Despite being one of the leading car companies in the auto industry today, recently, Tesla has suffered from unforeseen panic involving their new Model 3 car. The Model 3 was introduced last year as a cheaper alternative to their expensive Model S car. Although it is less advanced in comparison to the Model S (from $74,500), the Model 3 (from $35,000) holds its own. However, upon announcing the Model 3, Tesla was faced with shockingly high consumer demand--demand that was far too high for their supply levels. Even to this point, Tesla has struggled to keep their production aligned with the demand, yet Elon Musk--the co-founder, CEO, and product architect of Tesla, Inc.--keeps lofty goals (see chart to the right). Buyers have been patiently waiting months for their Teslas, despite the fact that substitutes are available at the same price point, and would likely come in two to three days. The media has been all over this issue, saying “The automaker is entering one of the most critical phases in its history, a make-or-break period in which Tesla must boost production of the Model 3 or possibly face severe financial consequences” (Wall Street Journal). Rightfully so, as a consumer, you may wonder, why are Teslas still in such high demand?
First and foremost, Tesla’s vehicles are fully electric, which is favorable when compared to substitute cars at similar price points that run on gas. Referencing the visual on the right, on average, a premium sedan that runs on gasoline costs 454% more per mile to drive. This is not surprising as gas is a fossil fuel. Fossil fuels are categorized as non-renewable sources (meaning the source is scarce and non-replenishable), and therefore are quite valuable. Furthermore, gas is directly dependent on the oil industry. In fact, “In 2016, the United States imported approximately 10.1 million barrels per day (MMb/d) of petroleum from about 70 countries” (eia.gov). However, any of these 70 countries could suffer from an oil shortage. Then, our quantity of gas supplied would decrease and consequently, the price of gas would have to increase. This has happened throughout history and will continue on in the future. Unlike gas, neither of these issues arise with batteries used in electric Teslas.
The other largest factor contributing to high demand for Teslas is their advertising; specifically, their advertising in regard to the tastes of consumers within their buyer profile. Currently, according to Tesla’s 2015 marketing plan, the current target individuals are “business executives and entrepreneurs who are city dwellers, tech-savvy and green-friendly…wealthy, early adopters in the upper to middle class.” More or less, this narrows down to “males looking for a premium luxury car” (Investopedia). Tesla is clearly aware of this and consistently appeals to their crowd, emphasizing details that are relevant to the buyers’ interests. This is apparent with their newest car, the Roadster, which is to be released in 2020. Across all advertising platforms, Tesla has been sure to highlight that this new Roadster can go from 0 mph to 60 mph in 1.9 seconds--something that is highly regarded by most within their buyer profile, and surely some others as well. Tesla has also put significant emphasis on their “Autopilot” feature seen in all their vehicles, which is a setting in which the car drives itself. This creates an appeal to eco-friendly, tech-savvy, and entry-level luxury buyers in their 20’s to young 40’s, who otherwise land outside their typical buyer profile, which in turn, increases overall demand for their cars.
In the end, Tesla vehicles have benefits that outrank other luxury cars at the same price point, explaining to why the demand remains high. For now, Model 3 production delays are overshadowed by consumer’s excitement. It will be interesting to see how Tesla continues to adapt to their production issues and if equilibrium is met once again.
Crothers, Brooke. “Tesla Week: Elon Musk, Model 3 Media Panic: 'Make-Or-Break'.” Forbes, Forbes Magazine, 20 Mar. 2018, www.forbes.com/sites/brookecrothers/2018/03/18/tesla-week-elon-musk-model-3-media-panic-make-or-break/#351806d744bd.
DeBord, Matthew. “One of Tesla's Biggest Advantages Could Become Its Biggest Problem.”Business Insider, Business Insider, 26 Feb. 2018, www.businessinsider.com/tesla-strong-demand-could-backfire-become-problem-2018-2.
U.S. Energy Information Administration. “How Much Petroleum Does the United States Import and Export?” Eia.gov, 4 Apr. 2017, www.eia.gov/tools/faqs/faq.php?id=727&t=6.
Zucchi, Kristina. “What Drives Consumer Demand for Tesla?” Investopedia, 17 Feb. 2015, www.investopedia.com/articles/personal-finance/021715/what-drives-consumer-demand-tesla.asp.
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