How Tesla Could Drown in the Second Wave of Electric Vehicle Innovation

Tesla is the Marmite of car manufacturers; no other car brand seems to split opinion quite in the same way amongst fans and doubters. Tesla’s woes are no secret, many of them brought on by Musk himself. However, that aside I think that the environment in which Tesla is operating is interesting and will no doubt be transforming hugely in the next ten years.

What have Tesla done well?

Establish a luxury car brand

With minimal advertising Tesla has created an automotive brand that is scaring BMW dealers and it has done so in a relatively short time frame. It is even more impressive than what Toyota did with the launch of Lexus.

Develop a direct to consumer model

Tesla decided to go against the typical dealer distribution model and instead develop a direct-to-consumer model not seen in the UK since Daewoo launched over twenty years ago. As the manufacturer / consumer relationship changes through ride and vehicle sharing, not having to placate dealers will no doubt be an advantage in future years.

Change the perception of what an environmentally friendly vehicle is

When Toyota launched the Prius it “became a status item among environmentalists” and “those who are more concerned about fuel economy than arriving to their destination with a smile on their face”. Even though the Prius wasn’t an out-and-out EV, it was probably the closest vehicle to it. When the Tesla Model S P100D came out it had a headline grabbing 0-60 of sub 2.3 seconds, with it the image of electric cars began to change. No longer were they for the social outliers, these could be used people who did want to arrive with a smile on their face.

Combat range anxiety (to a degree)

Range anxiety in EV owners is a problem. Whilst it is still an issue Tesla has made headway by creating cars with a 300-mile range and building out a network of 500 destination chargers. While there are still improvements to be made, Tesla has advanced the offering to the stage where people could rely on a Tesla as their only mode of transportation.

The Second Wave

The problems that Tesla will encounter in the near future won’t be due to mistakes that have been made, they will be due to the changing competitive landscape. In Smartcuts, Shane Snow touches on the work of Golder and Tellis which explored first mover advantage and how this may not be the best strategy to pursue. Golder and Tellis suggest that “being first in a new market may not confer automatic long-term rewards” and that “an alternative strategy worth considering may be to let other firms pioneer and explore markets, and enter after learning more about the structure and dynamics of the market”.

Snow refers to the parties as first movers and fast followers; first movers “take on the burden of educating customers, setting up infrastructure, getting regulatory approvals, and making mistakes”. On the other hand fast followers “benefit from free-rider effects…the pioneers clear the way in terms of market education and infrastructure and learn the hard lessons, so the next guys can steal what works”.

Snow argues that Myspace blazed the path for Facebook, Overture for Google and Ford for General Motors. Just over a hundred years after General Motors rode a second wave behind Ford, so too will VAG, BMW, Mercedes and Toyota follow Tesla.

Tesla have so far been left to dominate the premium saloon electric vehicle sector. The recent release of the Jaguar I-PACE is the only competitor in the space. That is about to change though; as reported by Patrick McGee in this weekend’s FT Porsche is gearing up to make an electric version of the Macan as part of a €6bn investment in electric mobility. The aim is that by 2022 50% of all new Porsche vehicles could have an electric drive system.

Mercedes-Benz parent Daimler are planning on buying £18bn worth of battery cells by 2030as it ramps up for electric and hybrid production and Volkswagen is planning to deliver €2bn of cost savings by 2025 so that it can invest heavily into electric cars. While Tesla continues to act as the fast mover with the release of the Model 3, the traditional manufacturers are planning their fast follower strategies. Tesla has struggled with both production and logistical issues which has potentially set it back, however it is unlikely that the traditional manufacturers would suffer in the same way after years of supply chain refinement. If that weren’t enough to worry Tesla, they are also in the crosshairs of the growing number of Chinese electric vehicle manufacturers.

As vehicle manufacturers start to re-examine their relationship with transportation and begin to alter their positions from manufacturers to both manufacturers and service providers in the shape of vehicles as a service their existing route to market via dealers may initially prove to be a hindrance. However, this set back alone is unlikely to provide Tesla with enough of an advantage to allow it to keep its head above water as the fast followers ride the second wave behind it.

Main References

Smartcuts, Shane Snow

Porsche accelerates race for electric market share | Financial Times

VW targets €2bn in savings by 2025 to accelerate electric cars push …

Published by Mark Tofts

Freelance consultant working on business concept design and research projects with an interest in all thing automotive.

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