Thank you for the comment Erik! That is a very valid point. I would think the strategy they have adopted has been what it has because of the initial sky-high R&D costs when developing a new technology. Historically, the major chunk of R&D costs are incurred upfront. Sure, there are improvements later on which will call for continued investments in R&D, but once the technology has been introduced, these changes are only incremental. Examples of this would be the initial high price of computers and cellphones. These high initial R&D costs tend to drive up the cost of the products. Once an initial product is launched, and there is that added revenue coming in from the sales, companies then focus on the incremental R&D to lower the cost of the product and reach the mass market. To reach the mass market and eventually make a positive impact on the emissions, the strategy that Tesla has adopted is to start off with a premium model and then get into the mass market once the premium model starts providing them with the additional source of revenue to fund that R&D. The Model 3, due to be launched in 2017, will attempt to do just this by competing head-on with the likes of the BMW 3-series, Audi A4 and Mercedes C-Class. Also, from the marketing standpoint, I’d say it is easier for a brand to expand from a premium to a mass market segment than vice-versa because mass market buyers will always value “carry-over” features from premium cars, but not the other way around.
Thanks for the comment Aditya! Self-driven cars have come a long way over the past decade, but I still believe we still have a few years to go before they hit the customer market. Many of the shortcomings were discussed in class today. I’d argue that Google will not get into car manufacturing as there is a lot else going on apart from the self-driving technology, none of which is Google’s core expertise. Instead, how I see this space panning out is that the technology companies will provide complementary products (eg. a self-driving “module”) to the major car manufacturers, instead of trying to disrupt the entire ecosystem. There is also a move towards sharing of research and patents among companies, which augurs well for the future. However, judging from Apple’s past history, it is unlikely to license any of its technology to others and try to build an indigenous car. Having said that, if it is planning to build its own car, it is highly unlikely that it can launch before the end of this decade. If Tesla manages to launch the Model 3 in 2017 and hits its target of 500,000 vehicles per year by 2020, it will have had a huge head start over its competitors will no longer be a minor player in the industry. There will certainly be competition for talent, but that is probably for the best in terms of the evolution of the industry.
One of the risks of such a strategy is loss of brand equity. However, as the success of a number of other car manufacturers has shown, it is possible to have multiple models in the market at very different price points in this industry. The biggest challenge for Tesla, in my opinion, would be to continue to uphold its reputation of providing a no-compromise electric vehicle. For instance, even with the anticipated reduction in the cost of batteries that the Gigafactory will bring, the cost target for the Model 3 cannot be achieved unless some other major changes are made to the basic underlying fundamentals of the car. The body of the Model S is made of Aluminum, which is much more expensive than the more commonly used steel. To meet the price target, the Model 3 cannot use Aluminum. This will lead to an increase in the weight of the car, which will lower the performance and range, making the Supercharger network all the more important. It will also be interesting to note how this change of material will affect the safety rating of the car.
The current typical Tesla customer is presumably not very price sensitive, so the oil prices may not pivotal in his/her buying decision. Having said that, as Tesla moves towards the mass market, this will certainly play a role. However, the current difference in operating cost of an electric car and that of a gasoline vehicle is so high that even at current oil prices, it is more economical to operate an electric vehicle. Another determinant here will be the composition of the electric grid in the future. With a move towards solar on the cards, the operating cost of an electric vehicle will only come down in the future. Tesla does plan to reach an annual unit sales number of 500,000 by 2020, so I would not say they are not concerned about the short term. They do seem to be relying on continuous improvements in battery technology to further reduce the operating cost of electric vehicles. In fact, I would argue that the cheap oil is likely to create an increase in demand, which will further necessitate the adoption of electric vehicles as oil supply runs out!
Thanks for the comment Maciej! Tesla has actually already expressed interest in partnering with other car manufacturers for the charging stations, provided they have a common business model (Tesla, for example, does not plan to charge for the charging at the moment). How I see it panning out in the future is that Tesla will be just one of the charging service providers, and there can most certainly be third party providers (Shell, etc.) playing in this space as well. As electricity is not Shell’s core business though, I doubt if Shell will be a big player in charging stations. Chances are that these stations will be owned either by car manufacturers or utilities. EVs will be able to go to any of these charging stations to “fill-up”, similar to what happens right now with gasoline.
I wonder why Luxottica would manufacture for the Warby Parker brand in its own factories. Given Luxottica’s monopoly in the eyeglass market, Warby Parker would certainly cause some cannibalization. Is it just because Luxottica’s factories had spare capacity, or is there a bigger rationale behind this? I will not be surprised if Luxottica buys out WP in the future to maintain its monopoly in the market and also target a different market segment.
The single type of aircraft model is very interesting and seems to be the direction in which the industry is heading. In addition to the advantages you mentioned, it also leads to pilots being needed to be trained on just that one aircraft model. Moreover, in cases of delay, etc, it is easier to swap planes without any major changes in seating charts, etc. In fact, this strategy is one of the primary drivers behind India’s only profitable airline – IndiGo.
The minimum fuel strategy is something that I had not heard of before. I suppose the use of second-tier airports in major cities helps as there is comparatively less traffic at those airports, so landing slots are easier to get without the need to hover around in the air due to traffic. I wonder if this strategy is public knowledge, though, and how customers would react to it from the safety standpoint. This is not commonplace in India as none of the cities have multiple commercial airports, so planes often have to hover around for even up to an hour before they get landing clearance, making it essential to carry extra fuel.
With the time spent in-transit for the dresses effectively being “downtime”, the logistical challenge here is immense. It is in RTR’s best interest to minimize the time being spent in-transit. I wonder why they have restricted themselves to just one warehouse. Given the scale of its operations and the next-day option in case a garment doesn’t fit the customer, having multiple fulfillment centers, similar to Amazon, may help reduce the risk of dresses not reaching on time.