Could Tesla be as big as Volkswagen and Toyota in the next decade?
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10 years ago a transition to electric or hydrogen cars was far away. Only big carmakers like Volkswagen or Toyota seemed capable of performing a shift towards these technologies. Former Volkswagen Group CEO Martin Winterkorn told der Spiegel in 2010:
All the excitement over hybrids will settle down once people realize that this is a bridge technology. The next big step is the electric car.
This comment can be seen in the light that Toyota was very successful with the Prius at that time.
Fast-forward to 2019. Both companies didn’t make the shift to full electric during last decade. Maybe they had the resources, maybe they had the knowledge, but they didn’t have the right mindset. Looking back most were merely words, whilst continuing their business as usual. Two big oil tankers who just couldn’t change their course.
109 Vehicles
In the documentary “who killed the electric car” from 2006 it was already stated that news on hydrogen technology was also mostly words, but that these words were really used to stay on the status quo. After all those years, hydrogen cars are still embarrassingly far away from mass adoption. OK, Toyota has a hydrogen car available, but the sales and infrastructure just haven’t taken off yet.
With electric cars the story is completely different. Maybe in 2006 the electric car was dead, but today its alive and kicking. Last December 30% of the cars sold in the Netherlands were electric. How did this happen?
Elon Musk and Tesla should get most credit for this shift. Who would have thought of this 10 years ago? Tesla was still a very small car maker. CNN published in 2009:
Tesla turns profit in July for the first time, after shipping a record 109 vehicles.
Just 109 vehicles, in other words, electric cars weren’t very important back then. Last year Tesla produced 350.000 cars. OK, still far from the 10,8 million delivered by Volkswagen or the 10,4 million sold by Toyota. On the other hand Tesla entered one of the toughest markets in the world.
Again: How did this happen?
Chicken AND eggs
In the beginning there was a clear vision of Elon Musk. This vision focused on electric cars only. Start with sport cars in the high end market and go from there to other segments like luxury sedans heading to mass production of regular cars.
Maybe even more important is that this vision was put into practice. This was of course based on the work of founders and engineers Martin Eberhard and Marc Tarpenning. Then Elon attracted other investors, made people believe in his vision and hired the best engineers until a successful car company was born.
Tesla’s technological-driven approach disrupted the car industry. They became the first car maker since decades that reached mass manufacturing. They improved lots of things over traditional cars like more luggage room, faster acceleration, better weight distribution and less maintenance. An iPhone on wheels.
Another thing what Elon Musk does very well, is that he understands marketing in a social media world. He takes investors and customers along in his story. The story of David (Tesla) against Goliath (The car industry), the story of clean energy, the story of a technological driven approach in car making. In the end he changed the electric car from a tree-hugging image to a sexy car with social status.
Maybe the most important thing that Tesla can take a credit for is solving the chicken-egg problem by not only offering an electric car, but creating the infrastructure as well. They created a charging network with free charging for Model S owners.
Summing up what Tesla accomplished is more than amazing. It’s also not surprising that there are a lot of Tesla fans. Not only car owners, but also investors. Last December Tesla surpassed Daimler in Market GAP. Tesla had $63.18 billion and Daimler $62.89 market cap. Will Volkswagen be next? Is Volkswagen vs Tesla, the same as Apple vs Nokia?
Volkswagen for sure doesn’t want to be the next Nokia and invested 35 billion dollars into the development of electric cars. How will Tesla stay ahead?
Not all gold
Most market cap value is based on future expectations. Will Tesla uphold on this promise? Will they become as big as Apple or will they banish like Nokia to the backseat or even bankruptcy? Of course Tesla already flirted multiple times with bankruptcy. It’s surely not all gold that shines for Tesla.
Besides financial instability, start up challenges in becoming a mass manufacturer and Elon Musks difficult 2018 there are many other things that Tesla needed to overcome.
To really become the biggest in any market one should not be the best in a few things, but be the best in all.
CleanTechnica recently wrote an article that Tesla’s number one priority on the 1st quarter is improving service. That’s the next quarter, but what about the next decade? In which areas should they improve?
Company
Stability & Social welfare
Apple had its rise in the eighties and fall in the nighties. In the late nighties with Steve Jobs return they found a steady growth path up again. For the last 20 years Apple has been a mature and stable company. Steve Jobs was like Elon Musk a visionary, but had a down to earth business person Tim Cook on his right side during this period. This is probably what Tesla needs as well.
