One early Friday evening in September 2016, I stood on the sidewalk in a St. Louis neighborhood as a white Tesla Model S85, driven by James Majerus, pulled up to the curb to pick me up. The twenty-six-year-old, a Tesla investor, is also a board member of the St. Louis Tesla Enthusiast Meetup group. We were heading to dinner at Michael’s Bar and Grill to meet the gang.
There were half a dozen people in attendance–all there to share their love of Tesla with me. While there are a handful of other Tesla Meetup groups in the US alone, St. Louis has the largest contingent. Founded by Elizabeth Gattra in December 2012, the first meeting attracted about eight people. The group now includes 380 so-called “enthusiasts,” with about 50-100 active participants. I wanted to learn what sparked the group’s creation and why they were dedicating time to promote the company.
“In those early days,” said Gattra, “those of us waiting for our cars were licking up every drop of information we could get from people who had already gotten their cars.”
They were “kind of living vicariously through Tesla owners,” Gattra said. “There was a lot of Tesla talk, and talking about our experiences, and tricks and tips.” Back then, the group printed business cards, and Gattra hand-wrote notes. “If anyone saw a Tesla, we would put a business card on their windshield or whatever,” said Jim Versey, another member of the Meetup group, “and we handed them out at car shows.”
The Meetup group is a cheerleader for Tesla. “We do national drive week, we do birthdays, and we [attend] various other car shows,” said Gattra. They attend the St. Louis Auto Show and the Saint Patrick’s Day Parade every year, too.
And the group is not exclusively Tesla owners. “Anybody who appreciates Tesla or wants a Tesla someday is welcome, and we do our best to make that known,” Guy Vils, another member, told me. “People are intimidated because of the cost [of a Tesla], and think there’s going to be some kind of exclusivity associated with the group,” he said. “But we’re very open.”
“When I first joined the group,” said Versey, “I expected it to be a bunch of old dudes, basically. Like, golf guys.” But when, at the first meeting, they went around the room stating what everybody did for a living, “it was like 75% IT of some sort or another,” he said. “Coders and computer people.”
This kind of enthusiasm and grassroots marketing is what most companies would die for.
Every company can study Tesla, which will likely be a business school case study for years to come, as part of their broader digital transformation efforts. With some pizzazz, technology and marketing, many companies can appear forward-looking and cultivate better customer relationships. Tesla’s approach boils down to tying a brand’s mission to a larger vision, developing a 1:1 relationship with customers and do what your rivals are scared to do.
The birth of a movement
How did “computer people” end up becoming luxury car owners?
In 2003, Martin Eberhard and Marc Tarpenning, two engineers from San Carlos, CA, set out to build a company that could commercialize the electric vehicle in the form of a luxury car. They named the company Tesla Motors, after the Serbian inventor Nikola Tesla, who is credited for inventing the electric lightbulb before Thomas Edison was able to market it. Like many Silicon Valley startups, Tesla Motors had a bold mission: It would “accelerate the world’s transition to sustainable energy.”
Fast forward to 2008: Elon Musk, billionaire business magnate and former head of PayPal, was named CEO of Tesla Motors and the company introduced its first sports car, the Roadster. Over the next several years, Tesla took the lead in a niche market–electric luxury cars–venturing into mostly uncharted territory. By 2016, the company had earned a reputation for producing vehicles that offered cutting-edge technology, a premier driving experience, and a cool, sleek look.
And yet, global sales of Teslas in 2016 were shy of 80,000–less than a tenth of a percent of worldwide auto sales. The electric vehicle market is still miniscule, hovering around 2% of overall auto sales. And the cars themselves are hardly affordable for the masses–a 2017 Tesla Model S sedan can cost between $68,000 to $134,500, depending on the package.
But to Tesla–and to many of its customers–sales, alone, do not necessarily define success. Success, in the eyes of Musk and his supporters, is about something else: Changing the world.
Part of Tesla’s mission depends on the conception of the company as more than just a carmaker. And that’s not a tough argument to make. Beyond producing cars, Tesla Motors–now, simply, Tesla–is also a battery company, a solar panel production company, and, since November 2016, a “glass technology” company. In addition to leading Tesla, Musk is also the founder of SpaceX, a rocket company that is crafting plans to travel to Mars. And in March 2017, plans emerged of Musk’s new company called Neuralink, aiming to merge human brains with computers.
But Tesla, above all, is a tech company. And in the same vein as early Apple adopters, Tesla loyalists form its backbone. These devoted fans are, in part, how Tesla has majorly challenged the traditional auto industry for the first time in 50 years.
Who are Tesla’s customers?
Who are these 100,000+ Tesla owners? While they are paying a pretty penny for these cars, their reasons don’t fully align with the reasons other high-end car owners flock to Porches and Maseratis.
