IT’S ALL ABOUT THE OSBORNE EFFECT

TERA-FORMING THE AUTOMOTIVE AND ENERGY INDUSTRIES Eight years after Tesla launched the Model S, not a single legacy automaker has been able to match the range of the original Model S with its own production electric vehicle (EV). Since then Tesla has near

You may have noticed, with a sense of dismay, that while Tesla is constantly increasing the already impressive range and performance of its models, seemingly effortlessly, legacy automakers give the impression that they are unable to keep up. To make matters worse – except for the Porsche Taycan with its blistering performance, but relatively short range – new startups like Rivian and Lucid Motors display signs of being the only automakers capable of matching Tesla in terms of range and performance. Did the once proud stables of thoroughbreds from Maranello to Stuttgart, Wolfsburg to Munich, and Detroit to Seoul and Japan, suddenly metamorphose into donkeys? The simple answer is: No, not by a long shot. The long answer is: It’s all about managing the Osborne Effect.

THE STORY OF A COMPUTER

The Osborne Effect refers to the consequence of announcing a new product, vastly superior to any existing product, which then causes customers to forego the existing product and instead wait for the new product to be launched. This effect is named after the Osborne Computer Corporation, which in

more than a century ago, an advance in technology that is far superior to anything offered by the “old” internal combustion engine (ICE) technology. On a five year cost of ownership basis, EVs are already significantly more cost effective than competing ICE models. In addition, according to Consumer Reports, EVs are at least 50% more cost effective to maintain, and offer fuel cost savings of up to 70% when compared to ICE vehicles. Add to this the convenience of “filling” an EV at home and the exceptional performance and uncompromising ride of an EV, and it becomes clear that EVs have the potential to disrupt sales of existing ICE models, not because of any green sentiment, but simply because EVs are already a more compelling and cost effective product. Product and price always trump sentiment after all.

Of course, over the next five to ten years the ICE vehicle market will remain a trillion dollar market, and legacy automakers are not about to forego that pot of gold, especially if they are confident that they can slowly expand their EV manufacturing infrastructure to meet demand for EVs on a just-in-time basis.

PORSCHE LEADS BY EXAMPLE

Two ways in which legacy automakers manage the Osborne Effect as applied to the adoption of EVs is by sandbagging on range and performance, and inflating the price. A good example of this phenomenon is the all-electric Porsche Taycan that became Porsche’s best-selling car in Europe this past August. Even though Porsche attempted to manage expectations with an electric range nearly half that of the Tesla Model S (sandbagging), at a price point double that of the Model S (price inflation), the Taycan’s performance and design is off the scale, clearly hitting the mark with its loyal customers.

Given Porsche’s legendary engineering excellence, combined with its competitive nature that vibrates in its DNA, it is simply unthinkable that Porsche would

Camouflage and subterfuge

be at a complete loss to match the range of the Tesla Model S and the Lucid Air. So, rather than a lack of engineering capability, Porsche is simply managing the Osborne Effect so as not to compromise sales of their current ICE vehicle models.

Besides, in order to meet the growing demand for EVs, Porsche will require several years to transition their existing infrastructure to evolve into an EVonly manufacturer. In the meantime, expect to see Porsche continue to sandbag on range, without compromising on performance. If anything, Porsche received a clear two-thumbs-up from its loyal customers in Europe, and the rest of the world is sure to follow as Porsche continues to transition to an all-electric future, and certainly with a very different outcome to the Osborne Computer Corporation.

A KILLER IN THE FAMILY

As is evident in the example of the Porsche Taycan outselling its ICE siblings, the biggest challenge for legacy automakers is not so much external competition, as it is internal competition. Legacy automakers simply cannot afford to launch a “Tesla Killer” due to the fact that such a compelling EV will likely turn out to be an “ICE Killer” instead. Tesla, Rivian and Lucid combined are less of a threat to legacy automakers than their own “ICE Killers” because they have the potential to cannibalise their existing lineup of ICE vehicles. The legacy automakers have been in the game for more than a century, and if there is one thing they have perfected, it is the marketing of their products across segments and global markets. So, don’t hold out for that “Tesla Killer” just yet.

Of course, in terms of electrification, this is merely the beginning of managing the Osborne Effect for legacy automakers. As their EV production volumes grow over the next few years, so will the complexity