Showing posts with label Tesla. Show all posts
Showing posts with label Tesla. Show all posts

Wednesday 10 February 2016

What Tesla Motors Must Do To Make The Model 3 The American Car Of The Next Decade

If Tesla Motors play their cards right, their upcoming Model 3 could be the defining car of the next decade.



The Model 3 could define the future of automobiles- a fully electric, tech-packed compact executive car from the Californian firm that is expected to go head to head with established models from Mercedes, Audi, BMW and Jaguar.

Its older, bigger, more expensive sibling the Model S is already doing a fantastic job of taking on Germany and Britain's finest- but it could be the Model 3 that brings Tesla Motors to the mass market. Especially because, as Elon Musk announced yesterday, it will start at just $35k. To make the Model 3 into potentially the best-selling car in the USA, however, Tesla will need to keep in mind the following things...

1) THE CAR
Of course, the most crucial factor. If the car is terrible, no one will want it. The car, of course, must be comfortable, spacious (for its class) and be practical- easy to use on a daily basis to ferry the family around, or go on business trips.

Design-wise, the Tesla Model 3 has some tough competition. The interiors of the Mercedes C-Class and Audi A4, two of its major rivals, are setting the benchmarks for the compact executive class of car, and in order to match these, Tesla will have to take into account some criticisms of the current Model S' interior quality.
The Model S has excellently capitalised on current
technology trends.
Technology is key, too. Tesla have already set a great example with the Model S- they have effectively capitalised on our modern habits, of spending time looking at screens (it has the biggest infotainment display of any car on sale today), and basically doing nothing (as well as driving itself on the highway, the Model S can now park itself and be 'summoned' back to you when you return). This autonomous aspect of cars is a massive trend right now, and with companies like Mercedes and BMW beginning to get in on the action in their more premium cars, Tesla needs to push on and implement these on the Model 3 to stay ahead in the compact executive class.


The most crucial factor, however, in the Model 3's sales may well be pricing. At a price of $35k (including incentives, potentially $25k), the Model 3 is set to be a bargain compared to its premium competitors. The Model 3 will be even cheaper than some of its non-electric rivals (see image), let alone its few electric/hybrid class competitors in the USA. So if the quality is right, Tesla can expect to cause some disruption to its competitors' sales.

The Model 3 will be cheaper than even the non-electric cars from its competitors BMW and Mercedes.
Given that the expensive Model S and new, even more expensive Model X have established Tesla as a premium carmaker, one could question whether such a drastically cheaper new model could tarnish this image. However, take a company like the phonemaker OnePlus- their phones are substantially cheaper than the competition, though the quality of the product and their branding and marketing is on par, if not better, than other phonemakers. Consequently, its image is not tarnished by the price of its phones, perhaps the contrary- they are in fact admired by many. It is possible that Tesla, if they maintain their marketing and branding efforts, could be in the same position.

The overall quality of the Model 3 will be crucial. If the quality is too poor, the Model 3 will not be seen as a viable competitor to the cars from Germany and Britain. And if the quality is too high, at such a low price, Tesla Motors runs the risk of cannibalising sales of its more expensive Model S. So, balance is key.

2) Infrastructure
Tesla has a sufficient number of Supercharging stations, but
will require a larger network if the Model 3 is to succeed
in capturing the mass market.
One of the biggest gripes about electric cars right now is that they are inconvenient to live with on a daily basis, primarily due to the (lack of) charging facilities. Of course, by the time the Model 3 comes out there will not be as many Tesla Supercharger stations as gas stations, but Tesla needs to prepare in advance for the potential growth of their customer base. Few customers will be persuaded to put down a deposit for a Model 3 with a promise of a Supercharger somewhere near them coming in the next few years. They want it to be there, ready for when they get the car. So Tesla needs to expand its Charging network sooner, even if for a short while there may be too many chargers. Because if the Model 3 succeeds, there won't be too many chargers for long.

Tesla Motors needs to prepare their production facilities, too. Production delays caused by a lack of preparation left some customers of the Tesla Model X waiting 3 years after having paid a $40k deposit for their car to be delivered. This had terrible implications for the company, contributing to Tesla Motors stock falling by 38% ($12bn) in market value so far in 2016 alone. With a far cheaper car like the Model 3, Tesla needs to anticipate the volume of demand and ramp up its production facilities far in advance of orders. People purchasing cars as expensive as the Model X are arguably more used to lengthy waiting times for their cars- the more mass market potential consumers of the Model 3, not so much.

