Comment
0
Tweet
0
Print
RSS Feeds

Is the Model S Like the Model T?

Thursday - 5/2/2013, 2:12am  ET

All revolutionary, game-changer, disruptive, first-mover technologies have their nay-sayers. The personal computer and motorcar were considered a rich man's toy much as the electric vehicle made by Tesla has been.

Unsurprisingly, there is an academic psychology analysis tool, called the Technology Acceptance Model, that explains the stages of acceptance of new technology. Basically, it is perceived ease of use and perceived usefulness that factor into a human decision to adopt new technology, with newer variants of the model factoring in social influence and facilitating conditions. The model has been tested on smartphone adoption, social media, and other technology with a 70% success rate.

What does this mean?

A better example may be how long it took cars made by Ford to gain acceptance. The Model T was the first truly mass-market car and so wildly popular it moved a nation of horseback riders to become drivers. Henry Ford dropped the price from $1,000 to its eventual $365 to get those cars moving. According to Tesla CEO Elon Musk, an affordable model, the Gen III, could be rolled out as early as 2016.

Perceived usefulness of the Tesla is the main issue. Is how much a driver saves on fossil fuel and the inconvenience of charging the car worth the sticker price? In other words, "range anxiety."

Investors should be encouraged by news of Kroger supermarkets' and Walgreen drugstores' installation of EV charging stations, as well as news reports that the Pennsylvania Turnpike will have four EV stations installed this summer with fast chargers at all service plazas over time. At charging costs of $2-$5 it is certainly cheaper than a fillup. Walgreens expects 40% of drivers will charge their EVs at Walgreens soon.

At the current mileage range of around 265 miles per charge (on the higher priced model), one could travel the 550 miles of the Pennsylvania Turnpike with one charge in the middle and another just before the end.  Musk says a 500-mile battery should be available within the next few years. He also stated solar powered Solar Stations will be free to use for the lifetime of a Tesla.

Perceived ease of use is crucial. For 10 years Tesla has been improving their vehicle and  powertrain components until the car offers the same driving experience as a standard car. The Tesla Model S was named 2013 Car of the Year By Automobile and Motor Trend. The Automobile testing editors described it akin to using an iPhone with its intuitive experience.

Test editors noted the Nissan Leaf and other models like the Chevy Volt and the Ford Focus electric come nowhere close to driving like a regular car. This explains why Tesla has outsold those models and reported a profit for the first time this year.

This is fairly similar to the way the Model T gained traction and became the most popular car in America. The Model S is already the US' most popular electric car, outselling the Volt by 329 cars in the first quarter despite the Volt's lower sticker price.

This has brought down Tesla's valuation to a forward P/E of 40.93 and closing at an all-time high of $54.96 on April 29. Tesla should also gain from the demise of electric car rival Fisker Automotive, just as Ford did as rivals dropped away in the early 1900s.

Taking a page from the Apple playbook, Teslas are sold only in boutiques owned by Tesla, not run of the mill auto dealerships. On this, Tesla is facing some headwinds as various state regulations prohibit direct-to-consumer sales of autos (48 states) and as expected, old-school dealerships are vigorously opposing any change to those rules. It may come to the point of a future Capraesque film, Mr. Musk Goes To Washington.

What Henry Ford did with the Model T was make it affordable and that is the big challenge for Tesla; to take Silicon Valley technology and the assembly line and parts innovations made by Ford a century ago and make the affordable EV that will be not just the ticket to freedom that the Model T represented but the ticket to fossil fuel freedom.

The Model T catalyzed the building of the interstate highway system.  EVs already have governmental and state support (especially in California, big surprise) in the form of carpool lanes and federal tax credits for buyers, up to $7,500.

Lee Iacocca saved General Motors by offering warranties longer than usual to instill confidence for an American consumer tired of the poor quality of US craftsmanship. Likewise, Musk is offering an eight-year warranty on the battery as well as loaner cars  and the opportunity to upgrade to that loaner car.

   1 2  -  Next page  >>