Hi, I'm Markus - a strategy consultant based in Munich, Germany. In this newsletter I will collect, classify and share the most interesting information from the exciting world of mobility and take a look at the business and operating models behind.
In consulting, I have already worked for many car manufacturers and suppliers as well as providers in the field of mobility services. What strucks me most are all those old world dogmas still existing and new ones coming up. Let’s take a look on why they are there and how to overcome them.
I will, as far as possible, not talk about the brands I have worked for, but just in case: all opinions are my own.
Of course, my newsletter is only a small mosaic of the 15 trillion dollar world of mobility and transport. Let’s unlock it together and learn more about it every day.
Enjoy!
Markus
Tesla is great, but…
There is a lot of talk at the moment about how much of a lead Tesla has over the classic car manufacturers. This is then supported by reports that bring Tesla's success together with the supposed failure of other premium brands. For example, you can read some news that explain Audi's half-year loss of 750 million with the fact that competitors like Tesla are gaining market share. Even though Tesla has done a great job and is the absolute pioneer in the industry in many respects, you have to differentiate more clearly here: Over the past 13 years (the first car, the Tesla Roadster, came onto the market in 2007/2008), Tesla has been able to increase car sales from 0 to 360,000 vehicles per year. This is a great achievement, without question.
However, Audi has been able to increase sales in exactly this time from just under 1 million vehicles to almost 2 million cars per year, and has still made more than 40 billion profit after tax (Tesla made a loss of 6 billion during this period).
I don't want to belittle the challenges Audi faces in the future, but the reporting is already very one-sided at the moment.
So let's look at the (potential) competitive advantages of Tesla.
Competitive advantages of Tesla?
There are five areas where Tesla is maybe ahead of the incumbents:
Battery technology
Software
Autonomous driving
Charging network
Direct Sales/ Organization of distribution.
When I evaluate these topics for myself, I only see a really relevant lead in the software area, a lead of 2-3 years maybe. Battery technology is a commodity; Tesla fans do not accept this argument, but Tesla also uses battery technology from manufacturers who sell to other OEMs. One of Tesla's most important suppliers besides Panasonic is CATL. It looks like they can take the technological lead in market. But the company has cooperation agreements with BMW and Volkswagen on a considerable scale, too.*
Autonomous driving does not work satisfactorily at Tesla or elsewhere at the moment; we will have to wait years before truly autonomous use cases are feasible. We all know that Elon Musk expects level 5 autonomous driving by the end of the year. That's not going to happen.
And even then I believe in the question of where autonomous driving is possible rather than when.
The Tesla supercharger network is without question a huge advantage for them, especially from a customer experience perspective (no friction, easy plug and charge). Here, traditional car manufacturers are a little bit behind, but with the exception of pricing, the charging network Ionity (powered by Ford, Volkswagen, Audi, Porsche, BMW, Mercedes) is in Europe now more than a small alternative. And: With regard to the currently very low charging prices of Tesla on the superchargers, there are increasing indications that the prices here will be raised significantly.
So there remains one last possible competitive advantage, which is rarely mentioned, but which I actually consider to be one. It is the implementation of direct sales and demand control. As I explained in my last blog posts, the big challenge for traditional car manufacturers is to (partially) abandon the existing distribution structure via the dealers to sell directly to customers. Although the savings through efficiency gains are very high, a much larger part has to be put into direct sales measures than is currently the case. Most car manufacturers focus on brand marketing, which is by far cheaper than product marketing. However, the latter is needed if the dealer network, which was previously responsible for this in the value chain, is no longer active for the OEMs to the same extent.
But how does this realization that product marketing is very expensive fit in with the fact that Tesla is famous for not spending money on marketing?
It is not true.
From the graphic you can see that Tesla does not place paid advertising on social platforms. A large part of the "advertising" on social platforms is done by the Tesla brand evangelists, who maximize Tesla's reach.
This is an incredible achievement by Tesla.
I know of only a few examples that show such a pattern and this is definitely one of the company's greatest achievements in creating extremely high customer satisfaction and extremely positive customer engagement despite the many problems.
And this is where Tesla's value chain differs significantly from that of other car manufacturers. The difference is Elon Musk. Musk knows how to win fans for the brand and activate them in such a way that they in turn win other customers for Tesla. No other carmaker can do this today. But if you really want to look at Tesla's marketing costs, it's no longer enough just to evaluate paid advertisements; you also have to look more closely at Elon Musk's payment.
And here we come very quickly to the problem.
Payout of Musk = Hidden marketing costs
Tesla confirmed in July that CEO Elon Musk earned the first tranche of his massive incentive payout, which is comprised of about 1.7 million shares of Tesla, and would be valued around $775 million based on Tesla’s market value.
For comparison, the CEO of Ford earns in about $18 million per year. At the same time, however, Ford's CEO is advocating the sale of more than 5 million vehicles per year, while Tesla is still well below 500,000 units per year.
So here it becomes clear that the excessive payments to Elon Musk are of course hidden marketing costs.
Although Musk's bonus payout does not relate to a specific year, which makes it difficult to assess on a yearly basis, it is worth considering: if Musk were to be remunerated in line with the market, he would generate at least $750 million less in bonus entitlements. If you apply this $750 million to the number of cars sold, you quickly come up with Tesla's hidden marketing costs. These amount to between $1,500 and $2,500 per car - depending on the method of calculation - per car sold.
So Tesla has more marketing costs per car sold than a classic car manufacturer and so we are back to the model I presented in the last article. No exception for Tesla. Despite this fact, if you are interested in leasing a Tesla, look at the ADAC Fahrzeugwelt (Germany).
*Addition
My article was discussed very intensively on social media. I am very pleased about that, not only about the numerous positive feedbacks. At one point, Sascha Pallenberg, Head of Digital Transformation at Daimler AG, drew my attention to a useful addition. This concerns my statement that batteries are a commodity. Sascha specified this in more detail and because I couldn't say it better, I quote him directly:
Hey Markus, I am impressed on how many different misconceptions you were able to include in one single post! Don’t get me wrong, I was a consultant myself and I am proud of the work I did, but there are a few flaws that would deserve further discussion:
- What is the total compensation for CEOs in the auto industry for the past 5/10 years, that is a more comparable number;
- if battery is a commodity, why there isn’t any other EV on the market today with the same range at the price level of a Tesla;
- if software is only a 2/3 year advantage, why hasn’t any other automaker catchup yet;
Don’t take me wrong, you are in the right path, but there are still a few questions to answer.
Good luck
-