What Tesla Motors Must Do For The Model 3 To Be A Success

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Tesla Motors Inc (NASDAQ:TSLA) aims to make a mass market electric car by 2017, but will consumers buy it? A survey from shows that a lot will have to happen between now and then in order to convince consumers that it’s a good idea to buy a Tesla—or any other electric car, for that matter.

Price, education, range and a lack of charging stations must all be addressed before consumer desires to buy green cars will translate into actual sales.

Big gap between plan to buy and desire to buy

DMV.com said it found that 38% of those who participated in the survey say they plan to buy a “green vehicle,” which includes both hybrid and electric vehicles, in the next five years. At first, this would suggest that automakers may want to throw more money into the green car market.

However, the statistics show that interest just isn’t translating into sales, which is probably why making green cars isn’t a priority for the major automakers. Only 3.8% of all vehicles sold in the U.S. last year were hybrid or electric vehicles.

Consumer perception about electric cars

Most consumers do think green vehicles will play an important role in the future, according to another survey conducted by the Union of Concerned Scientists and Consumers Union. The survey found that 65% of Americans think they will play an integral role in the future of transportation due to pollution and oil consumption.

The survey also indicated that 60% said they would think about buying an electric vehicle. Consumers apparently are looking beyond the environmental benefits, however, as 72% of the participants in DMV.com’s survey said they think they would save money over time by buying an electric vehicle rather than a gas-powered vehicle.

But why aren’t consumers actually buying electric vehicles?

The surveys also explain why consumers seem hesitant to buy electric vehicles. For example, 52% said the upfront cost was too high, with 25% saying it was their biggest issue in buying a green vehicle.

Another big issue is range, which 57% of participants listed as a concern, although statistics show that 69% of drivers in the U.S. travel less than 60 miles per workday. Also consumers believe there are no charging stations available, although the UCS and Consumers Union found that 56% of households in the U.S. can charge a green vehicle.

Aside from simply increasing the range of electric vehicles, EV makers are also going to have to do something about the lack of charging infrastructure. DMV reported from its survey that 58% of those who participated said they would struggle to locate a charging station.

Charging station growth slows

This is a problem that is being corrected slowly, although the fix may come to a halt, as the growth in the number of charging stations appears to be slowing. The U.S. Dept. of Energy said earlier this year that the number of EV charging stations with scheduled opening dates fell two-thirds last year to 685. Overall, the U.S. had less than 10,000 public EV charging stations, which Jordan Perch, spokesperson for DMV.com, told ValueWalk is less than 10% of the number of gas stations.

“It’s also important to remember that electric charging stations aren’t evenly distributed across the country,” Perch said. “While there may be an increase in major metropolitan areas, there are still a number of regions in the United States that are woefully underserved in regards to electric charging stations. However, the technology is evolving to where you can purchase portable car chargers that make it less necessary to have a charging station available. As with any new technology, there will be an increase in the availability of electric charging stations as the demand for EVs continues to grow.”

Is Tesla ahead in charging infrastructure?

This issue is something Tesla Motors has been working on fast by expanding its proprietary Supercharger network, but the company’s efforts are just a drop in the bucket at this point. Perch said that while Tesla’s Supercharger network is “a step in the right direction,” it just isn’t enough—at least not yet.

“I don’t think it is by any means a significant game changer as there are many markets that are still underserved or have no Supercharger, while many of the areas with a higher concentration of superchargers likely would have been a market more inclined to purchase an EV than more underserved markets,” Perch said.

He noted that Tesla has only 112 Supercharger stations in North America, but 18 states still don’t have a single one. Canada has only three stations.

“I would say that there’s a long way to go before Tesla’s Supercharger network is having a significant impact on the buying decisions of the average American consumer,” Perch added.

More education needed

DMV.com’s survey also found that education is a key factor in whether consumers will buy green vehicles, and this is another particularly weak spot for Tesla. The website found that 76% of survey participants plan to buy a standard fuel vehicle next and that 25% never researched green vehicles. However, statistics show that more than 60% of Americans drive within the standard range for electric vehicles, but they just don’t know it.

Also DMV.com reports that the upfront cost of buying a hybrid vehicle is, on average, earned back in six months and that drivers could save about $7,600 in the ten years after buying the vehicle. Adding tax incentives on top of that, the savings could be more than $10,000 in ten years. Consumers don’t seem to be aware of how quickly they can earn back the upfront cost.

Unfortunately for Tesla though, its current price tag keeps the upfront price of the Model S from being earned back so quickly.

Automakers not spending on advertising

Education certainly seems low on automakers’ priority lists, with Tesla budgeting no money for advertising and Nissan spending only $25 million of its $770 million U.S. advertising budget on marketing the Nissan Leaf electric car in 2012. General Motors Company (NYSE:GM) spent about $3 billion marketing the electric Chevy Volt.

With Tesla focusing entirely on electric vehicles, it seems like a mistake not to advertise for the purpose of educating the public. Perch said that the electric vehicle manufacturer’s lack of an advertising budget could keep it from growing.

“While Tesla clearly has an interest in maintaining its unique brand position as the ‘cool’ EV on the market, it may risk stunting the growth of its potential market if it chooses not to become more aggressive in its advertising techniques.”

Tesla may be beaten to the mass EV market

Ultimately, the mass market vehicle Tesla is planning in a couple of years may not be successful—simply because consumers don’t know why it’s worth a little extra money to buy an electric car. The automaker is building a gigafactory for the main purpose of bringing down the cost of its battery cells and thus, the cost of its vehicles.

But will Tesla be able to beat EV makers that already have mass market EVs? Perch doesn’t think so. He thinks one of the others will become successful with a mass market EV first. Interestingly, even though Tesla has said it wants to make and sell a $35,000 car, he doesn’t believe that’s truly in the company’s goals. He also sees scale as being a major barrier to success.

“I don’t really see Tesla looking to make a significant impact in that regard because it really isn’t their target market,” Perch told ValueWalk. “They’ve differentiated themselves as a higher end, luxury electric vehicle and aren’t necessarily looking to bring their price point down to that of the Nissan Leaf or Chevy Volt. Also, the issue is an economy of scale. Tesla does not have the infrastructure and R&D capabilities that the larger automakers have available to them due to their size.”

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