The automotive market is shrinking. Nevertheless, TESLA is growing as the leading manufacturer of battery-electric vehicles, enjoys the highest customer satisfaction and has sustainable competitive advantages. In contrast, the legacy carmakers show life-threatening weaknesses in the maelstrom of market and innovation. Strategic measures are necessary.
Since the beginning of 2018 the global production of car manufacturers has been falling. Since the beginning of 2020 sales have been crashed because many people postpone buying a car. The main reasons are the uncertainty about the consequences of the corona pandemic and the Osborne effect from battery-electric vehicles. In the medium and long term, sales will continue to fall because private purchasing power will decrease due to the public financial need for debt relief and provisioning. Digital practices such as home office, video conferencing and e-learning that have been widely accepted during lockdown also reduce traffic and later sales. The remaining spatial separation of work, school, and residence, as well as the experience of free, private and safe mobility in one’s own car, have a stabilizing effect on sales.
The shrinking car market is becoming a maelstrom: overcapacity is rising, discount battles are raging, residual values are falling, manufacturer financing is collapsing, blood-red balance sheets are jeopardizing the existence. Already today, Moody’s judges the bonds of some carmakers as junk, the bonds of others just one step better. Capacities and costs have to decrease.
Many global value chains have failed to withstand the corona pandemic. In the future, they will have to be robust – at lower costs. That is why manufacturers will move production to the regions where they sell the products. If necessary, they will keep available capacity and inventory to prevent delivery breaks. Robust value chains with only the same or even increasing costs will accelerate the maelstrom.
The innovation success of TESLA also drives the maelstrom. The legacy carmakers may still have one car generation left for development to catch up or overtake because of network effects. That is very scarce. Manufacturers who still do not have a reasonably successful battery-electric car on the market will probably not be able to catch up because TESLA’s lead and pace of innovation are too great.
Model 3 has made TESLA the leading manufacturer of battery-electric cars. The recently launched Model Y will more than double sales. Customer satisfaction and brand image are top in a competitive comparison. The models are attractive, safe, reliable, offer a unique driving experience, long range, high speed charging, ongoing software updates over-the-air and from time to time a hardware update.
The proprietary Supercharger network enables accessible, available, affordable, simple and fast charging even on long-haul routes. It grows with the growing number of vehicles and improves its unique customer benefit, a classic network effect.
TESLA’s innovative edge is bigger than a generation of vehicles. For instance, EPA confirms that TESLA’s rates of consumption are better than rates of the latest vehicles from competitors.
TESLA’s business model is that of a vertically integrated innovation platform. This is far more responsive than the business model of the established car manufacturers that include low R&D and manufacturing depth, economies of scale and long, sophisticated planning processes for technologies, product programs, and production networks.
TESLA innovations do not stop at cost drivers either. Dealer-free direct sales via the Internet, product variants and component technologies are some examples.
Falling sales, robust value chains and the switch to battery-electric vehicles with very long warranty periods exacerbate the cost pressure on the business of the legacy carmakers. They can strategically reduce costs via the cost drivers complexity, technology, factor costs, management, utilization and economies of scale. If that is not enough, they have to cooperate in their established business, if necessary, through to self-abandonment.
To be successful in the competition for battery-electric vehicles, the legacy carmakers need a unique brand profile and a resilient business model. This requires tough strategic decisions, for example on the efficiency and costs of the battery-electric drive train; own or open, freely licensed operating system such as Android Automotive; own or purchased apps and an app store; own or purchased autonomous driving; own or purchased data management; own or purchased hardware; a dominant share of the vehicle fleet to use the effects of open networks like GOOGLE, or a small share of the vehicle fleet with closed premium network like APPLE; brand profile, design, warranty, quality and reliability, charging network, dealer and service network, depth of R&D and production as well as reorganization.
We advise you to develop, bring to decision, and implement strategic measures to reduce costs and achieve success in the competition of battery electric vehicles.