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What Tesla Might Get Wrong About Model Cycles.

Jan 10, 2023

The staggering collapse of Tesla’s stock price elicits endless reporting and commentary. Instead of focusing on Tesla’s self-proclaimed “Techoking” and his many attics or the surely overinflated price-to-earnings ratio of Tesla’s stock price, let’s look at a quirky strategic decision Tesla took in the way they manufacture their cars.

The automotive industry, since time immemorial, has operated on model cycles. You design, build, promote, and manufacture a car for a few years. You make changes to the car, announce the updates, and release the new version of the car (usually marked by its model year). You rinse and repeat the cycle. Germany’s standard-issue car, the VW Golf, has gone through eight generations and many more model years since its debut nearly 50 years ago.

Tesla decided to apply a software-inspired approach to their car: Instead of selling one particular car for a year or longer, the car is designed to allow for constant changes. The thinking is that regardless of when you buy your Tesla, you always get the latest and greatest model at this particular moment. It’s a drastically different approach to designing and building cars – one which is being hailed as revolutionary by its proponents. But also one which, I believe, bites Tesla in the tail…

You lose a significant marketing opportunity without the opportunity to showcase your latest advancements on a regular schedule in a neatly packaged deal – the annual trip to the big car shows with all their bells and whistles. Not only that, but you further lost your ability to upgrade your customers from one model year to the next (leaving the sustainability aspect of this out of the discussion for now). Personally, I couldn’t tell you how a Tesla Model S, which I buy today, differs from the same car I bought ten years ago – other than the controversial steering yoke.

It’s an interesting lesson in established consumer behavior, expectations, and why, sometimes, it just doesn’t pay to swim against the stream. Maybe this will all change, and consumers will be fine with the approach, but for now, there is a reason why car manufacturers at large are keeping things the way they are (and companies like Apple iterate on their products using the same model – look at the Apple iPhone and its annual upgrade cycle). (via Pascal)