The current average price of the cars (before the $35,000 Model 3 is available) translates into a wealthier group of owners.
“You get a very different group of people [from traditional luxury car owners],” said Michael Ramsey, Research Director at Gartner. “These are people who really wanted this car, and feel like they can justify it because they’re not spending money on gas, because the car has so many cool capabilities–and they just never wanted a car so much that they could justify the cost.”
That rang true with the St. Louis Tesla group. When I asked the members about their motivations to purchase a Tesla, I was surprised to hear that many of them wouldn’t have normally bought an expensive car like this–but they saw something different in Tesla.
“A lot of people reach up to afford a Tesla, where they wouldn’t [for a different high-end model],” said Versey. “I never would have considered a Lexus or a BMW or an Audi.”
Jeffrey Miller, IEEE member and associate professor of engineering at the University of Southern California, agrees with the assessment. “I don’t think Teslas are just for the ‘luxury-car’ folks,” he said. Instead, Miller sees the vehicles appealing to different groups: “The techies, the early-technology adopters, and of course, the green/environmental population.”
In terms of loyalty to the brand, the “use of the term ‘cult,'” said Miller, “seems fairly accurate.”
But with the techies, early-adopters, and green contingent, there’s still one group missing: The sports car lovers.
At Strategic Vision, Edwards has spent years researching who owns electric cars, and why they own them. When it comes to Tesla, 92% of new vehicle buyers said that the vehicle is clearly fun to drive. That’s compared to 56% of those who purchase gas vehicles.
What are the other characteristics? They’re mostly Caucasians, said Edwards. And they are often “fairly wealthy or exceptionally wealthy,” he said, with a median income in the neighborhood of a quarter million. Tesla owners, said Edwards, are sports car lovers who are “not buying an electric vehicle. They’re buying a premium sports car, a premium luxury vehicle. The fact that it is an electric car is part of the innovation, but it’s not the principle reason they’re doing it.”
“There are a lot of people who, when they discover the performance of the electric vehicles at those lower speeds, the lower torques, become convinced that it’s the perfect vehicle. They love it. They see all the wonderful things about it,” said Edwards.
What Tesla has done, he said, and a large reason for its success, is that it created a brand new customer base.
“Musk has created the most-loved car in the nation, from our data,” said Edwards.
Not your typical automaker
“Here’s a company that has been the first actually successful American startup car company since Chrysler, basically,” said Ramsey. “The way Tesla gathered attention and devotion from a set of customers is completely uncharacteristic, outside of anything short of the millionaires who buy Bugattis and Ferraris,” he said. “There is a single-minded devotion to Tesla from its owners that is very uncharacteristic in the auto industry. All of the other carmakers want to have that, but they can’t.”
Other automakers are bound by “shackles,” according to Ramsey, that have held them back from gaining this status. Tesla, he said, developed unique workarounds.
For one, when you want to buy a Tesla, there are no dealers, so there’s no price haggling–all customers pay the same amount for the same car. For another, the cars are made-to-order. Ramsey sees this as part of Tesla’s appeal. “There’s an egalitarianism to it, and people are like, ‘Okay, I’m not getting ripped off,'” he said. Also, he said, Tesla isn’t simply an electric vehicle–“It’s beautiful, it’s highly capable, and it’s huge.” Why huge? It’s roomy inside because it saves space used by traditional engines.
On top of it all, “they’re fun to drive, and they have all kinds of cool technical features that are hard to find on other vehicles,” Ramsey said.
An important factor in Tesla’s success is those tech features. While there are other cars that have impressive batteries and attractive, sporty exteriors, Tesla’s over-the-air capability–which allows drivers to instantly download new software upgrades to the car–makes it stand apart from other auto companies.Tesla’s over-the-air capability is, essentially, centralized computing. While many other cars have distributed computing capability, connecting certain pieces of the car through a central portal, the portal “doesn’t have a brain in it,” Ramsey said. “It’s like an outlet with a bunch of different plugs.” Tesla, instead, has a more coordinated platform for updating software. Also, through a partnership with AT&T, all Teslas equipped with a modem and embedded SIM card come with pre-paid internet connectivity–meaning the transfer of real-time data via radio signal, safety diagnostics and other information related to driver behavior.
“Tesla’s real advantage is they’ve got a really strong brand,” said Ramsey, “and they’ve got this over-the-air platform that everyone else is just afraid of, or incapable of offering, because of the infrastructure it takes to implement. I have long considered this the single reason that Tesla has an advantage on every other car company,” he said.
Who is Elon Musk?
But highlighting Tesla’s innovations tells only half of the story: The company is also a target of criticism that borders on condemnation.
Why? It’s not the company itself that’s at the root of how it’s perceived–it’s Tesla’s leader. You could call Musk the Kanye West of the auto world: Theatrical, arrogant, and by some measures, genius. And, like Kanye, Musk has fans and haters.
