GP’s with a name portfolio company are coy with their humblebrag as they pitch new limited partners. This isn’t the kid down the street who puts his Bo Jackson rookie card at the front of his card collection. This is the clever neighbor who would only lead with Bo if there was a host of treasures to find deeper in the collection. If that name portfolio company was $TSLA, then the story was simple, “The batteries are impossible to develop. Once you have the battery, electric motors are much easier – which will allow the winner to dominate other lines of transportation. Existing auto makers can’t catch up to Tesla.”
The investment thesis was that $TSLA would solve the battery constraint before auto makers could make the cultural change to a new energy system. That was it – there was no secondary thesis around automated vehicles. Everyone assumed $TSLA would then win the “learn-to-make-automobiles” constraint.
The constraint in a system is the rate limiter. In a hydraulic system it is the narrowest pipe. In a chemical reaction the constraint is the lowest available catalyst. In Goldratt’s classic The Goal, his son’s scout troop is constrained by Herbie. Herbie is the slowest on a hike. The troop doesn’t finish until Herbie finishes. No one goes faster than the constraint.
$TSLA looks to be losing the constraint race against traditional auto makers. Model 3s aren’t shipping. $TSLA’s constraint is becoming a legitimate manufacturer, which now appears to be harder for a new entrant than it is for an automotive maker to develop EV capabilities.