Why Teslas Sell and EVs Don’t
There is a strange situation developing in the world of electric vehicles. As companies ramp up production and the government showers the market with incentives, demand isn’t expanding as fast as expected.
This all seems strange. Tesla managed to sell a lot of cars, at high prices. As EV prices decline, demand should expand dramatically. This is the way things are supposed to work.
I suspect there is more happening here than meets the eye.
Tesla
There are few brands in the world with the distinctiveness of Tesla. Since its founding in 2003, Tesla has grown to be a huge company and a global brand. The firm sold 1.3 million cars in 2022 and had revenues of $81.5 billion.
What explains the appeal? I suspect it is primarily the Tesla brand.
Tesla is a remarkable car. I confess that I don’t have one and haven’t driven one, but everyone I talk to raves about the interface and the performance. It apparently has incredible acceleration.
Still, most cars have a good interface and solid acceleration. Tesla might be better, but that can’t fully explain things.
The big appeal of Tesla is likely the brand. When someone buys a Tesla, they make a statement. To drive a Tesla means that you are wealthy, tech-savvy, and environmentally friendly. You are a remarkable person, the perfect balance of personal success and concern for the world.
A Porsche makes a statement, too, but very different. People who drive a Porsche love performance and engineering. They are wealthy, too. Tesla has a different and, for many people, more compelling appeal.
Of course, Tesla’s brand is something of an illusion. If a person was really concerned about global warming, they wouldn’t be driving a Tesla. They would be riding a bike and taking the bus.
Still, that doesn’t matter. If you show up at a client’s office driving a Tesla, you make a statement. If you are going on a date, or to a party, or to a wedding, the Tesla stands out.
EVs
The situation is very different when it comes to electric vehicles. Why drive an EV?
There are certainly many reasons not to drive one. The range is limited. Finding charging stations seems like a hassle. The idea of running out of power in the middle of a snowstorm somewhere in rural Indiana is scary.
When I rented a car a couple weeks ago, Hertz was keen to get me into an EV. I thought that was almost comical. Where would I plug it in? How would that make any sense at all?
So, what are the positives that offset the negatives?
I guess driving an EV is better for the environment, though I haven’t studied the carbon footprint of electric vs gas. Regardless, most people aren’t swayed by environmental concerns.
Performance? Perhaps, but I am not sure that a Honda EV is better than a gas powered one. For trucks and bigger SUVs, it is hard to imagine that the EV will be better.
Branding? I suspect not. Driving a Ford EV makes a statement, but this isn’t any different than a normal Ford. It is a good quality American car.
That leaves price. Perhaps an EV is cheap to buy and operate. Historically, however, this hasn’t been true; EVs were more expensive. Maybe now with the incentives the price has come down. Believing it will be cheaper in the long run is a risk. What will be the price of a charge in five years? Will that be more or less than gas? I don’t think anyone knows the answer.
Outlook
When you step back, the appeal of a Tesla is clear. The appeal of an EV is more debatable.
To fix this problem, EVs will have to win on performance and price. That is a difficult task, but possible. Or the government will have to restrict or tax traditional vehicles to destroy that option.
This will be interesting to watch.
The automotive world is always such a dynamic market and exhibits a broad range of branding approaches to analyze. Some segments are very utilitarian and some are very emotionally driven (a Humvee electric vehicle?).
The Tesla is an easy to understand and compelling proposition as you laid out, and its early adopter position, unique styling, “signature” tablet in the middle, decent range, and fast acceleration set it up for success (all part of its image), even though some of those hyped-up benefits came with a much higher price.
The EV’s have been plagued by confusion: what really is the range, where can I really “plug in”, what is the difference between a hybrid electric, a BEV, a PHEV, or a Hydrogen Fuel Cell vehicle, how does it compare economically to an ICE (internal combustion engine) vehicle, is it subject to federal and/or state incentives (a moving target at best based on vehicle price, US material share for batteries, etc.). The government was caught between having broad, deep incentives (driving demand) and encouraging US made vehicles and batteries (supporting US manufacturing but limiting EV supply since supply chains and battery plants take time to build). And the US rules are still changing. Nonetheless, certain EV’s have broken through with the right value proposition for their target market: Ford F-150 Lightning Truck, Ford Mustang Mach-E, Hyundai Ioniq 5 and Kia EV6, Rivian R1T.
Well said! The EV space is full of confusion – and defining things isn’t easy. This will limit the segment’s appeal.
Professor, forgive the length here, I have a keen interest in this topic as an EV owner and enthusiast who previously worked for a public charging station network.
“WHY EVs?”: It isn’t just Teslas that have zippier acceleration—that’s a factor of electric motors in *any* of these EVs being more efficient. EV owners also don’t ever have to worry about oil changes, spark plug replacements, catalytic converter thefts… so there are far less maintenance costs. But most importantly, anyone with access to a regular wall outlet at home (or work) can charge their car. Sans specialized equipment, it’s admittedly slow. Nonetheless, overnight that adds back more driving distance (50-60 miles) than the average American daily commute (30 miles). Virtually everywhere in the country, off-peak home charging is cheaper than filling an equivalent gas car, often significantly so, and it’s done while you sleep! For the past three years with my EV, I’ve slow-charged at home 2-3 nights a week. I only use charging stations when on road trips.
“WHY TESLA?”: except for a couple niche/uber-premium cars, no EVs offer better driving range than Tesla. The Model 3 sedan and Model Y compact SUV have offered 300+ miles for a long time (while competitors averaged low-to-mid 200s). Others are getting better, but can struggle to be price competitive. (And Tesla in recent months is realizing it has the scale to sacrifice some margin now, while competitors lose money on each of their fledgling EVs sold.) Second, in many parts of the country, the Tesla Supercharger network eliminates range anxiety through its extensive coverage and its dependable chargers. In California, where I live and often road-trip, I scarcely give thought to where I’ll be able to charge my Tesla. It’s why so many other rival automakers in recent months have abruptly decided to adopt Tesla’s “NACS” plug standard.
The EV category does need to become more price competitive. It’s not happening as quickly as was hyped. Legacy automakers are realizing just how far behind they were. and I wish Tesla had put their efforts into a $25k economy car instead of the dumb Cybertruck, but there has been significant progress. And trust me, you won’t find any serious person who believes EV charging will be long-term more expensive than gas… But we do agree that, today, on a long drive in a rural Indiana winter snowstorm, you’re better off in a gas rental 🙂
Easy charging seems critical for EV success. Embracing Teslas plug as a standard is a smart move.
Hi from Northwest Arkansas. For perspective, we’re home to Walmart, mountain bikes, high-mid salaries, short commutes and a population of about 200,000 with lots of new data jobs. One non-scientific observation is that Tesla has Word-of-Mouth as a low-cost family car more than a driver’s-car. In this market, Tesla’s competition is Hyundai / KIA EVs. First EV mini-van may be very popular.
An EV mini-van. Just a matter of time! Though I wonder why someone would buy one, especially if it was at a premium price.