In short: Traditional car manufacturers are spending billions on developing electric vehicles. But before spending even more, they need to take advantage of Tesla's expertise and build charging networks to support their vehicles. Only then can their electric vehicles be considered products. And today, an electric car is also a platform.
Over the past five years, major car manufacturers have been investing heavily in electric vehicles. In 2017, the Volkswagen Group announced that it will introduce 80 new electric vehicles across all of its brands by 2025 and electric versions of each of their models by 2030. In the same year, GM announced plans to have at least 20 electric vehicles on the road by 2023. And that's not all: at Bloomberg New Energy Finance It is predicted that there will be 500 different electric vehicle models on the roads by 2022.
But for all the multi-billion dollar investment, no major automaker appears to be able to compete with market leader Tesla, whose brand has become almost synonymous with electric car. And this is surprising - it was logical to assume that companies with an income of over $ 100 billion a year, huge production experience and large market shares, joining this game, would seriously press a competitor.
But buyers still prefer Tesla to other cars - be it the Audi eTron or the cute cars of GM brands such as Buick, Cadillac, GMC and Chevy. The answer to this can be quite simple. Buyers drive their Teslas with confidence over long distances knowing that they will find a place to recharge the car. And while long-standing automakers are still focusing on improving the cars themselves, Tesla is thinking about the entire ecosystem, trying to solve the key problems of electric car drivers.
Machine as a platform
The car is valuable because it can be driven, and for this it needs to be constantly refueled. Car manufacturers of cars with internal combustion engines do not have to worry about this, gas stations in the world are full and easy to find. In the States alone, there are more than 160,000 of them. Therefore, they build strategies based on standard market values: product, cost, placement, advertising. Build a cool car, advertise actively, offer it in the right markets at a good price, and sales will go.
Electric vehicles require a different value analysis. The recharging stations - fast - are in their infancy. There are only 4,000 of them in the US so far. Moreover, the network of charging stations is split between owners and technologies. Tesla's closest charging competitor has 10 times fewer stations. If you don't buy a Tesla, you have very few options for travel planning, guaranteed access to charging stations, and quick recharges.
Hence, electric vehicles are a two-way platform product. One side is the established audience of buyers. The second is a geographically vast network of fast chargers with several racks in each. To sell electric vehicles, you need to have a reliable charging network. However, investing in a large network only makes sense if you already have a large enough user base and demand for these chargers. Tesla has such a network, and everyone else is ridiculous by comparison. How did it happen, and what can this story teach us?
Platforms need networks
Nissan took the lead in the early EV market with its bright and inexpensive Leaf, making it the best-selling electric car between 2011 and 2014. Despite this lead, Nissan was unable to build a reliable fast-charging network, leaving customers to be content with little the number of third-party stations serving all brands.
Tesla obviously took a different approach. The company started with a luxury product, the Roadster, which got it going and generated some sales. Then in 2012, the company released the Model S, for which there was a queue lasting about a year from 2013 to 2015. However, as part of supporting its cars, Tesla rolled out its own charging network throughout the United States. Therefore, although in the early years the company sold only a few thousand cars, it had a base in the form of a huge network. It solved the problem of “driving range anxiety” for drivers — when you thought about buying a Tesla, you didn't have to worry about charging.
Most automakers have taken the Nissan approach and have focused on making better cars. But imagine what it would be like if, instead of spending billions of dollars on making cars in which it is impossible to travel long distances, Audi, GM, Ford and everyone else spent only a billion to create a supercharging network. In the USA, this money could be used to build about 1000 stations with 10 terminals in each. If the network of such stations were properly designed, buyers could be confident enough to choose their car according to its characteristics, instead of the characteristics of the charging network. And then the companies could already move to the production of cars on an industrial scale, reduce their cost and eventually become serious competition for Tesla.
Platform advantage
The strategy of creating its own closed platform, like Tesla, allows its owner to coordinate both sides of the market - an established fleet of cars and a charging network. Tesla, owning a network of chargers, can set the cost of charging itself (or, for example, make charging free of charge and make money only on cars), choose their number, the speed of creating new ones and places for them.
All of these choices can reflect the overall business strategy and details of the company's customers and their travels. Note that another newcomer to the market, Rivian (which has not yet sold a single car) is also creating its own charging network. Rivian distributes stations along major highways and campgrounds, which makes sense given that it is targeting travel cars.
Automakers should learn from Tesla's experience and focus on the charging network before investing heavily in the development and production of new electric vehicles - or at least wish it in parallel. They may not have to build their own network from scratch. They could cooperate with companies that have their own networks, capable of hosting and recharging stations. For example, many existing fossil fuel companies have gas stations that will still remain idle in the future - they could be converted into electric vehicles.
Naturally, focusing all your efforts on the network is not a completely safe strategy. Building a network from scratch is not a trivial task. It is unclear if potential partners will want to enter into exclusive contracts with a single automaker. And every automaker would like to conclude such an agreement in order to get ahead of the rest in the competition. However, investing in the grid will definitely increase the chances of gaining a dominant position in the electric vehicle market. Judging by the current situation, concentration exclusively on the production of machines cannot provide such an advantage.
Looking to the future
It is clear that Tesla is pushing ahead with its high-tech platform strategy. So far, the business model of its new auto-driving technology has been operating in a classic way - it requires a one-time upgrade cost of $ 10,000. However, she plans to move to providing automatic functions as a service with a monthly fee. This strategy makes their cars a platform through which to deliver services to customers.
The advantage of this business model is that it allows Tesla to collect training data for the machine learning algorithms needed to build autonomous robotic vehicles. This will give her a critical advantage in the next stage of the car race. As for the charging network race, if other companies are serious about creating alternatives, we believe Tesla will open up its network to other brands, as the benefits of having a closed system will begin to diminish. We are already beginning to see the first signs that Tesla is hinting at the possibility of opening the network, inviting a new partner to join.
Companies looking to be the next Tesla must carefully consider the reasons for such a significant gap. And it's not that they don't know how to make cars. Many of the existing automakers have been doing this for over a century. Instead, they need to focus on critical infrastructure, in this case charging networks, to enable customers to give the newcomer a chance. And then they can move on to the next battleground - managing vehicle traffic data, which will help build robotic vehicles and gradually transition to a car-as-a-service model instead of a car-as-product model.