{"id":3816,"date":"2016-04-12T16:00:38","date_gmt":"2016-04-12T08:00:38","guid":{"rendered":"http:\/\/people.utm.my\/haslinasarkan\/?p=3816"},"modified":"2016-04-12T16:00:38","modified_gmt":"2016-04-12T08:00:38","slug":"why-tesla-may-have-the-keys-to-the-electric-vehicle-market","status":"publish","type":"post","link":"https:\/\/people.utm.my\/haslinasarkan\/why-tesla-may-have-the-keys-to-the-electric-vehicle-market\/","title":{"rendered":"Why Tesla May Have the Keys to the Electric Vehicle Market"},"content":{"rendered":"

The following article originates from\u00a0here.<\/a><\/p>\n

\u201cThe Week that Electric Vehicles Went Mainstream,\u201d is how Tesla Motors headlined its blog post last week, citing more than 325,000 pre-bookings for the Model 3 electric car it launched on March 31. \u201c[That] corresponds to about $14 billion in implied future sales, making this the single biggest one-week launch of any product ever,\u201d the company boasted. Deliveries are set to begin in 2017.<\/p>\n

Tesla may well be on the way to mainstreaming the electric vehicle market for itself and its competitors. In addition to the wide appeal the Model 3 seems to command, several other aspects point to a potential journey away from a niche market for Tesla. The car\u2019s $35,000 price tag is half the price of the Model S ($75,000) and the Model X ($80,000). Bookings for the Model 3 have surprised even Tesla\u2019s founder and CEO Elon Musk, coming at a time when gasoline prices are low.<\/p>\n

\u201cElectric vehicles increasingly are being seen not necessarily as green or as a way to save on fuel costs, but as incredibly powerful, with amazing acceleration, and fun to drive,\u201d said Wharton management professor John Paul MacDuffie, an automobile industry expert. In fact, he noted that the organizers of the Formula One auto races (F\u00e9d\u00e9ration Internationale de l\u2019Automobile, or FIA) have launched a separate series for electric vehicles called the Formula E. Even the Formula One cars are all hybrids, combining the high acceleration of electric vehicles with traditional engines, he noted.
\nWesley R. Hartmann, marketing professor of management at Stanford University, said the Model 3 \u201cis the make or break for whether the electric vehicle market will take off and whether Tesla will be a critical part of it, as opposed to being a niche player.\u201d<\/p>\n

MacDuffie and Hartmann discussed Tesla\u2019s Model 3 and the challenges the firm faces in tapping the mainstream market on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)<\/p>\n

Kudos Flow In<\/p>\n

MacDuffie said it was \u201ctelling\u201d that Carlos Ghosn, chairman and CEO of Nissan of Japan and Renault of France, has welcomed the Model 3 bookings, \u201cbecause it suggests a growing and enthusiastic market for these vehicles.\u201d<\/p>\n

MacDuffie also noted that bookings have been strong despite low gas prices, indicating that gas prices are not the primary driver of demand for electric vehicles. \u201cPeople buying a $70,000 to $110,000 car aren\u2019t worried about what they pay out at the gas pump,\u201d he said. \u201cIf the demand exists even with gas prices being low, it is [because] of that repositioning away from just an environmental pitch.\u201d<\/p>\n

Hartmann said the enthusiasm for the Model 3 \u201cspeaks to what Tesla has been able to communicate to the market in terms of the products they can develop and how much people would want those.\u201d He likened it to \u201cpeople lining up to get\u201d the latest Apple iPhones.<\/p>\n

\u201cElectric vehicles increasingly are being seen not necessarily as green or as a way to save on fuel costs, but as incredibly powerful [and] fun to drive.\u201d\u2013John Paul MacDuffie<\/p>\n

MacDuffie put the pre-bookings for the Model 3 in perspective. The $1,000 down payment that Tesla requires is not an order commitment and is a refundable deposit, he noted. \u201cBut it is an extraordinary interest-free loan to Tesla to get in the queue and to have the bragging rights of being early to get a hot product,\u201d he said.<\/p>\n

