THE TESLA EFFECT

Electric vehicles (EVs) offer an eco-friendly alternative to internal combustion engines. However, both consumers and the automotive industry have historically perceived EVs as unfashionable and impractical. Although, for example, the General Motors EV1 offered clear environmental benefits, it failed to tap into status and luxury principles central to automotive design and marketing, and also had a far lower range than gasoline-powered cars. These factors contributed to the EV1’s ultimate cancellation and an industry-wide stagnation of EV investment.

 

This proved a pivotal moment for Elon Musk and other co-founders of Tesla. They wanted to try a different approach: designing an electric vehicle that was not only technically on par or even exceeding standard cars but also an extremely stylish sports car, targeting the upper luxury end of the market. The underlying goal was to first capture the status-driven influencers but rapidly make more affordable options available. Sustainability was the core mission behind their strategy. As Elon Musk described in a 2006 blogpost:

 

"As you know, the initial product of Tesla Motors is a high performance electric sports car called the Tesla Roadster. However, some readers may not be aware of the fact that our long term plan is to build a wide range of models, including affordably priced family cars. This is because the overarching purpose of Tesla Motors (and the reason I am funding the company) is to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy, which I believe to be the primary, but not exclusive, sustainable solution. . .The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model."

 

Tesla’s vision has been largely realized. Since the launch of Tesla’s first vehicle -- the Roadster, which was endorsed by environmentally-minded celebrity influencers including George Clooney, Leonardo DiCaprio and Arnold Schwarzenegger -- Tesla has dramatically changed public perceptions of what constitutes a cool car. Following Musk’s plan, Tesla has created a fleet of vehicles starting with the high-end luxury EV (the Roadster) at high cost and low production volume with gradual offerings of more publicly affordable options at higher production levels (figure 1). Tesla’s Model 3 was the best-selling EV globally in 2018. In short, Tesla has successfully managed to tap into a nascent demand for more climate friendly individual transport and to combine this value driven demand with a status aspiration. 

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The “Tesla Effect” is driving shockwaves through the auto industry. While there are many factors at play in the EV market, including a shifting landscape of regulatory changes, especially in Europe and China, Tesla has undoubtedly played a dynamic role in re-invigorating the EV market. Automakers are now rushing to stake claims in the electric vehicle space. This is especially true in the luxury and sports car market. An array of luxury vehicle companies, such as BMW, Jaguar, Mercedes Benz and Porsche, are racing into the EV market. Tesla also recently announced its first electric pickup truck -- the “Cybertruck” -- which is likely to shake up the pickup truck market. Tesla’s EVs are also offered alongside other linked products, including solar panels and home batteries, as part of a broader sustainability package leveraging their brand reputation.

 

It’s important to note that EVs have their own sets of issues. Tesla themselves acknowledge significant human rights and environmental issues associated with rare earth mineral mining in the Democratic Republic of the Congo, which provides materials for their batteries. According to Tesla’s 2019 impact report, they are taking steps to remedy these issues such as a zero-tolerance policy involving due diligence site verifications. Given Tesla’s planet friendly branding strategy, these issues represent a significant reputational risk. 

 

​Overall, Tesla proved to the world how cars that fight climate change can also represent the pinnacle of luxury and style, tapping into existing consumer values and aspirations. Moreover, the Tesla Effect has pushed the private sector to more deeply consider how creating beautiful products that are good for the planet can also be highly attractive and profitable goods. By making electric vehicles cool, Tesla is helping keep the planet cool too.