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Tesla's biggest obstacles

Tesla's biggest obstacles

Tesla Motors has had quite a brilliant climb into the automotive world. The level of success they have achieved has exceeded all but the most optimistic predictions, and their rise into the limelight has inspired a cult-like following. Tesla's vision and methods are promising, but there are several threats to the long term success of their company. I would like to discuss some of the challenges Tesla faces during it's quest for the mass market, and some of the strategies that might give it an edge over the competition.

The most prominent hurdle Tesla currently faces is in battery technology. Despite using the best Li-Ion technology available, the company is limited by the low energy density of current batteries. The relative size and weight of the batteries restrains the range of the vehicles. Fortunately for Tesla, they are already researching more advanced batteries and streamlining power use as can be seen in the 400 mile Roadster 3.0.

Recently analysts have raised concerns over the expanding demand-supply gap. Tesla is having some problems keeping up with orders and staying on schedule with the delivery of their next vehicle. This is not to criticize their progress; the company has done marvelously thus far. Regardless, if the supply of vehicles is outrun by demand, consumers will lose interest and buy from the competition. Tesla is already expanding their current operation in Fremont, as well as constructing their battery factory in NV. Will this be enough to meet the rising demand?

At $71,000 the Model S is much too expensive to be sold to most consumers worldwide. Tesla will have to rely on its Model 3 mid size sedan to attract the buyers that will give the company stability. However, can the Model 3 be an everyman's car with a $40,000 price tag? My answer would be a resounding no. The vehicle will fill a crucial role in the brand, but I believe Tesla will need a <$30,000 model to capture significant market share. Money talks, and a low cost, reliable electric vehicle is what will beat out competitors and bring electric to the masses.

The public perception of Tesla is ultimately what determines its fate. People who do not like the company will not buy the products. Tesla has been bad mouthed by media, rocked by a handful of battery fires, and had product quality and reliability misrepresented to sell a story. So far it has managed these things deftly, however, it must proceed carefully to ensure that the target market is informed and educated concerning its vision and products.

Overall I have great hope for Tesla as the company seeks to make EVs competitive with their ICE counterparts. However, it must navigate these obstacles and others before it can succeed.

Red Sage ca us | 01. Januar 2015

Neither the Tesla Model S, nor the Model X, are meant to be sold to 'most consumers worldwide'. If these cars could be profitably offers at $25,000 each to 3,000,000 Customers per year, it would already be done. These are Tesla Motors Generation III vehicles and are fulfilling their intended purpose as mid-volume premium sales market offerings.

The Tesla Model ≡ is a Generation III vehicle in the lineup. It is meant to achieve high-volume premium sales versus the market leader at its proposed price point. It will do so while still being affordable to those who may be shopping at a mass market price point, but the car itself will not be priced nor manufactured at mass market levels.

Please stop by the Blogs section of this website. An archived message from 2006 covers the details. It is the Super Secret Master Plan and answers most of your queries.

DallasTeslan | 01. Januar 2015

For starters I have some news for you. Tesla is already succeeding. Your last sentence implies this is not the case. People are waiting months to get their Model S after they order. There is plenty of demand and they are just scratching the surface, slowly expanding production as they go. I would encourage you to drive one if you haven't already. I would imagine you have not if you don't think the company is a success yet.

I really don't think it much matters if the Model 3 sells at 40K or 30K. There will be more potential buyers than there are vehicles available.

"Regardless, if the supply of vehicles is outrun by demand, consumers will lose interest and buy from the competition"

I also don't think you fully grasp the mentality of Tesla customers/potential customers. People who really want a Tesla are not going to be swayed to another car company. This isn't as simple as choosing between a Honda or Toyota, or between a BMW or Mercedes. It's a whole new category of vehicle and there really is not a viable competitor at the moment.

Guy2095 | 01. Januar 2015

Hmmmm, what could I be trying to say that would trigger the spam filter? I'm pretty sure I didn't use any dirty words.

