Tesla Motors Inc was founded in 2003 byand Marc Tarpenning who were soon joined by visionary entrepreneur and current CEO Elon Musk. Over time, the company has established itself as a pioneer in innovating and manufacturing electric vehicles (EV). It has received several awards and recognition for its high-performance premium sedans such as the Model S and Model X, and has a market capitalization twice that of Fiat Chrysler and half that of General Motors or Ford.
The Tesla Model S was the best-selling plug-in EV in 2015 with total worldwide sales of 50,366 units, way ahead of the second-place Nissan Leaf which sold a total of 43,000 units in globally.
Tesla Motors is set to bring its electric car to masses around the world, with its affordable Model 3 sedan set to be unveiled at a press event on March 31. The EV market is currently a niche and nascent sector, accounting for only a fraction of the total auto sales around the world.
Tesla has already stamped its authority in the luxury EV market and under its long-term strategy, it is likely to dominate the global auto market. Here we explain why:
1. Rising environmental awareness
Climate change is becoming a serious growing concern, with world leaders and celebrities alike echoing the need for governments around the world to take urgent action to address this issue. During the UN Climate Change Conference held in Paris in November 2015, a framework was adopted by 196 countries to pursue efforts aimed at reducing carbon emissions in order to keep global warming below 2 degrees celsius. In the US, the Environmental Protection Agency (EPA) developed the Clean Power Plan in August 2015- these were new standards to cut carbon emissions from power plants. Though the plan was put on hold by the Supreme Court in February, it clearly indicates the priorities set for a greener future.
Concerns for a cleaner and greener environment has led more people to opt for an EV, especially Tesla. Premium vehicles such as the Model S not only result in zero emissions, but also are inherently more efficient than your conventional fossil-fuel vehicles. EVs derive their power from large, centralized and optimized generators, which results in lower carbon emissions per unit of energy than the internal combustion engines (ICE)- powered cars. Moreover, EV drivetrains also allow direct transmission of power from the battery pack to the motors and wheels, with minimum moving parts. This significantly reduces energy lost as heat and friction, something often seen in traditional mechanical transmissions.
Also, if you consider the rising tax rebates provided in different countries to encourage adoption of EVs, then we can expect more number of electric cars being sold in the future, especially with the upcoming release of the Tesla Model 3 sedan, which will cost $35,000 (before government subsidies).
2. Tesla has made owning electric cars cool
If you wind the clock back 7-8 years, conversations about EVs would evoke images of frugality, conservation and reduced consumption. If you wanted to have a highly-efficient car, you usually would have to give up comforts such as styling, space and features which are seen in traditional gas or diesel-powered vehicles. Tesla turned out to be a game-changer in this aspect, making large and spacious EVs which not only helped you care for the environment, but also allowed you to indulge in spending more on a really nice, luxury vehicle. An entirely new market has opened up that caters to people who would typically drive gas-guzzling Land Rovers and sports utility vehicles. Owning an EV has never been cooler.
3. EVs will be cheaper to own by 2022
According to a report by analysts at Bloomberg New Energy Finance (BNEF), it will become cheaper to own an electric car than conventional vehicles by 2022. The report states that battery prices, which plunged 35% in 201, are on course to drop even further in the next six years, making unsubsidized EVs as affordable as their gasoline counterparts. The total cost of ownership i.e. purchase price + running costs will fall below ICE cars in 2022, even if the latter improve their fuel efficiency by 3.5% a year. This is expected to kickstart a mass market for electric cars and by 2040, long-range EVs are projected to cost less than $22,000, with 35% of new cars worldwide to have a plug.
‘In the next few years, the cost-of-ownership advantage will continue to lie with conventional cars, and we therefore don’t expect EVs to exceed 5% of sales in most markets – except where subsidies make up the difference. However, that cost comparison is set to change radically in the 2020s,’ says Salim Morsy, senior analyst at BNEF.
‘At the core of this forecast is the work we have done on EV battery prices. Lithium-ion battery costs have already dropped by 65% since 2010, reaching $350 per kWh in 2015. We expect EV battery costs to be well below $120 per kWh by 2030, and to fall further after that as new chemistries come in,’ added lead analyst at BNEF Colin McKerracher.
The Tesla Gigafactory, established at a site near Reno, Nevada to manufacture lithium-ion battery cells, is expected to be a key player in propelling Tesla near the top of the EV auto market. Another key factor will be Tesla’s proliferating supercharger network, with more than 2,800 supercharging stations set up in a course of 3 years alone. The automaker plans to build 500,000 electric cars annually by 2020, with the Tesla Model 3 being crucial to meet its higher volume targets.
4. Better convenience
This has been mentioned often, but it is important to see why convenience matters so much. You own a gas car, you will have to go to a gas station. For EV owners, the issue of powering up their cars is as simple as plugging it like the way you do for a mobile phone. Leave it overnight and you will have a full battery in the morning- no need to visit any stations. Gas engines are also more complicated with more than 200 parts, compared with an electric motor which has fewer than 10. In addition, the requirement of a transmission, a tailpipe, gears and other associated nuisance makes gas powered cars a headache to maintain, while EVs require zero to little maintenance.
5. Powering an EV is cheaper than using a gas-powered car
Let’s see how this works out. We know that an average electric car gets about 3 miles per kWh of electricity, and the US national average electricity rate is 12 cents per kWh. So driving a mile in an EV costs around 4 cents (if you consider Tesla, this turns out to be even lower). Compare this with driving a gas car- if you take the best case scenario of remarkably cheap gas (say $1.40 per gallon), as well as very high fuel efficiency (say 35 mpg), we arrive at the same result- 4 cents/mile. But have you ever seen a gas owner pay 4 cents for a mile? Even if you consider the most extreme case, gas-powered cars tie with EVs for cost, while in not-so-favorable scenarios, the yearly costs can go as high as $3,000 if you are driving an average 12,000 miles/year.
It is fascinating to see the kind of encroachment pattern that Tesla Motors Inc has pursued. The company has not treaded the usual path of introducing a new product at the top of an existing market, but entered the market by catering to new customers in new markets (in this case, luxury EV owners). Compared with existing ICE automobiles, Tesla has not only improved its core attributes (high acceleration, high speed, stylish looks, low running costs), but also added ancillary attributes (silent drive train, zero tailpipe emissions, never having a need to visit a refueling station, cost savings). The automaker has successfully created brand equity through the innovative technologies used and perception of Tesla cars as the ‘cool thing’ in automobiles.