How The Model 3 is Destroying Tesla

Tesla Model 3

If the story of Tesla was somehow a metaphor for stories from the Bible, then the Model 3 is Judas making sure everyone at Tesla is on their way to the last supper, assuring their shepherd is approaching his final resting place (that cross is for you Elon). Maybe it was always Tesla’s destiny to be a sacrificial lamb of sorts, ending up in the same situation as many other pioneering companies, often not lasting long enough to see the technology they introduce make it to mainstream profitability. Ultimately, the Model 3 will bring forth a real test of faith in electric car kingdom that Tesla built.

You see, the Model 3 betrays everything consumers love about Tesla, and at the same time reveals those in charge of the company don’t understand their clientele at all. As it turns out, car companies in America only operate in two models, high volume or high margin, and with each comes a specific set of expectations that have to be met if you want to continue in that space. Tesla was the latter, high margin, but the Model 3 changed everything.

Exclusivity

The first expectation of running a high margin, or premium brand, is exclusivity, which when speaking plainly, means these brands produce a low volume of products. Premium brands often justify their product scarcity by including extravagant materials or assembly methods as a part of their production process, enabling product owners to reference things like hand-stitched leather, individually assembled, or first of its kind, when talking to others about their new toys.

Model X with Falcon Doors Open
Photo courtesy of Mashable.com

In Tesla’s case, it’s Falcon Wing doors on the Model X, Ludicrous mode on the Model S, and street legal lithium batteries on the Roadster, that check all the appropriate branding boxes for a premium brand. These features, combined with lower product availability, meant consumers looked forward to random encounters with the vehicles in real life, hoping to catch a glimpse of how a Tesla embodies the concept of cool. Then came the Model 3.

The Model 3 is a contradiction in how premium brands operate, and when Tesla announced it at a $35K price point with the specific goal of being a mass-market vehicle, I could almost hear the other Tesla owners cringing. In the minds of premium brand owners, the proliferation of the Tesla badge to everybody and their mother would seemingly make the symbol on their vehicle less valuable, as if they were mathematically averaging the prices of the cars together. American’s don’t tolerate this kind of behavior. You can’t use the same branding for bargain vehicles as you do for premium ones.

Tesla’s could have easily avoided this mistake by using the same branding strategy as every other car manufacturer in America. In “Merica,” car companies use different brands to divide their consumer base between their operating models, one brand for volume, and another one for margin. That’s why there’s a GM and Cadillac, Infinite and Nissan, Ford and Lincoln, etc.

This two prong approach has enabled U.S. car manufacturers to maintain a certain amount of exclusivity on some brands, while simultaneously achieving the cost efficiencies of scale with another. More importantly, the dual branding strategy protects another expectation of premium brands – cost.

The Cost Correlation

Time to Cost Correlation

When there’s a limited supply of anything, most of the time, the cost of that product naturally increases, delivering a price point that inherently leads to more margin. Premium brands use this natural correlation of exclusivity and cost to perpetuate their brands further, promoting an emotional response that evokes admiration and envy. The combination of these two emotions is what brand experts like to refer to as aspirational, and Ferrari is a perfect example of an aspirational brand.

Do you know why I don’t drive a Ferrari? I can’t afford one, and for the people that can, that is part of the allure of owning one. For everyone with the same budgetary constraints as myself, the astronomical price tag associated with a Ferrari isn’t off-putting, it provides an immediate understanding that a person driving one must be doing pretty well for themselves and makes us wonder how we can achieve the same thing.

Tesla’s vehicles used to inspire the same type of awe as a Ferrari when they pulled into a parking lot, but the release of a reasonably priced version calls everything we know about the brand into question. A Tesla never had the practicality of a Nissan Leaf or the design of a Toyota Prius, and surely didn’t carry a similar price tag. A Tesla was always expensive, exclusive, and impractical, just like an aspirational car brand should be. All of that went out of the window with the Model 3.

Before the Model 3, when people asked me about owning a Tesla, my answer was the same as it is concerning a Ferrari, “I can’t afford one.” Since the release of the Model 3, it’s different, when people ask me why I don’t drive a Tesla, I have to consider if I really want one. Being able to afford one has forced me to consider the features of a Tesla, like reliability, charging time, and driving distance. I had to ask myself, is this the best car for me at 35K? For a lot of consumers, the answer to that question is no, which proposes some harsh realities for Tesla, and the future of electric cars.

Tesla’s Red Pill

Red Pill and Blue Pill

The reason the Model 3 ruined everything about Tesla is that it snapped everyone back to reality, not just consumers, but Tesla was well. Besides exposing previously oblivious consumers to serious considerations about owning an electric vehicle, it also presented questions about Tesla as a car company. The effort to reach critical mass has surfaced several issues about various aspects of Tesla, making everyone consider if they have the production capacity, infrastructure, and sales tools of a high volume brand.

In the end, the production Model 3 broke the rules of a premium brand and made us all lose faith in the dream that made Tesla great. All we’re left with is the harsh reality of having taken the red pill rather than the blue one. I should have heeded the advice of Cypher in the Matrix and realized “ignorance is bliss.”

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