We heard last week that Tesla was negotiating with major record labels with the goal of offering drivers of its vehicles its own music streaming service to be bundled with the purchase or lease of its vehicles. The rumor seems to jive with something CEO Elon Musk said regarding “some exciting announcements in terms of music selection,” but one analyst sees much more: a “living room on wheels.”
Offering adjacent services to create a living room on wheels
In a report dated June 27, Morgan Stanley analyst Adam Jonas, who recently downgraded Tesla to Equal-weight, although he remains firmly in the bull camp, floated the idea of the company creating what he describes as a “living room on wheels.” He feels that a music streaming service could be the first step in that direction. While Recode, which was originally tipped off about the rumored service, questioned why Tesla would create such a thing, Jonas feels it’s a good idea and could be part of what he has long envisioned his idea of “Tesla Mobility” to be.
What does value investing really mean? Q1 2021 hedge fund letters, conferences and more Some investors might argue value investing means buying stocks trading at a discount to net asset value or book value. This is the sort of value investing Benjamin Graham pioneered in the early 1920s and 1930s. Other investors might argue value Read More
“Over time, we see the marginal cost of transport approaching zero, leaving Tesla operating a highly regulated utility at low margin,” he explained. “Adjacent monetization of content, data and experiences is critical to maintaining long term independence.
Automakers will need to find something else to monetize
He estimates that there will be about 7 million privately-owned Teslas and nearly 2 million Teslas participating in his idea of “Tesla Mobility” logging about 120 billion miles every day by 2030. He adds that total passenger miles could be a “multiple of that figure” and that the mobility network will be running about 4.6 billion hours a year at an average speed of 26 miles per hour. Despite all that time and miles, he sees transportation becoming a utility that may even run at a loss. As a result, automakers will need to find something else to monetize, and he sees a captive audience in a car for one or two hours a day.
Instead of letting Apple, Alphabet, Pandora Media, Netflix, Sirius XM or other tech firms take all the value of offering content, he feels that Tesla could create its own living room on wheels. He feels that a streaming music service could be the first step and later could develop into streaming video and other services. He illustrated his idea by recalling BMW Films, which are short films used to build the automaker’s brand, although eventually, he sees it as another revenue stream.
How Tesla could pull it off
Jonas even had an idea about how Tesla could support its living room on wheels through a low earth orbit satellite network. He noted that automakers that are focusing on autonomous driving will probably eventually face bandwidth challenges in handling all the data produced by the cars and consumed by the vehicles’ occupants.
He added that Tesla management might have “a unique perspective on the role of technology to address this problem.” I would also note that Musk is not only CEO of Tesla but also of SpaceX, so any need to launch satellites into space could be done easily.
Tesla shares closed up 2.45% at $371.24 on Wednesday.