Despite Musk's exaggerations, there's a chance Tesla's vertically integrated approach and love of software will win in auto, just like Apple succeeded in mobile
Elon Musk makes it easy to dismiss his grandiose — unhinged, even — descriptions of his product plans.
Context & Ripple Effects
Monday Note's 2019 argument — that Tesla's vertical integration and software obsession could replay Apple's mobile win despite Musk's rhetoric — looked easy to dismiss at the time. The subsequent coverage made it harder: Volkswagen built the ID.3 as its answer to Tesla only to be derailed by faulty in-car software, forcing a reboot of its entire software business.
Meanwhile Tesla demonstrated what in-house software control buys when its engineers navigated supply shocks by rewriting code to run alternative chips during the global shortage. Even Apple's own calculus, laid out in an earlier assessment that building a car would mean low margins and autonomy challenges, frames why the automaker-to-software-company direction is where the leverage sits.
First-order effects
- Legacy automakers like Volkswagen are being forced to treat car software as a core competency and rebuild their organizations around it after shipping products with defective onboard software.
- Tesla's in-house software capability converts supply-chain disruptions from production stoppages into engineering exercises, giving it a resilience rivals assembling others' stacks lack.
Second-order effects
- Competitors' software reboots redirect billions in R&D toward internal platforms, squeezing traditional supplier relationships as automakers pull electronics and code in-house.
- If the Apple analogy holds, margin pools shift toward whoever owns the integrated hardware-software stack, pressuring volume manufacturers toward commodity economics.
Third-order effects
- The industry structurally bifurcates into vertically integrated software-defined players and hardware assemblers, mirroring mobile's split between platform owners and OEMs — though Apple's own decision against building a car shows even stack owners judged auto margins unattractive from the other direction.
The trend: Automakers are splitting into vertically integrated software companies and commoditized hardware assemblers, with Tesla running Apple's mobile playbook and legacy players scrambling to respond.