How Tesla became the most valuable car company in the world (Hint. It's the experience)
It’s hard to think of another company that took most every convention in their industry and said “no thank you”.
It’s no wonder I’m fascinated with Tesla — they align well with my “car buying” persona: early adopter, environmentally friendly — and amazing technology, which is my #1 driver for any car. And it’s not just me… a growing number of car buyers will choose a car based on a vehicle's technology over brand or style.
Tesla, in a very much “Steve Jobs way” doesn't compromise on the experience, delivering something that not only is a very capable car from a technology perspective, and not only environmentally friendly, but fast. Really fast. It reminds me when the iPhone was first released: it was a number of things that couldn’t have imagined in a single device before you saw it.
The more I learn about Tesla, it’s the collection of many small decisions that I marvel at. I’ve known people and worked with teams from what are becoming known as “legacy car” companies — where you’ll hear time and time again: “There’s a way we do these things.” — I can hear it from the meeting rooms to the board rooms... "Customers won’t buy a car that…”. Sounds like every phone company after that first iPhone launch (see blackberry).
But customers are buying these radically different “cars”, and more and more will continue to do so in the future.
"The biggest challenge VW and other leading automakers face is that they lack the expertise required to compete in the age of the software car. Tesla and its flamboyant, and sometimes erratic, innovator Elon Musk have turned the more than a century old industry upside down in a mere 16 years.” — reads a recent HBR article titled "How Tesla Sets Itself Apart”.
For Tesla, one of the many differentiators is that it's run more like a software company than an automobile manufacture. A theme we hear across industries for successful disrupters. Elon is a three time software CEO, so it’s no wonder they would. Running your company like a software company gives you many advantages, including speed.
So, why is Tesla the most valuable car company in the world? Let’s look over a number of ways that Tesla lives that “Think Different” mantra that started with Apple to redefine and improve the overall experience of getting people from point A to point B:
Selling direct, no dealerships, and a simple, seamless process
This puts the customer in control of the buying experiences, plain and simple. If we were creating a strategy for an automobile manufacture, you can bet many of the things Tesla does today would rise to the top of any competitor’s backlog of ways to enhance the experience… In fact there’s an article titled: "Automakers’ Big Opportunity: Drive the Human Experience” — that reviews some of the negative stats around the traditional car buying experience: “too much paperwork”, “overall experience took too long”, and “price issues/haggling”. Also funny enough “lack of stock” was one of the issues — which again, with Tesla, you order the exact car you want, and you get tracking on its arrival. Because of their direct, simple, digital process — during COVID-19, Tesla was able to quickly pivot to “touch-less delivery”, to the point where you only need to see one person for 5 minutes, outside your home as you digitally sign one document. A very different experience.
Lesson: The better customer experience usually wins, and outside of pure disruption — just creating more seamless, effective experiences can have a big impact.
Betting on the future, not just today
Seeing trends in global movements for more sustainable living isn’t something you need a crystal ball for. Recent polls show 67% of Americans are looking for the federal government to do more about climate change. People want it, and once it becomes practical enough for the masses, it will continue to grow in scale. Tesla, while still out-of-reach for many, does offer a $35k version of the Model 3, which is still an amazing car — and very close to the US average car cost of $36,718. Looking at where people are shifting on issues, and better understating these customers can help you direct investment for the future, no fortunetelling required.
Lesson: While you may be busy today, look at the future and spend time thinking about how things could be based on trends and customer research.
Lower cost of ownership, and less maintenance
"By some estimates they have significantly fewer parts per vehicle — around 20 — versus the 2,000 in internal combustion engines” — taking what can be perceived as a negative (needing to charge, limited miles) and turning it around to fix one of the biggest pain points: service. When a company like Lexus is differentiating on “a great service experience” — what happens when you don’t have to service your car nearly as much? And what’s better for a customer than a great service experience? How about no service… the "Lexus Covenant” states: "Lexus will have the finest dealer network in the industry. Lexus will treat each customer as we would a guest in our home.” Good tenets, but what happens when you don’t need a large dealer network, and while treating customers as guests is great, what if they don’t need to come into your home anymore due to either COVID-19, or not needing to get their oil changed?
Lesson: What if instead of improving a pain point, you can remove it entirely?
Simple, effective design
If you follow design, then you probably know that the single dashboard in the Model 3 may not pass traditional usability tests, failing on a number of accounts (and if you think touch screens at 60 miles-per-hour seems bad, they used the same conventions on the Space X Shuttle at 12,000 miles-per-hour), but if you were intent on creating a car that could drive itself... What would you do differently? Would it free you up to make new and different decisions that look wrong at first, but are actually right in this new context? I’m assuming somewhere down the road they created a design principle: “you’re not designing for a car, you’re designing for an autonomous vehicle” — which in that situation a touchscreen works well.
Lesson: Design is contextual, sometimes you need to consider both the traditional and unconventional.
“Beta” in-car software experiences
On paper, this sounds bad. I feel like the biggest jokes for cars running on software is the chance of the “blue screen of death” being more than just a blue screen... But Tesla did it, and not only made it successful, made it a sales driver. “What consumers are really getting is the chance to participate in a kind of science experiment. This is a work in progress." — but many customers are passionate about these new experiences, where it sometimes feels like getting a new car after an update with new features and functionality.
Lesson: Customers expect improvements over a product’s lifecycle, you can’t get away with a “launch and forget” anymore.
Ecosystem thinking
Tesla doesn't just make the cars, they make and own the “gas stations”... “In 1932 General Motors president Alfred P. Sloan formed a powerful lobby to ensure that a national system of highways got built.” — this is called the “indirect network effect” — the roads made the cars more valuable, just as Teslas are more valuable and usable with their large (15k+) network of fast charging stations across the world. The vision it takes to build out an ecosystem of connected products and services — from the iPod and iTunes, to the iPhone and the App Store... They needed each other to be a cohesive experience.
Lesson: It’s not just a single product, it’s the entire experience.
Vertical Integration
This isn’t for everyone, there is value to playing nicely with other ecosystems, but Apple (yes a common reference here) decided they needed to own the experience to ensure it’s up to Apple’s bar. Where typical car companies are “dominated by third-party companies” Tesla currently owns the entire experience.
Lesson: If you own it or not, everything is part of the overall experience.
Yes, I know this whole article may read as the rantings of a Tesla fanboy, but I don’t think anyone can ignore the lessons in disruption, experience and vision that make up the most valuable (or almost depending on the stock market) automobile company in the world.
When it comes to disruptive experiences, many business are so ingrained with how things are done today, that no amount of evidence could prove them otherwise. It always amazes me when companies have no appetite for change, with the lifespan of companies shrinking and disruption around the corner for many... There is a time you should be bold — and that time usually comes faster than you think.
I’ve been inside too many companies that need these lessons. Today any company can run an experience strategy to start to look towards the future, identifying customer trends and pain points — but many don’t think they have the time, until it’s too late.