Detroit’s Big 3 on the Precipice…….Again: (Part 10)

              How Desperation Stimulates Short-term Rational Thinking…. and Long-term Demise

NOTE: This blog was written in the first two weeks of April, 2020. As such, it cannot and does not anticipate the full effect of the COVID-19 pandemic on the US and global auto industry. Stay tuned…..

In this series of eleven blogs, we will discuss the current situation in Detroit with the traditional “Big 3” – Ford, GM, and Fiat Chrysler (FCAU) – and their upstart rival Tesla. The series will end with specific recommendations as to what the Big 3 must do to survive against Tesla and other electric vehicle manufacturers. The eleven blogs in this series are:

• The Detroit Big 3’s current woes, Part 1
• The Detroit Big 3’s current woes, Part 2
•  A brief history of the Big 3’s electric vehicle attempts, Part 1, GM
•  A brief history of the Big 3’s electric vehicle attempts, Part 2, Ford
•  A brief history of the Big 3’s electric vehicle attempts, Part 3, FCAU and General Big 3       Summary
•  What’s so special about Tesla — Part 1, financials and battery performance
•  What’s so special about Tesla –  Part 2, manufacturing, and cost/time reduction
•  What’s so special about Tesla –  Part 3, coming Tesla models, etc.
•  What’s so special about Tesla –  Part 4, Tesla versus emerging competitors
•  Why Tesla so successful……..the Company; the Cars
•  What’s a poor Big 3 auto company to do now?

Why Tesla so successful……..the Company; the Cars:

Tesla the company:

No discussion of Tesla the company can possibly omit mention of Elon Musk, Tesla’s CEO. Musk is super-intelligent, has bold visions, and has the guts and leadership capabilities to lead/drive willing and committed people to innovate and achieve great feats, or impossible feats, if you prefer. While on occasion he has been a bit optimistic with his timetables, he has never failed to deliver in any business he leads. He has become a business icon and already at the age of 48 one of the most accomplished people in history. The following six examples of his leadership should suffice to illustrate his strategic thinking.

1. Musk’s overall strategic goal with his companies is to “create a more sustainable future”. What a great tag line to capture the hearts of today’s younger people, and totally in line with environmentalists of all ages. Tesla customers love to be seen as in tune with that goal. Tesla vehicles also fit into Musk’s strategic flywheel of solar power generation, battery power storage, and electric vehicles, soon likely to include the all-electric family/home.
2. Musk was smart enough to eliminate the cost and hassle of a dealer network (for Tesla, and for its customers). No middlemen for Tesla, and no haggling, no piles of paperwork, and no hours wasted at a dealership for Tesla’s customers.
3. Compared with virtually all other automobile manufacturers, Tesla is unique in its degree of vertical integration. Musk realized the benefits of being in control of his own destiny on critical technologies, software skills, and parts, in addition to the lower costs and great business process speed achievable with vertical integration.
4. Musk also has executed his vision of a modern automobile as a computer on wheels, continually updated with frequent over-the-air software upgrades. Not only has Tesla created its own powerful computer chips to eventually enable full self-driving (FSD) and autonomous Robotaxis, but the entire Tesla automobile is managed with one integrated software system.
5. Additionally, Musk was prescient enough to realize the value of the feedback data from his Tesla vehicles as they were driven in all kinds of traffic and weather situations, and by all manner of drivers. He knew this data could be used by machine learning neural net-based artificial intelligence (AI) software as a building block for his autonomous driving vision. By the end of 2020, Tesla will have accumulated close to four billion miles of Tesla owners’ driving activity in its database, over three orders of magnitude more than any of their hope-to-be autonomous driving competitors. Of course, Musk also realized that Tesla’s software-based and Internet-connected vehicles could also offer scores of valuable “apps”, just as with cell phones, that continue to add value for Tesla’s customers.
6. Musk is the only US auto manufacturing CEO to communicate and respond directly with Tesla’s customer base, mostly via Twitter. He welcomes customer feedback and suggestions and often responds personally to individuals and very quickly with an improvement or change in a Tesla product (usually at no charge!) that customers recommended.

As a recent example of Musk and Tesla’s response to customer complaints, early Model Y customers complained that the new heat pump compressor in their Model Ys was excessively noisy. In the Model 3, the conventional A/C compressor was enclosed in a molded plastic shell that had a foam liner in it to reduce compressor noise. Less than one month after the start of Model Y production, Tesla just announced that it would be enclosing the new heat pump compressor in a similar enclosure, of course at no charge to early Model Y customers. That’s customer responsiveness and doing the right thing for customers and the Tesla brand.

