Does the Tesla Model 3 Need to be Perfect to Dominate the Market?
-By Mason Lankes | [email protected]
Model 3 details only really started coming to light this weekend when Elon Musk handed over the first 30 vehicles to owners. There was a flurry of mixed reviews from people who loved the look and feel of the new electric vehicle, to people who were not sure if the touch screen would work.
The Model 3 sports a single iPad-like touch-screen in the center, right next to the steering wheel, and that's it. The entire vehicle can be controlled from here. Tesla has taken a simple approach to look and feel, which likely resulted in some of the most advances technical and engineering designs required to achieve this simplicity.
Electric vehicles have some inherent advantages over gas-powered counterparts. No more oil changes, no more gas pumps, and an insane amount of torque off the starting line, just to name a few. However, Tesla seems to be combining pages from various playbooks in what looks to be a revolutionary step in consumer vehicles, which differentiates its new product from the competition. While other automotive makers will try to, and have already produced EVs, the Model 3 can still stand out and be financially successful.
- Touch Screen. Apple originally surprised the smart phone market with a touch-screen phone that did not have any knobs and buttons embedded in plastic. If a new button needed to be added a month later after the device was shipped, Apple could do it while the competitors couldn't change the physical properties post-shipment. Tesla has taken this same type of approach with a simplified design that no other car has. People are still skeptical of the single touch screen, but Apple was also laughed at when it released a device with no buttons.
- The Future in Mind. Self-driving cars are the future, even though the vast markets still believe it is years away. The Model 3's hardware is fully enabled for self-driving ability, which may arrive in just 2 to 3 years, much sooner than we think.
- Spend to Gain Share. Amazon continues to see opportunities everywhere and is spending heavily in order to dominate markets. Tesla also sees opportunity everywhere they look, and they are spending all of their cash to grow as fast as possible. They won't show profitability as long as they see a place to invest for a higher return, similar to how Amazon continues to eat up market share and grow revenue at a 30% clip given its size.
- Skip the Middleman. Much like Apple, Tesla can control its product's experience through its own retail channels. Not only this, but the company's vertically integrated strategy from production to consumer allows it to skip the middleman. A competitor such as GM for example sells its cars through dealerships which take a portion of the profits. Apple was laughed at for many years when they tried to do everything themselves, but they were able to leverage and control the product experience which turned them into the world's most valuable company.
- Infrastructure. Netflix is well-known to have some of the most robust infrastructure in the world as it is ready to stream videos during peak hours and essentially run a large chunk of the world's internet traffic. Tesla has a step up over competitors and is investing heavily in charging stations which will power the world's road traffic. The company has committed to triple the number of Super Charging (fast charging) stations to 18000 to cover all of the United States as well as parts of many other countries. While gas stations are run by many different companies, Tesla has the only fast charging network in the world that continues to expand. Having the ability to control all of the "gas stations" also takes away another middleman compared to the gas car equation.
- Build something that is good enough Clayton M Christensen, writer of the Innovator's Solution described several scenarios where companies that built a product that has some advantages but was only "good enough" were eventually able to in a sense sneak up on incumbents and disrupt a market. For example, when Android for phones was first released, it wasn't very good, but it was cheaper than other devices. As time went on, the technology got better, arguably putting it on par with the iPhone, and selling billions of devices. In comparison, the Tesla Model 3 might not be perfect at first launch - there are already people worried about the range. But there are clear and major advantages over the gas car counterparts, and even over competitor electric cars coming onto the market. The incumbents such as GM, Ford, BMW, etc have been struggling to convert some of their plants into electric manufacturers and mass produce an electric vehicle. The first round of early adopters may believe that the Model 3 is "good enough" or even far superior than any other car out there, even just as the iPhone 1 was far superior than any other BlackBerry or Nokia or Motorola phone when it first launched. Over time, incremental improvements will fill the gaps and could break up the dominant position that the incumbent car manufacturers have been holding for years.
While the Model 3 isn't yet perfect in the first round of early adoption, it doesn't need to be. The best products of all time offered something pleasant that consumers had not seen before. Over time they continued to improve to sweep up a much larger population of users. This can be seen with how Apple moved its way through the phone market with a simple device that the incumbents laughed at. Or how Netflix creeped out of nowhere from a tiny company dominated by giants such as Time Warner, to now stream movies at unbelievable scale by continual improvements over time. Even Amazon, which started by selling books, continues to take the market by surprise by spending in areas where it believes it can do a better job than the usual suspects that play in the same area. So too, Tesla may be able to ramp up mass production for a brand new type of vehicle, similar to what Henry Ford was able to accomplish 100 years earlier.