The Tesla 3: A Marketing Success Story
Tesla Motors recently announced the projected late 2017 availability of their new Tesla Model 3 all-electric car. For the four or so people remaining in the United States who don’t know about this vehicle, the Tesla 3 is an affordably-priced electric car (less than $35,000, before Federal and State rebates for “zero emission” vehicles) with superlative performance, great safety features and outstanding crash-resistance, and perhaps most importantly, exotic Italian-sports car looks.
The lure of an all-electric car is undeniable -- no CO2 emissions, freedom from dependence on environmentally “dirty” fossil fuels, the convenience of charging up at home overnight, as easily as your cell phone. No more searching around for a gas station in unfamiliar areas, no time wasted on late mornings having to stop for gas, no more aggravation when the morning posted price of $2.29 9 becomes -- inexplicably, frustratingly -- that afternoon’s ride home price of 2.49 9.
Tesla’s first electric vehicle -- the Model S -- was a high-end, very expensive ($100,000) car, great-looking and great-performing, no doubt, but hardly a product for the masses. It did, however, establish Tesla’s credibility as a manufacturer capable of designing and producing an all-electric car that actually worked well for day-in, day-out use. A few hiccups here and there, but tens of thousands of Model S’s have been delivered and Tesla’s capability as a bona fide large-scale supplier of electric vehicles is now cemented.
It’s that backdrop of tangible Model S achievement that caused all the excitement of the Model 3 announcement.
There remains a huge question as to the actual financial efficacy of current all-electric car ownership/operation. This is detailed below. For those customers for whom the immediate appearance of “zero emissions” is the primary attraction of the battery-operated car, no amount of logic and contrary evidence will be sufficient to persuade them away. That the recharging electricity comes from fossil fuels and the actual manufacturing of the lithium-ion batteries is done with fossil fuels, and the fact that disposing of depleted lithium-ion batteries is in itself an environmentally-hazardous activity, none of this matters to the Tesla-faithful.
Considered strictly as a marketing exercise -- product, financial and practical considerations aside -- the public unveiling/announcement of the Tesla 3, complete with the oh-so-accommodating “acceptance” by Tesla of advance product reservations from interested customers at $1000 a pop, was perhaps the most successful consumer product launch in recent times. Maybe ever.
The whole thing is worth a closer look, however. We’ll do this in three parts:
1. The financial case against the ownership of Tesla cars, in the context of today’s oil and electricity pricing
2. The emotional draw of Tesla/electric car ownership
3. Tesla’s handling of the Model 3 product announcement
1. The Financial Case
Green Energy Can’t Compete With $35 Oil
Energy: With crude oil at $35 and natural gas at $1.70 (down from $14 in 2007), news pages are full of stories about tough times in the Oil Patch. But the media have been almost conspiratorially quiet on the financial collapse of green energy for the same reason.
Consider a just-released study by University of Chicago researchers on the impact of low gasoline prices on the electric car market, published in the Journal of Economic Perspectives. It found that current battery costs for Tesla’s and other electric vehicles are roughly $325 per kilowatt hour.
And at that price, the study amazingly concluded, the price of oil would need to exceed $350 a barrel before the electric vehicle was cheaper to operate.
In other words, without massive additional taxpayer subsidies to companies such as Tesla, the price of oil would have to not just double or triple, but rocket more than 10-fold before battery-operated cars make financial sense.
The real kicker? 40% of the country gets its Tesla-recharging electricity from dirty, sinful coal. Eliminate coal -- as many politicians want to do these days -- and the cost of electricity soars, making the break-even oil price point well north of $450/bbl. Where is that free lunch anyway?
Once again, well-intentioned fairy tales run smack dab into the bridge abutment of reality.
2. The Emotional Draw
There may be an iron-clad, inarguable case that electric cars like the Tesla are not even close to being economically feasible, until crude oil reached over $300/bbl -- about nine times higher than it is now. Furthermore, over half of this country’s electrical power is supplied by dirty, socially/ecologically-shameful coal, making an electric car recharged by coal-produced electricity an example of the worst kind of ignorance-driven ironically-cruel joke that there could possibly be.
