The Tesla revolution - STAR COOPERATION

Source: Tesla

The automotive world is anxiously anticipating the launch of Tesla’s Model 3. If the experts are right with their current estimates, the car has the potential to change the automotive industry just as sustainably as the launch of the iPhone did for the telephone industry in 2007. In the following years, the market leader at the time, Nokia, almost entirely vanished from the scene. A scenario that probably will lead to some worry lines in the faces of the German automotive industry’s representatives. And not without good reason.

Already at the start of 2016, Tesla’s Boss Elon Musk presented Model 3’s basic parameters and essential design elements. In contrast to the electro vehicle manufacturer’s other cars, it targets the volume market. Despite ist abundant range of 345 km, they promised a base price from USD 35k. The market’s interest was overwhelming and exceeded even Tesla’s own very optimistic predictions. Currently, they have already received app. 400k car orders.

If Tesla can keep their very ambitious schedule and launch the vehicle in the second half of 2017, this would be the next big step to leave the established car manufacturers behind in electro mobility. There, vehicles that can rival the Tesla models are expected in 2018 at the earliest.

However, the main threat for the established providers is not timing. Chevrolet had already launched its volume modle Bolt at the end of 2016 that came with a relatively high range of 380 km. At a reasonable price of app. USD 30k post subsidies. The Model 3’s really disruptive force stems from the combination of several innovative factors. Some of the most important are the most efficient battery manufacturing world-wide, a monopoly-like charging infrastructure as well as a leading autopilot. With every single one of these factors, Tesla puts enormous pressure on the market’s players. With this combination, the Model 3 can become a game changer.

Significantly lower battery costs enable higher ranges and margins

At the core of each electric vehicle is the battery. With a share of app. 20 to 30 percent, it significantly determines the car’s costs, but also its range. One of the central factors for the hesitatingly slow demand for electric cars is the customers’ lacking acceptance of the currently low ranges mostly below 200 km (e.g. BMW i3 (60 Ah) with 190 km). Like Daimler, Tesla is self-producing its car’s batteries at unprecedented volumes. When the Gigafactory’s capacity is fully used, a cost level could be reached that is 30 to 35 percent below the current market level, according to the experts’ view.

From this, enormous competition and margin advantages derive for Tesla compared to other manufacturers. Additionally, the batteries produced in cooperation with Panasonic come with the currently highest energy density on the market, says Tesla. Compared to the Model S, this is supposed to be around 30 percent higher for the Model 3. Accordingly, ranges reaching those of combustion engines can be realized at low battery weight and costs. Here, Tesla seems to be significantly ahead of other OEMs on the cost side.

Quo vadis Tesla? - STAR COOPERATION

Source: Tesla

Nationwide charging infrastructure lowers range anxiety

Customers expect, just like for vehicles with combustion engines, a dense web of charging Options. Not least to challenge the fear to end up  grounded somewhere. Here, too, Tesla is ahead of the established players. Those are currently forging alliances with energy suppliers to built a network of such charging stations from scratch in the coming years. Meanwhile, Tesla is already running app. 60 supercharger stations across Germany. Plus another 5k worldwide at app. 800 locations. Here, Tesla is offering the fastest charging times and the highest transmission rate of 120 kW already today. A car can thereby be charged for a range of app. 270 km within 30 minutes. Charging the battery capacity from 0 to 80 percent can be reached within 40 minutes.

Furthermore, the next generation of superchargers is already being developed. A significantly higher transmission rate at triple yield and more is expected here. As a result, the charging process will presumably carry the weight of only a couple of minutes. However, the charging stations are not just responsible for an increasing customer acceptance. They will also increasingly generate turnover. While Tesla cars could be charged at their own charging stations for free so far, new customers will have to pay for this Service according to a complex pricing system. Tesla thereby also secures parts of the gas station business that has so far been entirely dominated by oil majors such as Shell or Aral. The strong price differentiation already insinuates Tesla’s attempt to exhaust their customers’ willingness to pay and to optimize their profit also at the charging stations.

