‘They always say time changes things, but you actually have to change them yourself.’ - Andy Warhol.
Tesla wants to drive the world’s “transition to electric mobility by bringing out a full range of increasingly affordable electric cars to market” as it permanently buries the image of an electric car as a step backwards in performance, efficiency, or design.
The fact that almost any new technology initially has a high unit cost before it can be optimised is no less true for electrified cars: Tesla’s strategy is to enter at the high-end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to achieve a higher unit volume and lower prices with each successive model.
Its Roadster model was launched in 2008 and priced at ~US$109,000 (2,500 were sold and it is no longer available). It was followed by its S model in 2012, a four-door sedan capable of travelling 400km on a single charge and priced ~US$100,000 for the high-end model. In 2015, it will launch its Model X, a sporty four door family car, while its Model 3 is due at the end of 2017 at anentry price of $35,000,with a range of 320km.
But to hit the Model 3’s expected price and related sales volumes, Tesla now needs to reduce the cost of its battery packs through economies of scale by at least a third, as well as secure a large supply of lithium-ion batteries.
Enter its US$5bn ‘gigafactory’ to be built in the US in partnership with Panasonic. It will start production in 2017 and, by 2020, is expected to produce 500,000 lithium-ion packs per year – equal to the current year’s world production. As part of its strategy, Tesla also wants to re-invent battery manufacturing techniques and chemistry to improve energy density, a longer lifetime and a higher operating temperature. With significantly cheaper batteries, the company hopes to establish these as the industry standard for other automakers to buy Tesla batteries as Mercedes is currently doing for its B-Class hatchback.
To make its strategy happen, Tesla is trying to shape and accelerate the growth of a nascent electric-car industry (with a market share of less than 1% currently in the USA) through granting competitors access to its patented technology. The more charging stations and related infrastructure are in place, the more electric cars will be sold; driving manufacturing costs down which in turn will increase sales and encourage infrastructure investment – a virtuous cycle.
Similarly, Tesla is trying to impose its proprietary Superchargers (which can top up a battery to about 80% capacity in 40 minutes) and is working with Nissan and BMW to develop standards for charging stations and plugs. In paralell, it is also building a network of charging stations providing free recharging to Tesla owners in public locations. The goal is to make those stations as well as any future home charging solutions largely solar and ‘energy positive’.
Whether Tesla's strategy will be successful and will thereby become the first successful car company startup in America within 90 years will depend on whether it can make the challenging leap from emotionally invested enthusiastic fanatical early adopters to a broader mass market over the next couple of years.
To date, Tesla’s differentiating factor was a user driving experience like no other. However all car makers are now all fighting for their share of Gen X and Y buyers, whether through electric or fossil fuel based vehicles.
High-end car markers such as Audi, Cadillac, and Porsche have now introduced their own luxury electric vehicles while, again, Audi, BMW, and Mercedes-Benz have all slashed prices and reenergized marketing to boost sales. Mass-market automakers like Volkswagen Group or Nissan are also expected to bring competitive battery-electric vehicles to market, moving the competitive field away from vision down to quality, performance, reliability, and price. In parallel, value brands automakers like Ford or Honda are bumping prices up and adding more luxury features to capture more driver dollars.
The electric-car infrastructure is still in its infancy. And if oil prices continue to decrease, the pitch to build out such infrastructure will be harder to make. However, the holy grail will come from improving the efficiency and lowering the cost of batteries to such extent that the economics of the electric car are transformed. Without the resulting mass market demand, charging stations will remain scarce compared to gas pumps, and driving an electric car, including a Tesla, will remain an exercise in planning ahead for many years to come.
More about Tesla’s electric world from The Economist can be found HERE
by Christelle Espinasse - inSTRATEGIA