3) Incentives
Tesla, unlike many other car companies, have established incentivising referral programmes for its cars in the past. For example, anyone who used a referral link from a Tesla owner last year would get $1000 off the price of their new Model S. The people who gave out the most referrals in each continent would receive a top of the range, 'Ludicrous' Tesla P90D Model S and VIP access to the unveiling of the Model 3. If you were the first person to convince 10 others to buy a Model S, you'd get a free Model X. And so on.

Tesla is developing its family of cars with the addition of the
Model X (right) and Model 3 to the Model S (left).
Perhaps with the Model 3, however, Tesla could introduce a more long term incentives program. Something I was pondering over was the idea of a 'Tesla Upgrade Program'. Here's the idea: you buy your Tesla Model 3 on a contract (giving monthly payments for 3-5 years), before you're offered the opportunity to give back the Model 3 and go up the ladder to purchase/lease a Model S, at a discounted price. Keep that for 3-5 years, paying monthly, before being offered the chance to get a Model X at a discounted price.

If you think about the typical expected buyer of a Model 3, this program could make sense for Tesla. Young professionals will no doubt be big buyers of the Model 3, people aged 27-35: lawyers, consultants, doctors, financiers. These people probably wouldn't be able to afford a Model S or X, but they could get into the Tesla brand through the Model 3. Then, as they get older, their salaries are likely to increase. They may also develop their own families, and thus the need for a bigger car- and they may well be able to afford it. So they upgrade to a Model S, then after another few years they could even need space for 7- so they upgrade to Model X. This incentive upgrade program would keep buyers of the Model 3 in the Tesla family, and adapt to the developing lives of these loyal customers. This loyalty will become incredibly important for Tesla in the coming future, as other carmakers catch up and begin releasing electric cars of their own.

To conclude, the Tesla Model 3 definitely has the potential to be a key player in electric cars truly becoming the norm in the US mass market. As long as Tesla makes sure the car is of a good enough quality, puts the pricing just right, develops the right infrastructure for the production and maintenance of the car, and perhaps establishes a good incentive program for buyers, it could become a, or even the, best-selling car of the next decade.

Please Note: All images of the Tesla Model 3 are purely speculative illustrations. The car is expected to be unveiled next month in March 2016.

Monday 6 October 2014

Why Tesla Motors Could Be the Most Important Car Company in the World.

Tesla Motors founder Elon Musk- often dubbed 'the
real life Tony Stark'.
One of the hottest new companies to come out of the golden hills of Silicon Valley is not another computer-based company, but, for the first time, a car company. 
Tesla Motors, the brainchild of a founder of PayPal, Space X and numerous other ventures Elon Musk have set out to revolutionise the car industry.

Although it's not overly apparent at the moment, much of the conventional car industry today is broken. Yes, cars are being innovated, crammed with more technology in the shape of screens, cameras and whatnot, and they are becoming more comfortable and so on but fundamental environmental problems still exist (yes, despite the increasing MPGs we are seeing). 
First and most important is the issue of the environmental impact that cars today hold. In 2011 the number of cars worldwide surpassed 1 billion, with newly boosted economies such as China and India in particular seeing huge increases in car usage. And the growth is not expected to stop any time soon; in the same year, the OECD's International Transport Forum claimed we could see up to 2.5 billion cars on the roads by 2050.

Now there are two major environmental issues with such a large number of cars- firstly, the large majority of cars on the road (particularly in newer economic giants such as those in Asia) pollute huge amounts of harmful gases- mixtures of various hydrocarbons, carbon monoxide and dioxide, which all contribute to a polluted air that with it carries increased risk of cardiovascular disease and cancer to humans, poor nutrition for plants and ominously it is a major cause of global warming, which, causing the melting of polar caps, could in future lead to huge natural disasters
Cars are certainly dangerous to the environment- according to the US Environmental Protection Agency, transportation (most of which is in the form of cars) contributes 27% of the greenhouse gas emissions in the USA.

Smog, one of the many unpleasant effects of pollution,
shrouds Paris.
Another key issues relies in the scarcity of the resources required to continue our dependency on automobiles. According to the World Bank, for every 1000 citizens of the USA there exists 786 cars in the country- when you consider the large chunk of people unable to drive, this makes for over a car per person, and the 300 million population of the US makes these statistics even worse. The US, while a prominent example, is not alone in this obsession with cars- the UK's figure lay at 516, still a large amount.
So we are so dependent on cars- but the large majority (over 95%) of cars sold in the US are conventional petrol/diesel affairs. Considering this, the seemingly endless growth of car ownership and the fact that BP claimed there to be only 53.3 years of oil left on the earth, it really does seem we can't afford to continue depending on these vehicles because one day in the near future, we will not be able to run them (one can state that, as has often been the case, new oil reserves will be found in the future, but can we really afford to rely on that anymore).