But car aficionados really like the upcoming Tesla 3. It’s absolutely gorgeous. It’ll only cost about $35,000, before a whole slew of “please, please, Please buy it” tax credits from both the Feds and many states drop the price to around $30,000 or less -- no more than a nicely-equipped Accord or Camry.
It has a driving range of about 200 miles between recharges. Most people drive under 50 miles round-trip to work each day, so that’s nearly a full Monday-Friday drive load for them. While exact recharge times for the 3 are a bit difficult to come by (the car is not yet officially released for public sale), the more-expensive Tesla S recharges overnight at the rate of about 25/miles per hour of recharge. Eight hours = your weekly driving distance.
Yes, you can do the math and see how much more the kilowatt hours are going to cost you, whether spending the several hundred dollars for an electrician to put in a 240V line/outlet w/timer for faster charging will ever pay itself back, how long it takes the Tesla’s battery to exhibit the ever-increasing reduced capacity from repeated charge/discharge cycles that plague all current battery technology, be they lithium-ion, nickel-metal-hydride, nickel-cadmium or lead acid, and what the inevitable full-battery system replacement would cost you (the original owner) or how an un-replaced battery system will affect the resale value of the car to a second owner.
I suspect there will never be a second owner. That has to be taken into consideration, since a new $30k Accord, held for seven years and driven 100k miles, will still have a used-car residual value of $8k or so, whereas the Tesla will be close to valueless, since the battery system replacement will likely exceed the remaining value of the car.
That’s on top of what will have to be Tesla dealer-only service for HVAC, electrical system (lights, directional signals, etc.), brakes and normal maintenance, body work, etc., etc. Ouch.
Still…the Tesla remains a seductive car, an undeniable pull. Beautiful, fast, safe (huge energy-absorbing crumple zone up front; the Tesla S is rated as about the most frontal crash-worthy car on the road), and with total freedom from caring about the “daily scorecard” of posted gasoline pricing, the 3 is alluring, no question.
If you live near where you work and have another cross-country-suitable car in your stable for longer trips, the Tesla 3 could be nice. Very nice, indeed. No way is it yet anywhere near close to being financially-practicable -- even at a purchase price of $30,000 -- but most people will admit to liking it a lot, on several levels.
3. The Marketing Launch
Tesla: Model 3 had ‘biggest one-week launch of any product ever’
Tesla Motors Inc. said Thursday it has more than 325,000 reservations for its Model 3, the mass-market sedan the electric-car maker unveiled a week ago.
That figure implies about $14 billion in future sales, achieved without paid advertising or endorsements, Tesla said. “Most importantly, we are taking a huge step towards a better future by accelerating the transition to sustainable transportation,” the company said on its website.
Tesla claimed the launch was “the biggest one-week launch of any product ever.”
325,000 reservations x $1000 ea = $325,000,000. A third of a billion dollars for non-existent vaporware. This will be the Graduate B-School standard case study from this point forward on how to do successful marketing:
1. Know your competitive market. The automotive market is ripe for new technology. Existing suppliers aren't truly committed to delivering EV's. They dabble at the edges with hybrids, but there's no real desire on the part of the established car manufacturers to bring truly different products to the market. Tesla has no real "all-electric" competition.
2. Know the motivations -- both real and emotional -- of your intended customers. Green-motivated buyers do not want fossil fuel-based vehicles. At the far other end of the philosophical/political spectrum, conservative customers do not want their petro-dollars enriching unfriendly-to-America countries like OPEC and Russia. All things being equal, everyone would love it if we didn't have to plunder the earth for combustible resources just to get to work and pick up milk.
3. Present an attractive, affordable product that eclipses the competition and meets the tangible/emotional/egotistical needs of your buying demographic.
4. Communicate effectively, build demand, garner publicity. Tesla's handling of the announcement/pre-order event could hardly have been better. Everyone's still talking about it, well after the actual announcement day. Including us.
The devil is certainly in the details. All the shortcomings and doubts concerning the viability of the Tesla 3 and EV cars in general at this point in time still exist. The missing No. 5 in the above list, "Marketplace Success," is anything but assured, for a long list of reasons.
However, considered solely as a marketing exercise, the Tesla 3 has been a breakthrough product. Everyone should take those lessons to heart.