Elon Musk Wasn't Joking About a Tesla Music-Streaming Service

Tesla is reportedly in negotiations with major record labels about creating a proprietary music-streaming service.

Evan Niu
Evan Niu, CFA
Jun 23, 2017 at 2:15PM

Sometimes, it's hard to tell when Elon Musk is joking.

At Tesla's (NASDAQ:TSLA) annual meeting earlier this month, when responding to an investor question about how he relaxes after work, Musk mentioned that one activity he enjoys is listening to music. The chief executive continued, teasing the possibility of some type of Tesla music-streaming service:

I do listen to music, particularly in the car. In terms of the music selection, I think there are going to be some exciting announcements in terms of the music selection. I think it's very hard to find good playlists or good matching algorithms. We have something that works OK right now, but I think it could work really, really great. Yeah, there will be an announcement on that later this year. I think it's going to be -- this is going to be like the music you want to listen to.

A couple days later, Tesla introduced a new "Tesla Heard" curated playlist in its vehicles, and Musk suggested that Tesla may soon stream the playlist through the app so users can listen to the channel outside of Tesla vehicles.

The whole notion is bizarre. With everything that Tesla currently has on its plate -- preparing for the imminent Model 3 launch, designing the Model Y and Tesla Semi, continuing to integrate SolarCity and launch the solar roof, investing in infrastructure to support a larger fleet, just to name a few -- does it really make sense for Tesla to allocate time and energy into music streaming?

Music interface in a Tesla

Image source: Tesla.

Tesla Music?

Musk wasn't joking. Recode reports that Tesla is in licensing negotiations with the major record labels, discussing the possibility of creating a proprietary music service for its vehicles. Tesla currently integrates Slacker Radio into its vehicles in the U.S., and Spotify into its vehicles outside the U.S.

Tesla didn't deny the report, either. "We believe it's important to have an exceptional in-car experience so our customers can listen to the music they want from whatever source they choose," a Tesla spokesperson told Recode. "Our goal is to simply achieve maximum happiness for our customers."

The whole thing sounds like a potentially needless distraction. It's unlikely that a Tesla music-streaming service would serve as a differentiating factor, and it's just as unlikely that Tesla will beat incumbents at developing better matching algorithms.

There's also a matter of scale. Through the first quarter, Tesla had sold roughly 210,000 Model S and Model X vehicles combined to date, so the installed base is smaller than that figure because some of those vehicles have been retired, wrecked, or are otherwise no longer in service. The two largest paid music-streaming services, Spotify and Apple Music, now command almost 80 million subscribers combined. Those are services that already span across devices, which users have already customized to their tastes.

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It would be much easier for Tesla to negotiate and expand Spotify's availability, or integrate Apple Music directly. Apple probably isn't willing to grant access to Apple Music unless Tesla is willing to support Apple CarPlay, which would essentially surrender the interface to the Mac maker, and Tesla doesn't want that. But expanding Spotify support seems quite feasible considering the companies' existing partnership.

Tesla has much more pressing things that it should be focusing on -- better to leave music streaming to the pros.