Business Model: The Biggest Invention by Elon Musk In Tesla

Elon Musk is his generation’s finest innovator. But he is not there because he makes great physical products like SpaceX rockets, Tesla cars, etc. The best part of Musk’s business is in pricing. Since Bill Gates changed the ordinance on how software is priced in the late 1970s, away from giving it free for hardware contracts as IBM was doing, no other person has brought better ideas than Musk on pricing physical things.

Musk launched Tesla. And if he had kept Toyota, Ford and GM’s pricing models, the company would have failed. What did Musk do? He invented a software pricing framework for a car which means you never finish paying for your Tesla. Indeed, there are subscriptions here and there to the extent that if you should sell the car, the next owner will still need to get in touch with Tesla to activate something.

Contrast with your Toyota, once you pay 100% and leave the dealer with the car, you have forever paid, and Toyota will not get anything from you again. Tesla has recurring revenue like software while other car brands are one-off like your old Nokia phone. That explains the higher multiples investors use in Tesla stock valuation as a Tesla car could be earning revenue for Tesla Inc until it goes to the landfill. Other car companies do not have that ability.

Musk is extending that pricing sagacity into the fledgling era of autonomous taxis: “Tesla’s long-awaited robotaxi debut kicked off Sunday in Austin, Texas — and with it came not just a successful technical demonstration, but a pricing shockwave that could redefine the ride-hailing market. Offering autonomous rides for just $4.20 flat, Tesla’s entry is now being touted as a potential category killer that could disrupt incumbents like Uber and Lyft, whose fares in the area typically range from $25 to $40 per trip. “

Did you read that? Flat fee! Who will use Uber and Lyft if you have a brand that offers you a flat fee? Why is Tesla doing this? Total vertical integration as Tesla owns and makes the cars, and that means it can use the one oasis strategy to milk the system. In other words, Tesla can get carbon credit of $2 per trip and when everything is computed, it would be fine financially because there are oil companies and other EU car companies waiting to buy those carbon credits. (Tesla generates $billions by selling carbon credits on all cars sold!)

Uber and co are in trouble. And Google Waymo is also in trouble even though Google has big wallets to compete with Tesla, but this competition is not symmetric since Tesla makes its cars while Google only retrofits. And with that, Musk and team can even expand the flat fee framework.

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Musk didn’t just disrupt industries, he rewrote the rules of value capture.
Other CEOs: ‘How do we make cars cheaper?’
Elon: ‘How do we charge customers forever?’
And just like that… the auto industry became Netflix.
While Detroit obsessed over ‘sticker prices,’ Musk built the Apple App Store for vehicles:
Own the OS (Tesla software)
Control the App Economy (FSD subscriptions, robotaxi fees)
Monetize the Ecosystem (carbon credits, driverless data)
Toyota sells cars. Tesla sells car-as-a-service, and Wall Street pays 10x multiples for the difference.
Robotaxi Shock Therapy: $4.20 fares aren’t charity, they’re loss leaders to dominate data/credit markets
The playbook? Sell the razor, monopolize the blades, then sell the shaving habits to third parties.
When historians write about 21st century capitalism, they won’t talk about Musk’s rockets or cars. They’ll study how he turned physical products into financial derivatives.

Tesla’s Robotaxi Rollout Ignites Stock Surge and Analyst Praise, as $4.20 Fare Threatens Uber and Lyft

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