Thursday, March 22, 2018

Demand for Teslas

Emily Siderits

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?Image result for tesla model 3 demand chart

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.
Image result for tesla cost per mile

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.


Works Cited
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.

Pictures (in order of appearance):
https://gas2.org/2017/03/27/tesla-model-3-expected-outsell-bmw-3-series-mercedes-c-class-combined/
https://insideevs.com/of-course-its-cheaper-to-fuel-a-tesla-model-s-compared-to-a-gas-premium-sedan-but-by-how-much/

28 comments:

  1. I believe Tesla will be able to make it back to equilibrium, they are a large company with a smart CEO behind the company and with he money they bring in it would definitely help them reach equilibrium again. Tesla is definitely the future of cars with he full electricity alternative which within the next century all gas powered road vehicles could be extinct and be replaced with electricity. So if Tesla keeps their goodwill they have very good chances of being even more successful in the future.

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  2. I think that people are starting to relize that having a hybrid car makes much more sense in the common economy, comprared to other cars that eat up a bunch of gas, making you stop at the gas station all the time and waste money. With Tesla expanding into new markets such as their new Semi Truck, the possibilities for that company are endless.

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  3. Tesla was very smart to create a new product that is less expensive than their usual automobiles that they produce. This action created a larger target market for them and also a larger consumer market to buy their cars. However, this would only be beneficial to the Tesla brand if they were able to produce as many cars as are being demanded by the consumers. This is not the case, and Tesla is having a hard time supplying enough cars to meet people's wants... sounds like it’s time for a new production manufacturing line.

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  4. It is very interesting that Tesla cannot keep up with the demand their cars have. But, people are more apdt to spend $40,000 on a car that will not uphold a need for gas all the time, as gas fluctuates with its supply. Therefore, it is a strong alternative to cars that need gas. But, if Tesla is unable to supply the cars necessary, people will go to other alternatives rather than wait for the automaker to catch up.

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  5. Tesla's are becoming more in demand due to saving money on gas and also taking the next step to saving the environment. I think it is crazy how these cars can outrank other luxury cars given that the release wasn't too long ago. I also believe that these will be the cars in the future and that other companies will design cars around the model 3 (given that it has autopilot).

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  6. The shortage of the car is something that tesla should be worried about. I believe, if I were a business owner and that many people wanted that car that I put it on the market as too cheap. But I believe as a consumer that it is a great way for tesla to get new consumers that they could not read with a higher price tag. The green energy car is a great alternative to the gas powered cars. If enough people change their cars then the price of gas might decrease and green energy cars will surpass the gas cars, however that will take a long time from now. It seems like tesla has yet to disclose the information about how they are making these new cars so cheap. Should consumers be worried about buying a tesla that inexpensive?

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  7. It makes sense that the Model 3 is in such high demand. It’s clear that the company knows how to work the market, but with that I would think that after seeing the shortage of Model 3 cars, they would do more to try and end it. This is because consumers could get tired of waiting even if they really do love the car. As a society, most people aren’t the most patient, especially with things they desire. Tesla has the possibility of losing all they were working for with advertising, leading them to a significant financial loss.

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  8. Tesla used to be a small company that had only 2 cars as their showroom. Now the company has been booming as people want a more eco friendly but stylish car, with them offering more cars and options. It's very surprising how much money people can save with one of these Tesla's. Tesla with either keep excelling with their current path or break if they can't get those cars out

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  9. I was shocked to see how much of a difference there was between supply and demand. This indicates a quantity shortage, where the quantity supplied is less than the quantity demanded. If the Model 3 car supply does not meet the needs of demand, people will be unhappy, and Tesla will experience financial burden. The demand is mainly determined by consumers tastes, with the Tesla being a more luxurious, efficient, and highly technological vehicle. Supply, on the other hand, is greatly influenced by technology.

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  10. I like that you brought in elements of supply and demand in relation to oil needs in non-electric cars, how the reliance on oil can be susceptible to shortages that will spike gas prices and that electric cars do not run this risk. I think Tesla should lower the price to a reasonable level that more average people can buy, to make electric cars more widespread and have the U.S. in particular be less dependent on oil.

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  11. Tesla is a company that gives me a great amount of excitement; not only are they pushing the boundaries of technology, but they are doing so with great business models in mind, and a great sense of humor. Elon Musk is always able to throw out insanely optimistic projections and somehow convince the public with his dry humor and unwavering confidence. I believe that some people are fixed on buying Tesla cars for these exact reasons. Beyond wanting a cool new car, they want to support that wonderment that Tesla brings to society; they want to encourage the company that has the guts to push science to new places while naming their models S, 3, and X, creating a somewhat suspicious acronym.

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  12. I think Tesla is smart to create high end vehicles that run on electricity rather than gas based on the world's current consumption of a fossil fuel that will at some point run out. But, with that being said, I wouldn't want to wait months for an expensive car to be created knowing that Tesla is struggling to keep up with the demand of their vehicles. For the price and hassle, as a consumer I might choose to opt for a more affordable, eco-friendly car that doesn't require me to wait so long to access it.

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  13. This is a very interesting issue because when tesla’s first came out nobody really knew what they were and how efficient they can be. Now that Tesla has come out with features such as self driving and electric powered cars they have been more well known. Because the company has been more well known, more people are wanting these Tesla’s which is causing the company to supply more even though they are not producing them at a fast enough rate. The company is in need of more production so that they can fill the customers needs. This issue is putting Tesla on edge because they are not used to producing this many cars in such a short amount of time. Due to this, the company will have to lower their prices on their cars.

