stores in 26 states and Washington, D.C. The company’s ability to expand its store footprint had been hampered by the dealership lobby, which argued Tesla was breaking decades-old franchise laws that prevented car makers from selling directly to consumers. Independent dealers had succeeded in at least partially banning Tesla’s direct sales model in several states, including Connecticut, Wisconsin, Texas, and Michigan.136 In early 2019, Tesla owned and operated over 1,300 charging stations and nearly 11,000 “Superchargers” (charge points) exclusively for drivers of Tesla vehicles to recharge their batteries when on the road. A driver could get 170 miles of range after 30 minutes of using the Supercharger at a cost of $0.24 per kWh ($0.06 a mile for a Model 3).137 In comparison, a Nissan LEAF driver, using an alternative fast-charging station (known as CHAdeMO), would get between 75 and 100 miles of range in the same amount of time.138 According to Musk, thousands of new stations were in the permitting or construction phase, and the company was “open” to letting other automakers use the supercharging network so long as they shared in the cost of usage.139 Tesla had 76 service centers across the United States and about half of them were co-located with stores. Because Tesla’s EVs had fewer parts, there was less need for physical repairs. A lot of fixes and improvements could be done without having to find a service center. Tesla updated its vehicles via Wi- Fi, and could continually improve a vehicle’s performance post-sale (e.g., improving acceleration and braking capabilities). Indeed, by sending periodic software updates, Tesla planned to incrementally transition its cars to become increasingly more autonomous, eventually not requiring a driver at all.140
Master Plan, Part Deux
In 2016, Musk unveiled his Master Plan, Part Deux, which included the development of a completely self-driving (Level 5) vehicle that, when not in use, could be used by others. Musk explained: “So there will be a shared autonomy fleet where you buy your car and you can choose to use that car exclusively. You can choose to have it used only by friends and family… or other drivers who are rated five star. You can choose to share it sometimes but not other times. That’s 100 percent what will occur. It’s just a question of when.”141 On a May 2018 earnings call, Musk said that the autonomous ride-sharing platform would probably be ready to launch by the end of 2019 and that getting regulatory approval would be the company’s biggest challenge.142 One automotive analyst speculated that it could add somewhere between $2 billion and $6 billion in revenue for Tesla and that a Tesla owner could make up to $6,900 a year, after paying Tesla a 10% cut, and factoring in energy, insurance, maintenance, and non-cash depreciation.143
Conclusion
Many believed Musk had succeeded in spurring innovation in what had been a traditionally slow-to- change industry. In imagining a world without Tesla, one board member mused, “What would the world look like? I have this sinking suspicion it wouldn’t look that different than 10 years ago. A bunch of
TESLA’S ENTRY INTO THE U.S. AUTO INDUSTRY Donald Sull and Cate Reavis
May 1, 2019 15
hybrid cars. A bunch of noise about hydrogen vehicles. You know, I don’t think the world would look anything like today – where entire nations are saying, ‘We’re going to stop making gas cars.’”144 But the question remained: Could Tesla not only survive but also thrive in the automotive industry over the next few years?
TESLA’S ENTRY INTO THE U.S. AUTO INDUSTRY Donald Sull and Cate Reavis
May 1, 2019 16
Exhibit 1a U.S. New Cars Market by Value
Exhibit 1b U.S. New Cars Market by Volume
Source: “New Cars in the United States,” MarketLine, September 2017.
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Revenue ($ billion) $219 $237 $244 $247 $233 $234 $236 $239 $242 $245 % Growth 8% 3% 1% -6% 0% 1% 1% 1% 1%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
$200
$205
$210
$215
$220
$225
$230
$235
$240
$245
$250 US $ bi lli on
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Thousand Units 7,242 7,585 7,689 7,517 6,873 6,882 6,908 6,952 7,014 7,093 % Growth 5% 1% -2% -9% 0% 0% 1% 1% 1%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
6,400
6,600
6,800
7,000
7,200
7,400
7,600
7,800
th ou sa nd u ni ts
TESLA’S ENTRY INTO THE U.S. AUTO INDUSTRY Donald Sull and Cate Reavis
May 1, 2019 17
Exhibit 2 Price of Cars in U.S. Market
Segment July 2018 Transaction Price (Avg.)
Compact Car $20,412 Compact SUV/Crossover $28,365 Electric Vehicle $36,948 Entry-Level Luxury Car $42,211 Full-Size Car $35,038 Full-Size Pickup Truck ,644 Full-Size SUV/Crossover ,557 High-Performance Car $92,798 High-End Luxury Car $98,360 Hybrid/Alt. Energy Car $26,969 Luxury Car $59,519 Luxury Compact SUV/Crossover $44,524 Luxury Full-Size SUV/Crossover $88,038 Luxury Mid-Size SUV/Crossover $55,118 Mid-Size Car $25,424 Mid-Size Pickup Truck ,125 Mid-Size SUV/Crossover $37,844 Minivan $34,635 Sports Car $31,650 Subcompact Car $15,026 Subcompact SUV/Crossover $24,008 Van $34,902 Average Price $35,359 *Kelley Blue Book average transaction prices do not include applied consumer incentives.
Source: Kelley Blue Book.
TESLA’S ENTRY INTO THE U.S. AUTO INDUSTRY Donald Sull and Cate Reavis
May 1, 2019 18
Exhibit 3 U.S. New Car Market by Segment, 2008–2023
Sources: https://www.statista.com/statistics/287744/new-car-model-launches-on-the-us-market-by-segment/; Merrill Lynch;
Bank of America.
Exhibit 4 U.S. Car Manufacturer Market Share (by %, March 2018)
Source: http://www.wsj.com/mdc/public/page/2_3022-autosales.html#autosales (accessed June 12, 2018).
17.9
14.7 13.5 12.9
9.8 8.6
3.7 3.5 3.1 2.3 2 1.9 1.9 1.2 0.9 0.2
GM Fo rd
To yo ta
Ch rys ler Gr ou p Ni ssa n Ho nd a
Hy un da i
Su ba ru Kia
