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Tesla Model 3: Distraction or disruption?

Tesla has come a long way.  Last week the company launched its lower-cost Model 3 cars priced at around US$35,000.

The pre-order for the latest release makes Tesla the envy of its more traditional competitors.  Current indications show the car manufacturer has amassed over US $350 million in orders for a vehicle, that most consumers will not be able to park in their driveways until mid to late 2017.

Also, the number “35” is an interesting one in the context of current energy trends.  In the commodity sector, analysts have been concerned at what sub US$ 35 dollars per barrel of oil signals for the future of the industry.  By way of contrast, US$ 35,000 for the Model 3 also heralds a major departure from Tesla’s previous pricing strategy, which has lent heavily on a premium offering since the Tesla arrived in showrooms in 2007. The company has long focused on the US$ 80 K plus segment of the car market – quite successfully – with its Tesla Model S and the Tesla Roadster.

Up until now, German car manufacturers selling medium-sized sedans have most probably viewed Tesla as somewhat of a distraction.  The Model 3 changes all of that.  What was once a distraction is fast becoming a disruption.

Likewise, a battle-scarred oil sector must be looking at Tesla with some level of trepidation. Whilst is not clear yet as to whether we have reached a tipping point in oil, the advances in alternative energy are creating a democratization of choice that is different from anything seen before.

The Tesla brand is redefining the parameters of sustainable transportation. Indeed, one should express caution in just seeing it as a car brand.  The Tesla Powerwall is classic example of vertical integration. It’s a thoroughly complimentary offer to the ever-growing range of Tesla vehicles and makes Tesla unique amongst its rivals in the automobile sector.  The vertically integrated approach to carbon-free motoring is increasingly relevant to ‘green-leaning consumers’ disenchanted at what has previously been on offer from the big car and oil companies.

The ability of a brand to adapt to the forces of disruption is a key factor in determining a brand’s overall agility.  Today’s best brands succeed due to their unbridled desire to be agile.  For too long, car manufacturers and old world energy companies have resisted unlocking a carbon-free future for motorists.

Quite simply, where others see complexity, Tesla has found opportunity.

It is still early days yet for the Model 3, but the Tesla phenomenon shows few signs of abating.  The Tesla brand has redefined the parameters of what it means to be environmentally friendly. Until now the Tesla has been aspirational for many, yet not practical given the hefty price sticker on its two key models.  The pricing for the Model 3 means that what has previously been ‘aspirational’ now becomes ‘accessible’ for the masses.

It will be fascinating to observe how the car and oil industries reposition their respective offers in response to a Tesla vehicle with an entry price of 35k.

Nick Foley is the president of Southeast Asia Pacific & Japan for Landor.

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