How Tesla Has Captured The World’s Imagination And Is It Really Clean And Green
Tesla Motors captured the world’s imagination when it announced the launch of its “affordable” electric car Model 3, due in 2017. It will also be available in India. Even though a full prototype isn’t ready yet, it has managed to garner 400,000 bookings and collected an advance of $400 million, which translates into potential revenue of $14 billion, provided no order gets cancelled before the Tesla Gigafactory can start delivering it towards the end of 2017.
How did it achieve this feat? An obvious answer would be that Tesla cars are perceived as clean and green cars, even though Tesla’s (and other electric car maker’s) environment-friendly credentials may lie in the grey zone—more on that later.
The triggers for customer preference
The new generation of customers strongly believe in and support sustainability, but are often at a loss on how to engage in activities through which they can support this cause. So when they come across a brand which is sincerely supporting this cause, they vote for it with their wallets.
These customers care about the carbon footprint of their chosen means of transport. This means that value has migrated from mere transportation towards clean transportation.
Traditional car companies, led by General Motors, Ford, Toyota and others, still operate predominantly in the earlier value zone of merely providing a means of transportation, though many of them offer electric vehicles (EVs). Whereas Tesla is operating in the new value zone (clean transportation) as it makes only EVs. Hence the eye-popping booking figures for Model 3 even before the full prototype is ready.
Tesla does not depend on this perception alone to clock up bookings. It puts compelling factors into play to make Tesla cars irresistibly desirable.
- Attractive price
The most noticeable and irresistible aspect is the price of the Model 3. It starts from $35,000 before any incentives, which is a bargain when compared with the $75,000 for Tesla Model S.
- Software-backed design
Its design is equally compelling. A Tesla car by design is not a car—it is an iPhone on wheels. It is powered by software so it has neither heavy machinery nor too many moving parts, due to which it is lighter and is likely to have fewer breakdowns.
In the case of a breakdown, it does not have to be carted to a garage. Since it is powered by software, the problem can be diagnosed remotely and a software patch can be sent over the internet to rectify it. This drives down maintenance cost.
These benefits—convenience and time saving—are extremely desirable for millennials who are cash rich and time poor and are willing to spend cash to save time and get convenience. The lower cost of ownership is a bonus.
The brand marketing strategy
Yet another factor that has played a stellar role in Tesla capturing the imagination of customers is the way it markets itself. Take its showrooms, called Tesla Stores. They are designed not for selling the product—cars—but for building a brand. Tesla wishes to engage with people who walk into the stores and introduce them to the wonders of its technology by offering them interactive screens devoted to four major themes:
- Auto-pilot features
- The company’s battery charging network
- Technology which powers Tesla
Its stores are more about the experience—about the wonder of its technology and quality of its products and less about selling it on the spot.
What is the consumer insight behind this strategy? The new way of selling a product is not to sell, but inform and educate customers about the brand, believing that a well-informed customer is likely to take decisions in the brand’s favour.
By the way, in addition to the interactive screens, Tesla has a range of Tesla gear (merchandise) ranging from t-shirts to tote bags and driving gloves. What does Tesla achieve by promoting its gear? Tesla desires to gradually create a brand image, not of an automobile, but of luxury that is an integral part of people’s lives.
How green is Tesla?
Now let us pose an inconvenient question. Is Tesla—and EVs in general—really as clean and green as it is perceived to be? The answer may lie in the grey zone.
It is an EV and is powered by battery and not fossil fuel. Therefore, while running, it does not spew carbon dioxide, carbon monoxide, sulphur dioxide and other pollutants.
But if you take a closer look at Tesla’s Product Life Cycle Assessment, the picture turns grey. (Product Life Cycle Assessment assesses the environmental impact at all stages of a product’s life from cradle to grave—from raw material extraction, manufacturing, to its use and maintenance, to its disposal at the end of its useful life.)
Let’s start with the Model 3’s battery. It gives the car a range of 215 miles per charge. Therefore the battery has to be frequently charged by plugging into the local electricity grid and at the end of its useful life it has to be disposed of.
To deliver great performance, the battery has to be able to store large quantities of energy without adding weight. To achieve this, Tesla uses lithium, a rare element which is both superlight and a superconductor, in its batteries.
The problem with using lithium is it is a rare earth element—it is found in fewer parts of the earth and in small quantities. Therefore, to extract even a small quantity of lithium requires deep and extensive mining, which causes disproportionate damage to the local environment.
While the batteries are in use, they need to be frequently charged by plugging into the local electricity grid. If the power plant which feeds the grid is coal-fired, it—and indirectly the battery—is causing pollution.
In India, 62% of power generated is from coal-based power plants. This figure is not likely to reduce in the foreseeable future, because we are blessed with one of the largest coal reserves in the world.
When the Model 3 runs on Indian roads, it will be recharged by predominantly coal-based electricity. Therefore its carbon footprint in India will be high based on Product Life Cycle Assessment.
Finally, when the useful life of the battery is over, how will it be disposed of? Will they be efficiently recycled to extract the rare earth elements or will they be dumped in land-fills?
At the moment, the recycling ecosystem for batteries is weak given the small quantity of batteries that are in use and which come up for recycling. Therefore the recycling is being done by Tesla itself. But as EVs become a preferred way of transportation, many more batteries will come up for recycling. This will lead to a large-scale ecosystem for recycling batteries and the safe disposal of what is left over. Till then the harm that these batteries will cause to the environment could be significant.
The Model 3 still scores as an environment-friendly option. Among the cars currently available, it can be counted among the cleanest and greenest options—despite the carbon footprints being generated upstream (sourcing of raw materials and manufacturing) and downstream (during charging and battery disposal).
Of course, if the power plant uses renewable energy, Tesla will live up much better to the image it has created among its brand advocates. Alas, this option does not rest with Tesla.
But Tesla is not leaving that to chance. Last year it introduced Powerwall, a home battery that charges using electricity generated from rooftop solar panels. This would ensure that a Tesla owner can charge her car in her garage. Tesla is also working with government agencies and organizations in Europe and China to install public charging stations.
If Tesla can successfully execute this strategy, it will move closer to delivering on its promise of providing clean transportation.
[Update: This article was updated on May 2 to include information on Tesla’s solar-powered home battery Powerwall and public charging stations]
(This article was first published on FoundingFuel.com)
In this series, Rajesh Srivastava, Business Strategist and Visiting Faculty at IIM Indore gives you a regular dose of strategy case studies to help you think and keep you one step ahead as a professional as compared to your peers. Rajesh is an alumnus of IIM Bangalore and IIT Kanpur and has over 2 decades of experience in the FMCG industry. All previous Strategy with RS posts can be found here.