Tesla CEO Elon Musk is known for so many things. He has been called a visionary, magician, scientist, engineer, a brilliant mind, the Edison of our times and what not. But not many of us realize that he is one of the best marketers of our time as well. From the time Tesla Motors sold its first Tesla Roadster in 2008, Elon has made sure that demand has far outstripped supply.
Granted, there was a moment in 2008 when Elon Musk came close to making a choice between SpaceX, which was started in 2002, and Tesla, which launched a year later. Musk invested $100 million in SpaceX and another $70 million in Tesla. It took six years and three failed launches before SpaceX was able to get Falcon 1, the first privately-developed liquid-fuel launch vehicle, to reach orbit on 28th September, 2008.
But at the other end, Tesla was going through a huge cash shortage:
“I could either pick SpaceX or Tesla or split the money I had left between them. That was a tough decision. If I split the money, maybe both of them would die. If I gave the money to just one company, the probability of it surviving was greater, but then it would mean certain death for the other company. I debated that over and over.” – Elon Musk, as quoted by Bloomberg
Elon Musk survived those arduous times, raised as much money as he personally could, took out a loan from SpaceX and made sure that Tesla got the breathing space it needed. Since then, there has been no looking back for Tesla. The company’s supply capability has always fallen short of the demand for its products.
Between 2008 and 2012, Tesla sold 2,450 Roadsters in over 30 countries. In 2008, electric cars were practically a myth. Nobody believed that there was a market for electric cars, because the cost of the battery pack alone would put the car out of the reach of many people. At this point, Elon faced a triple challenge: he needed to prove that electric cars were financially viable, that they can compete with any ICE car on speed, and that they could offer an acceptable range of distance.
Astutely, he decided to go after the high-end of the car market, near the ‘exotic range’ where people are ready to spend in the hundreds of thousands. A smaller market, of course, but Tesla could build cars and sell them without making too much of a loss. The key objective at the time was to have Roadsters zipping around silently on the streets so the brand could be established in a strong way.
The Roadster’s base price was nearly $110,000 in the United States, and it could run 200 miles on a single charge, taking just 4 seconds to do a zero to 60 mph sprint. With the battery pack alone costing in the tens of thousands of dollars, a Tesla roadster battery replacement cost $29,000.
But Tesla’s choice to target the exotic car segment was not just the right decision, but also a brilliant marketing strategy.
It established the credentials of the electric car around the world, and it also proved that it could run for 200 miles on a single charge, a number that was unheard of in the electric car world of its time. Even today, there aren’t many automakers that have EVs that can run for more than 200 miles on one top-up.
And, as the Roadster gradually got more owners, in 2010, Tesla became the first auto company to go public since Ford went public in 1956. Tesla offered 13.3 million shares at a price of $17 per share, raising a much needed $226.1 million in the process. Tesla’s stock rose 40.5% by the end of its first trading day, and is now trading above $350.
The important thing to note here is that, by the time Tesla’s IPO prospectus reached investors’ hands, Tesla was already ready with its plans for its next product, the Model S. In fact, it plastered the image of a Model S prototype on the second page of the prospectus.
The Model S, which is planned to compete in the premium vehicle market, is intended to have a significantly broader customer base than the Tesla Roadster.
We currently intend to begin volume production of the Model S in 2012 with a target annual production of up to approximately 20,000 cars per year.
We currently anticipate introducing the base Model S at an effective price of $49,900 in the United States, assuming and after giving effect to the continuation of a currently available United States federal tax credit of $7,500 for the purchase of alternative fuel vehicles. – Tesla IPO Prospectus
Right at this point, Tesla could have chosen to take a different route. It could have decided to keep selling Roadsters to the ultra-high-end market, or gone the other way and tried a mass-market sedan at a much lower price point, starting off slowly and then gradually increasing production and deliveries as demand grew.
But, no, Elon wanted to compete in the premium market – one that was larger than the Roadster’s, but still much smaller than the mass market.
Tesla wanted to keep the aura of exclusivity for as long as it could as it meticulously planned to keep moving up the volume ladder, while leap-frogging over everyone else on the battery technology front.
In effect, what Elon did was to prepare the supply chain for auto components using the Roadster, which only sold in the thousands of units. But it paved the way for Model S, warming up the market and fostering consumer interest in this unique company with a unique marketing approach. In fact, we’d go so far as to say that the Roadster even set the tone for the much more affordable Model 3 that’s coming out soon, while Models S and X further expanded the potential market while gaining significant interest in the mass market.
Elon Musk kept people in this lower mass-market segment looking at the car and wanting to own one. How many of them might have looked at a Model S or a Model X and said: “I’d like to own that, someday”? Quite a lot. At least 400,000, in fact, because that’s how many people were prepared to plonk down $1,000 and then wait two years before they even set eyes on their Model 3.
Tesla now has nearly $700 million in customer deposits alone, three times more than the amount they raised by going public. That’s marketing genius whichever way you look at it, and this is Elon Musk’s biggest and strongest asset – not Tesla Motors or even SpaceX.
Is it any surprise, then, that the demand for Tesla’s cars far exceeds its ability to make and ship them? That was the plan from the very start – even before the Roadster went into production: create the demand even before you start the project.
And that’s a lesson every marketer around the world would do well to learn. Of course, not everyone is an Elon Musk, but there’s a lot of sense in following a similar strategy, even if it doesn’t capture the imagination of the entire world.
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