Whatever the ultimate fate of Tesla as a business, the vision of its founders seems assured to come to fruition. They set out nearly 15 years ago to build an electric sports car that would show a skeptical public that EVs aren’t the car form of broccoli (good for you, but not much fun). The envisioned electric car would be a gateway to electrifying all transportation.
With every new job at an EV maker, we are moving closer to that goal. Sales of the Chevrolet Bolt EV climb steadily with each month, Nissan is about to launch the second-generation LEAF, and more options will arrive in the coming months. Perhaps most importantly, the future combination of automated driving and electrification will provide great synergy in making transportation clean and safe.
The Bolt and LEAF are examples of automakers taking inspiration from Tesla and mixing traditional expertise in mass manufacturing and support. These automakers and most others are now aggressively developing and planning deployment of automated EVs like the Chevy Bolts being tested in San Francisco, California by GM unit Cruise Automation.
Can Tesla Stay Afloat?
Sadly, Tesla’s own quarterly financial statements don’t bode well for the brand that kick-started this next era of mobility. The company has shown an inability to execute on the core task of profitably building consistently reliable, high quality products to customers. The 3Q 2017 report showed the company was spending more than $2,000 per year per vehicle providing service while only generating $1,000 in revenue. Given the reduced maintenance an EV should require compared to an ICE, this is a clear indicator of Tesla’s spending on honoring warranties. As the in-service vehicle fleet grows, this problem will grow rapidly unless the company can come to grips with the basics of mass manufacturing.
As Tesla attempts to ramp up production of the Model 3, it must first address these challenges—or the reputation the brand has built around Elon Musk’s cult of personality will be squandered.
The Quandary of Some Typical Tesla Customers
Take, for example, a Northern California couple that can afford to buy a Tesla, including the Model X they own. He loves technology and is the definitive early adopter, often buying the latest life-enhancing gadgets. His CEO wife is far more pragmatic, though she also appreciates what technology can do to make life easier and better. She wants to replace her current premium German performance car with an EV when the lease is up in the next month. On the surface, another Tesla would be the obvious choice, but they’ve had numerous issues with it that have taken multiple service trips to resolve. Some issues, like an Autopilot system that has a predilection for randomly shooting toward guardrails, remain unresolved.
They looked at the 2018 LEAF this week, and she is seriously considering it. While it lacks the performance of the Tesla, she expects it to be far more reliable, coming from a company that knows how to bend and weld steel. Despite the problems with the Tesla, her husband wants to stick with the brand to support the vision. Fortunately, he’s in a financial position where he can do that. Most of the car buying public can’t afford to be so tolerant.
If Musk wants Tesla to remain a viable business after he rockets off to Mars, he needs to start listening to frustrated Tesla owners like this pragmatic CEO rather than reveling in his adoring fans.