What makes the Tesla brand so popular?

 

It’s that time of year when I nervously wait for the proposed bill going on my credit card bill. No, it’s not early Christmas present spending (although that is a worry to come) but it is the annual visit to the garage for my car for its service and MOT. As always, one has to be careful when dealing with car garages but the worry is always that if there is something seriously wrong with the car, is it worth repairing or should I be investing in a new car? Alongside this, there is the Ultra Low Emission Zone in London that has just been introduced which is just a few miles down the road from where I live. My car, being an “old” diesel, does not allow me to travel in such zones without paying. So perhaps I need a new car anyway. So I started to look at new cars. I was very surprised to see that the bestselling car in September in the UK this year was the Tesla Model 3. The Society of Motor Manufacturers and Traders (SMMT) said 6,879 Model 3s were registered in September, putting it ahead of the Vauxhall Corsa supermini, with 5,235 registrations. That is despite prices for the Tesla saloon starting at just over £40,000 — more than twice as much as the entry-level Corsa. As expected, electric cars are selling exceedingly well, compared to petrol and diesel cars. Diesel and petrol vehicle sales fell by 77.3% and 46.6%, respectively compared to September 2020. Of course, it should be noted that there was a significant shortage of petrol in September and sales were depressed, due to the shortage of semi-conductors but even so, it feels pretty significant. So why are Tesla doing so well? Is it just the popularity of electric cars or something more? The history of Electric Cars Let’s take a look at the history of the electric car before understanding why Tesla is so popular. Electric cars have actually been around for nearly 200 years, predating petrol cars and even starting an iconic sports brand. In 1828, a Hungarian inventor named Ányos Jedlik invented an electromagnetic device which he fitted to a small model car that he designed. The device that he designed actually still works to this day. The first full sized electric vehicle followed a little later, in around 1832, and was the creation of a Scottish Inventor named Robert Anderson. Whilst not technically a ‘car’ by today’s standards, Robert’s electric-powered carriage, with non-rechargeable power cells, would have certainly made a drastic change from the horse-drawn carriages of the day. Following this, in 1835, Thomas Davenport unveiled a small locomotive that was powered by an electric motor and was the first practical electric vehicle ever to be conceived. Things went fairly quiet until 1884 when Thomas Parker built the first electric production car in London that used his own high-capacity rechargeable batteries, followed by William Morrison introducing a very simple electric wagon to the USA a couple of years later. These both helped put electric vehicles in the mainstream and made them the preferred method of transport due to their quiet nature, ease to drive and lack of pollutants. In fact, they were loved so much that, between 1900 and 1912, one third of all vehicles on US roads were powered by electricity. Ferdinand Porsche started the Porsche brand during this period with an electric car – in 1898, he created the Egger-Lohner C.2 Phaeton, a vehicle that was powered by hub-mounted motors that drove the wheels. Following its unveiling, Mr.Porsche worked on his electric wheel hub motor and then, in 1900, he attached it to a new car and supplemented it with a traditional engine, thus creating the world’s first hybrid vehicle. Electric cars enjoyed a heyday that lasted until 1908 when Henry Ford introduced the world to the Ford Model T, otherwise known as the world’s first affordable motor car. Easier to refuel and competitively priced, the Ford Model T was a huge success and it ultimately spelt the end of the electric car’s popularity. The Ford Model T was such a runaway success that Henry Ford had sold 15million by 1927, just 19 years after its release. And of course, who can forget the famous Henry Ford saying - Any customer can have a car painted any color that he wants so long as it’s black. Everything went very quiet for the electric car following the Ford Model T. Then, in the 60’s and 70’s, the price of petrol went through the roof … leaving the door open for electric alternatives to reappear. This period is known as the ‘second generation of electric cars’ where new technologies started to appear, batteries started to improve and automakers started to create electric vehicles. In 1973, a major breakthrough was made when British Chemist M.Stanley Whittingham invented the world’s first rechargeable lithium-ion batteries … the same batteries that are used in things like your mobile phone and today’s electric cars. However, it was only really in 1997 when Toyota unveiled the world’s first mass-produced hybrid vehicle, the Toyota Prius, that the electric revolution started to build up momentum and pave the way for