You’ve got a CEO who is incredibly unique,” said Ramsey. “Really, [the attention Tesla gets] is not even about Tesla half the time. It’s about Elon Musk.”
“The guy running Tesla is also the founder of a rocket ship company,” said Ramsey. “He is a great mind that is incredibly interesting, who people look up to. So the cult of personality around Tesla is really as much about Elon as it is about the car or the company.”
Musk’s grandiose personality remains the subject of much debate.
There’s a huge split in opinion of him as a public figure versus as a manager versus as a person one-on-one,” said Bryant Walker Smith, professor at the University of South Carolina and expert in autonomous vehicles. “Reconciling each of those images is another fascinating project in its own right.”
But while opinions on Musk range widely, there is agreement that he has a singular vision. Musk is “very clear about what he wants,” said Alexander Edwards, president of Strategic Vision. “He relies more on his own intuition and what he believes should be the next phase of where the world, or where us as a human species are going, rather than [where] other people are telling him we should go.”
Ramsey agrees. It’s not that other automakers couldn’t have developed the technology, he said. “They absolutely could have, but they didn’t and Tesla did,” said Ramsey. “Elon is fearless. He is part showman. There is absolutely an aspect to what he does, like a, ‘Look, here’s my vision, get on board. This is going to happen.'”
“Elon is not afraid to buck convention,” said Ramsey. “This is another reason people like Tesla: They don’t ask for permission. They do it.”
Tesla vs. Detroit
Perhaps nowhere is the animosity toward Tesla felt more strongly than in Detroit, headquarters of the American auto industry.
One measure of the friction can be gauged by Tesla’s presence at the North American International Auto Show, held in Detroit each January. Although Tesla has attended in the past, it did not participate in 2017. While auto shows can be a good place to unveil new models, ultimately, said Ramsey, car shows are about selling cars.
“It’s a dealer event, and you can’t buy a Tesla in Michigan because there are no [Tesla] dealers there,” he said. Tesla can’t have a dealer there because Michigan doesn’t allow manufacturers to have their own dealership, which has been “a huge issue for Tesla,” said Ramsey. “State-by-state, Tesla has been fighting legislatures over the ability to sell directly,” said Ramsey. “Franchise dealers feel like their business model is endangered if manufacturers start selling cars directly to consumers.”
But the friction extends past Detroit. “Tesla has a general disdain for auto shows,” said Ramsey. “They don’t play by everyone else’s rules.”
And there’s also tension between Tesla and other electric vehicle manufacturers.
Despite relatively small sales in the context of the auto industry, by December 2016, Tesla had sold more than 186,000 electric cars worldwide, making the company the second largest purely electric car manufacturer after the Renault-Nissan Alliance.
Electric vehicles have, in some form, been around for more than 20 years. But Tesla adopted a different approach, said Chelsea Sexton, electric car advocate and advisor.
“It cultivated a super standoffish, arrogant, attitude from the start,” she said. “Kind of called every other EV that came before, or is coming now, ‘punishment cars,'” she said. “It’s the ‘everyone from Detroit is stupid’ mindset,” said Sexton.
And while Musk isn’t the only one to hold that view, he “promoted it and ran with it,” she said.
But despite conflicting opinions on Tesla and Musk, there seems to be widespread acknowledgment that Tesla and Detroit are at loggerheads.
“A lot of people in Detroit have very strong feelings on Tesla, including a lot of skepticism about its technologies or the safety engineering,” said Smith. “There are conversations in which people are saying, ‘We’re waiting for the big crash, the big failure.'”
Tesla’s “move-forward” attitude may be both its strength and its Achilles’ heel. While the reality is that this mindset has resulted in vehicles with capabilities other automakers are “unwilling or unable to give you,” said Ramsey, the company has also been sharply criticized for releasing semi-autonomous technology–in the case of Tesla Autopilot–before that technology was generally deemed safe enough to be used by the public.
Last May, I visited Tesla’s headquarters in Palo Alto and tested the technology for myself. After being instructed to pay full attention and keep hands on the wheel while engaged in this semi-autonomous mode, I slid into the driver’s seat, took the exit for Highway 280 South, and pulled the turning lever towards me to put the car into Autopilot mode. The feeling of the vehicle moving by itself, over the curvy Los Altos hills, was completely exhilarating.
A month later, Joshua Brown was driving his Tesla Model S–which was engaged in Autopilot mode–on a Florida highway when a white semi-truck crossed his path in the blinding sun. Neither Brown nor the Autopilot system braked in time, and the crash killed Brown, resulting in the first-known fatality while a car was engaged in Autopilot.