[Note, May 10, 2020: According to Sandy Munro of Munro Associates in one of his latest videos https://www.youtube.com/watch?v=eGffUODWWSE&t=6s, the Model Y heat pump noise problem has been identified as being caused by cavitation – air getting into the system, either during installation or because of one or more faulty O-ring seals. In any case, Tesla acted immediately to fix the problem on the affected Model Ys. The problem did not occur on every Model Y initially produced. It’s not clear at this point whether Tesla still intends to encase the heat pump as on the Model 3’s A/C compressor.]

Of course, the fact that Musk accomplishes all this with a flair and occasionally some controversy all enhances – or usually enhances — Tesla’s public image.

Tesla, the car(s):

And what of Tesla’s cars? Let’s enumerate some of their many features and benefits, generalizing across all Tesla models.

• Tesla’s cars are exciting and fun to drive – – they are certainly not boring. People of all ages love their acceleration and handling.
• Tesla owners love the fact that their driving range leads the pack in electric vehicles, with only a couple of recent EV small-car entrants in the same ballpark in terms of miles/kWh.
• Tesla drivers love Tesla’s Autopilot, stating that with Autopilot on, they feel much more relaxed during long trips

This is further evidenced by Tesla’s Accident Data report for Q4, 2019, where Tesla states: “In the 4^th quarter, we registered one accident for every 3.07 million miles driven in which [Tesla] drivers had Autopilot engaged. For those driving without Autopilot but with our active safety features, we registered one accident for every 2.10 million miles driven. For those driving without Autopilot and without our active safety features, we registered one accident for every 1.64 million miles driven. By comparison, NHTSA’s most recent data shows that in the United States there is an automobile crash every 479,000 miles.” Quote from Tesla’s website.

• Tesla’s record string of 5-star safety ratings across all Tesla models (Model Y not yet rated as of April, 2020) by the National Highway Traffic Safety Administration (NHTSA) gives potential customers and owners a great deal of confidence that their Teslas are well designed and built to protect them in case of an accident.

But there are two other aspects of Tesla’s vehicle safety they also admire. One is the Autopilot safety record mentioned above. The second, as important, is Tesla vehicles’ record of vehicle fires. According to Tesla’s website and their Vehicle Fire data from 2019, there has been one Tesla vehicle fire for every 175 million miles traveled in Teslas. They go on to say that “……data from the National Fire Protection Association (NFPA) and U.S Department of Transportation shows that in the United States there is a vehicle fire every 19 million miles traveled.” Quote from Tesla’s website.

• Tesla owners love the fact that at no charge their vehicles benefit from continuous improvements in range and vehicle management software capabilities such as the vehicle’s embedded feature options and the expanding selection of in-car apps available via the Internet.
• Tesla owners love Tesla’s Supercharger network with its huge installed base of charging stations that come with free charging for Model S and X owners, and relatively inexpensive charging for Model 3 and Y vehicles
• Tesla owners top the charts in overall satisfaction with their Teslas. Yet again, in 2020, Consumer Reports has Tesla at the top of its 2020 Owner Satisfaction ratings (averaged across all brand models). Teslas scored 88 points. Just to give this some perspective, Genesis was second at 81 points, and from a Big 3 viewpoint, Lincoln (#3) was Ford’s best at 78; Ford (#7), scored 74 points; Dodge (#11), FCAU’s best, scored 72; and Chevrolet (#20), GM’s best [!!] brand, scored 69 points! When a manufacturer is anywhere from 10 to 19 points behind the market leader in this critically important Consumer Reports survey, they have a long road in front of them to remedy their vehicles’ and marketplace shortcomings.
• Tesla’s hold their value better than most other car brands, in part because they are so admired, and in part because of Tesla’s OTA updates and continuous improvements in range and safety features, that will eventually culminate in full self-driving (FSD)
• Finally, Teslas are loved because they have soul – that intangible assemblage of innovative vehicle performance, styling and benefits, environmental consciousness, and corporate image as a high-tech computer-on-wheels “EV-against-ICE” growth company.

Blog #11 in this series is: What’s a poor Big 3 auto company to do now?

Photo courtesy pexels.com; Markus Spiske

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