TESLA MODEL 3

Changing the world as we know it

No other motor manufacturer embraces the idea of electrification as comprehensively as Tesla Motors, and the Tesla Model 3 is set to take that idea to the masses because it is they, not the elite, who bring about revolution. And what better way to rally the masses – those millions of car owners who go burdened under the weight of oppressive fuel prices and high maintenance costs – than to provide them with an average-priced electric vehicle (EV) with equal or better performance and safety compared to similarly priced internal combustion engine vehicles (ICE), while reducing the total cost of ownership with an order of magnitude.

ENTER MODEL 3

Designed and built as the world’s first truly mass-market EV and starting at $35,000, the new Model 3 makes its entrance riding on the coat tails of the revolutionary Model S – the fastest accelerating series production sedan in the world, which the authoritative Consumer Reports rated as the best car they ever tested, breaking the Consumer Reports rating system with a score of 103 out of 100. Like its more expensive predecessor, the smaller, simpler, and more affordable Model 3 combines range, performance, safety, and technology in a beautifully designed car that offers zero-emissions driving and extremely low running- and maintenance costs. The Model 3 takes the fight to its closest ICE rivals with equal or better performance, arguably the highest levels of safety in its class, and avant-garde design that incorporates some truly futuristic features such as Enhanced

“ONE WITHSTANDS

THE INVASION OF ARMIES; ONE DOES NOT WITHSTAND THE INVASION OF

IDEAS.” – VICTOR HUGO.

Autopilot with full self-driving capability.

Fitted with a high-efficiency electric motor and battery pack, the Model 3 accelerates from 0-100 km/h in as little as 5.1 seconds and a top speed of up to 225 km/h. Add to this a maximum EPA rated range of 537 km on the longrange model, the ease of skipping petrol stations by just charging your car at home during off-peak hours, or directly charging your Model 3 at one of the 951 Tesla Supercharger Stations with 6,550 Superchargers across the U.S., Europe, Middle East, Australia and Asia, and you have yourself the embodiment of an idea that is ready to change the world. And with more than 500,000 pre-orders for the Model 3 when it was released on 7 July 2017, without any advertising, it would seem as if the masses are ready to embrace the electrification revolution as much as they embraced the smartphone revolution some ten years ago.

FORMULA FOR DISRUPTION

With the Model 3 now in production, and Tesla having committed to delivering more than 500,000 units by the end of 2018, the Model 3 seriously threatens to disrupt not just a select few competitor models, but entire segments, especially in the U.S. where about half of all Tesla models are sold. The really bad news for legacy automakers is that, apart from Renault/Nissan with its Nissan Leaf and Renault Zoe, there are, as yet, no compelling electric vehicles from other automakers to challenge the Tesla Model 3. The reality is that, despite the usual PR spin, most other manufacturers are years away from even launching a compelling competitor to the Model 3, which simply gives Tesla more time and space to establish itself in a new and very different international car market.

To make matters worse for the legacy automakers, none of them currently have a solution to source or produce batteries at the same scale as Tesla. With the Tesla Gigafactory now functioning at only 30% of its planned capacity, it already provides more batteries than any other factory in the world.

To illustrate the scale of what is required, Tesla indicates that, to achieve its planned production rate of 500,000 cars per year by 2018, Tesla alone will need today’s entire worldwide supply of lithium-ion batteries. According to Elon Musk, CEO of Tesla, when in full production the Tesla Gigafactory will have the production capacity to supply 1.5 million cars. Now, considering that Toyota and Volkswagen each produce about 10 million cars per year, these giants each will require at least six or seven Gigafactories to convert their current production volume from ICE to EV. That’s a lot of Gigafactories that will require massive investment.

And yet, following a raft of concept electric vehicles unveiled at the recent Frankfurt Motor Show, apart from Daimler, none of the other automakers have announced any plans to build even one Gigafactory. Daimler, who unveiled its own new Gigafactory in Germany in June this year, also announced a new $740 million battery factory in China. However, while Daimler is making significant investments in battery production, they do not produce battery cells, and the new plant in China, like the one in Germany, will produce battery modules and packs only, with battery cells outsourced to an undisclosed party. Unless the other automakers have a secret battery supply chain on standby, the reality is that it will take them years, if not decades, to establish the necessary battery production capacity to realise mass electric vehicle production. Advantage Tesla and Daimler.

