In The Race To $1B In Product Sales

Tesla Motors Inc vs. Apple Inc. In The Race To $1B In Product Sales
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Tesla Motors revealed that it has already taken millions of dollars’ worth of reservations for its new stationary energy storage systems. In fact, Bloomberg estimates that the orders taken within a week of launch are worth $800 million, putting Tesla’s battery packs on track to be one of the latest roll-outs for any new product category ever.

Tesla’s systems compared to Apple, Viagra

Of course the orders Tesla has taken for its new energy storage systems are not firm commitments to purchase. However, Bloomberg‘s Tom Randall reports that even if the automaker can convert just a small number of those orders, it would still be a massive product launch.

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Randall compares the initial sales numbers of Tesla’s Model S in 2012 with those of the 2007 launch of the original iPhone and the debut of erectile dysfunction drug Viagra, which was released in 1998. He reports that it took the iPhone to pass $1 billion in sales by the third quarter it was available on the market. The Model S took just slightly longer, hitting the $1 billion market before Viagra did.

What the numbers mean for Tesla Energy

When Tesla CEO Elon Musk revealed the number of orders they had received for their Tesla Energy storage systems, he referred to them as “reservations” without defining exactly what a “reservation” is. According to Bloomberg’s calculations, nearly $625 million of the first week’s $800 million in reservations were from utility and business customers that “seem likely” to follow through with their purchases. The media network reports that the rest of the reservations are from homeowners who may or may not complete the transaction and are merely interested in the storage systems.

Of course it’s going to take a lot more for Tesla to scale the production of its battery packs than it did for Pfizer to scale production of Viagra, often referred to as “the little blue pill.” By the time the drug had been on the market for a month, the drug maker was filling 46,000 prescriptions for it per day.

By comparison, Tesla won’t start shipping out any of its battery systems until the summer, and Musk has said the initial reaction to the systems has been so huge that they’re sold out through the middle of next year. But at $800 million worth of reservations, Tesla was already approaching the $1 billion sales mark after just a week of making the storage systems available.

Tesla needs cash

More than one analyst has mentioned concerns about how quickly Tesla Motors is burning through cash this year. However, Morgan Stanley analyst Adam Jonas said in his latest report about the automaker that investors don’t seem too concerned about liquidity or the ability to raise more funds.

And as Randall points out, Tesla is going to need the cash it gets from selling its energy storage systems as soon as possible. The automaker is quickly burning through cash as it prepares to start manufacturing the Model X this year and looks toward beginning production of the Model 3 by 2017.

Did Tesla and Apple truly disrupt?

As Tesla looks to be on its way to beating Apple to the $1 billion sales mark with a new product, there is a fresh debate about whether Tesla or Apple have truly disrupted their markets. Indeed, Randall calls the iPhone and the Model S “new product” categories, but were they really?

In an article in Harvard Business Review, Clay Christensen argues that Tesla isn’t disruptive, using similar arguments to when he said that Apple wasn’t disruptive. According to UBS analyst Steven Milunovich, Christensen predicted that the iPhone would only have limited success—and how wrong he turned out to be.

The argument is that Tesla’s Model S and Apple’s iPhone are “sustaining technologies,” although Milunovich pokes holes in Christensen’s arguments. He states that smartphones and electric cars were new categories even though they “might not be classically disruptive” under Christensen’s definition. Of course the tech community realizes that the iPhone wasn’t the first smartphone, but Milunovich states that from the perspective of the average consumer, the iPhone created a new category because it was the first smartphone to gain “significant mindshare.”

By extension, it would seem that the same argument could be made for Tesla’s Model S, and now the Tesla Energy stationary storage systems. Again, neither of these products were the first of their kind, but both have garnered enough buzz to draw the attention of the average consumer toward them.

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