Another example is Amazon which has huge growth for a very long time, but proven to be stable over the years. Even with other ventures like cloud computing and supermarkets. Now Amazon starts with it first steps on electric with investments in companies like Aurora and Rivian.
In its huge ambition of Tesla there have been major swings between profit and loss, between hiring and firing. At Tesla people are fired just as easily as they are hired. They just laid off 4000 employees.
Tesla is not a startup anymore and needs to become more stable. Musk doesn’t seem very sensitive to this argument and focuses more on fast growth and long-term goals. However, with thousands of customers and more than 40.000 thousand employees this really becomes a bigger responsibility.
The company is growing fast and changes rapidly. Work is unstructured, people work long hours and are under pressure. Of course only the people who actually worked there can tell best. Now it has only 3,5 stars at the company employee reviewing website Glassdoor.
Marketing
A lot of people on car forums think that Tesla has done it very cleverly, but there are also a lot of comments that they boasted a little too much about it. Tesla has missed pretty much every target it has made. Most of the first buyers waited patiently, but the public just want a company they can trust.
Is Tesla’s greatest invention its ‘Hype Machine’? Well it sure brought a hype to a whole new level… Think of sending a car to Mars or last year’s “production hell” and “delivery hell” among other terms like Gigafactory, Supercharger, Autopilot and Ludicrous mode. Yes, a bit over the top and sometimes like “Autopilot” even misleading.
Scaling up
It’s of course more difficult to scale their business than Amazon, because it is easier to scale software and logistics than factories. When Tesla wants to be on par with Volkswagen and Toyota they still need to grow 25 times in size.
Footprint
There are some doubts whether Elon Musk with many, many flights in his private jet sets a good example. In 2018 Elon flew around 240.000 kilometers! A lot of gasoline… and a big footprint without even setting foot on the earth.
Sometimes it seems that just owning a Tesla (or any other electric car) is good for the environment. Do not make a mistake that manufacturing and driving such a car has a big impact. Volkswagen is already addressing this issue. Owning an electric car won’t save the world or is super environment friendly, but of course we need them, and we love them.
What Tesla really does is making cars that are fun and practical while solving part of the puzzle on more renewable products. Old way of creating environmental friendly products was by creating products that looks like this:
Things like the ludicrous mode made electric cars more sexy, but isn’t Tesla moving too far from creating environmental friendly cars for the masses?
The strategy to start with sport cars seemed genius, but how long does it take, until there really is an environmental friendly and affordable car? Compare this with cars like the Sono with solar panels on their roof and a price of around 20.000.
The car
Range & Charging
The range of a Tesla is still far behind regular cars. We shouldn’t compare electric cars with other electric cars, but directly with petrol cars. Compared to regular diesel cars Tesla’s range is still short. Range also changes on weather conditions and is reduced over time.
Charging time is also still longer than refueling the car. Big headlines are there when an electric car can charge to 80% in a half hour. From a technological point of view this seems great. Think of this from a consumer point of view: “I can refuel my tank at the petrol station to 80% in half hour”. Kind of ridiculous.
One could say, but who can refuel his car at home? This is true, electric cars have this benefit. This is very practical especially for commuting traffic, but doesn’t count for bigger distances. The newly introduced charging (version 3) does improve speed up to 250 kw. Not yet above the 350 kw which speed Elon Musk once called a ‘children toy’. Porsche have now a working prototype with 450 kw.
At the end every extra mile Tesla will add to the total range, anxiety will eventually fade out. We can see this already happening, but prices of charging are rising. Tesla’s charging prices are still among the lowest compared to other public charging points. In the Netherlands there was nonetheless a big debate on the 40% increase of charging prices by Tesla where there were some calculations that per kilometer electric cars are now more expensive.
Battery
Batteries are lithium based which is a natural resource owned by a few countries and limited just like gasoline:
Batteries are of course the key to electric cars. Until now Tesla only focused on lithium. One thing would be improving that as well as with nano technlogy it’s theoretically possible to improve capacity by ten times.
To which extent are they researching alternatives like solid state or fluoride batteries? This might change with the acquisition of Maxwell technologies who has knowledge on other types of batteries. Also as they’re now trying to make this a more core technology.
Efficiency
Range and a lower footprint cannot only improved by better battery technologies, but by efficiency as well. This can be an even better air resistence. Think of no wing mirror like Audi did with the e-tron. Currently the Hyundai Ionic Electric is best in class, but the Lightyear one pushes this idea to the max.
