Updated: Feb 14, 2020
Recently, I read and posted on LinkedIn this thoughtful article about Tesla’s strategy by Nathan Furr. Battery life, cost, weight and power are central to becoming a leader in the electric car industry, and Tesla is investing significantly to create the best batteries. My friend, Brad Silverberg, rightly points out that Tesla’s software is an additional unique advantage since it also helps drive higher battery capacity (as well as an overall great driving experience).
So how does the Tesla Cybertruck fit in Tesla’s strategy? Well, clearly, even with battery and software leadership that builds “tall walls” (a term I use in my upcoming book Strategy First) that makes it tougher for competitors, Tesla still must build great, popular cars to achieve its goals. For example, the Model S is a nicely designed vehicle and has had strong sales for its car type. The Model 3 has achieved success and is also a very well-designed, more affordable car. The Model 3 is the number one selling electric car in the world; impressively, goodcarbadcar.net lists the Model 3 as the 26th bestselling car overall in the US in 2019 (with just over 160,000 units).
The Tesla Model X was over-engineered and is too expensive. For such a large category, a more practical, less expensive SUV, made more sense. The Model Y, a crossover announced as coming this year, seems like a smart edition to the line-up that will satisfy a larger market of customers who desire an affordable SUV.
Tesla’s announcement of the Cybertruck in November was met with surprise and shock because of its science fiction, dystopic appearance. When I first saw it, I thought it came from the movie Blade Runner and I immediately did not like the look.
Most friends of mine thought the same way. Others I spoke to love the design. The reaction to the Cybertruck was so polarizing that Piplsay polled over 20,000 Americans to learn what people thought. Most (56%) had not seen the Cybertruck. Of those who had seen it, only 29% had a positive reaction.
Sandy Munro, a well-known industry analyst, argues that the Cybertruck might require less capital expenditure to build and have a lower cost structure because it doesn’t need a paint job and its exoskeleton acts as its body panels. So, for a company that has struggled to rein in costs and develop products on time, that might be a big plus.
Additionally, the Cybertruck, with its first models slated for late 2021 delivery, has many nice features. It is fast, can handle a heavy payload, has lots of storage space, and has a powerful towing capacity. And of course, it is electric!
But that does not change my view that the Cybertruck is a strategic mistake, the wrong bet for Tesla to make. In the US alone, three pickups sold over 500,000 units last year. The Ford F-Series sold almost 900,000 units and was the number one selling vehicle overall. Tesla claims a very significant 250,000 pre-orders for the Cybertruck, but it is likely that some of those pre-orders will cancel (the cost to “pre-order” is only $100) and that this early enthusiasm is not indicative of an ongoing annual run rate. My guess is that the Cybertruck steady sales rate is more in the range of tens of thousands of units a year, making it more of a niche product.
Even if it sells moderately well, building it takes time and resources that could be better used for a truck that could sell in much higher quantities and put more pressure on current truck manufacturers and up and coming ones like electric truck and SUV start-up Rivian (whose vehicles are scheduled to release late this year).
When Tesla launched the model S in 2012, it made complete sense to focus on the high-end premium market first. Margins were higher and those customers would pay a premium while Tesla improved the technology and gained experience that allowed Tesla to build the Model 3.
Now, I think it makes more sense for Tesla to reverse that strategy and build an affordable, stylish, but less controversial truck with broader appeal first – not the Cybertruck.
What are your thoughts on the Cybertruck? Comment below!