Silicon-Valley-based Tesla Motors (NQ:TSLA) is America’s first successful automaker start-up since – well, since automakers first started up. CEO Elon Musk, a founder of the online payment service PayPal, poured his personal fortune into the company with the goal of solving the problem of sustainable production and consumption of energy, which he calls “the largest terrestrial problem that we face this century.”
Tesla’s current contribution to a solution is the Model S, an American-made all-electric luxury sedan with a range of 250 miles. With over 25,000 Models S’s on the road which owners can drive from coast to coast, charging for free at Tesla-built superchargers along the way, Tesla has silenced the nay-sayers — and the company is only just getting started.
While building a revolutionary car, Musk is also providing a master-class in how to grow a successful company founded solely to serve a social mission.
Tesla stands out even in the socially-responsible business community, both for the audacity and complexity of its task (succeed in the auto industry, surrounded by behemoth competitors with decades more experience), but also for its success so far. The 25,000 Model S’s on the road were sold without a dime spent on advertising, and yet the Model S outsold all its category competitors in 2013, besting the number 2 competitor by 30%, according to Forbes.
What are the lessons of Tesla’s success for entrepreneurs building companies to solve social problems?
LESSON 1 – Give the Customers What They Want
There are a number of electric cars on the market, tending to be low-ranged, feebly-powered and somewhat ugly. The suggestion that people “should” want to buy these cars because they are “good for you” doesn’t get much traction in our muscle-car-loving culture. But Tesla built a car for America. The performance model, with 416 hp, goes from zero to 60 in 4.2 seconds. Suddenly there is a market made of folks who couldn’t care less about zero emissions – they just want the best car in class. And it doesn’t hurt that the car is beautiful. It turns out that environmentally-conscious consumers like stylish design too.
LESSON 2 – Eliminate Objections
Selling someone on an electric car is a process of “Yes, but…”. That’s often the case with alternative, more sustainable choices. For example, there’s, “Yes, but what about the range?” Tesla designed the most advanced battery pack available, boosting the range to 250 miles. “But where will I charge?” Never mind that 99 out of 100 days, you’ll charge the car at night in your garage, and you’ll have a full “tank” every morning. Americans want to know they can go anywhere. So Tesla is spending millions to build out a network of proprietary “superchargers” across the country and in Europe where Tesla owners can get a full charge in about forty-five minutes – for free, for life. Right now you can get from Boston to LA on superchargers alone. By the end of 2015, you’ll be able to go pretty much anywhere in the country.
“Yes, but what about the price?” Okay, that’s a big one. Batteries are expensive, and the average Model S runs about $70,000 to $80,000. But this is not the end game – it’s a step in Tesla’s master plan to put an electric drive-train in the best possible mass market automobile. Building on their developing experience with manufacturing and their increasing economies of scale, Tesla plans to introduce a car in 2017 that will cost $30,000 to $35,000, and get 200 miles on a charge. Still not cheap, but beginning to be a mass market commodity.
LESSON 3 – Build your vision from the ground up
A more sustainable or responsible version of a product that already exists isn’t a new idea – it’s just a compromise between the old and the new. Designing your product or service by reworking an old idea robs you of the power that comes from wiping the slate clean, and beginning again the right way.
The Model S is the first modern car built from the ground up as an all-electric vehicle. Batteries being very heavy, they have a large impact on range, so Tesla set out to create the lightest possible body. The Model S is the only all-aluminum body & chassis car made in the U.S. It was designed for aerodynamics from the start, and as a result, it has the lowest drag coefficient of any car its size. Because it started its life as an electric car, and not as another car’s chassis with a battery strapped on, every aspect of its design is maximized for electric-car performance. That’s the power of starting with a clean slate.
The end result of Tesla’s no-compromise approach is a car that has been heaped with industry accolades. The Model S was Motor Trend’s 2013 Car of the Year, but much more importantly for most consumers, it won Consumer Reports’ highest ranking ever, and was chosen Consumer Reports‘ best overall car of the year. It also received five-star ratings for all the NHTSA crash tests. As of now, there have been no deaths and no serious injuries involving a Model S. That will surely change, but it’s a good way to start.
Elon Musk says he set out to build, not the best electric car, but the best car. Period. He believed that for Americans to accept electric vehicles and open up the possibility of ultimately powering cars with renewable fuels, it would be necessary to make no compromises.
So far, his strategy is paying off. Big time.