Autopilot close to breakthrough

Since October 2016, Tesla has been mounting a new hardware platform for its autopilot in each newly distributed car. Similar to driving assistance systems of other manufacturers, this platform consists of  ultrasound sensors, cameras and a radar device. The deciding difference is the autopilot’s software. Here, Tesla is backing a stronger emphasis on the radar sensor with a more frequent evaluation as well as swarm intelligence for registering stationary obstacles. Since their introduction, the new sensors transmit values over the air to Tesla for each kilometer driven by any of their vehicles.

In Europe, the user can activate data sharing. By now, Tesla can therefore fall back on a huge data pool of sensor data from more than 160 million kilometers driven. This is used to fine-tune the autopilot’s algorithms. For instance, theoretical decisions by the autopilot can be compared to those of the Driver. If there are differences they are optimized. Despite some crashes, partly with activated autopilot, feedback from customers and experts has been very positive.

Often, the Tesla autopilot is depicted as being superior to other manufacturers’ systems. Just the other day, the National Highway Security Administration (NHTSA) has confirmed that the Tesla autopilot (automation level 2) can reduce crashes by 40 percent. Morgan Stanley also assumes that, due to its features on automated driving, the Model 3 will be ten times as safe as established vehicles. If Tesla really succeeded in developing an entirely autonomously driving car, completely new application scenarios could be possible far beyond that. For instance, newly bought Tesla cars could distribute themselves to their new owners. The vehicles could also drive on to distant parking spaces after the driver has exited at his destination. Or they could be available to other drivers in the meantime. Thereby effectively making money – not just for the drivers, but also again for Tesla.

In result, the first electric car seems to be evolving that is just affordable for a significant amount of car purchasers, but that poses the more attractive offer compared to established combustion engine cars. Electro mobility’s disadvantages of low range and bad charging infrastructure are largely eliminated for Tesla. Technology innovations find new definitions for how a car is being used and count on the customers’ emotions.

2017 can herald a new era for the automotive industry and the nationwide breakthrough of electro mobility. At the same time, Tesla is known for taking high risks and the ambitious plans’ failure cannot be excluded. The global stock market experts, however, are more and more expecting the first scenario. Tesla’s share value has been increasing significantly in 2017 and is currently close to its  all-time high.

The German automotive industry is ill-advices if they hope for a Tesla mistake. Instead, they should try hard to counteract: the most important countermeasure is the most obvious. They need a real competitor for Tesla, meaning a vehicle suitable for the masses that is emotionally appealing, affordable and comes with a high range, all at the same time. Both Audi and Daimler have announced their Tesla competitors for 2018 and 2019 respectively. Whether then really competitive new concepts will be launched or if just existing models will be outfitted with an electric drive – time will tell. Simply electrified, existing models would largely flunk with the relevant target group of early adopters.

Until then, the German car manufacturers have indeed a couple of aces up their sleeves to further keep Tesla at a distance. For one, they have access to an enormous customer base with many millions of drivers. Also, they have a broad and mature product portfolio. Both factors imply a lot of potential that can be tapped also in the short term. Thereby, the turnover with existing customers can be significantly increased through attractive digital services and the customer loyalty to the brand can be improved. For instance, Tesla offers acceleration packages that can be purchased directly via the car’s display and be downloaded as a software update.

Furthermore, uncounted options are possible, from new product connect services to extended entertainment offers to more performant parking and driving assistants. Likewise, the manufacturers can e.g. combine different premium vehicles as a premium car sharing and rental offer (convertible car in summer, SUV in winter, and a combination for the fall). That way, they could offer their customers a significant added value compared to Tesla.

Either way, the time to wait and explore has run out for the German automotive industry. Now it is time to act. In this Situation, there is at least one positive aspect at any rate: Tesla is showing what mobility can look like in the future. However, the real innovators are not often the ones most successful, but those companies that quickly adapt these innovations and enrich them with their own added-values. For the German automotive industry, a lot amounts to this strategy.