So, back to Tesla. Basically, they want to circumvent all these issues associated with conventional fossil fuel cars. So how do you do that? Make hybrid cars, of course.
But that's not enough; hybrid cars are hybrid, remember- a mixture of petrol/diesel and electric power. They still require these preciously damaging commodities to be used to work, and above a certain speed they still pollute.

The Tesla Model S, Musk's first major entry into the electric
car market.
So Tesla set its sights to popularise the fully electric car, with their first stab at the premium saloon market coming in the very easy on the eye Model S, and a forthcoming more affordable 'Model 3'. The aim is to bring electric cars (which require absolutely no fossil fuels to be inserted, nor burns any harmful gases) into the mainstream, but a certainly interesting move by Tesla has been that, unlike most companies, they seek not to monopolise this new industry by innovating internally and patenting endlessly to block out competitors. 
No, they are, spectacularly, doing quite the opposite: in a bold move earlier this June, Tesla opened up its collection of 249 patents to use by any competitor 'in good faith', something Elon Musk claimed to be part of the 'open source movement' with the intent of sparking genuine market development and competition in the bare area of electric cars.

In normal business terms, this is a ludicrous move- patents, after all, have been the focus of this mega conflict between two technology giants, Apple and Samsung. Conflict over patents cost these sides over a billion dollars- so why are Tesla just letting go of all of them?

It's a textbook example of what economist Umair Haque calls a development of 'market resilience' in his book The New Capitalist Manifesto. Tesla could have kept tight hold of the revolutionary patents they possessed, and with their incredibly 'cool' brand they could have dominated the electric car market for the next decade via their exclusive technologies. But no- Musk and co. opening up these patents has the effect of opening up the market to fair and vibrant competition. Tesla perhaps a year or two ago would have easily been crushed by huge competitors- but now it can stand on its two feet it wants to kick of the stabilisers and compete. 

BMW have already made their entrances into
Tesla's market with their i3 and i8 electric cars.
Opening up the patents shows a desire to see development in the market, and is actually a dangerous move for Tesla. BMW could tomorrow launch a Model S competitor in a fully electric 5-Series- the huge marketing and already existing prestige of the brand could possibly reduce Tesla to just a minor 
player in the market. Mercedes, Audi, Toyota, Ford, all these brands and more could do the same.

This is where the 'Resilience' mentioned by Haque comes into play; Tesla, by opening itself up to market competition, will have to fight to grow, fight via innovation, genuine development of technology, and so will its competitors if they want to grab a share of this growing market. Tesla won't have the security of a cocoon of patents- but neither will they have the temptation of laziness that comes with market security- just ask Microsoft about what complacency brought by monopoly did for them in the noughties (cough, Vista, cough).

Tesla opening up their patents was a bold move indeed, especially by a relatively new entrant into the automotive market. But it is a truly innovative, progressive move that will hopefully boost the automotive industry as a whole, and help us escape from the tyranny of conventional gas-guzzlers by providing a cleaner, affordable and most importantly more sustainable alternative.
It will be a long, hard battle for Musk and Co.- but we wish them the best of luck.
Long live Tesla. 

SOURCES (and recommended reads):
The Capitalist Manifesto by Umair Haque is a real eye opener to the next generation of corporation- the Googles, the Teslas, the Nikes and the Wal-Marts (yes, really, you'll have to read the book to find out why). It's definitely worth a read: http://www.amazon.co.uk/The-New-Capitalist-Manifesto-Disruptively/dp/1422158586

Space X, Elon Musk's latest venture into the stars: http://www.spacex.com/

Number of Cars in the World surpass 1 Billion: http://www.huffingtonpost.ca/2011/08/23/car-population_n_934291.html

We Could See 2.5 Billion Cars on the Road by 2050: http://www.ipsnews.net/news.asp?idnews=55943

Global Warming and Natural Disasters: 

Transport responsible for 27% of US Greenhouse Gas Emissions: http://auto.howstuffworks.com/air-pollution-from-cars.htm

World Bank Global Car Ownership Stats: http://data.worldbank.org/indicator/IS.VEH.NVEH.P3


Elon Musk Announcing Release of All Tesla Patents: http://www.teslamotors.com/blog/all-our-patent-are-belong-you 

List of current 2014 Tesla Motors Patents (as of 5/10/14): http://stks.freshpatents.com/Tesla-Motors-Inc-nm1.php


Tesla Official Website: http://www.teslamotors.com

BMW Official Website: http://www.bmw.com