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  14. Teslas are becoming more and more in demand from people because it can save them a lot of money on gas also it is saving the environment. I think its wild how these cars are better than other luxury cars even though the release on the Teslas wasn’t that long ago. I think that these cars will be the future and won’t be long till other companies make self driving cars.

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    Replies
    1. Dear Masen,

      I agree with your comment. The economic implications of this cheaper model are also really interesting. While Tesla made this new car to be a cheaper alternative, the lower price has driven the demand up to insane levels. The fact that demand is so high when supply is so low shows that this car is actually not being produced in equilibrium; Tesla could charge a higher price, and while they would lose some customers to the higher price, there would still be enough consumers to increase profits from where the company is now. However, while Tesla could increase the price on their car and increase profits, the whole purpose of this new model was to provide a cheaper alternative, which runs counterintuitive to the steps Tesla could take to maximize profits.

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  15. With Tesla’s high demand for their new car, it wouldn’t surprise me if we saw a price increase a little bit. Since so many people want the cheaper model of a Tesla, the company could be able to charge a little more for it and they would still receive very good sales. I also like how the cars are electric. I would love to drive an electric car to see how they ride, because I think it is so cool how we can use different forms of energy to power our cars. And who knows, if lots of people start to buy electric cars, maybe the price for gasoline will go way down; maybe down so far as to even out the prices between gasoline and electric cars, but I still think electric cars will be better/cheaper for the future.

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  16. I think Tesla has their hearts set on a more affordable eco-friendly system for their cars but they haven't quite figured out how to do it properly. If you offer a car that from a brand that is highly sought after then you need to compensate when you offer that car for only 35k you need to boost initial production to not end up in that same situation. I believe Tesla will be fine if they just boost production on the Model 3

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  17. It was a good move for them to create the Model 3 because of the price point. Everyone has seen Teslas and also seen the staggering price that it is at for a sedan its size. I am surprised that they didn’t see this high of a demand coming sooner since people always admire them on the road for their looks, interior features and the fact that they save the environment without the awful gas fumes. Now with a much cheaper price, people can wrap their heads around buying one, Hopefully they will be able to keep up and in 2020, they will be more prepared to take on the high demand for the Roadster.

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  18. This is a great article. I'm a big fan of Elon Musk and the various projects that he pursues. I love all the conspiracies that are associated with him, if you know much about those, and how much of what he does almost doesn't seem real but this is something that is very real and I think that Elon Musk is getting even more widespread acknowledgment and I think that is really cool. Aside from praising Elon Musk, this is a really good article. I think you made a clear stance on the topic and provided a lot of information about some of the different cars that Tesla makes.

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  19. I was very surprised to see the high demand for Tesla's. Although I am not in the slightest very knowledgeable about cars, whenever I think about tesla's I think that it is an expensive car that not a lot of people buy because of how different it is. But I think that the fact that the creators of the car have good intentions in mind, and they are trying to be more innovative, people are more drawn to the benefits of owning it.

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  20. I believe we will start seeing more and more teslas. Once the supply increases people will see the desirable product in person, see other people get them and then want the product. Also, the demand for ecofriendly vehicles are increasing in cities like LA that have problems with smog. The middle class and high class families that want ecofriendly vehicles will surely buy a trendy tesla.

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  21. A very intriguing piece indeed, as Tesla has becoming more culturally revered it is no surprise that their models are being more sought after. I suspect as price decreases, the demand will continue to increase, and once production catches up with demand, supply will increase as well. In addition I watched a movie with Nikola Tesla in it last night, being played by David Bowie. It's called The Prestige and I highly recommend watching it. I give it a 10 out of 10.

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  22. I really enjoyed this article because I personally love Tesla cars and have always thought highly of them ever since they came out. I think the reason so many people want to buy the Tesla Model 3 car is because of all the new technology they see being put into it. In addition to that, they are also hybrid cars, meaning you don't need to spend money on gas which on average saves about $1,500-$2,000 per american with a license per year. After reading your article about Tesla being short on supply for their Model 3 car, it was easy to see the potential of the company. I think Elon Musk and the rest of Tesla Inc. are going to figure out a way to supply more of their product (Model 3) and then Tesla Inc. as a car company will soon be dominating in the industry. Great article!

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  23. I remember when I first heard of Tesla. I was watching a Top Gear episode, which is a car show, and it was 2008. There was a new car made by a small firm that was made on the body of a Lotus Elise, the only difference is it was 100% electric. It was called the Tesla Roadster. It is insane to me to think of how far this brand has come from that small firm with a little electric car built in the body of a Lotus to the powerhouse they are today. I enjoyed your piece because it put into perspective how large of a jump to the mainstream has been.

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  24. I've actually heard from the grapevine that Tesla is struggling. The cars they make are so very expensive, and are only targeted for the high class, so the majority of people cannot buy them. Also, since many people cannot buy them, it's extremely hard for Tesla to make a profit off the cars. However, I feel as though Tesla will have a sudden jump, because people are willing to strive to be able to afford a Tesla.

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  25. It is exciting to hear that Tesla vehicles are in such high demand given the environmental benefit that these vehicles posses. Many people were interested in owning Tesla cars originally but now that there is a less expensive product out there, the opportunity for many more people to afford their cars is increased greatly. While it is great that the demand is so high for the vehicles, it will only benefit Tesla if they can find a way to keep up with the start producing enough cars to meet needs.

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  26. This article is super interesting especially because I didn't even know this was occurring with Tesla. Though, I completely believe the dilemma this car company is facing because Tesla usually has higher priced products that a lot of people are not able to buy. I think that it is actually a good thing that they have such high demand because once they supply more cars they can get even more business even though it is with a less expensive car. Overall, even though I don't know that much about cars or the car industry, I found this very interesting to read.

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