Is Tesla Really a Game Changer?

Conventional wisdom and past experience suggest that it’s virtually impossible for an upstart company to break into the auto industry and create a legitimate, lasting brand. The last company to do it was Chrysler in 1924. The odds against a venture of this sort are astronomical but it appears Tesla never got the memo. Big manufacturers have dabbled in electric cars but in most cases their efforts have been limited to refitting a few existing models. With Tesla, it’s a brand new ball game and drivers, investors and the entire industry are taking notice.

For starters, Tesla has deep pockets, a billionaire CEO and stock that’s trading around $250/share. Investors have been enthusiastic and confidence in the company is growing. Those deep pockets will come in handy as Tesla management has already said that it plans to operate at a loss unless it reaches its target of half a million annual sales in 2020. The company is also burning cash on projects such as the launch of the Model X, construction of the Gigafactory, development of energy storage products, and constant upgrades such as efficient autonomous driving features.

The Tesla business model represents a dramatic departure from the traditional industry approach. There are no franchise dealerships, all vehicles are made to order and transactions are managed online. This cuts out the middle man and gives Tesla complete control over the buying process and experience. Vehicles are delivered to Tesla service centers (which also serve as test drive locations) around the country.

Tesla’s electric power transmission fundamentally changes the mechanical complexity of the car. The number of moving parts is reduced drastically. In fact, there are really only 6 parts that require occasional replacement – 4 tires and 2 windshield wipers. The drive shaft, fuel tanks, transmission, and internal combustion engines are all removed which greatly reduces the number of potential mechanical failure points. Tesla also brings a lot of software expertise to bear. A case in point – the ability of the Tesla Model S to wirelessly upload data so technicians can view and fix the car online without even needing to touch the vehicle. If required, Tesla can send technicians (called Tesla Rangers) who can service the car at your location.

Tesla’s vision to carve out a share of the luxury vehicle market is bold, unconventional and unique. But, will it be a game changer? What do you think?