Automotive > Infotainment & Telematics Blog

Tesla's Irrational Convergence

by Roger Lanctot | Feb 13, 2018

“There’s no reason to buy a BMW.” So said a senior BMW digital marketing executive to me last year on stage at an industry event. It was a moment of profound candor and a sentiment shared widely if rarely publicly in the automotive industry: Most vehicle purchases are emotionally, not rationally motivated.

In the age of automotive industry disruption, though, reticence regarding the recognition of irrationality governing the vehicle purchasing process is falling away. Speaking at an awards dinner in Washington, D.C., in January, TheDrive Editor-at-Large Alex Roy, highlighted the hormonal inclinations of vehicle purchasers and the enabling behavior of automobile designers and marketers.

Roy’s prime examples of emotional automobile acquisitions included the Jaguar XKE and the Tesla Model X. To his way of thinking, there is no rational reason to acquire either of these cars (when new).

Taking a different tack while speaking at a KPMG event at the Detroit Auto Show (NAIAS), also in January, Adam Jonas of Morgan Stanley pointed out the maximum folly of any consumer purchasing an electric vehicle for economic or environmental reasons. To get the point one need only consider the source of the energy required to operate an EV and the massive amount of driving necessary to achieve any appreciable savings vs. an internal combustion engine.

By definition, the decision to purchase a new electric vehicle is irrational. It makes no sense economically or environmentally. This is all the more reason to show respect to the likes of Renault-Nissan and Tesla Motors, standard bearers for the triumph of good intentions over reason.

By the numbers (care of Adam Jonas):

SOURCE: Morgan Stanley

By Jonas’ calculations and given the current price of gasoline, the buyer of a new electric vehicle, logging 10k miles/year, would require nearly 30 years to see a payback in fuel savings on his or her purchase. If, however, the EV were to be driven 10x as much at the high utilization rate of a taxi a payback on fuel savings might be achieved in less than three years.

Roy and Jonas are bringing to their listeners a profound truth underlying the automobile industry. It is an emotionally driven consumer business ruled by rational regulators.

Nowhere has this contradiction become clearer than in the debate over the adoption of electric powertrains. But it is also lurking in the discussion regarding the future of vehicle ownership.

France, Norway, the United Kingdom, China and, now, California are all lining up to limit or eliminate vehicles using internal combustion engines. There is little evidence within existing or projected sales data to suggest a hidden consumer yearning for vehicles driven using electricity. To be successful these nations will need generous incentives and draconian penalties (and a good bit of scrappage) to achieve their ends.

Meanwhile, industry experts and analysts are lining up to predict the end of vehicle ownership in the face of a rise in shared vehicle use and transportation as a service (TAAS). Morgan Stanley, KPMG, the Boston Consulting Group and many others forecast the demise of the purchased vehicle in favor of the shared vehicle – with a corresponding decline in overall vehicle sales commencing within a decade.

These experts recognize the existence of the irrational, but choose to ignore it when it comes to the enduring nature of vehicle ownership. The shared vehicle obsessives are underestimating the yearning for ownership and the EV anoraks refuse to accept that car buyers can do math.

These issues come to mind in the wake of Tesla’s fourth quarter earnings report. Tesla embodies all facets of the highly irrational realm of disruption currently enveloping the automobile industry.

Tesla Motors CEO Elon Musk wraps his cars in a sexy mystique (Model S, Model 3, Model X and Model Y, to come) while embracing the irrational underpinnings of the automotive industry. He has located and tapped into the “S3XY” in electric vehicles to such a successful degree that he has been able to distract investors from Tesla Motors’ mounting losses.

It is perhaps a measure of the magnitude of the magic involved in giving expression to the sexiness of EVs that he has been given the multi-billion-dollar pass that he has been granted. To crown the frustration of ICE-focused competition, Tesla finds itself perfectly aligned with governments and regulators the world over – a growing number of which are fixed on eliminating the internal combustion engine.

Musk has achieved this objective with little or no advertising, while competing with an industry that is dependent on advertising ICE-based transportation and gas-guzzling (and profitable) SUVs and pickup trucks. In essence, Tesla is increasingly aligned with regulatory authorities while legacy car makers are increasingly and structurally at odds.

But those aren’t the only tricks up Musk’s sleeve. Tesla has a game plan to address the sharing economy and, famously, a solution to automated driving.

In this week’s earnings call Musk noted, near the close of the call: “There’s also as I mentioned prior things that we expect operate at kind of a shared economy fleet where Tesla’s kind of like a combination of Uber or Lyft and Airbnb, I guess, like where you can opt to have your car enter a shared fleet or not, and then Tesla can operate its own fleet in places where there’s not enough people sharing their vehicles. So that’s a pretty significant opportunity.” (Care of Seekingalpha.)

Ah, Musk, master of the understatement. While the average car maker is wrestling with the idea of autonomous driving as a vehicle-defining feature, Tesla has made autonomous driving an expensive option available via a software upgrade. Musk has given us aspirational autonomy.

The typical car buyer will not want to own a self-driving car – after all, a self-driving car is a taxi. But what if the self-driving is just a feature available on demand? Tesla has resolved this marketing puzzle with software – and, yes, a bit of required hardware.

To review, Tesla has found the “sexy” in EV, has rendered the autonomous driving discussion moot with software update technology (if you want it, you simply pay for it), and left the door open to Tesla sharing and the future creation of a fleet of shared Tesla’s. The shared fleet, again, resolves the Tesla ownership question at some future point in time.

More importantly, the shared Tesla strategy removes the initial point of irrationality by increasing the utilization of the electrified vehicles. Other car companies venturing down this same path include BMW, Daimler and General Motors, all of which have targeted their EVs at shared use applications, ReachNow, Car2Go and Maven, respectively.

Only Tesla has made ownership of an EV exciting while enabling (semi-) autonomous driving and, eventually, sharing. (Tesla’s vision for a Tesla-managed sharing network of cars will include a revenue share proposition with the vehicle owners as described in this Strategy Analytics report:, like all auto makers, Tesla has embraced both the rational and the irrational on its debt-ridden path to success.

Tesla is currently thriving in a world ruled by irrational vehicle acquisition behavior. But for the regulatory vision of EV dominance to be achieved, consumers will have to be convinced to share their vehicles in order to increase utilization.

Only Tesla is aligned with such a long-term vision. Only Tesla is future proofed for a world of diminished vehicle ownership as forecast by the experts. Yet those same experts are underestimating the enduring emotional tug of vehicle ownership – which is fine with Tesla. Musk has all the bases covered.

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