Braving New Competition<\/p>\n

If other automakers are keenly watching the progress of the Model 3, they would want to jump in, too. \u201cWhat if competitor products are available earlier and they are good [and] well-priced?\u201d asked MacDuffie. That could affect Tesla\u2019s bottom line, he noted, but \u201cif it\u2019s a growing market, there should be room for everybody.\u201d<\/p>\n

Wharton marketing professor Americus Reed<\/span> is optimistic for Tesla. \u201cTesla will be fine because it is a strong brand that is positioned as and is seen as very different from the other car manufacturers\u2019 attempts at creating an electric car,\u201d he said.<\/p>\n

Reed added that Musk\u2019s own brand image has also helped build a moat around Tesla. \u201cPart of [Tesla\u2019s] brand is a clear futurist visionary who himself is changing the world,\u201d Reed noted, referring to Musk\u2019s other roles<\/span><\/a> as the founder of space transportation company SpaceX and co-founder of solar power company SolarCity.<\/span><\/p>\n

\u201c[Musk] is this larger-than-life character who makes you think of \u2014 in the computer industry \u2014 Steve Jobs, but [also] in the early auto industry history someone like Henry Ford,\u201d said MacDuffie. \u201c[Their] charisma and the boldness of their vision had an influence on people.\u201d<\/span><\/p>\n

Even so, questions persist about whether Tesla can pull it off, MacDuffie added. \u201cThe big question is: Can they really scale it up? What will the model look like when [the Model 3] hits the market at that price point? Will the price stay put or edge up?\u201d<\/span><\/p>\n

MacDuffie noted that Tesla has been a niche, low-volume producer, and the Model 3 would put it much more into the mass-market, mass-production range. \u201cThey haven\u2019t done that before,\u201d he said. \u201cBut they have learned to do other stuff that they didn\u2019t know how to do, and so it would be risky to bet against them.\u201d<\/span><\/p>\n

\n

The Model 3 \u201cis the make or break for whether the electric vehicle market will take off and whether Tesla will be a critical part of it, as opposed to being a niche player.\u201d\u2013Wesley R. Hartmann<\/span><\/span><\/p>\n<\/blockquote>\n

Reverse Route<\/b><\/span><\/p>\n

The Model 3 would also benefit from the luxury brand image of Tesla\u2019s earlier models. MacDuffie noted that most automakers have historically started with inexpensive vehicles as they established their reputations, manufacturing capabilities, supply chains and dealer networks. They moved up-market at a later stage, sometimes by introducing new brands \u2014 as with the Lexus from Toyota, he explained. \u201cTesla did it exactly the opposite way; it established itself at the luxury\u00a0end,\u201d he said. \u201cObviously, it will benefit from the way in which that luxury brand cachet will rub off on the Model 3.\u201d<\/span><\/p>\n

MacDuffie noted that Musk has attributed to \u201chubris\u201d his decision to move from the original Model S to a more expensive car with the Model X ($80,000 and upwards). \u201cThat suggests a willingness to learn from a mistake,\u201d he said. <\/b>\u201cIn a way, designing a lower cost car is a big design and engineering challenge.\u201d<\/span><\/p>\n

Rather than Tesla\u2019s luxury brand cachet rubbing off on the Model 3, \u201cthe more interesting question is the reverse,\u201d said Reed. \u201cWhat will happen to the brand as a unique luxury high end vehicle if suddenly it is ubiquitous in the mass market? What will a high-wealth individual who paid $70,000 or more think when he sees these $35,000 versions?\u201d<\/span><\/p>\n

Value Proposition<\/b><\/span><\/p>\n

Hartmann said that with the Model 3, Tesla may have hit upon a winning idea. It would have an electric vehicle for customers who cannot afford $70,000 but also don\u2019t want to buy some other low-end vehicles in the market. \u201cMost people expect that they\u2019re probably not going to get half the car [with the cheaper model, but] a lot more than that \u2014 something somewhere in between,\u201d he said. \u201cThat seems to offer an awful lot of value.\u201d<\/span><\/p>\n