Critics who were already worried about the technology used the accident to reinforce their view that Tesla had stepped too far too soon. But while the accident made headlines worldwide, it was not unexpected. Smith and several other autonomous driving experts had previously expressed concerns about how the incident, which they believed was inevitable, would impact the social adoption of autonomous vehicles.
Missy Cummings, director of the Humans and Autonomy Lab at Duke University, said Tesla drivers may not be aware of the limits of Autopilot.
“When you generate the kind of hype that Musk does, people who already have a Tesla think that their cars are more capable than they are. And we see in the case of Joshua Brown what that leads to,” she said. “I don’t mind Elon Musk trying to generate business, but what he does, he instills false confidence in people for a capability that is simply not there.”
Cummings has a “love-hate” relationship with Musk. “I would like him to be successful, but I worry that he’s over-claiming the power of the technology,” she said. “And when he tweets about the capabilities of his car, he potentially can set the entire community back by overstepping his bounds.”
But the Tesla community–and even Brown’s family–rallied around the company as it faced angry critics.
“The long and the short of it is, you can’t stop progress,” said Gattra. “We are going to have autonomous driving cars, okay? Are we going to have hiccups? Yes, but we have hiccups today.
“We’re going to see that with Autopilot. People are going to get overconfident. Everybody who drives a Tesla should realize that they have to pay attention, there is risk, and they have to decide how much risk they’re going to take,” she said.
The future of Tesla
Regardless of whether Tesla fans stick by the company as it faces criticism, a question remains: Is Tesla’s model sustainable and scalable?
Tesla has promised its next major product, the Model 3, will arrive in 2018. This will be its first mainstream car, with a relatively modest price tag starting at $35,000. And beyond that, Musk has stated another bold claim: The Model 3 will be equipped with the hardware that will eventually make it capable of fully-autonomous driving, once the software is available.
But the release of the Model 3 is significant in a larger way: Tesla sees it as bringing the company closer to its mission of delivering an electric vehicle to the masses.
There was an enthusiastic response to the news about the Model 3, and hours after the announcement for pre-orders, there were more than 100,000 reservations for the car–and by March 2017, nearly 400,000. Whether Tesla can meet the demand, and whether another carmaker can produce a similar car first, is an open question.
And, some experts still question whether Tesla can succeed with its current “full steam ahead” attitude.
“There has to be a point at which tweeting is no longer a sustainable communication strategy,” said Sexton. “They’re gonna have to start making the cars.”
She says we still don’t know much in terms of how the cars will be sold. “We’ve seen it with the Model S and X, but there’s a point at which you burn through the waiting list and you still have cars to sell,” Sexton said, “especially if they’re doing the volumes they’re promising.” For reference, Morgan Stanley analyst Adam Jonas told Forbes that he expects Tesla to produce in the neighborhood of 2,000–not the 10,000 per week Tesla claims it will produce–in the fall of 2016.
“Looking at all of the overly rosy claims,” Sexton said, “there is now an established track record of Elon overpromising. That’s worked so far, but there’s a point at which the bloom comes off that rose. I would love to know the strategy for when that happens.”
Sexton also sees collaboration as a critical strategy for Tesla if the company wants to move forward.
“The island approach will only work for so long,” she said. Tesla, she said, needs to partner with other automakers, opening up patents, or offer a partnership on the Supercharger network, the network of fast-charging stations for the cars, for example.
Jeremy Carlson, senior analyst with IHS Automotive, says that Tesla’s Model 3 will compete with other luxury car companies. But he sees another potential obstacle for the company: Engaging in mobility services, such as ride-sharing and car-sharing.
Tesla released its “Master Plan, Part Deux” in July 2016, which includes ride-sharing in its business plan. But “we don’t exactly know how Tesla plans to engage in these mobility services,” said Carlson. “Tesla is looking at mobility services companies very broadly, but we have to be careful, because that’s a segment obviously that’s incredibly new, with respect to the longer automotive industry’s history, and it’s one that changes quite frequently,” he said.
Carlson says there are a lot of different business models to look at in this area. “Whether it’s Waymo, who doesn’t quite have a business model established yet, or you’re looking at someone like Uber or Lyft or car2go, there’s a pretty wide set of competitors outside of the industry,” he said.
So with Musk’s history of bold claims, potential issues meeting demand for Model 3, and competition in the highly competitive race to develop fully-autonomous cars, can Tesla stay ahead of the curve?
“People love that Musk’s so unbound by fear of failure that he’ll just do whatever. ‘Sure. I’m going to retire on Mars. Sure. I’m going to sell two million cars a year by 2025.’ A lot of [Tesla supporters] know things won’t actually happen the way he’s saying it,” said Ramsey.
“But if he gets 75% of the way to his crazy vision, that’s a pretty amazing outcome. If he ends up selling 800,000 cars by 2025,” said Ramsey, “that would be crazy.”
Credit for image at top: CBS News