Tesla Sells 20% As Many Cars As GM? Really? Seriously?
Has the Goldilocks moment arrived for electric vehicles? Enquiring minds want to know
A demand signal
This week’s The Mobilist newsletter observed:
As certain as the EV age seems given the ton of new models coming onto the market, it isn’t sure at all. What we are watching is a supply signal — carmakers are making a big bet that we are in a transformational period to electrics. What we still don’t have is a clear sign from mass-market consumers that they will buy EVs.
First, making a list of supply signals and checking it twice is absolutely crucial for anyone playing in an emerging market like electric vehicles. If you don’t, you’ll invest too early when there is too little demand and lose money. Or you’ll invest too late when there are lots of competitors and lose money. You’re looking for the Goldilocks moment when the market is not too early, and not too late, but just right.
Second, what jumped out to me in the quote above is, “we still don’t have is a clear sign from mass-market consumers.” Hmmm… the sum total of my scars is that’s looking in the wrong place for the early market demand signal.
Finding a market beachhead
My copy of Crossing the Chasm is dog-eared, highlighted, and full of post-it notes. Geoffrey Moore uses the analogy of D-day to describe how to develop a new market of customers. Eisenhower was poised in England with massive resources for the invasion of Europe. The most important decision he made was narrowing his focus and picking the beach. Once a beachhead was established, then his forces spread out through Europe.
Moore suggests focusing is the right way to develop early markets too. Find the place in the market where customers have a clear howling hurt, solve that problem, and then as others see the validated product a mass-market develops. Finding where a product is attracting early adopter customers is the supply signal that a new market is developing and a mass-market is around the corner.
I previously shared where I didn’t execute this market beachhead strategy well and lost my investors' money in the process. Coach, I want back in the game. I won’t fumble the ball again.
The Tesla signal
A master entrepreneur of our time is Elon Musk. When you create one new market, you’re a good entrepreneur. When you new markets in multiple industries, you’re an entrepreneur savant.
In 2015, Tesla sold about 50,000 electric cars. In 2020, they sold about 500,000. All of GM sold about 2,500,000 cars and trucks last year. Tesla is selling 20% as many vehicles as GM, and Teslas are all electric. Holy mackerel Batman.
How did Musk do that?
It’s crucial to understand how Musk did that. The problem with early innovations that they aren’t good enough for most customers. Most of us most of the time won’t buy something new until others we know bought one and are happy. It’s not just the product itself that has to work, but all of the support that customers need to be successful with the new innovation has to be available.
The problem with electric vehicles when Tesla was selling 50,000 a year was there weren’t a lot of places to recharge the batteries. This gave most potential customers range anxiety that they wouldn’t be able to charge up when their batteries ran low. The fear of getting stranded made planning trips more tedious and added considerable stress to a journey. So most customers stuck with their gas powered cars because there were lots of gas stations everywhere.
The solution to selling an innovation that’s not good enough is finding customers so motivated to buy that they will ignore the problems. For Tesla, this was selling not just cars, but prestige. Early Testa owners were proving they were the cool kids on the block who could afford a very expensive car you couldn’t. You sell 50,000 cars with almost no charging stations around to people who can afford to buy a charging station for their garage at home. Five years later, Tesla how has 20,000 charging stations at 4,500 locations.
More evidence
General Motors is paying attention and has announced that by 2035 they will be all electric. They are forcing more than 880 Cadillac dealers to pony up $200,000 to acquire tooling, training, and charging stations to support electric vehicles like the Lyriq crossover, Cadillac’s first all-electric vehicle hitting the U.S. market in late 2022. If dealers don’t, Cadillac is buying them out.
The best evidence
The best evidence that the electric vehicle mass-market has arrived is what models Tesla is selling. A Model S starts at $75,000, and you can pay a cool $120,000 if you want it loaded. A Model X is starts at $80,000, Model Y at $53,000, and Model 3 is $38,000, which is approachable for a lot of people.
90% of the cars Tesla sold in 2020 were lower-priced Models 3 and Y purchased by more mainstream consumers than the early adopter customers. That, and the buildout of the electric charging infrastructure across the country, demonstrates that a mass market for electric vehicles is developing. If Geoffrey Moore publishes a revised edition of Crossing the Chasm, Tesla will be one of his case studies.
Tesla and GM are not the only car manufacturers noticing the market developing. Volkswagen and Ford have announced they will be major players in electric cars. And more players are coming from BMW, Nissan, Hyundai, Kia, Renault, Audi, Hummer, Range Rover, Porsche, Lotus, Dacia, Polestar, Skoda, Vauxhall, MG, Fisker, Seat, Cupra, Byton, Lightyear, Rivian, Faraday, and ID.
A bunch of those companies you've probably never heard of before. That’s what happens when cars become computers on wheels which are much simpler to make than cars with gas engines.
The Biden administration is planning to supercharge the market by pouring about $1 trillion into electric vehicles and infrastructure. This includes replacing as much of the Federal fleet and as many school buses as they can, adding 500,000 charging stations across the country, and investing in R&D spanning from lightweight materials to batteries, 5G, and artificial intelligence.
Hold onto your hat. This ride is about to get wild.
