Tesla is the world’s most valuable automaker, as well as the best-selling battery electric vehicle
(BEV) brand. Last year, it also surpassed BMW to become the sales leader in America’s luxury
segment. Moreover, the Texas-based carmaker was also ranked as the most innovative automaker
company by Boston Consulting Group (BCG) and the world’s most valuable automotive brand by
Brand Finance, a London-based marketing company.
Tesla’s incredible success has encouraged many other entrepreneurs and investors to push into the electric vehicle (EV) sector, despite the considerable challenges associated with automotive manufacturing. This has led to the rise of American companies such as Lucid (which won the MotorTrend Car of the year award in 2022 for its Air sedan) and Amazon-backed Rivian. There are also firms from China, such as BYD, NIO, XPeng, and Li Auto, that are looking to shake the auto industry’s status quo.
Ford and General Motors have invested in XPeng, while Aston Martin, Lucid, and VW Group all have strategic partnerships with upstarts. The VW Group has invested in XPeng; Ford once owned a significant stake in Rivian; Aston Martin has a strategic partnership with Lucid; and the likes of GM, Nissan, and BMW are adopting Tesla’s Supercharger network for their own EVs.
How did these startups achieve such success in a field where it is hard to find success?
The Winning Brand of Sustainability
In a McKinsey & Co. study, 66 percent of respondents said that they kept sustainability in mind when making a purchase. And in a NielsenIQ poll, 78 percent of respondents said that they valued pursuing wholesome lifestyles. In a study by McKinsey & Co., 66 percent of the respondents said that they kept sustainability in mind while making a purchase, and in a NielsenIQ poll, 78 percent of the respondents said that they valued a sustainable lifestyle.
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In recent years, Wall Street investors also became more vocal on environmental, social and governance issues. “We believe that it is important for companies to ‘do well by doing good’ and that our investors and shareholders can benefit when companies in which we invest develop unique, differentiated strategies, to create sustainable businesses that ultimately have a beneficial impact on all of its stakeholders,” states billionaire Ron Baron’s asset management firm, Baron Funds.
Elon Musk, RJ Scaringe and other entrepreneurs understood this sentiment. They positioned their brands accordingly as champions for sustainability and environmental protection. While brands like BMW Lexus and Mercedes-Benz focused on performance, luxury or reliability, EV startup companies were more concerned with saving the environment. This idea was very appealing to Americans. They are passionate about solving global problems. As the Council on Foreign Relations declared a couple of years ago, “saving the world” was America’s “greatest priority.”
Needless to say, EV adoption virtually became a social movement, and Tesla, the campaign’s mascot, has emerged as an American cultural icon on par with Apple, Coca-Cola, Harley Davidson, and Barbie. Tesla is a company that has relied heavily on Musk to gain visibility. This may be the reason it has now embraced traditional advertising.
Building Computers On Wheels
The automotive industry is a product-driven industry, and Industry 4.0 is turning cars into “computers on wheels.” Accordingly, entrants like Tesla and Lucid have spearheaded a software-centric approach to automotive design, which has given them a major competitive edge over their hardware-centric rivals from Detroit, Europe, and Asia.
Tesla has, of course led the charge in this area with its iPad-like information system, over-the-air updates (OTAs) similar to smartphones, and Autopilot, a driver-assistance technology. Other manufacturers aren’t far behind. In fact, Tesla’s Chinese counterparts, like NIO and XPeng, have even come up with premium smartphones and flying cars.
Many legacy automakers have tried copying this software-driven approach to product development, but most of them haven’t really succeeded. Why? EV startups are more agile and place a higher emphasis on digitisation. They aren’t burdened by traditional structures or corporate bureaucracy.
Almost all EV startups face similar challenges, including manufacturing bottlenecks and liquidity problems, as well as major legal and regulatory obstacles and concerns about quality. Tesla isn’t immune to these problems. The established carmakers also face a steep curve in learning about e-vehicles. However, their experience and size are advantages. Perhaps this is why the Ford Mustang Mach-E was America’s third-best-selling electric car in 2022, and the VW Group is Europe’s EV leader.
Volkswagen, Toyota, and General Motors began investing in clean-tech solutions for mobility long before Tesla or Rivian became popular. Unfortunately, they stayed too focused on the internal combustion engine business and never used software to make EVs trendy and chic. Toyota emphasizes that they can provide a multifaceted solution to sustainable transportation. This includes digitally advanced electric vehicles, hydrogen vehicles, hybrids and plug-in hybrids.
Directly addressing consumers
A study by Edmunds showed that 83 percent of customers didn’t want to haggle with car dealers, and another study by CarEdge found that 44 percent of shoppers wanted to avoid auto dealerships completely.
Due to this, startups such as Tesla, Lucid and Rivian are moving away from the dealership model towards direct sales. They can offer a smoother and more transparent buying experience while developing more personal relationships. “The consumer experience and the consumer journey is too precious to delegate to a third party,” said Lucid’s CEO, Peter Rawlinson.
It is true that it has been difficult for these companies in America to sell directly to the consumer because of legal restrictions on this business model. The companies have then fought lawsuits, and found ways to circumvent these restrictions. Importantly, this is something that has public support. Some of our readers may remember that a few years ago, a White House petition advocating Tesla’s direct-sale model got over 100,000 signatures and compelled a response from the Obama Administration.
It is true that most legacy automakers try to improve their retail model by incorporating direct-sale strategies (e.g. fixed pricing) but it will not be easy. During the vehicle shortage crisis, automakers such as Ford, Hyundai and Subaru had to warn their dealers about unfair markups.
The customers are looking for a smooth and transparent purchasing experience. EV startup companies seem to do a better job of providing this than traditional carmakers.
The conclusion of the article is:
Legacy OEMs are well-versed in the automotive industry and know how to compete with new players and remain ahead of the game. While Tesla sold more than 1.3 million cars and made USD12.5 Billion last year, startups such as Lucid, Rivian and XPeng lacked scale and financial stability. The recent bankruptcy of China’s WM Motor has clearly demonstrated the obstacles that these firms confront. Some argue that Chinese brands still haven’t caught up with Germans and Japanese in terms of reliability and quality.
These upstarts face a difficult road. It’s one thing to captivate investors and early adopters, but another to turn that vision into reality.
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