Why Tesla Should Fail, But Won't

Business.com / Technology / Last Modified: February 22, 2017

A startup with cash flow challenges and a unicorn-rare car design, Tesla should have been a failure. Here's why it's not.

Over the years, there have been countless automotive startups that have tried and failed to gain traction as lasting businesses.

Automotive startup pains aside, Tesla has had plenty of other common startup problems such as lack of cash flow, and production delays.

All things considered, they should have crumbled.

Here's why they won't. 

Related Article: 14 Newsletters Startups Should Subscribe To

Tesla Has Star Power

While there is plenty of rock star talent among Tesla's staff in every department, its CEO Elon Musk and his reputation for driving success is undoubtedly a key component of the company’s good fortune. Having founded other thriving companies (including PayPal and Space X, where is also the current CEO), Musk has a proven track record as a brilliant engineer and a remarkable salesman.

That combination, when he teamed up with Tesla co-founders Martin Eberhard and Marc Tarpenning as chairman of the company’s board of directors, led to early success at raising money from investors.

Tesla Is Generous

In 2014, Musk announced on Tesla’s blog that the company’s patents would not be defended, and that the company welcomed others to use its technology to further the industry along.

He wrote, “Technology leadership is not defined by patents, which history has repeatedly shown to be small protection indeed against a determined competitor, but rather by the ability of a company to attract and motivate the world’s most talented engineers.”

In other words, once they realized that other car companies weren’t going to be a threat to the bottom line, they invited competition because Tesla itself would not be able to produce enough electric cars to help the world’s ecosystem all by itself.

Its Timing Is Right

Even though other companies failed spectacularly after receiving government loans to develop alternative energy technologies, Tesla’s $456 million from the US Department of Energy’s $34-billion clean energy program helped spur its development of electric vehicles.

Not only did the car company not implode, it actually repaid that loan just a few years later after some boosts to its cash flow: Musk's own $100-million investment, early sales success of the Model S, and rising stock prices in the first quarter of 2013.

Related Article: Timing Is Everything: 10 Failed Inventions That Were Just Ahead of Their Time

Tesla Focused on One Thing

Before the company branched out into making other products, it focused on doing one thing very well: making a beautiful electric car with zero emissions. Its first model, the Roadster, used Tesla’s innovative lithium-ion battery and was produced between 2008 and 2012 with a sticker price of $109,000.

Sales of the Roadster boosted Tesla’s cash situation (with the help of an additional $1 billion in investor funding) and allowed the company to expand its product line to include the more affordable Model S in 2012 at a price of $69,000. In 2015 the Model S has been the highest selling electric plug-in vehicle in the US.

Now that the company has seen sales numbers grow and expand significantly outside of its native California, Tesla will roll out a luxury SUV (Model X) in 2016 and a cheaper, more mainstream Model 3 sedan in 2017

People Love Its Cars

Consumer Reports, the standard for automotive reviews, gave the Tesla Model S its highest rating of a car ever (99 out of 100), citing its “innovation” and “attention to detail.” In Southern California, a Tesla Model S sighting is something that happens at least daily, frequently to “oohs” and “aahs.”

Oprah Winfrey just bought one. The new Model X, a luxury SUV with X-Wing passenger doors that open up like the wings of a giant robot bird, is already getting hysterical raves in early reviews.

Even The Kids Are Talking About It

The sleek design and digital user experience appeal to a generation of people (and those who come after them) who take these design elements for granted, not to mention have been raised with the eco-conscious “reduce, reuse, recycle” message on repeat. For younger drivers, getting into a Tesla will be like driving an iPhone, which will be a completely natural experience for them.

In an interview with Bloomberg Business, a former Tesla employee, Aaron Plashton said, "Cars were the last unconnected devices...now Tesla has made cars relevant in a modern way, and I think it's time for the next big iteration on how we think about vehicles."

In a forum thread on Tesla’s website, Model S owner Thomas N. shared that his car turns heads, especially among young people.

I can't tell you how many kids come up to me - teenagers, people that work in malls, drivethrus, movie theaters, restaurant servers, you name it. They all want to see inside and are so enthusiastic. I have heard from them countless times "you are driving my DREAM CAR!" or "what do you do for a living because I want to own one!"   

Now that the Tesla Model S has been around for three years, people are able to buy them used, and indeed, already ten percent of people who buy used Model S Teslas are millennials (people age 18-34). In the years to come, these are the drivers who will upgrade to newer Tesla cars to take advantage of features like, true story, "Ludricous Mode."

Related Article: Boom or Bust? The Impact of an Economy Driven by Startups

Tesla Is Catching On

After over a decade in business, Tesla is no longer a startup, but with only a small percentage of overall car sales, it still has a long way to go to gain market share and tip the scales toward EV popularity. Their lasting success should be assisted by the way they are reaching new classes of auto buyers. As the Wired review of the Model X says, "Tesla has made the family car cool."

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