Should major automakers be concerned about the fact that Tesla's market cap is rapidly approaching the levels of Ford and General Motors? Of course.

Shai Agassi, the founder of bankrupt electric vehicle infrastructure company Better Place, has some advice for them: Don't copy Tesla. Just learn from it.

In a series of three posts on LinkedIn, Agassi expresses his thoughts on what Detroit should be doing to get in on the electric vehicle market, which Tesla currently has cornered.

"There's this whole idea that the industry should copy Tesla or somehow figure out how to copy Tesla when they're making probably a thousand times as many cars as Tesla."

He has four rules to remember: Electric cars are objects of desire. Electric cars are like a modern appliance; Electric cars are Moore's Law on wheels; and Electric cars drive and sell differently.

"If you were able to offer a $10,000 car--one third to one half the price of a new car today--you create a whole new proposition for a whole new market segment."

Agassi argues that automakers shouldn't factor battery prices into EV costs--it's not like gas prices are factored into regular vehicle costs. Instead, they should opt for a subscription model.

Tesla is deploying charging and battery switch stations only after gauging demand.

The company that follows this advice, he says, "will capture not just a portion of the EV market, it will capture a portion of the car market. That's how industries are formed."

2013-08-29

The Lessons That Detroit Automakers Can Learn From Tesla

As the electric car company becomes more and more successful, the Big Three need to respond. But just copying a brash startup won't work. Here is what will.

Earlier this summer, General Motors vice chairman Steve Girsky hinted that the company's CEO, Dan Akerson, was more than a little concerned about the rise of electric vehicle startup Tesla Motors: "He thinks Tesla could be a big disrupter if we’re not careful," Girsky said in an interview with Bloomberg. "History is littered with big companies that ignored innovation that was coming their way because you didn’t know where you could be disrupted."

Should major automakers and their investors be concerned that Tesla's market cap is rapidly approaching the levels of Ford and General Motors? Of course. That's why Shai Agassi, the founder of bankrupt electric vehicle infrastructure company Better Place, has some advice for them: Don't copy Tesla. Just learn from it.

In a series of three posts on LinkedIn, Agassi expresses his thoughts on what Detroit should be doing to get in on the electric vehicle market, which Tesla currently has cornered.

"This was my reaction to a number of posts in the business media that were starting to compare and contrast Tesla with the rest of the industry," says Agassi. "There's this whole idea that the industry should copy Tesla or somehow figure out how to copy Tesla when they're making probably a thousand times as many cars as Tesla." The auto industry, in other words, needs a different strategy.

Agassi's four main takeaways for the industry: Electric cars are objects of desire; Electric cars are like a modern appliance that has software and physical components which need to be constantly updated; Electric cars are on wheels, so automakers need to design vehicles with exponentially improving battery packs in mind; and electric cars drive and sell differently—because car dealers won't invest in marketing a new product category, direct sales may be the way to go.

When I ask Agassi if he thinks it's realistic for big, clunky automakers to switch to an entirely new distribution model, he points to the used car industry. "eBay is selling more than a million cars a year at a price point that's roughly around $10,000," he says. "If you were able to offer a $10,000 car—one third to one half the price of a new car today—you create a whole new proposition for a whole new market segment."

That requires bringing electric vehicles down to that new low price point—a daunting proposition considering the high cost of batteries. But Agassi has an interesting solution: Don't factor battery prices into EV costs; it's not like gas prices are included in vehicle sticker prices. Instead, he says, automakers should follow the cell phone subscription model and ask people to pay a certain amount per month ($300, say) for battery use.

Even though Agassi's now-defunct Better Place also relied on a subscription model for battery use, he still believes the model is valid. Better Place, he says, deployed its "battery switch" stations before testing consumer demand, whereas Tesla is deploying charging and battery switch stations only after gauging demand (Tesla also manufactures its own vehicles, while Better Place did not). He writes:

Produce a base version of an electric cross over. Make it beautiful and benefit from great electric performance. Then take a page from Ford’s Model-T game plan: price that new car at a disruptive price of $9,999, "batteries not included" (after operator subsidies and government incentives). At high volume, even at that price, this car will be making great profit for the carmaker.

