Author: Rohan Ganguli, Graphics: Acasia Giannakouros
The BRB Bottomline:
The unprecedented rise of Tesla has left aftershocks on the automotive industry. The company is the first American automaker since 1941 to successfully produce cars on a large scale and generates hype based on its technology and brand strength with nearly no marketing. Is Tesla truly the automotive industry’s changemaker?
Jumpstart
ICE Melts
Contrary to popular belief, electric cars aren’t actually new to the automotive scene. Take esteemed automaker Porsche, for example — although Porsche is currently known for its gasoline-powered sports cars, the first Porsche-designed car, dating all the way back to 1898, was actually electric. However, electric cars never took off, and for nearly the entire history of automobiles, the automotive market has comprised of internal combustion engine (ICE) vehicles that run on gas and diesel.
But in 2004, the market — led by one key visionary — began to shift. That visionary was Elon Musk. While Musk is currently making news headlines for his controversial takeover of Twitter, back in the early 2000s, he was a lesser-known strategic entrepreneur who was focused on a single, small, electric automotive startup: Tesla. As part of his dedication to the company, Musk joined its board of directors and led a seed funding round that garnered backing from venture capital firms. With the VC-provided financial support, Tesla took the next step towards its vision of being the world’s leading electric vehicle manufacturer, by retrofitting an old Toyota manufacturing facility. In 2008, Elon Musk took over as CEO of the company, and under his strong leadership, Tesla released their first car — the Roadster.
EV Reputations
Back when Tesla was getting ready for its first release, electric cars still had to overcome two major roadblocks: the practicality of charging, and their poor image in the eyes of the public. At the time, when most people thought of electric cars, bland, poorly performing hybrid cars like the Toyota Prius often came to mind. Musk was keenly aware of this image and solved the issue by releasing the 2008 Tesla Roadster; it was essentially a re-badged Lotus with a battery — but it was cool, quick, and, most importantly, showed critics that electric cars didn’t have to be boring.
The Roadster didn’t quite take over the market due to its limited production numbers and its price point making it an expensive, out-of-reach option for everyday consumers. But, it did start to garner interest around the idea of a fully electric car easily accessible to the average consumer. In the midst of that interest, key questions were raised — questions like what the car would look like, how consumer adoption could gain critical mass, and what infrastructure would be necessary to sustain a massive user base. Tesla answered everyone’s questions with their release of the Model S in 2012. The Model S was a silent, sleek sedan that was both quicker than the competing Porsche and with its two trunks had more storage than the competing Honda Accord. And there was no bothering to both fuel and charge like with plug-in hybrid cars — the machine was pure electric.
The early success of Tesla was largely undergirded by Elon Musk’s marketing genius. Although Tesla operated on a nearly zero marketing budget during its early years, it still managed to build incredible hype through Musk’s industry and media connections, as well as his controversial social media presence. Tesla’s unorthodox, yet robust, marketing techniques were aided by the fact that the Model S was a critic’s darling. Reviewers raved about the new sedan, which they believed was going to change the automotive industry — and it did just that.
Industry Leader
Not Resting on their Laurels
Musk not only resolved the “image problem” for electric cars, but took it one step further, turning the entire automotive game upside down. Previously, electric cars were viewed as a poor class of vehicles to be looked down upon; with the release of the Model S, Tesla became a “gold standard” of automotive production and served as a model for other automakers to base their cars on. Tesla had beaten every automaker to the jump on stylish, efficient, and powerful cars, and other leaders of the industry were scrambling to compete. In fact, many of them are still trying to catch up to Tesla’s first mover advantage — for example, huge automakers like Toyota and Honda still have no electric offerings, let alone one capable of competing with Tesla’s Model S. Today, there are now competitors of the Model S from esteemed luxury brands like BMW, Mercedes, Jaguar, and Porsche — yet Tesla continues to outshine them in terms of overall features and completeness. Moreover, the “image problem” has been turned so much in Tesla’s favor that any conversation about electric cars always revolves around Tesla.
And while Tesla had beaten its competitors to the jump, the company did not rest on its laurels after the Model S. Tesla pushed its lead and released the Model X in 2015, which met the market’s needs for an EV SUV. Its next car, the facelifted Model S in 2016, was styled sleeker, and was insanely fast, with the P100D version setting a near-world record for its 0–60 mph time of around 2.5 seconds. Correspondingly, the company’s value had gone through the roof as well — in 2015 the company boasted a valuation of $700 billion!
