Tesla is going blitzkrieg with its disruptive strategy of going green. Will it create difficulties for luxury carmakers in the future? Let’s try to know.
Established carmakers across the globe are rejigging their business models in the hope of adapting to a new world where electric vehicles will replace diesel and petrol. Most luxury car brands define themselves with high-performance models like Mercedes AMG, BMW M, Audi S and Porsche S. But is that enough when Tesla is leading ahead in the global race to the electric cars? Let’s get to know the impact Tesla would have on other luxury car brands in the fully electrified automotive era ahead.
Brands rearranging their business model
Manufacturing plants around the world are being remodelled in a bid to produce electric cars, and carmakers are getting hold of every battery they could find. Some others are allying with partners or setting acquisition targets to avoid the high cost of manufacturing electric cars. For example, Volkswagen who also owns brands like Bugatti, Porsche, Lamborghini, Skoda, Audi, SEAT, etc, is taking up the challenge by applying drastic transformation in the electric or hybrid field, with the investment of USD 34 billion over the next five years.
The German auto giant has plans to introduce 70 new electric models in the next eight years, and by the end of 2030, the company wants to roll out every 4 out of 10 cars as electric. This strategy clearly shows how the big brands are prepping up for the fight ahead in future.
Several leading car manufacturers are playing catch-up with Tesla. It seems they simply couldn’t believe Tesla can deliver that much. However, if you seriously take a cursory look at the numbers, there are some crucial proof points the company has got to show.
The pioneering high-end electric carmaker has delivered 499,550 units to its customers in 2020, just missing the half a million mark, while producing over 509,737 units. It was a major milestone for the company, as the CEO Elon Musk himself tweeted that at the beginning of Tesla, there was about a 10 per cent chance of surviving. Though the car production of Tesla is small-scaled, as compared to biggies, the enormous growth prospects have incited the investors to boost up its value which is now more than the combined worth of Volkswagen, Toyota, General Motors, Honda, Ford and Fiat Chrysler.
Engine and regulations
The powertrain underneath has been the centre point of many brands, some even going the distance by calling the engine, the heart of the brand. As a result, BMW started offering M-badged cars, Mercedes having its own AMG division, Audi with similar RS models and Porsche with S versions, each with powerful combustion engine becoming the defining elements of the brand.
This strategy has been successful for decades, with customers willing to spend 20-50 per cent more to get the extra performance. But this major profit driver is now facing some real threats. With the emission norms changing at a rapid pace, it seems the days of the internal combustion engine (ICE), are numbered. California has already announced to ban ICE vehicles by 2035, while similar legislative actions are being undertaken around the world. So, the market of luxury cars coupled with these engines will see a substantial decline in the next 8-10 years.
Cost to performance ratio
If we put the regulations aside for a while, no Audi RS, Mercedes AMG and BMW M can beat Tesla electric cars. This isn’t just anything, it is the reality. For instance, the Tesla Model 3 Performance priced at USD 60,000 can outperform most sports cars, which are priced twice or thrice in the market. Similarly, USD 100,000 priced Tesla Model S Performance offer more acceleration than Porsche 911 Turbo S, priced twice than the former.
And with the time, the cost of offering acceleration in a sports car will be below USD 30,000, a tough nut to crack for cars selling for USD 150,000 and above.
Electric cars are gaining traction every day as an incredible amount of money is being poured into developing them. However, the car manufacturers who assume themselves to have caught off the guard are still floating. Reason? Tesla is still way behind in manufacturing mass volumes as compared to giants like VW and Toyota. So, it may be prepared for the electric evolution, it lacks the infrastructure to meet demands.