FUTURE POSITIONING

The genius of Elon Musk goes beyond building compelling electric vehicles and next-generation rockets, as is evident in the way he has transformed Tesla from an electric vehicle manufacturer into a sustainable energy manufacturer. Tesla is no longer an EV company. Today Tesla is the world’s biggest supplier of the most efficient lithium-ion batteries, manufactured at the Tesla Gigafactory in Reno Nevada, which also manufactures Solar Tiles, Powerpacks, and Powerwalls for applications that are

scalable across all sectors, from homes to electric utilities, and everything inbetween. In a move reminiscent of Apple’s diversification into smartphones, music, movies and apps, Musk has created an end-to-end consumer product line for the generation, distribution and consumption of sustainable energy and, as indicated in the Tesla Master Plan (Part Deux), to autonomous car-hailing/sharing.

Theodore Levitt, in his ground-breaking article “Marketing Myopia”, originally published in the Harvard Business Review, 38 (July/August 1960), warned corporate giants (like the legacy automakers) against defining their industry, or a product, or a cluster of know-how so narrowly as to guarantee its premature demise. Levitt used the railroad companies in the U.S. as an example to illustrate that these once great companies declined “not because the need was filled by others (cars, trucks, aeroplanes), but because it was not filled by the railroads themselves.” They lost the advantage because they defined themselves to be in the railroad business rather than in the transportation business, and the reason they defined their industry wrong was because they were productoriented instead of customer-oriented.

Levitt’s theory on the decline of big corporations is well illustrated in the more recent demise of Kodak and Nokia, which should sound the alarm bells for the legacy automakers, most of whom have expended more energy and money to oppose electrification than to embrace it.

While it would be prudent for the legacy automakers to heed Levitt’s advice, the reality is that they are faced with the incredibly difficult and almost insurmountable task of transitioning from a tried and trusted technology (internal combustion engine) to an entirely different technology (electric motors and batteries), which will affect nearly every aspect of their current business structure. With billions of dollars of capital invested in ICE manufacturing plants, body and chassis manufacturing plants that are optimised to fit only these engines (which differ almost entirely from electric vehicles), staff that will become redundant, and dealer networks will become redundant, these automakers will have to invest billions, and in some cases recapitalise the entire business in order to attempt a successful transition to electrification.

Since the transition from ICE to EV will have to be a gradual process, a further problem down the line, when say half of inventory is made up of cheaper, more efficient and more compelling electric

vehicles, how do automakers then still sell the other half of vehicles fitted with outdated ICE technology. In 15 years from now, trying to sell an ICE vehicle may well be akin to trying to sell an old Nokia in an iStore. And all along, there is that pesky thing called shareholders, who demand profits. As one pundit aptly described the situation, legacy automakers have two options: jumping off a cliff now, or wait and possibly be thrown into a volcano later.

THE SOUTH AFRICAN

CONNECTION

Although Elon Musk was born and raised in South Africa, there is still no evidence of Tesla making a move into South Africa to get a foothold on the continent. Given Tesla’s current footprint, it is clear that they have their focus squarely on the developed world for the foreseeable future. Renault and Nissan seem to be following a similar approach to its current EV rollout, which is biased towards North America and Europe.

With stable electricity supply already a major challenge in most of the developing world, there is a real chance that developing nations will be left behind even further in the EV revolution, and even more so with vehicle autonomy. So while the developed world may embrace the gradual shift towards the adoption of EVs over the next two decades, the developing countries could well remain dependent on ICE for a much longer period. Such a scenario would play into the hands of the legacy automakers, who will need the shift to EVs to be as gradual as possible.

China remains the exception, and given its aggressive legislation to promote faster EV adoption, most automakers currently have some presence in what promises to become the single biggest EV market in the world.

LAST WORD

The history books are littered with stories of once-great companies that were washed away by the floods of change but, if anything, over more than a 100 years and some of the most tumultuous times in modern history, the great car companies have shown exceptional resilience to overcome, among many other challenges, two world wars and two massive stock market crashes that wiped out most other companies. The smart money would be on these same businesses to safely negotiate their way through the rapids of change as the world transitions from fossil fuels to sustainable energy. We wish them Godspeed.