The New People’s Car
Up until 2017, Tesla had released a luxury SUV, an upscale large sedan, and a sports car. Most consumers weren’t interested in buying any of those types of cars — especially when the cheapest of the three started at around $60,000. Once again, Musk understood this problem, and solved it by releasing Tesla’s long-awaited affordable option that most of the market could actually afford: the Model 3.
The Model 3 was a smaller electric sedan that still carried the fancy electric internals of the other models and a Tesla logo, but came at a much lower price than Tesla’s other offerings. The Model 3 didn’t just sell well — it became the best-selling passenger car (among both electric and non-electric cars) in California, as well as the best-selling electric car in America.
To quantify Tesla’s success, its car sales jumped from around 50,000 per year in mid-2017 to almost 200,000 in 2018. That spike was mirrored by total EV sales in America, which had a staggering 70–80% increase in 2018. That increase could almost entirely be attributed due to the Model 3, which had its first full year of production and sales in 2018.
Ahead of the Game
Tesla had resolved one of its two initial roadblocks, the “image problem” — but what about the practicality of charging? To address that roadblock, the company introduced its Supercharger Network, and worked on spreading it across the country. By not only selling cars but also developing a robust infrastructure and introducing network effects, Tesla was becoming the biggest force in the EV market.
Tesla is also a technological leader in the automobile industry — the most well-known example of their prowess in that area being how their new models come equipped with their Autopilot feature, which allows the car to drive itself on the highway. When the self-driving system was released, it sent shockwaves throughout the world, and for years, Tesla was the only car company with its own proprietary and in-production self-driving system.
Due to Tesla’s manufacturing and technological advantages, the rest of the automotive market still has no legitimate answer to the completeness of the Model S. The Porsche Taycan is an EV that matches the speed and even tops Tesla’s build quality, but doesn’t have the autopilot and other autonomous technology the Model S possesses. The Cadillac CT6, on the other hand, also has self-driving on highways — but it’s an ICE, not an EV.
New Rules
A critical factor that helped the growth of Tesla is the location the company is based in. As many in Berkeley have seen, the Bay Area is full of Teslas, as is the rest of California. California has the largest automobile market of any state in the US, and the state has approximately 40,000 electric car chargers, offering significant network effects that incentivize the arrival of even more Teslas.
Tesla has spearheaded a growing movement in California to shift towards clean vehicles, and the social impact of its cutting-edge technology is shining through. Tesla submitted a proposal to the California Air Resources Board (CARB) to require 100% zero-emission vehicles by 2030, which was approved with modifications; California Governor Gavin Newsom eventually issued an executive order requiring sales of all new passenger vehicles to be zero-emission by 2035. A key driver of this legislative decision came from Tesla’s successful mass production of the lower-end Model 3 EV, demonstrating the feasibility of transitioning to a state with all zero-emission vehicles in the near future.
Imperfections
Tesla, as well as the greater EV industry, isn’t perfect, and both still have a long way to go. One major issue is still affordability — while Elon Musk promised the Model 3 to be $35,000, which it was for a short period, the base price of a Model 3 has jumped to around $50,000, and a Model S now starts at over $100,000. While cheap, new EVs on the market like the Chevy Bolt start at relatively low prices, the current state of the automotive market is unfortunately filled with insane markups and price hikes. This situation is unsustainable, when a price change of $10,000–20,000 on new cars often makes the difference between affordability and unaffordability.
Additionally, the market is still weak in terms of competition, especially for lower-end EVs, where the competitors are essentially just Chevy, Nissan, and Hyundai (as well as its subsidiary, Kia). Big names like Toyota, Honda, and Ford haven’t entered the market for lower-end EVs, and without the presence of competition, there are little downward forces on market prices. And if California is truly set on banning new ICE sales, cheaper options need to be available for consumers.
Charging is also an issue, as users in rural areas still cannot feasibly use electric cars due to a lack of infrastructure — even in California, long trips can be hindered by the lack of chargers on a route, for example. Building electric chargers in less popular areas can be incredibly cost-intensive, and while Biden has passed a $5 billion bill subsidizing the development of such infrastructure, it’s a slow process that will take years to complete.
But, despite these issues, Tesla has made so much progress in transforming what used to be the gasoline-powered world into a charging world, and in this new charging world, its outlook appears to be ever so bright.
Take-Home Points
- For nearly a century it was thought that electric vehicles were impractical. Now they are commonplace on the streets of California.
- A saturated auto industry was left in shock as Tesla beat them to the jump on electric vehicles, leaving competitors scrambling to develop EVs.
- Unique marketing strategies not only made Teslas popular, but EVs as a whole.
- Tesla has grown from a small startup to one of the most influential companies in the world.
- Charging, infrastructure, and affordability remain concerns not just for Teslas, but all electric vehicles on the market.