Build quality
Tesla lacks the quality controls that the classic manufacturers have figured out. Body gaps and trim that doesn’t meet up is a standard on Tesla, while you’ll only find it on budget cars from other manufacturers. One Tesla owner joked “One pays premium, but gets a car with build quality of 1998”. Consumer reports are very critical on the build quality of the model 3.
The finish quality is still not on par with that of other luxury cars (especially the German and Japanese rivals). Some complaints were parts that weren’t tightly fitted to even missing parts on delivery. A recent report stated that only 13% of Tesla cars go through production without having to be repaired/reworked.
Driving experience
Though Tesla does very well with sprint challenges, it doesn’t handle curves like for example a BMW or Golf GTI. The fly-by-wire seems a bit detached for many car journalists.
Body styles
This year not Tesla, but the Hyundai Kona became CleanTechnica Car of the year. Tesla didn’t had a new car in competition after they won with the model 3 a year earlier. Tesla still has too few body styles. In this sense they are the opposite of Volkswagen. VW has many variants for all kinds of customers. In Europe compact cars (Golf), station wagons (70% is sold in this style) and medium SUV (Tiguan) are most popular.
Let’s see how Tesla will enter those lucrative markets. There is still a long way for Tesla in this area, even with a pickup and the model Y coming. With Tesla, one hears mostly rumors on new types of car, whereas Volkswagen announces only electric studies and rumors on electric driving. For example the new Audi Q4 E-Tron:
Either Volkswagen Group is going to flood the market in a few years and start eating up electric market share like a hero, or its going to get slammed big time by consumers if much of this PR doesn’t turn into serious action.
Tech
Thoug explictitly not silicon valley based, Tesla operates just as much as a tech company then a car maker. Not smartphone, but smartcars.
Software and security
The car software is updated over the wire, but this also leads door open for hackers. For this Tesla has a competition to let the car software hacked. The winner gets a car. The question is, does Tesla rely to much on outside ‘hackers’, instead of bringing better security by default. Or even worse to let users iron out bugs in the latest software release.
Autonomous driving
Other carmakers don’t call it autopilot, but “auto assist” or “propilot. Most work better than Tesla’s autopilot. Tesla pushed the autopilot a little too hard and gave very high expectations (first of all by calling it autopilot). After the deal broker with their Israeli partner quality has decreased. Nowadays other companies moved forward and Tesla’s autopilot is only in the news with accidents. Autonomous driving level 5 is not in sight yet. Is this also because they don’t want to use LIDAR?
Money
Government subsidies
A large part of Tesla’s revenues is generated by selling Zero Emission certificates to other companies. Electric cars still depend heavily on such regulations and subsidies. Norway has a total population of around 5 million people. Compare this to New York (8 million people) and Los Angeles (4 million people). Still the Norwegians were in 2018 the second biggest purchaser of electric cars in the world (after China). Why? Subsidies.
Now mainly fuel cars are taxed. In particular petrol. People who drive a lot pay a lot. The governments want to hold on to that income. Governments start to think about this and what to charge by mile instead. Now they are still stimulating electric cars. How long will this last?
As soon as electric becomes more popular, the subsidies will go down and taxes go up. This means that electric cars will stay for a long time on the same price level. For buyers there seems no progress. Best thing for Tesla is to become independent from governmental subsidies and selling certificates.
Price
In the end it is all about the price. Most people quickly lose interest when they hear about the price of a Tesla. 60K? Thank you, next. If Volkswagen or Toyota created a Volkswagen Golf or Toyota Camry with that range for that price with such a bad build quality people will freak out.
Prices of their electric cars are still very high. In the Netherlands currently the cheapest model 3 is 70000 euro. This is far from prices which the majority of car buyers can afford.
Price will probably be the toughest cookie to crack for Tesla. They will have in this area the most competition from other car manufacturers like Volkwagen, Toyota and the Chinese.
Final thoughts
So a new product can add a positive feature on one side, but this isn’t as powerful when there are downsides on the other side.
Why are all these things important? At first it was making electric a good choice. However to get to mass adaption the car makers with the most boxes ticked have the highest sales. This is always a balance between price and specs. Volkswagen and Toyota have always been good in finding that balance.
As I wrote this blog, news on Tesla caught me. Improvements, announcements, better figures. So Tesla is of course very aware of their current problems and challenges. If they can deliver it like the last decade they sure will become as big as Volkswagen.
Probably bigger…
More reading:
https://www.bloomberg.com/graphics/tesla-model-3-vin-tracker/