Guy2095 | 01. Januar 2015

First off, some clarification is necessary of what constitutes success. It has been clear that the goal is to lead they way for adoption of BEVs over ICE vehicles and earn a fair return for investors in doing it. The focus is on making the best, standard-setting EVs; to end up making the only ones would be counter to the primary objective.

Guy2095 | 01. Januar 2015

Battery tech constraints are not a hurdle; improving them and more importantly providing a grand compelling incentive to improve them is very much part of the plan and process. Setting a target of doubling world output in a few years and attaining ongoing cost and performance were laid out as fundamental.

An expanding demand-supply gap is an indication of resounding success, hardly an obstacle.

Guy2095 | 01. Januar 2015

Making the best EVs deserves a market premium. Again, success does not mean being the only EV maker. 35-50k certainly does target the mass market and that does not mean success would only be achieved by selling every single mass market customer a Tesla.

Guy2095 | 01. Januar 2015

(ok, why doesn't the spam filter like a hyphen between mass and market?)

Additionally, every new Tesla sold eventually becomes an opportunity for a lower-end purchaser to someday choose an even less-expensive used Tesla over a new budget ICE.

Finally, though I wouldn't want it to come to it in Tesla's case, most of us certainly do find ourselves regularly compelled for various reasons to buy products from companies we do not like.

Grinnin'.VA | 02. Januar 2015

@ Guy2095 | January 1, 2015

Additionally, every new Tesla sold eventually becomes an opportunity for a lower-end purchaser ...

It's a subtle point, and I'm not accusing you of anything.
However the term "lower-end purchaser" is, IMO, demeans people who have quite a bit less to spend on a car than you and I do. I hope you meant something like "... becomes an opportunity for someone with less to spend on a car". That is, I hope you didn't intend to characterize the buyers of "preowned" Teslas as "low-end" people.

Go Tesla!

blue adept | 02. Januar 2015

@Red Sage ca us

"Please stop by the Blogs section of this website. An archived message from 2006 covers the details. It is the [not so] Super Secret Master Plan and answers most of your queries."

Fixed that for you.

Guy2095 | 02. Januar 2015

Actually Ron, I meant me ;^)

That is, someone who has reason to purchase from the lower end of vehicle price range.

In my case, aside from being able to find many ways to joyfully fritter away the difference in cost, I am shamefully the opposite of someone who respectfully pampers cars. What happens to a fine car after I have enjoyed driving it 10 years or so is sad to see.

It's not willful abuse, but it happens so I prefer to buy a previously pampered car for much less money and think of myself as extending its useful life through its declining years. (I have tried buying cheap new cars but that neither assuaged my conscious nor provided any driving pleasure.)

Guy2095 | 02. Januar 2015

*conscience ...autocorrect does not always know what I mean.

Red Sage ca us | 03. Januar 2015

Guy2095 for some reason our Friend, Grinnin' Ron, has a strong tendency to find offense. Near as I can figure, it seems he believes that words meant to describe objects, or organizations, or companies, are actually directed at individuals. He has chastised me in a similar fashion multiple times. It was obvious you meant 'purchaser of a vehicle on the lower end of the market'.

Grinnin'.VA | 03. Januar 2015

@ Red Sage ca us | January 3, 2015

Guy2095 for some reason our Friend, Grinnin' Ron, has a strong tendency to find offense.

Red, you are reading "offense" into my post where no offense was intended. I started that post with "It's a subtle point, and I'm not accusing you of anything." How could you interpret this a me taking offense?

blue adept | 03. Januar 2015

@Grinnin' @us.VA & @Red Sage ca us

HEY!

Don't make me have to separate you two...!

vgarbutt | 03. Januar 2015

@justanallusion

Too funny. Thanks for the laugh out loud.

Grinnin'.VA | 05. Januar 2015

@ just an allusion | January 3, 2015

@Grinnin' @us.VA & @Red Sage ca us

Don't make me have to separate you two...!

@vgarbutt | January 3, 2015 new

I hope you realize that this is a cheap shot.
Or, would you like it if I suggested that you were a baby?

carlgo | 05. Januar 2015

Problems? Tesla can't make enough $100K cars to satisfy demand and that is just with one model, likely one that will prove to be their lowest volume model at some point!

