So despite all that ego, there’s some bad. While most of us would say the selling part of the entire business, “let’s just stick to selling cars,” Tesla says don’t. That’s just how we start. We’re going to sell pickups and semis. We’re also going to actually launch level 5 autonomy and actually cannibalize our existing business to launch [unintelligible]. In fact, for those of you that own Teslas, you’ve actually already agreed to never allow that Tesla to be used in Uber and Lyft. You may not have realized it, but this is a screenshot from the agreement we got from [unintelligible]. They also bought SolarCity, a business that many people in this room would say defies any shred of industrial logic. They’re building a factory 5 and a half million square feet, the largest building in the entire world visible from space, where raw materials come in one end; cars and machines and batteries come out the other. In fact, it’s not just one; they intend to build multiple of these. In fact, it’s not actually a factory, they describe it as a machine that’s going to build the machines that they are going to sell. And they also want to see sustainable energy independence for power generation and power storage.
Now all of that was roughly announced or tweeted for Q1 of 2017. So the point is, there’s a lot of other things that are in the offing here that we don’t even know about. And the one thing that we can all agree on, whether we agree with the strategy or not, is that these things are extremely capital intensive. In fact, when we do our bottoms up assessment of how much money it’s going to take, this is an incredibly capital [unintelligible]. In fact, everything that we look at says, that it’s at least twice the amount of capital in the management business. The management thinks it’s about 10 million of investment capital we can use [unintelligible].
So we took the good, we took the bad, we took the ugly, and we tried to model the business. We’ve talked to the company, we’ve talked to analysts, and what we found is unbelievably insightful, which is that it’s absolutely unmodelable. So anybody who is telling you that some [unintelligible] is telling you to be long or short this company is completely making it up. So what we did was we went back to our superpower and we said, “Let’s start thinking about this company from a product and technology orientation.” Build a logical framework bottoms up to describe what this business could be. Could it be 10x in 10 years like Amazon? As we did it, this amazing thing came to light, which was a historical analog. Another company very similar to Tesla, we had already run the exact same play that we believed [unintelligible]. That’s why I want to explain to you our view on Tesla in the context of another company that you all know, Apple.
In 2007, Apple did something that most companies are never able to do, which is to launch something revolutionary. The iPhone was an unbelievable feat of technology, of engineering, it was magical. And what this product did was capture consumer imagination, and then created the tailwind of the game. And what they were able to do was take that demand and start to consolidate an extremely fragmented and highly undifferentiated market. Just remember that a decade ago, that was what was in your pocket. And now look at the phone today, and ask yourself, who did that; it’s Apple. And the most important thing is that when you consolidate share and you consolidate a fragmented market, you have the ability to expand product scope. What does that mean? That means hiring unbelievably talented engineers to work on the next incremental [unintelligible]. When you do that, you start to create a virtual cycle. And when you do that, you can do something that’s equally important, which is to vertically integrate your critical components of your system that drive long-term profitability. Software in iOS, a retail infrastructure, a development platform that’s hired millions of supporters, and what did they do, they vertically integrated from that expanded product skill. They built their own semiconductors including that idea. They started [unintelligible] operating system, and they started to move up the staff, to build value-added services and extremely [unintelligible]. Then from there, they expanded. They launched the tablet business, they reinvented their laptop business, and they launched the smartwatch business.
So what happened? They redefined the market. They redefined what it meant to be in the markets [unintelligible]. Massive consolidated share, unbelievable pricing power in the face of [garbled] of pricing power for their competitors, and the most important thing of all, all the profits, 104% to be exact. Which means that they rendered their competitors in a situation where they are raising billions of dollars just to be in the same market as Apple.
Now why we think that’s interesting is that what it resulted in was in 10x in 10 years. From a $73 billion market cap to three-quarters of a trillion dollars, they did it. What we think Amazon is in the midst of doing, they did it in the last [muffled]. And now let’s ask ourselves: Is Tesla running the same playbook? Step 1, check. If you have a Model S, or if you have a Model X you will agree, it is impossible to go back to traditional combustion engine cars. Those cars are for rent. This car is beautiful. They equally have opportunity to consolidate a lion’s share in what is an even more fragmented and fundamentally undifferentiated market. What this shows you is that nobody has point of view, and nobody really understands how to engineer a product for mass consumer adoption. They’re also extending the product store and vertically integrating. They’re building batteries and manufacturing them in. The core genesis that the brain of the car is no longer mechanical, it’s software. They’re building the Gigafactory, they’re building a billion-dollar retail and charging infrastructure. And what I think is probably the single most impressive enhancement in software, autopilot, which by the way, they sell for thousands of dollars and basically 100% gross margin. And now, they’re expanding into adjacent markets as well. They’re moving down the market. They’re building power generation and power storage to scale and they’re building these bigger factories.
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