Tesla’s Challenge

I’m a fan of Tesla. They are not without their issues, but I am 90% certain a Tesla Model 3 will be my next car in the 2019/2020 timeframe when I give my oldest daughter my current Prius. I have a weird car history in terms of style and preference. My first car was my grandpa’s 1955 Chevy truck which my dad and I restored. After I got married we got a Toyota Corolla from which I then upgraded to a Mercedes Benz. Then I downgraded to a Honda Civic. Then I slightly upgraded to a Kia Optima and now to my Prius. I really like luxury cars, however, the pragmatist in me wins more often than not when looking at new cars. I lean economy more often than not, yet I really like luxury cars. While the Model 3 isn’t perfect, I hope it is the best of both those worlds with the icing on the cake of having the best technology around.

I don’t consider Tesla a car company actually. I consider them a technology company, and that is a big difference. My long bull thesis on Tesla is that ultimately humans will want cutting edge technology experiences in their cars and the incumbent manufacturers will struggle because they are car companies not technology companies. I view Tesla very similar to Amazon. Most of us think all (most) brick and mortar retailers are screwed because Amazon has them beat and they don’t even know it yet. Similarly, I feel most other car companies are screwed and they don’t even know it yet.

Many of my close friends are Tesla owners, and I know they are not perfect yet. I hear of constant frustrations of when a software upgrade hits and some things don’t work well, or some UI element changed and you have to figure out how to do that thing you used to know how to do on the display. It sounds silly to say this, but even after all these years Tesla is still working the kinks out. They are a true early adopter tech company today who has the luxury of catering to early adopters who are much more patient and tolerant than your average consumer. The Model 3, however, better have all the kinks worked out if Elon Musk and team hope to take it mainstream. Once regular consumers starting owning Tesla’s they are only a few bad experiences away from having consumers spread negative sentiment word of mouth.

While I’m optimistic on the long view of Tesla, there are some interesting counter views and opinions. One, in particular, I find thought provoking is that Tesla is the RIM/Blackberry of the automotive industry. The theory posits that the true game changes in automotive have not yet entered the market and when they do they will essentially disrupt Tesla they way RIM/Blackberry got disrupted even though they were first with some specific smartphone concepts. If we were in debate class and I got stuck with defending this theory I certainly could, however, I do believe companies who focus on delivering high-quality customer experience and use technology/software/services to deliver that experience will be the ones who own the future. I do put Tesla in this category, but I also expect them to face competition from those not yet in the market. As of now, I feel they will face less competition from incumbent car brands, who may actually be the RIM/Blackberry’s of the automotive industry. They simply had a much longer shelf life.

That is not to say Tesla is perfect or without their challenges. In fact, they face some very real challenges with their scale and infrastructure. One of the interesting behind the scenes/inside baseball points out there is that Elon and Tesla will have trouble raising debt outside the public market to assist with their scale needs. When someone like GM needs to build a new factory they can raise private debt from governments or other entities and use that money to scale up quickly. Tesla has not yet earned the credibility to do such a thing and therefore will rely almost exclusively on their car sales profit and the public market to grow. Keeping that in mind, note these three data points I found in a financial analyst note about Tesla’s scale needs.

  • Excluding outliers, it takes an average of 31minutes to drive to one of TSLA’s 2,067 Superchargers or destination chargers.
  • TSLA would need to add 7,503 incremental Superchargers, costing $1.9bn, to ensure a maximum 31 minute drive time for the entire population…
  • …or 10,615, costing $2.7bn, if it wants to reduce average drive time to 22 minutes…
  • …or 30,160 incremental Superchargers, costing $7.5bn, if it wants to match the current 4 minute drive time to a gas station.

What is interesting is the perspective here to liken electric power sources in terms of average drive time to average drive time of getting to a gas station in the US. This is perhaps one reason why Solar City and Elon’s hopes of getting solar on every house in the US comes into play. If the owner of the car can use solar to charge their car at home then costs come down and it lessens the need to have the same average drive of a gas station. Of course, as long as the owner was charging at home then you would have to rethink the analogy to gas station drive time but I still think it is a worthy analogy. Consumers will need peace of mind that owning a Tesla, or any electric car for that matter, that they will never be too far from a power source and thus never in a position to get stuck.

Tesla seems to want to own their own exclusive charging grid and that angle can play a key role in the superior customer experience I mentioned. If they can charge faster than other electric car companies and have more stations, fewer lines, cost less (or be free), etc., it builds on the experience that can delight customers and turn them into the best champions for your product or brand.

Tesla has a known brand, but it is nowhere in the league of the incumbent brands yet. This is where the Model 3 makes or breaks them I believe. This is Tesla’s opportunity, and challenge, to go mainstream. But if they do execute over the next 3-4 years I feel they will be a strong competitor and one that gains market share quickly as the automotive world moves to electric cars, autonomous systems, and technology driven experiences.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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