Manufacturing and profitably selling a low-cost model will be difficult, dependent on a suitably cheap and capable battery. It is more likely that the cost will creep up to something in the $40-50K range, but that is cheap enough to have sales backlogs for years. That really isn't a problem for Tesla.

Charging them all up quickly and conveniently seems to be the biggest issue going forward.

Brian H | 05. Januar 2015

Tesla has deliberately worked not to let demand outrun supply by so much that too many deprived buyers build up.

dlake | 05. Januar 2015

If future buyers of a $40K Model 3 do the math on maintenance, repair, fuel, etc. over 8-10 years, a Model 3 would likely be slightly less expensive than a well-appointed Honda Accord, for example. Certainly less $ than a well-appointed BMW 3 series or Audi.

Grinnin'.VA | 06. Januar 2015

@ dlake | January 5, 2015

If future buyers of a $40K Model 3 do the math ..., a Model 3 would likely be slightly less expensive than a well-appointed Honda Accord, for example.

I hope you're right. But I don't expect this to be true for most Honda Accord buyers.

Brian H | 06. Januar 2015

It would be obvious if both could be obtained on leases that included all fuel and maintenance.

blue adept | 07. Januar 2015

@Grinnin' @us.VA

I didn't mean it in a infantile context, that was just the only pic I could find depicting the sentiment I wanted to express at the time, nothing more.

3seeker | 07. Januar 2015

WHY SO SERIOUS??

@JAA that pic is funny!

Red Sage ca us | 07. Januar 2015

JAA: I got the impression the baby was yelling at me... I like the picture too!

dlake wrote, "If future buyers of a $40K Model 3 do the math ..., a Model 3 would likely be slightly less expensive than a well-appointed Honda Accord, for example."

Especially compared to the Honda Accord Plug-in Hybrid...

blue adept | 07. Januar 2015

@3seeker & @Red Sage

Grinnin' felt that I was taking a "cheap shot" at him and calling him a baby:

"I hope you realize that this is a cheap shot.
Or, would you like it if I suggested that you were a baby?"

I don't know why, but he just took it in the wrong context.

petero | 08. Januar 2015

Adam. I think you worry too much, how much TSLA do you own?

Elon Musk is always open to new battery technology. He has said, send us a sample of your new battery and the particulars and we will consider it. Battery manufacturers need a “commodity battery” to get the price down. Every month there is an article from the research departments of a major university about an amazing battery technology break through. TM needs ‘now/today,’ not ‘maybe 5 to 10 years from now.’ TM having their own gigafactory will be able to introduce changes in technology quicker than if they had to solely depend on traditional battery sources.

Tesla Model S competitors are other full size luxury sedans, specifically: BMW 5/7 Series, MB S Class, Audi A8, Jaguar XJ, Lexus LS. All of the above sell for $71K+. This is a small niche market. Where TM has the advantage is their MS is so compelling it will capture buyers from the other manufacturers. The others are pretty much the same. What I find very interesting is the luxury SUV/CUV market, which is far greater than the luxury sedan market. Porsche’s golden goose is the Cayenne, which represented 53% of Porsche’s US sales in 2013 while the mighty Panamera accounted for 13%. The Model X will do very well with the soccer mom’s in the affluent communities.

I have never seen an auto manufacturer respond so quickly to problems as TM. When the two MS ran over heavy metal debris that pierced the battery they immediately issued an overnight software upgrade to raise the height at freeway speeds and then designed additional shielding that was retrofitted at no charge. TM is always refining the MS and the software updates improves the car. My two year old MS is better today than when I took delivery. Who else can claim this?

There will always be those with an anti-TM agenda, often these ‘haters’ are shorting stock. I do feel TM will have to pursue a federal solution to states enacting NADA inspired restrictions. TM’s most important sales tool is “the test drive.” Once you have driven a Audi/BMW/MB ICE and then driven an MS the decision is easy. TM’s other concern, especially for the Model 3, will be ICE manufacturer’s leasing subsidies. Leasing is a huge ‘sales tool’ for Big ICE.