Support the car with an operator that deploys infrastructure making this EV more convenient to use than a gasoline car. The operator will own the batteries, and offer electric miles at weekly cost which is at parity what the average driver pays for gasoline today. Only this service contract will come with unlimited miles. Then offer various luxury versions of the car, with many "options" offered at higher price points. Consumers who are offered an insanely great car for $9,999 will buy a ton of add-ons, generating even better margin for the carmaker.

The company that follows this advice, he says, "will capture not just a portion of the EV market, it will capture a portion of the car market. That's how industries are formed."

It's hard to say whether legacy automakers are nimble enough to make such a dramatic shift. The next major EV manufacturer—if there is one—may be a company that doesn't yet exist.

"If you had to guess in the year 2000 who would bring a music device that would capture most of the market, you'd say Sony—they own music labels, they own everything in the industry. If I told you it was Apple, you'd be laughing because they didn't make a music device at the time," he says.

Add New Comment

5 Comments

  • thoughtchallenge

    In order to compete with Tesla the automakers should make a two seat all electric commuter...make it tall with the batteries under the passenger compartment for a low center of gravity.  This would make the vehicle easy to get in and out of.  Since, people tend to do much of their driving with less than two occupants anyway, it makes good sense.  Consumers could then buy a more traditional vehicle for their weekends and travel.

  • MariahRobertson

    Electric
    cars are the way of the future, but they aren't ready to be widely used yet. We
    need replacement fuels now to create competition in the fuel market.
    Competition will drive down gas prices, and offer consumers choice at the pump!

  • Anthony Reardon

    No. I don't like it. This just sounds to me like nickel and diming people when the Tesla on the other hand is "value received and paid for". You must have a transparent model. Car leasing, for instance, has been successful to a degree, but most people I know that have tried it seem to come to a realization the value they thought they were getting is not the value they end up paying for at the end of the day. Your a company trying to pull one over by changing your one time price to an ongoing subscription price off a disruptive loss lead, and it ends up being unsustainable when people realize it doesn't add up right. Even worse, you lose the brand loyalty that should have been yours when you won that sale in the first place.

    No. The bar has been set. You've been totally outclassed. You've got to drop whatever mental model put you in that position and raise the bar again. This has been going on for ages BTW. Horse - Boat - Train - Car - Plane - etc. The disruption can be severe, and most often you've got the establishment riding on their success and discounting the new up and comers like Tesla. Man I want a Tesla.

    Best, Anthony

  • peteraltschuler

    This isn't just an automotive dilemma.

    While Elon Musk expands the Tesla infrastructure to provide re-charging stations nationwide, the automakers and energy companies (as the oil companies now like to call themselves) could cooperate -- providing standardized charging technology at every gas station (an infrastructure that already exists). Add a restaurant (to serve electric car owners while their cars recharge), and the ecosystem expands.

    Of course, the big automakers could also license Tesla's technology on an interim basis (it was done with hybrid engines, after all) while they develop other ways to differentiate their offerings -- styling, features, pricing, etc. It will be the automotive equivalent of VHS, which licensed its format and thrived, versus Betamax, which did not... and died.

    Musk has already proven that quality, range, and safety are key elements in making electric cars desirable, and his battery switching option (for 90-second stopovers at charging stations, rather than 30-60 minutes) provides convenience that beats the time to fill a standard sedan with gasoline. If the Americans and Japanese can't find a way to coordinate their development efforts, leverage what's already available, and produce something comparable, well... they deserve to perish like the dinosaurs (who gave us fossil fuel).

  • Meadia66

    Is there some reason that an electric auto cannot have solar collection panels installed as part of the body structure? Today in DFW it will be 103 with brilliant sunshine. My car sits in the parking lot and could be generating a lot of energy from the sun. I might be inclined to purchase an electric vehicle if this could happen rather than changing batteries or trying to find a recharging station in Waco.