What Tesla Motors got right

The drivetrain of a vehicle with internal combustion engine (ICEV) has a great complexity, and the number of parts is to a significant degree independent of the size of the engine: A crankshaft, an oil pump, an exhaust treatment catalyst with associated control system, engine block, camshaft, transmission, clutch, and so on. Therefore, more powerful internal combustion engines will be cheaper per power than less powerful ones, or they will be at least more efficient, as more fuel-saving design decisions, such as Diesel cycle, turbochargers, or variable valve timing become economical. In contrast, in battery-electric vehicles (BEV), the highest-cost component is the battery, the cost of which scales linearly with its capacity. This is because the large batteries in cars are simply made up of a very large number of small, individual cells. Thus, the relative economics of ICEV and BEV imply that battery-electric will have the best chance of beating internal combustion in the smallest, least powerful cars.

Contrast this with Tesla’s strategy: Their first car was the roadster, the next projects were a large sedan and a sport utility vehicle, the exact opposite of what the above economic reasoning would suggest. Yet Tesla is in a way successful — because they are producing cars for customers who do not care about the economics. While the purchaser of a small- or medium-sized car will demand the car to be a way to comfortably and economically take him from one place to another, the purchaser of a much more expensive car can afford to buy a car for very different purposes: using the vehicle brand as an expression of their lifestyle, the same way one would buy a watch or clothing of an expensive brand marketed on exclusivity.

And Tesla’s brand is just right for that: If you purchase a Tesla car, it allows you to associate with its iconic CEO, an individual who has acquired high status as a self-made billionaire and futurist. With your Tesla car, you purchase a part of the future, and moreover, you then belong to the better part of humanity, those who care about the environment, global warming and the future of the planet. No established auto maker can compete with Tesla’s branding, because they have the spirit of Dinosaurs, relics of a foregone era. Thus, the question for the success of Tesla is not “Can they produce in quantity?”, but rather: “Can they find enough people who are overpaying them for the good feeling?”

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