- Tesla has a big advantage, no matter what happens with CEO Elon Musk and the company’s financials because owners love its cars.
- The level of love Tesla owners have for their vehicles is among the highest in the auto industry.
- Tesla has achieved this by spending essentially nothing on advertising.
Another week, another Elon Musk Tesla controversy.
This one is sort of a tempest in a teapot, and it comes at a time when the news around Tesla has been fairly quiet. Musk’s settlement with the Securities and Exchange Commission stipulates that his Twitter habits be more scrupulous monitored, a costly consequence of his infamous “funding secured” tweet last year, when he briefly campaigned to take Tesla private.
This time around, he said that Tesla would produce 500,000 vehicles in 2019, then later corrected that to a 500,000 run rate, with deliveries of 400,000. By the standards of the auto industry, Tesla’s production rates are absurdly over-scrutinised, and Musk has always been hugely ambitious. What kicked the whole brouhaha into a higher gear was the quick resignation ofDane Butswinkas, a Tesla lawyer who worked on the SEC case in 2018.
Tesla has experienced a high level of executive churn, and the company is running pretty lean on cash, although it has the liquidity to pay off more than $US900 million in convertible debt coming due in about a week (at $US300 per share, the stock is trading about $US60 below the conversion price). The sharks never stop circling. And after spending 2018 struggling with production of the Model 3 sedan, Tesla is now battling to get cars to customers in a timely manner.
If this all sounds bad … well, it is in the short-term, but it’s largely irrelevant long-term.
That’s because Tesla has one critical thing working in its favour.
Owners love the cars.
A special kind of Tesla love
And by love, I mean adore to a stunning extent. Consumer Reports recently surveyed car owners and found that Tesla Model 3 folks love their cars more than Porsche 911 folks love theirs. For the record, the Porsche 911 is perhaps the finest automobile ever produced, and it has been continuously and enthusiastically loved since the early 1960s. Frankly, nobody loves their cars more than Porsche 911 owners. Unless they’re Model 3 owners, evidently.
I get it. Having driven quite a few 911s and all the current trim levels of the Model 3, I’ve added the Tesla to my personal pantheon.
“The Porsche 911, the Mazda MX-5 Miata, and the Tesla Model 3,” I wrote in my review of the long-range Model 3. “I feel at home in these cars, relaxed and fully self-actualized. I understand them in an immediate way. If you want to get dreamy, Ibond with them, effortlessly.”
You can’t overestimate how important abundant owner love is for a car company. Porsche has been through its ups and downs over the decades but it’s always had the 911. Almost anything, including bankruptcy, can happen at the margins of a carmaker’s identity, but love for the product will sustain it (bear in mind that “bankruptcy” is just a morally frightening term for “fixing too much debt” and is often used as an essential feature of American business culture).
What’s not to love about the Model 3? Or for that matter, any Tesla vehicle currently on sale? They check off plenty of boxes. They look cool, they go fast, they emit no planet-killing pollutants, and they’re crammed with neat technologies. They quite literally are the New New Thing, and buyers have flocked to them. Tesla sold 100,000 vehicles in 2017, then more than doubled that total in 2018, selling close to 250,000. Whether the company gets to 400,000 or 500,000 in the next 12-18 months is an academic debate, bounded by Tesla’s manufacturing capacity more than by questions about demand.
The Tesla brand has been built without spending anything on advertising
Everybody under 30, by the way, probably reflexively thinks “Tesla” when they consider a new car, even if they ultimately purchase a Ford F-150. This type of brand recognition is completely unprecedented in the auto industry. Even though Ford expects to sell close to a million F-150s every year – it’s been America’s bestselling vehicle since the Reagan era – the company spends a small fortune to advertise the pickup. The rest of the traditional car business does likewise, keeping Madison Avenue flush, and has done so since Don Draper was straightening his cufflinks before a big presentation.
Tesla, by contrast, spends exactly nothing on advertising. That’s staggering. Sell 250,000 cars in a year without so much as a radio spot, much less a big TV buy? Before Tesla pulled off the feat, you’d be laughed at and jeered into an early retirement if you even suggested that such an outcome were possible.
The no-branding ascent of a brand as widely know and beloved as Tesla is remarkable enough, but this mega-equity isn’t actually the company’s most impressive achievement. The accolade would have to go to its mere existence. Prior to Tesla arrival, received wisdom in the car business was that it’s impossible to start a successful, relatively large-scale automaker.
Sure, you could see some Paganis and Koenigseggs establish themselves as very small producers of very expensive and very exotic supercars. But a 250,000-vehicle-a-year brand? Forget about it. And a brand whose car can knock the Porsche 911 out of a top slot for owner love? You’re hallucinating.
Except that you aren’t. It’s pretty hard to hallucinate a $US50 billion market capitalisation.
Love, it seems, truly does conquer all when it comes to Tesla.
Business Insider Emails & Alerts
Site highlights each day to your inbox.