The New US Automotive Industry?

How Tesla is Driving New Ideas in the Old Auto Industry

The New US Automotive Industry?
July 24, 2014

The auto industry is entering another period of transformation, with perhaps a complete redefinition of the automobile and the corresponding support and supply chain.

Tesla may be leading the way, according to Adam Jonas, a research analyst with Morgan Stanley. Their electric-powered vehicles are more than just novelties for the rich, he observed in a recent report, with some vendors dedicating supplies and facilities exclusively to support Tesla.

Consider their advances in the following areas:

Technology/Marketing

The relative innovation of Tesla in the long-range electric car market has sparked similar efforts at rethinking designs for long-range, quick-charging electric powered vehicles at automakers from BMW to GM.

While others attempt to catch up, Tesla has decided to move beyond the luxury segment to support their long-term growth objectives. They have determined that two elements are necessary to produce mass acceptance of all-electric vehicles: a lower-priced model and a dependable and economical refueling system.

On the refueling side, the original premise to combat long recharging times was fast battery swaps through swapping stations throughout the US. The battery swap program is still in prototype existence, but Tesla is clearly tilting toward establishing Supercharger Stations – with 98 stations in place throughout North America and plans to cover 98% of the US population (and parts of Canada) by 2015.

Supercharger stations use fast DC charging to currently (pun intended) allow 170 miles coverage on a 30-minute charge. The goal is to eventually hit five-minute charge times – enough for your average restroom break at the convenience store.

Rather than expanding their auto offering to lower-end markets in the short-term, Tesla has chosen to make their Supercharger technology available to any other manufacturer who wishes to adopt it. Achieving fast, high capacity charging without specialized recharging stations is unlikely, and it is doubtful that everyone in the electric car market can afford their own proprietary recharging stations. If everything breaks correctly for Tesla, they may set the standard for battery technology and force others to follow by controlling the infrastructure.

Jobs

Not only is Tesla driving technology, they are also driving jobs – and domestic jobs at that. With nearly 90% US-produced content, they top the quintessentially American pickup trucks Chevy Silverado and Ford F-150, among others.

The estimated $5 billion “gigafactory” for manufacturing batteries is projected to create approximately 6,000 jobs, thus initiating a bidding war between states to host this new facility. Jonas estimates that combining this plant with increased auto production would increase Tesla’s employment by 14,000 and have a ripple effect that could support up to 100,000 additional jobs.

Distribution

Tesla is also innovative with their distribution model. They bypass the traditional dealership model with direct sales through their own stores and service centers, thus running into difficulties in several states that ban direct sales to consumers. The argument draws a rough comparison between car dealerships and real estate agents, third parties that facilitate sales to help guide and protect consumers. Tesla argues there is no need for such an intermediary, and all the middleman does is increase costs and overhead.

Should Tesla succeed, they may disrupt the entire car buying and distribution system – though at this stage there is probably too much resistance from entrenched interests. If Tesla succeeds through its innovation, state governments are likely to grudgingly find some form of exception or compromise to accommodate their success.

Tesla has managed to construct an excellent plan for transforming the automobile industry and ushering in the era of the mass-produced electric car and fueling infrastructure. Will they pull other manufacturers forward with them, or will they be bogged down by reluctance to change? Will regulatory issues end up working for them through green initiatives, or against them through protecting existing interests? The next three to five years should be pivotal in answering those questions.

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