Tesla Motors Inc. has made it a point that they don’t spend a penny on advertising. Even without ads, Tesla has built a strong brand in the electric vehicle market and in the larger automotive industry as well. The Tesla brand has become synonymous with electric cars and traditional automakers such as General Motors face an uphill battle in trying to divest their brand image of cars running on fossil fuels that destroy the environment. Tesla’s strong brand identity is deeply rooted in the quality of its cars, the larger-than-life personality of Elon Musk, and strategic positioning on customer service.
Last month, I wrote a post titled “Here’s Why Advertising Agencies Hate Tesla Motors“. I wrote that piece shortly after the Freise Brothers made an awesome video ad for the Model S. The video ad depicted Tesla’s Model S as the last “the last hope of humanity in a wasteland of oil rigs and gas-guzzling cars”. Tesla Motors praised the effort that went into creating the ad and Elon Musk even tweeted a link to the ad. However, the firm was quick to note that it did not commission or sponsor the ad.
Tesla doesn’t spend a dime on advertising – Really?
One reason Tesla may have distanced itself from the creation of the ad was that the firm has built up the notion that it doesn’t spend money on advertising. The fact that Tesla Motors allegedly doesn’t pay for advertising (the firm doesn’t even have a CMO) has been a strong selling points of Tesla bulls. Who wouldn’t love a company that can sell its products without advertising them? The fact that the demand for Tesla’s cars outstrips its supply also supports the notion that Tesla is thriving without ads.
Tesla bulls are particularly proud of the fact that Tesla’s cars get massive word-of-mouth marketing. Other automakers spend huge amounts of money on ads and that spending eats into their profit margins. Tesla hasn’t turned a profit but its savings from not running ads are being invested into growing the company – the Gigafactory is one of such growth initiatives.
One of Tesla’s most vocal bulls, Trip Chowdhry of Global Equities Research on Monday stoked the fire of the Tesla-doesn’t-spend-a-dime on advertising narrative once again. In Chowdry’s words:
“In spite of this huge auto industry spend of more than $8 billion in advertisements per year, the brand loyalty is non-existent. TSLA spends zero dollars in advertising, and in spite of this, has the most aspirational possession value, not only in USA, Canada and Europe, but even in countries like Thailand, Malaysia, South Africa and India, where TSLA has not even sold a single car,”
Tesla spends serious money on ads (maybe not the usual kind of ads)
I strongly believe that Tesla is a great business with excellent products but I think that Tesla bulls are too smitten by their love for the firm and they can’t see what is right before they eyes. I hate to burst your bubble, but Tesla does spend money on advertising.
I don’t know if Chowdry took the time to go through Tesla’s most recently filed 10-K statement before asserting that “TSLA spends zero dollars in advertising”. As of December 31, 2015, Tesla has spent $58.3M on ADVERTISING, promotion, and related marketing expenses. The firm says, “marketing and sales promotion costs are expensed as incurred. During the years ended December 31, 2015, 2014 and 2013, advertising, promotion and related marketing expenses were $58.3 million, $48.9 million and $9.0 million.”
The $58.3M that Tesla Motors spent on advertisement, promotion, and related marketing expenses pales in comparison to the ads expenses by other automakers. More so, it is quite possible that Tesla is lumping up the costs of the giveaway cars in its referral programs as ad spending. Nonetheless, $58.3M is much higher than “zero” and Tesla bulls need to stop the misleading rhetoric and base their bullish thesis on more valid arguments.