companies like Tesla to appear and for cars like the Nissan Leaf to be unveiled. Helped by environmental factors, the cult following has grown into a more mainstream interest and land us where we are now. But what makes Tesla so valuable? Tesla was founded in 2003 by Martin Eberhard and Marc Tarpenning with Eberhard boldly stating that he wanted to build "a car manufacturer that is also a technology company", with its core technologies as "the battery, the computer software, and the proprietary motor". In February 2004, via a US$6.5 million investment, Elon Musk became the largest shareholder of the company and its chairman. He has served as CEO since 2008. Tesla began production of its first car model, the Roadster, in 2009 (with help from Lotus). This was followed by the Tesla Model S sedan in 2012, the Tesla Model X SUV in 2015, the Tesla Model 3 sedan in 2017, and the Tesla Model Y crossover in 2020. The Tesla Model 3 is the all-time best-selling plug-in electric car worldwide, and, in June 2021, became the first electric car to sell 1 million units globally. In October 2021, Tesla's market capitalization reached US$1 trillion, the fifth company to do so in U.S. history. This fact alone is astounding. Tesla has been the world's most valuable carmaker for some time, but brands like Ford and GM make far more cars. Indeed, Tesla makes up less than 1% of global car sales yet Tesla is now worth as much as the combined market cap of the nine largest carmakers around the world. It is fair to say that Tesla have a different business model to the traditional car manufacturers. It took a unique approach to establish itself in the market. Instead of trying to build a relatively affordable car that it could mass-produce and market, it took the opposite approach, focusing instead on creating a compelling car that would create a demand for electric vehicles – hence the delivery of Tesla Roadster. The company sold approximately 2,500 Roadsters before ending production in January 2012. Not massive numbers but now Tesla had established its brand, producing and delivering its concept car to the marketplace, it could then reinforce its business model. Its business model is based on a three-pronged approach to selling, servicing, and charging its electric vehicles. Unlike other car manufacturers who sell through franchised dealerships, Tesla sells directly to consumers. It has created an international network of company-owned showrooms and galleries, mostly in urban centres. Indeed, this is when I saw my first Tesla when I looked at the showroom in Bluewater shopping centre. In terms of servicing, the Model S can wirelessly upload data, so technicians can view and fix some problems without ever physically touching the car. Finally, Tesla has created its own network of "supercharger stations" where drivers can charge their Tesla vehicles in about 30 minutes for free. Tesla as a technology company? Many financial analysts and investors see Tesla as a technology company rather than a car company. Publications scrambled to find similarities between Tesla and companies from the technology sector, which had similar growth rates. Tesla has embraced the disruption nature of the technology sector. Much like other tech companies, Tesla is intent on changing existing business models within the stodgy automotive industry by selling directly to consumers. Its product pipeline and founder evoke a loyal following similar to those for iconic tech companies such as Apple. And investors in Tesla, like investors in many technology companies, stayed patient through a long period of quarterly losses. It should also be noted that the batteries that power Tesla cars are part of the appeal as these could be sold to competitors thus adding more value to the Tesla brand. Another key aspect to Tesla is the profile of its CEO, Elon Musk. He is extremely visible in the market-place and with a single tweet is able to move markets, even those outside of car manufacturing. His visibility is significant compared to other car manufactures whose CEOs’ visibility is markedly less. Indeed, I would argue this is a key factor in the value of Tesla’s value. All other successful technology companies have high profiles in the social media and are able to market their products in an aggressive manner via such platforms.” Traditional” car companies may be playing catch-up or perhaps are better than Tesla but they are not able to give the customer the warm glow of satisfaction of owning a Tesla – much like owning an Apple device. Conclusion It is clear that Tesla did not invent the electric car but what Tesla has done is invent a successful business model for bringing compelling electric cars to the market and built brand awareness and stickiness to the brand that other car manufactures are not able to match. I do wonder if such disruption could happen in other industries. By the way, I am pleased to say that my car didn’t require any work on it this year so I can put off the decision for another year. The wife’s car however was not so lucky but that’s a story for another day.