Changing the Car (Business)

Tesla Motors held a media event this week to announce two things: a dual-motor version of its Model S sedan and some driver-assist features called Autopilot. As with most of Tesla’s media announcements, there was significant speculation and hype followed by viral coverage after the fact. Elon Musk, their CEO, tweeted something a few days before the event to spark this off. He is, much as Steve Jobs was, a practiced media performer who knows how to make great products and get them noticed.

Elon is also on a mission to redefine the automotive industry. He is not the first to make electric cars. Ferdinand Porsche showed one at the Paris Exhibition in 1900. Musk is different than other Auto execs. Like Henry Ford, he is an engineer, but unlike Ford was when he launched the Model T he is already successful and wealthy. Elon is by far the wealthiest CEO in the car business. Like Daimler and Benz, he makes premium vehicles with significant technological innovations that matter for car drivers. But most of Tesla’s innovations are more like information and communications industry products than mechanical engineering breakthroughs. Most importantly, and potentially impactful, his business model is radically different than anyone else’s in the industry today. He has no dealer network, he builds “supercharger” stations that provide free energy to his customers and he has modest physical infrastructure and massive intellectual property resources.

As with any disruptor, there is opposition from the incumbents. For years, the conventional wisdom in the automotive ecosystem said Tesla’s goals were impossible. Early products were heavily criticised for all sorts of reasons. More recently, there have been a raft of legal challenges from car-dealer associations to his direct-selling activities. Some have succeeded, some failed and a few that succeeded have been overturned. The success of the Model S – a “mid-sized” sedan in American car parlance – has been hard to ignore. I test-drove one of these here in Australia last week and was seriously impressed. It has won no less than the Car and Driver magazine’s Car of the Year award.

Tesla’s ambitions are much greater though. They want to become a significant volume producer in the coming years. This is no pipe-dream. They are investing, alongside supply chain partners, in large-scale production capacity as well as cutting-edge manufacturing capabilities. Their so-called “Gigafactory” in the US southwest, designed to make batteries, is one of the largest in any industry ever. They want to be a premium product producer. Last week’s announcement of the dual-motor Model S is up there in super-car territory. Only Audi’s new RS7 and Mercedes’ new E63 AMG S come anywhere near close. Tesla want to up-end the dynamics of the car business by putting the driver at the centre and the vendor second. Everything about their approach is personalised and customer-intimate.

Challenges remain. Engineering a car like the Tesla Model S P85D has been a long and slow road. Making a lower-cost, higher-volume vehicle will not happen quickly. But opportunities abound. In the last two years, Tesla’s stock price has risen ten-fold, much like a technology start-up. Their non-US operations are growing well – they launch here in Australia in coming weeks. The Supercharger network is being built out and, if any, is ahead of schedule. Next year, there will be several constructed between Melbourne and Sydney. Solar-powered charging kits are already available to put on a garage roof, for a modest up-front investment.

The old adages of limited range are becoming less and less of an issue. Most people refuel their gasoline-powered cars in an urban area. The “limitation” of time-to-recharge has been overcome. Tesla can robotically replace the entire battery-pack in the vehicle faster than a petrol-powered car can be refuelled (about 2 minutes). Renewable (and nuclear, elsewhere) electricity is, finally, becoming much more mainstream. A plug-in electric car really doesn’t and should not need to be using power produced by fossil fuels. Driving a high performance car need not sacrifice practicality any longer. The dual-motor Model S looks like a stylish family sedan but can get to 100 km/h is just over 3 seconds.

Most importantly, Elon Musk is a serial innovator. He was part of the PayPal mafia. His rockets deliver supplies to the Space Station. He is also an Open Sorcerer: he has offered the technology for the Tesla royalty-free for anyone that wants to build electric cars and had published the designs for the Hyperloop online for anyone that wants to build it. Tesla and SpaceX are not the last of Elon’s works we will see. He wants to change the car, the car business, several other businesses (like Jobs) and perhaps change business itself. He persists when others withdraw. His engineers work tirelessly to deliver on his vision. His sales people – and there are precious few of them – treat prospects and customers like people in a very sophisticated and modern way. There is nothing greedy or impersonal about any of this. Elon wants to change the world and Tesla is only one way he is doing that. I look forward to Tesla coming to Australia and relish the prospect of becoming one of his customers one day.

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About Fred Pugsley

Digital guy. Foodie, skier, voracious reader.
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6 Responses to Changing the Car (Business)

  1. Sean says:

    Enjoyed your thoughts on this Fred. Elon is an amaising entrepreneur. Each new model seems to leapfrog the last. The major manufacturers must be worried, surely? Premium product, rapidly growing production capacity, amaising, growing, portfolio of IP. Reasonable chance of a super-sized takeover in a few years?

    • Fred Pugsley says:

      TSLA has a market capitalisation of about USD30 Billion today. Don’t see any transactions like that in the Auto business. Don’t think the Tesla shareholders would approve it even if it did happen- in that most remote possible event that it would or could.

      Elon is on a mission and it wouldn’t bother him at all if all the others were shit-scared of him & Tesla!

    • Fred Pugsley says:

      Test drive report in your Hotmail…

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