The Tesla Effect

A few years ago I was debating a friend of mine who’s obsessed with cars. I wanted to know why no car company made all of their vehicles, including the lower price range models, beautifully designed. Wouldn’t they sell more cars and cannibalize their competitors in that category I asked?

His answer was that car companies needed to maintain a stark distinction between their premium models and their models for everyone else. I asked another friend more recently and he gave the same answer. This has probably been the prevailing business model in the car industry for a very long time. Not anymore.

In the past 5–6 years car companies have shifted. They’re not releasing low priced lemons. They’re not releasing nice but not quite premium models. Now every car they release is different but beautiful. Just take a look at the yuuuggee design shift from their last to their latest:

That’s a pretty aggressive shift from tame to tantalizing. Did customers stop buying low priced cars and demand better design? Maybe. Are car makers trying to make their cars more appealing to iPhone obsessed youth? Probably. I think the driving factor is one thing, the fear of Tesla.

Long before Tesla released it’s latest model there was speculation that it was slowly but surely moving downstream. It has struggled every year to keep up with the high demand for its premium vehicles. With the Model 3, Tesla has shown its unwillingness to compromise on quality, no matter the price range. They’ve destroyed the low end distinction theory.

So did the auto industry change its lineup philosophy with the rise of Tesla? I can’t say for sure. What I can say is that their behavior is similar to the cellphone industry when the iPhone was released. First denial, then lots of spaghetti thrown at the wall, then mimicry. Does anyone else remember Steve Ballmer’s reaction:

Now the moment car companies have been bracing themselves for is finally here. The Model 3 has arrived and shattered pre-order records for a tech product, much less a car. Someone on Twitter put it best:


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