Tesla’s real gamble and innovation

On the night of March 31 Tesla CEO Elon Musk unveiled the Model 3 to great fanfare. Even before his announcement, Tesla stores all over the world saw long lines from fans willing to put down a $1,000 deposit to reserve an EV they have not yet seen. It’s a testament to the automaker’s brand and its success with the Model S and Model X cars. Perhaps also a testament to the public’s readiness to ditch fossil fuels?

Many have compared Musk to Steve Jobs and Tesla to Apple. Even the diehard crowds from yesterday remind people of the craziness surrounding an iPhone launch. Both CEOs and companies aim to make beautifully designed products to turn customers into brand loyalists.

But honestly, electric cars won’t be the near-term transformative technology from Tesla. Compared with other automakers, Tesla is a small fish in terms of sales. There’s no doubt that its products are unique, but even that will change soon as Big Auto pour tons of resources into developing their own EVs. In fact, General Motors’s Bolt will probably beat Tesla to the punch in terms of delivering an EV for the masses when it becomes available in early 2017. Last night Musk said he’s targeting late 2017 for the Model 3 to be delivered.

Besides, even if we intend 2017 to be “The Year of the EV,” it’s still unlikely that a few years later EVs will outnumber traditional gas-powered automobiles.

The real gamble and innovation behind Tesla is how it sells its cars: direct. No dealerships and no need to involve middlemen. In going with the Apple comparison again, it’s much like buying music straight from iTunes Store. With Apple, the iTunes Store was envisioned to help sell iPods, but it was so popular that it became a massive income generator. The consumer’s appetite for middlemen was clearly dwindling.

To Tesla, its cars are just hardware running software. It won’t be difficult for the company to create an online “Tesla Store” where you can buy upgrades or apps for your car. It already has the capability to deliver software upgrades wirelessly. In the not-so-distant future, you may be able to buy from Tesla an upgrade to go 0-60 in 4 seconds, or an app to enable AR display on the windshield.

The 200,000 (and counting) pre-orders of the Model 3 is quite an achievement for Tesla, but ultimately its success will be judged by the effectiveness of the direct-to-consumer approach. If successful then truly will it transform the automotive industry just as Apple’s iTunes Store changed the music industry forever.


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