That Tesla has a sexy car out there ready to roll right now is true. They’ve got Elon Musk, possibly the best manager of public opinion on the planet. But, underneath that, what do they actually have that’s a sustainable competitive advantage? It’s very difficult indeed to see that they’ve got anything in this world of mass manufacturing. Build quality certainly ain’t it for example. And we’re going to find out real soon now too, as Volkswagen has announced they’re to ramp up production of a $23,000 competitor.
What does Tesla have to beat this?
Volkswagen intends to sell electric cars for less than 20,000 euros ($22,836) and protect German jobs by converting three factories to make Tesla rivals, a source familiar with the plans said.
Yes, obviously, announcing that you’re going to make something available doesn’t mean that people will buy what you’re going to make available. But VW isn’t to be trifled with despite that diesel engines thing:
Known as the “MEB Entry,” Volkswagen reportedly wants to convert three German production plans to produce the electric vehicles (EVs) and plans to produce 200,000 models. Can it get there?
For anyone who thinks of Volkswagen as a small-time producer, think again. While the name isn’t as popular here in the U.S. as Ford or General Motors’ (GM – Get Report) Chevrolet, Volkswagen produced just under 11 million units in 2017. To put that in perspective, the annual sales rate in the U.S. continues to hover around 17 million units.
OK, so we know that VW can do mass manufacturing.
Also reportedly on the way is a midsize EV called the I.D. Aero, which will reportedly be built on the assembly line where the Passat is built today. It is unclear whether the alleged I.D. Aero will fully replace the Passat and take up the plant’s full production capacity, though the board is expected to discuss retooling three of VW’s plants to manufacture EVs.
They can also do market segmentation.
OK, so what is it that Tesla has which is a competitive advantage? Sure, first mover advantage. Some interesting technology in terms of self-driving to varied levels. Pretty darn good brand. And?
Well, that’s the thing.Those aren’t what aid in making the leap through to mass manufacture. There are myriad car companies that can claim some or even all of those things. But which don’t have the institutional knowledge of how to build hundreds of thousands of cars well, properly, and at a price that people want to pay.
That of course being the one thing that VW does have. We know very well that VW can make stuff at reasonable prices and make it well. Making a profit as it does so.
This has always been my at least concern over what Tesla is trying to do. Sure, I can see electric cars. I tend to think fuel cells and hybrids are a better technological option but that’s just my opinion. I can see that people think the Tesla models are pretty cool and that helps, of course it does. Fully autonomous cars are going to be fabulous.
But, but. Mass manufacturing is a seriously difficult thing to get right. And we’ve no real indication that Tesla has any greater skill or expertise there than other wannabes. And we know very well they’ve got less than the current – or at least some of – major car companies. Which has always been the worry.
Can Tesla scale up? And will they be able to do that faster than someone who can already do the scale can electrify? My guesses at answers have always been maybe and no. Which is why I’ve never been very confident that Tesla’s going to succeed – as a mild expression of my worries.