Will the launch of the Tesla model 3 effect auto sales from other automakers?

model-3_topWe’ve just seen the launch of the Tesla model 3. Tesla managed in a short space of time i.e. a few days to have pre-orders of nearly 400,000 model 3’s. Another way of putting this, is that there are nearly half-a-million car buyers who haven’t bought a BMW, Mercedes or a Volkswagen.

Traditional auto manufacturers must be was rolling over right now with fear about what’s happening to their stranglehold on the market because whether or not Tesla turns into successful business or not the fact is is that there are a lot of customers out there who are for the first time experiencing a novel new type of car buying and soon, a new way of getting around and potentially driving the vehicle (think about self driving).

I don’t think traditional manufacturers will be to happy with the fact that their rival Tesla is offering much better customer service and as many will argue much better technology and product. In the wake of the Volkswagen diesel scandal, automakers are under increasing pressure to be transparent with all of the numbers figures and operational details and Tesla has managed to garner almost half a million pre-orders and the car doesn’t even exist yet…Tesla must be doing something right.

Up and down the boardrooms of auto manufacturers (especially the high end marques in built in Germany) must be overwhelmed with fear. Think about the entire city named Wolfsburg which is dedicated to building Volkswagens.They’ve been sleeping while Tesla has been eating their lunch and dinner.

There could be a potential Kodak moment here where the traditional manufacturer keeps peddling the internal combustion engine (ICE) in the hope that consumers will continue to buy it whilst innovation marches on elsewhere and consumer choice rises exponentially. To argue that somehow Tesla is not cannibalising sales from other auto manufacturers is crazy, clearly because these people who have elected to purchase a Tesla model 3 in 2017 won’t be on the car market looking for another vehicle. Once they’ve experienced the Tesla model 3 it would be unlikely they’ll want to buy another combustion engine is again.

There is hope for the traditional auto manufacturers. That hope is innovation. Makers can decide right now to stop pedalling the internal combustion engine and start educating the consumers. Like it or not electric car is here, and instead of following companies like Tesla they should actually start to innovate themselves, not just the eye candy not working car for the motor shows, but actually produce really innovative cars that people wish to purchase and to do this now rather than wait for buyers to purchase a Tesla.

Traditional auto manufacturers still have a strong brand even despite the shenanigans of Volkswagen and other companies in cheating on diesel emissions. They are historic brands that have been around in some cases centuries or at least one century. Companies such as Peugeot and Fiat have a long and enigmatic history and that’s not even to mention companies or race pedigree;s such as Porsche, Ferrari and Lamborghini. Just think what these companies could achieve if they could use their history to leverage sales of electric cars. Tesla is selling a car that no one has test driven that no one has ever seen but it’s selling strongly so just think what a 100 year old traditional company could do if it could also take pre-orders for an electric vehicle! Surely one could argue there would be more trust because consumers have had experience of many decades of dealing with these household names and already have relationships and dealer networks.

But there is such a thing as an innovator’s dilemma and this is something that Tesla is fairly immune from because is actually innovating in the product space doesn’t have to cannibalise its existing products and technology. It simply builds great products that people seem to want it doesn’t have to worry about spent capital invested capital in R&D of old combustion engines or diesel engines or obsolescent technology.

The trouble with the traditional auto manufacturers is that there are simply too many models to many companies and too much competition and these businesses. In order to produce electric cars you can argue that they will end up cannibalising the sales of their their combustion engine cars, and that’s a hard sell to executives and shareholders who are focused on short term profitability.

So yes in answer to the title of this piece, Tesla is stealing orders away from the traditional manufacturers, no questions about it. The author suspects that traditional automakers will be forced to adopt a sit and wait approach, until they approach some cataclysmic event by which then the shareholders will be so beaten down they will be prepared to accept anything in order to not completely wiped out.

The good news for the auto manufacturers is that this probably around five or so years before they really are at that precipice. But certainly the author would like to see proper education, proper product innovation from the likes of BMW, VW, Audi and Mercedes.