Should major automakers be concerned about the fact that Tesla's market cap is rapidly approaching the levels of Ford and General Motors? Of course. (Click Image To Enlarge)
As the electric car company becomes more and more successful, the Big Three need to respond. But just copying a brash startup won't work. Here is what will.
Earlier this summer, General Motors vice chairman Steve Girsky hinted that the company's CEO, Dan Akerson, was more than a little concerned about the rise of electric vehicle startup Tesla Motors: Girsky said in an interview with Bloomberg.
“He thinks Tesla could be a big disrupter if we’re not careful. History is littered with big companies that ignored innovation that was coming their way because you didn’t know where you could be disrupted.”
Shai Agassi, the founder of bankrupt electric vehicle infrastructure company Better Place, has some advice for them: Don't copy Tesla. Just learn from it. (Click Image To Enlarge)
Should major automakers and their investors be concerned that Tesla's market cap is rapidly approaching the levels of Ford and General Motors? Of course. That's why Shai Agassi, the founder of bankrupt electric vehicle infrastructure company Better Place, has some advice for them: Don't copy Tesla. Just learn from it.
Tesla Motors Inc (NASDAQ.TSLA) - Share Prices Jan 1, 2013 through September 13, 2013 - Google Finance (Click Image To Enlarge)
In a series of three posts on LinkedIn, Agassi expresses his thoughts on what Detroit should be doing to get in on the electric vehicle market, which Tesla currently has cornered.
In a series of three posts on LinkedIn, Agassi expresses his thoughts on what Detroit should be doing to get in on the electric vehicle market, which Tesla currently has cornered. (Click Image To Enlarge)
Agassi says.
"This was my reaction to a number of posts in the business media that were starting to compare and contrast Tesla with the rest of the industry. There's this whole idea that the industry should copy Tesla or somehow figure out how to copy Tesla when they're making probably a thousand times as many cars as Tesla."
Agassi says, "There's this whole idea that the industry should copy Tesla or somehow figure out how to copy Tesla when they're making probably a thousand times as many cars as Tesla." (Click Image To Enlarge)
The auto industry, in other words, needs a different strategy.
Agassi's four main takeaways for the industry: Electric cars are objects of desire; Electric cars are like a modern appliance that has software and physical components which need to be constantly updated; Electric cars are on wheels, so automakers need to design vehicles with exponentially improving battery packs in mind; and electric cars drive and sell differently--because car dealers won't invest in marketing a new product category, direct sales may be the way to go.
He has four rules to remember: Electric cars are objects of desire. Electric cars are like a modern appliance; Electric cars are Moore's Law on wheels; and Electric cars drive and sell differently. (Click Image To Enlarge)
When I ask Agassi if he thinks it's realistic for big, clunky automakers to switch to an entirely new distribution model, he points to the used car industry. He says.
"eBay is selling more than a million cars a year at a price point that's roughly around $10,000. If you were able to offer a $10,000 car--one third to one half the price of a new car today--you create a whole new proposition for a whole new market segment."
Agassi says, "If you were able to offer a $10,000 car--one third to one half the price of a new car today--you create a whole new proposition for a whole new market segment." (Click Image To Enlarge)
That requires bringing electric vehicles down to that new low price point--a daunting proposition considering the high cost of batteries. But Agassi has an interesting solution: Don't factor battery prices into EV costs; it's not like gas prices are included in vehicle sticker prices. Instead, he says, automakers should follow the cell phone subscription model and ask people to pay a certain amount per month ($300, say) for battery use.
Agassi argues that automakers shouldn't factor battery prices into EV costs--it's not like gas prices are factored into regular vehicle costs. Instead, they should opt for a subscription model. (Click Image To Enlarge)
Even though Agassi's now-defunct Better Place also relied on a subscription model for battery use, he still believes the model is valid. Better Place, he says, deployed its "battery switch" stations before testing consumer demand, whereas Tesla is deploying charging and battery switch stations only after gauging demand (Tesla also manufactures its own vehicles, while Better Place did not). He writes:
"Produce a base version of an electric cross over. Make it beautiful and benefit from great electric performance. Then take a page from Ford’s Model-T game plan: price that new car at a disruptive price of $9,999, “batteries not included” (after operator subsidies and government incentives). At high volume, even at that price, this car will be making great profit for the carmaker."
"Support the car with an operator that deploys infrastructure making this EV more convenient to use than a gasoline car. The operator will own the batteries, and offer electric miles at weekly cost which is at parity what the average driver pays for gasoline today. Only this service contract will come with unlimited miles. Then offer various luxury versions of the car, with many “options” offered at higher price points. Consumers who are offered an insanely great car for $9,999 will buy a ton of add-ons, generating even better margin for the carmaker."
Tesla is deploying charging and battery switch stations only after gauging demand. (Click Image To Enlarge)
And he says.
"The company that follows this advice will capture not just a portion of the EV market, it will capture a portion of the car market. That's how industries are formed."
It's hard to say whether legacy automakers are nimble enough to make such a dramatic shift. The next major EV manufacturer--if there is one--may be a company that doesn't yet exist.
The company that follows this advice, he says, "will capture not just a portion of the EV market, it will capture a portion of the car market. That's how industries are formed." (Click Image To Enlarge)
He says.
"If you had to guess in the year 2000 who would bring a music device that would capture most of the market, you'd say Sony--they own music labels, they own everything in the industry. If I told you it was Apple, you'd be laughing because they didn't make a music device at the time."
COMMENTARY: I agree with Agassi Shai's assessment of Tesla Motors. Right now the market for electric vehicles or EV's is too small and too early in its development for either the Big Three or Asiatic automakers. However, they see that the handwriting is on the wall: The world's oil supply is quickly running out. We are now entering a period where we consume more oil than the "Oil Shieks" can produce. Global warming is becoming a reality, no matter what the neysayers think. With oil prices exceeding $100 per barrel, and the oil refineries producing less gasoline, this has driven gas prices to the highest levels since 2005.
Electric vehicles are filling a real need in the marketplace, but until the battery technology can improve storage capabilities, and the cost of the vehicles comes down, sufficiently to attract more buyers, EV manufacturers will be stuck in this "dead zone." Tesla Motors is not immune form this. It knows it too. Elon Musk knows that Tesla Motors cannot survive strictly by meeting the demands of affluent buyers who afford to pay premium prices for the Tesla Model S sedan. This is why Tesla Motors is pushing for a lower-priced EV like the Model C.
Agassi says it like it is. The Big Three and Asiatic automakers should not try to copy Tesla, but learn from it. Furthermore, you cannot simply copy Tesla's design and technology innovation which is clearly head and shoulders above anything the big automakers presently have. Tesla Motors has intellectural property protection to insure they will be around. It is being sought out by other companies, including several of the big automakers like Nissan and Toyota to license Tesla's lithium battery technology.
One other thing: Tesla Motors has Elon Musk. In all my years, I have never seen another entrepreneur with a track record of success that comes even close to what Elon has been able to accomplished. Musk co-founded of Zip2, Founded PayPal, SpaceX, Tesla Motors. With his management team he has successfully scaled each company to the point where they now have developed sustainable and predictable revenue models. He is the real deal. Tesla Motors has a successful IPO and its stock is now at 165 a share, impossible, but true. It would not surprise me if the does get SpaceX to put the first American on Mars in another 20 years. The big automakers cannot replicate someone like Elon Musk.
Courtesy of an article dated August 29, 2013 appearing in Fast Company Exist
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