Already an astonishing success story, the relatively small California auto manufacturer Tesla Motors has taken the electric vehicle world by storm in the past two years. The young company is prospering despite a hail of skepticism regarding the long term, with a stock rally of over 400% in 2013.
Its flagship product, the Tesla Model S luxury sedan, boasts sports car-worthy acceleration, over 400km (250 mile) of fully electric range, plenty of storage space and a stylish exterior very similar to other vehicles in the same price range. Selling just fewer than 20,000 units in 2013, the company is still a tiny fish compared to the big global players in the auto market (Ford, GM, VW, Toyota, etc), which routinely sell millions of units a year.
However, many financial analysts say that with a market capitalization of over $20 billion, Tesla Motors is massively overvalued and due for a serious correction that will see its share price plunge sooner or later. Critics argue that the demand for Tesla’s flashy cars will soon flatten with a saturated market for the unaffordable Model S.
Other critics bemoan the lack of range compared with traditional gasoline-powered vehicles, maintaining that even if Tesla offered an affordable model, the average consumer would choose to forgo the hassle of electric charging and the constant “range anxiety” and stick with trusty internal combustion.
Yet these assumptions do not take into account the rapid global expansion of Tesla’s charging and service infrastructure. Most importantly, critics underestimate the undeniable Silicon Valley appeal of a company that offers cutting-edge technology and challenges the powerful old boys of the automobile and oil industries and their deeply ingrained ways of thinking.
Model S drivers are unanimous in their praise for the vehicle, consistently indicating that the Model S exceeds their expectations particularly because it offers a radically different and superior behind-the-wheel experience when compared to other luxury cars in its class. Forbes magazine recently reported that a used Model S will often fetch a higher price than a brand new one simply because Tesla’s production cannot keep up with the explosive demand for its product.
Tesla proved that an all-electric car was desirable beyond simple environmental cred and created an all-new class of vehicle. Suddenly the electric car was sexy and sporty, appealing to the technology and status-obsessed as much as the environmentally conscious. And it did all of this with zero advertising.
The days of dismissing electric cars as glorified golf carts are now history. The name of the Model S itself is a not-so-subtle nod back to the famous Ford Model T, first built over 100 years ago and credited for spurring the mass adoption of the automobile in North America. Nearly a century later, this is precisely the type of revolutionary spirit driving Tesla CEO Elon Musk in his quest to change the shape of automobile history for good.
The goal: widespread conversion from internal combustion to electric, with the number of electric cars on the road greater than the number of gasoline-powered vehicles. And of course, his seemingly noble cause pays a decent salary too. Musk’s current net worth is approximately $6.5 billion, and will only increase in the coming years as more Teslas hit the road. Here are some of the primary ways that Tesla Motors is setting out to convince the world that electric cars are the way of the future.
Its Unique Business Approach
Bypassing traditional car dealerships, online ordering and reservations are hallmarks of Tesla’s brand as a new car company that does things differently. Particularly in the US market, it prides itself on pure domestic production, with its cars exclusively manufactured in California. Tesla, modelling itself after Apple and its name-branded stores, has similarly placed itself in the middle of malls and in ritzy neighborhoods where customers can engage with Tesla techies and drool over one of the cars while large digital displays endorse the myriad advantages of choosing Tesla.
A large part of the strategy for Tesla has been to build a network of “stores” and smaller service centers capable of dispatching technicians to provide onsite help, able to fix any problems Tesla owners may encounter. Since so much of the car involves complex electronics and software, Tesla “mechanics” are more like computer geeks than traditional grease monkeys. Tesla owners, therefore, have no need to hunt for a good mechanic that won’t rip them off. In fact, the warranty that comes with the purchase of a Model S guarantees free servicing from specialists available at each of the service centers.
Gradually More Affordable Prices
Perhaps the biggest criticism that Tesla receives from the average consumer who first finds out about the company is the astronomical price tag of the Model S; the longest range variants (85kwh batteries) cannot be had for under $90,000, causing many to outright dismiss Tesla’s cars as yet another line of toys for the rich.
From a global perspective, however, the number of people able and willing to afford these cars is quite significant. Since the average worker often buys a new car whose price is 50% or more of their gross yearly salary, one can assume that the income threshold for becoming a Tesla owner currently sits at $200,000/year or higher.
But, as Tesla CEO Elon Musk has stated in interviews, the central tenet of his long-term growth strategy is to gradually increase affordability as economies of scale and improved battery technology lowers costs. He has even indicated that he welcomes competition in the electric vehicle market to further drive up general demand for batteries.
The SUV-styled Model X, expected to roll out of the Fremont, CA factory later this year, will be priced as low as $60,000, effectively lowering the income threshold to $120,000/year and thereby greatly expanding Tesla’s market potential. Musk has plans to roll out an even cheaper model by 2015 that will be priced between $30,000 and $40,000.
In order to achieve this ambitious goal, he is betting on economies of scale to drive down the price of expensive lithium-ion batteries as their global demand skyrockets in a manner not unlike the recent plummeting of solar panel prices in the face of rising demand for photovoltaics. This will enable economical production of a more affordable model whose owners can take full advantage of Tesla’s infrastructure and services.
Although promises and plans of this kind can no doubt suffer delays or even cancellations, Musk’s record of keeping his word and the massive amounts of cash that the company can now pour into R&D suggest that it won’t be long before the average middle-class consumer can afford a Tesla.
Superchargers = Free Fuel
Arguably the biggest reason that Tesla will continue to thrive in the long run is its rapidly expanding network of “superchargers” -- purpose-built rapid-charging stations reserved for owners of Tesla cars. Tesla is investing heavily in building more and more of these stations that are capable of recharging 80% of the Model S’ battery within 40 minutes, giving another 300km (200 miles) of driving range in less time than it takes the whole family to stop for lunch on the five hour road-trip out to see the grandparents.
As of December 2013, it is now possible to drive for free from LA to New York using the superchargers strategically placed on major interstate highways - provided you own a Model S, of course.
The exclusivity of the supercharger service is arguably Musk’s biggest strategic move; the massive marketing appeal of free fuel, although very catchy, is not as important in the long run as the fact that Tesla is essentially creating a monopoly on fast-charging infrastructure. As competitors are racing to come up with electric cars to rival the Model S, Tesla will always have the advantage of its superchargers, which are popping up like mushrooms all across North America and Europe.
It remains to be seen what Tesla’s competitors have up their sleeves. No doubt they have been watching Tesla’s every move and consequently pouring millions into developing a rival product. No matter how good of a product they come up with, however, they will find it increasingly difficult to compete with a global infrastructure of superchargers ready to provide free fuel.
How long will the charging remain free? Although Musk promises that it always will be, it is more realistic to assume that it will be free just long enough for Tesla to have completely beat out the competition. When the affordable model hits the market, Tesla Motors will end up on top. Coupled with the solar panels many homeowners can now install through companies like SolarCity (also a brainchild of Elon Musk) to provide off-grid charging for their Teslas, the future truly looks bright for a gradual transition away from the internal combustion engine.
Regardless of whether Tesla ends up dominating the electric automobile market, a true mass adoption of electric cars is a much-needed, major step towards a low-carbon future.