The value proposition could get better for customers with the federal tax credit of $7,500 on each vehicle, but that has its limits. The tax credit scales back once a company has sold 200,000 electrical vehicles, said MacDuffie. Tesla has thus far sold 110,000 vehicles, which means the next 90,000 tesla buyers would get the full tax credit, he explained. The tax credit is subsequently scaled back, and it will disappear at some point, he added. \u201cIt is meant to prevent the big companies that have introduced electric vehicles from scooping up all the rebate monies; it is [meant to] encourage startups like Tesla.\u201d<\/span><\/p>\n

Hartmann expected Tesla to live up to the expectations built around the Model 3. He said customers of Tesla\u2019s Model S \u201care incredibly happy with them.\u201d Tesla had admitted that it had overreached in designing the Model X, and has tried to build a simpler vehicle with the Model 3, said Hartmann.<\/span><\/p>\n

Challenges of Scale<\/b><\/span><\/p>\n

As Tesla ramps up deliveries of the Model 3, it could find its current distribution model inadequate, MacDuffie suggested. \u201cTesla has tried to avoid setting up traditional dealer franchises,\u201d he said. \u201cNobody likes buying cars from a dealer, but dealers also traditionally sell used cars, do servicing [and] provide parts and financing.\u201d Dealers also invest in the inventory of vehicles and thereby absorb some of the risk if sales fall short of expectations, he noted.<\/span><\/p>\n

Tesla so far has outsourced repairs and maintenance, and sales of used cars, but that model may work for a startup and not a company that grows bigger, said MacDuffie. \u201cOne speculation is Tesla is fighting hard against the franchise dealer model now, but once \u2014 and if \u2014 it grows big, it may find [itself] yearning for some of the [benefits] that the franchise dealer model provides,\u201d he added. Hartmann agreed, and said that at some point Tesla may decide to go down that route.\u00a0<\/span><\/p>\n

Musk explained Tesla\u2019s model of company-owned stores and service centers in a blog<\/a> in 2012 that may hold true even today. \u201cIn many respects, it would be easier to pursue the traditional franchise dealership model, as we could save a lot of money on construction and gain widespread distribution overnight,\u201d he wrote. \u201c[However], existing franchise dealers have a fundamental conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars. It is impossible for them to explain the advantages of going electric without simultaneously undermining their traditional business. This would leave the electric car without a fair opportunity to make its case to an unfamiliar public.\u201d<\/span><\/p>\n

Reed did not expect Tesla to be forced to change its strategies and embrace the dealer model as it scales up. \u201cThese customers will acquiesce to whatever Tesla wants them to do,\u201d he said, betting on the company\u2019s customer loyalties.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

The following article originates from\u00a0here. \u201cThe Week that Electric Vehicles Went Mainstream,\u201d is how Tesla Motors headlined its blog post last week, citing more than 325,000 pre-bookings for the Model 3 electric car it launched on March 31. \u201c[That] corresponds to about $14 billion in implied future sales, making this the single biggest one-week launch […]<\/p>\n","protected":false},"author":6477,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[30],"tags":[],"class_list":["post-3816","post","type-post","status-publish","format-standard","hentry","category-research-blog"],"_links":{"self":[{"href":"https:\/\/people.utm.my\/haslinasarkan\/wp-json\/wp\/v2\/posts\/3816","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/people.utm.my\/haslinasarkan\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/people.utm.my\/haslinasarkan\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/people.utm.my\/haslinasarkan\/wp-json\/wp\/v2\/users\/6477"}],"replies":[{"embeddable":true,"href":"https:\/\/people.utm.my\/haslinasarkan\/wp-json\/wp\/v2\/comments?post=3816"}],"version-history":[{"count":0,"href":"https:\/\/people.utm.my\/haslinasarkan\/wp-json\/wp\/v2\/posts\/3816\/revisions"}],"wp:attachment":[{"href":"https:\/\/people.utm.my\/haslinasarkan\/wp-json\/wp\/v2\/media?parent=3816"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/people.utm.my\/haslinasarkan\/wp-json\/wp\/v2\/categories?post=3816"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/people.utm.my\/haslinasarkan\/wp-json\/wp\/v2\/tags?post=3816"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}