Tesla has been a poster child of disruptive innovation when the company is the only automotive company that successfully entered the auto industry after WWII. There hasn’t been a brand that excites and inspires people so much since Apple. However, is Tesla overhyped and overvalued?
Recently, Tesla’s valuation surpassed both Ford’s and General Motors’. BMW is among the other major carmakers in the rearview mirror. The logic of this is intriguing, given that Ford, for example, is coming off its second-best year in its 112-year history, earning $4.6 billion while selling more than 5.5 million cars worldwide. General Motors earned $9.4 billion selling 9.8 million vehicles. Tesla, meanwhile, sold 76,000 cars while losing near $1 billion.
For Tesla to disrupt via the EV bet — for it to sell enough electric vehicles to justify its optimistic valuation — it will have to sell a car in the sweet spot – the middle class. However, for the disruption theory to play out correctly, incumbents have to ignore the EV space; however, this is not true. Ford invested $5 billion in EV technology last year alone, it offers several EVs already, and the recent firing of Ford CEO Mark Fields suggests that its board is interested in moving even faster on this front.GM is not asleep, either: Its Bolt is available with a 238-mile range. Nissan is expected to offer a similar product in the 2018 model year, and the plug-in hybrid Chevy Volt is selling very well.
It will be interesting to see how the EV space plays out and who will be the ultimate winners of this new market.
Source: https://www.vox.com/the-big-idea/2017/6/26/15872468/tesla-gm-ford-valuation-justifying-disruption
Walter Hodge
I think you propose a great question regarding Tesla but are guilty of “spotlight thinking” on the approach for answering it. Although their sales and revenue fall short compared to Ford and GM their strategy is not designed merely on “Electric Vehicles” nor is it focused on the middle class (value/cost). Tesla is doing something all consumers want and hold high expectations towards. They’re evolving the car industries “services” by proving that brand loyalty has to be earned, as well as, appreciated to sustain. Quality in their products and their services are what allows them to be disruptive. As they refine their manufacturing processes to be more efficient, their sales and revenue will follow because they’re already performing better when it comes to servicing customer. Implementing programs like their resale value commitment and commission free sales locations is just more reassurance to purchasers looking for a decent automobile.
Anecdotally speaking, I feel like Tesla’s strategy is working. This isn’t based off of any statistics, but I know in my case that as a millennial growing up in a world where climate change is the biggest threat to my generation, I am sure that I want my next vehicle to be an EV. In the same line of thinking, I know that the EV that I want to drive is the Tesla. I am aware the Chevy has an electric car, but my opinion of it is probably the same opinion that I’d have of a Prius, it’s not a fun car to own. So, the Model 3, Tesla’s affordable model, is really the only car that I’ve only ever envisioned myself driving in the future. Thus, anecdotally speaking, if the Tesla is targeting late millenial males, their strategy is working, at least in my case.
I think the difference between the other companies’ EV products and Tesla’s is that the Tesla brand is built around solely EV, whereas the other manufacturers have other priorities that hurts their brand loyalty in the EV realm. Tesla has built up a huge brand presence, and although Elon Musk makes some questionable decisions socially, he always manages to keep himself at the forefront of the news and replies directly to customers regarding their complaints for the company. He has set the company up extremely well to appeal to a society that lives in the digital era, from the electric car, to remote software updates, to utilizing Twitter to listen to their customers. I’m not sure I would buy a Tesla at this point as the future is still a little uncertain, but I think it is looking promising for them/