Tesla said last week that deliveries of a second model in its all-electric line-up, the Model X, would start late in October. It’s a big moment.
The company has done a remarkable job in leading the established carmakers down the road towards mass acceptance of electric vehicles with its Model S luxury car. There’s a lot to love about it. But the acid test is coming in the form of the follow-up products, starting with the Model X, for which it’s forecast sales of 55,000 before the end of 2015. Even though the X will occupy a lower price point and will be a crossover – the fastest-growing model type globally – that’s a tough call when Model S sales are currently running at an annualised rate of only about 40,000.
But that’s not the biggest issue. Tesla’s key problem is that its model range plans will see it entering the mainstream and taking on the big players – which have the muscle to stamp on the new boy who’s tested the market for them.
Tesla’s product strategy has been compromised by conservatism from the start. The Model S is a huge achievement, offering a viable range of well over 200 miles in an EV for the first time. It goes like stink and can move a large family in serenely hushed comfort. But it’s anonymous looking. EVs don’t have to shout their technical or eco credentials but nothing in its design tells you that the car is a ground-breaker, a catalyst for an entire industry. It’s pleasing but anodyne. It could be a large Mazda. Or anything designed around a traditional ICE (combustion engine) drivetrain.
Now, with the Model X, Tesla is taking its offering into more commoditised territory. And the smaller Model 3, which will follow, will further expand the range but do so by lowering the price point again. That opens it up to a far wider customer base but also far tighter margins and massive competition. A crossover the size of the Model 3 will be up against Chevrolet’s forthcoming and very keenly priced Bolt, and the major carmakers like Chevrolet’s GM parent can operate at miniscule margins offset by far higher volumes, global footprints, larger product ranges and sales of financial services: most of the carmakers are now effectively banks which also make cars. Tesla is not, in spite of its founder Elon Musk’s billionaire status.
Put it another way: Tesla – despite controversial and vocal Musk – could have been disruptive but has not. Musk touts a disruptor tag and wants to challenge the established brands. His balls are as big as his bank account. But there is no mass following for Teslas or any other EVs at the moment, and when the demand rises the big players will exploit it quickly – there has been no first-mover advantage. Audi has recently announced that it will be revealing a prototype all-electric luxury car with a Model S-beating range at the Frankfurt motor show in September, and Jaguar is planning an all-electric luxury car. Both should be on sale by 2018.
Why such a slow response? First because the demand for EVs is still insignificant, and second because the Model S has been in a niche. The real competitive response will start as Tesla enters the more affordable market segments – which it will do with the Model X and Model 3 – and crucially when the demand for EVs can’t be ignored. And when that happens the established carmakers will be ready. Tesla isn’t doing anything the other carmakers cannot, and when it matters Tesla won’t be doing anything they are not actually doing.
Tesla simply can’t challenge the existing major carmakers head-on. Top-down disruption hardly ever occurs. Instead it would be better off continuing to target niches the major players don’t want to enter, or can’t enter quickly and easily, and engaging in innovative business models – like short-term leasing and car sharing. That’s what true disruptors do.
If Tesla’s aim was not to disrupt it should have created highly distinctive products, especially where it cannot avoid direct competition with the establishment. And it should have invested more in its brand. The simplicity of EVs mean that the barriers to entry for new carmakers are far lower than for new entrants in the ICE era. Making a car is the (relatively) easy bit; creating a relevant and differentiated brand is the hard part, and Tesla has not yet done that. To most consumers Tesla means ‘electric’, early mover’ and ‘Musk’ but little else. It may be one of the most tweeted, followed, liked and posted brands but it has effectively outsourced its brand development to the vagaries of cyberspace.
When we see other new entrants into the EV sector they are likely to be less beholden to a traditional product profile, and more focused on brand, than Tesla. The next one may well be Nevs, the business which acquired the assets of SAAB, is rebuilding as an EV company and has just announced alliances with two Chinese state-owned firms. It knows the value of the SAAB brand legacy and my bet is that it will be thinking hard about new business models and the different requirements of Asian and Western markets.
To be successful, Nevs and other EV brands have to offer something different but which can exist alongside the establishment – in the market, in consumers’ minds and probably on their driveways. Challenging them head-on isn’t a sustainable option.