Thursday,
August 18, 2016
11:31 AM
This is a good time
to be a disruptive capitalist and Elon Musk knows it. We have spent fifty years
dealing with shifts in consumer needs, reliability, corporate losses due to not
making cars that people want, and now an emissions scandal becomes the icing on
the cake. The auto industry is like Washington; fat cats who sit around doing
nothing and still collecting millions if not billions. However, there is a new
Sheriff in town and his M.O. is a slow methodical nipping away at each
carmaker's segment.
What Musk is doing,
as far as position, is building a brand that is high enough to reach Mercedes
and BMW owners, and low enough to reach the well off middle class, taking away
customers from Toyota, Ford, VW and GM. I see it as Tesla being in the center
of the EV model and the remaining circling Tesla. The other carmakers believe
they can pick away at Tesla, however the opposite is true; Tesla is going
to make its center bigger by picking away at their competitors key
segments; affordable sedan, small truck, and van. It will make for an
interesting competition, however it's not worth placing a bet, as you might be
accused of insider betting.
Tesla will win based
on a few marketing assumptions. When it comes to technology, people trust those
who do it for a living, not those who do it on the side. I would rather have a
well thought out Tesla than a Mercedes that is trying to be an EV. This is why
I don't think the comparison is fair, because people who buy Mercedes buy it
for a reason, old fashion status symbol of "I've arrived." Tesla
represents to that same strata of "Progressive Buyer" who wishes to
be a part of the future. Brand matters and this is why the nucleus of Tesla
will grow into a big bubble, nipping away at each carmaker as they try to
circle Musk and his brand, but the numbers will show that people want the brand
that only makes EV's. Nipping at Mercedes will evolve as old fashion dies and a
progressive choice becomes popular because with that segment is a chase for what's fashionable. It's inevitable and it's going to force
the other side of the spectrum in GM and Toyota as well as VW to take ownership
of their futures in an already highly competitive world when the model 3
arrives.
The buying public is
very fickle. Their fickleness in the upcoming years will be EV. I recall I was
in a fast food restaurant when the Prius came out and this old guy tried to
convince me nobody wanted a Prius, that they were just sitting in dealerships.
That experience showed me that people don't have perceptions or attitudes based
on facts or optimism, which leads to truth, people just want to believe what
they want to believe. When Musk released the Roadster, nobody had a positive
attitude about the venture, even with a cross country trip. However, they have
come a long way as they've been able to parallel their efforts with all the oil
publicity demonstrating our contempt for an industry that has held us hostage.
Bottom line is Americans want electric cars, they simply want to understand
them more.
That understanding
is a romance and Musk is doing the right thing to build cars that provide a
sense of a positive future with solid technology, safety and efficiency that
people respect. The next five years is going to be an overwhelming takeover by
Tesla no matter what the other carmakers do and we are seeing some of this
affect in how the Leaf is surviving in sales. Tesla is already picking away at
that price point and the brand is overwhelmingly more appealing than Leaf's
goofy styling. Nissan is going to have to react quickly or be left out. They
are already discussing changing their battery manufacturing after investing two
billion in their own plant. That can be credited to Tesla and its pre-ordering
campaign.
The bottom line is
very simple, will Tesla make the bubble bigger by picking away, and thus far
they are demonstrating just that. In this five year stint of cynicism of Tesla
even being a competitor has made all the other carmakers look like fat cat fools
for not taking Musk seriously, and now they are behind the eight ball. If you
are betting on the next five years, place your money on Musk taking it to a
whole new level like Henry Ford did, and make a car that everyone can afford.
Don't be fooled, a car will come out that will be more affordable than the
Model 3 and it will follow the truck and van production and almost parallel
that production. Musk is great at timing and will overlap new models to
maintain momentum in its PR campaign and solidify its' bravado in a market
where people want to feel special about the kind of car they drive.
Lastly, another
interesting point in regards to timing; Boomers are getting older, and the next
thing they will want to spend their money on is a fancy car. Healthcare has
slowed the purchasing power down of the Boomers, but it will pick up over time.
In addition, Millennials who care about the environment will gravitate to an
affordable Tesla that I'm sure Musk will call the T. Once he has the
Millennials sandwiched in with the Boomers he will control the taste of the
buying public due to Brand affinity. Tesla will be the iPhone of EV
transportation, and although markets are cyclic, I don't see an Android in the
next five years to knock them off their soon to be throne.
One thing is for
sure, Tesla has Musk on their side. What do the other carmakers have; old farts
who smoke too many cigars and make too many old fashioned mistakes? I’m a VW
owner and currently own two of them outright since 1997. My next vehicle will
definitely be a Tesla so my brand loyalty is going to change. I don't see
myself any different than any other car buyer who is sick of the status quo. I
would love to have the truck and/or the van.
Tesla is in the
middle of a carmaker circle, and Musk's plan is to slowly eat away at each
carmaker brand segment like a praying mantis who never gets full and the only
thing I can say is; "Justice!"
EDW-Out!
