by Adam Hartung | Apr 5, 2016 | Disruptions, In the Rapids, Leadership, Web/Tech
Tesla started taking orders for the Model 3 last week, and the results were remarkable. In 24 hours the company took $1,000 deposits for 198,000 vehicles. By end of Saturday the $1,000 deposits topped 276,000 units. And for a car not expected to be available in any sort of volume until 2017. Compare that with the top selling autos in the U.S. in 2015:
Remarkably, the Model 3 would rank as the 6th best selling vehicle all of last year! And with just a few more orders, it will likely make the top 5 – or possibly top 3! And those are orders placed in just one week, versus an entire year of sales for the other models. And every buyer is putting up a $1,000 deposit, something none of the buyers of top 10 cars did as they purchased product widely available in inventory. [Update 7 April – Tesla reports sales exceed 325,000, which would make the Model 3 the second best selling car in the USA for the entire year 2015 – accomplished in less than one week.]
Even more astonishing is the average selling price. Note that top 10 cars are not highly priced, mostly in the $17,000 to $25,000 price range. But the Tesla is base priced at $35,000, and expected with options to sell closer to $42,000. That is almost twice as expensive as the typical top 10 selling auto in the U.S.
Tesla has historically been selling much more expensive cars, the Model S being its big seller in 2015. So if we classify Tesla as a “luxury” brand and compare it to like-priced Mercedes Benz C-Class autos we see the volumes are, again, remarkable. In under 1 week the Model 3 took orders for 3 times the volume of all C-Class vehicles sold in the U.S. in 2015.
[Car and Driver top 10 cars; Mercedes Benz 2015 unit sales; Tesla 2015 unit sales; Model 3 pricing]
Although this has surprised a large number of people, the signs were all pointing to something extraordinary happening. The Tesla Model S sold 50,000 vehicles in 2015 at an average price of $70,000 to $80,000. That is the same number of the Mercedes E-Class autos, which are priced much lower in the $50,000 range. And if you compare to the top line Mercedes S-Class, which is only slightly more expensive at an average $90,0000, the Model S sold over 2 times the 22,000 units Mercedes sold. And while other manufacturers are happy with single digit percentage volume growth, in Q4 Tesla shipments were 75% greater in 2015 than 2014.
In other words, people like this brand, like these cars and are buying them in unprecedented numbers. They are willing to plunk down deposits months, possibly years, in advance of delivery. And they are paying the highest prices ever for cars sold in these volumes. And demand clearly outstrips supply.
Yet, Tesla is not without detractors. From the beginning some analysts have said that high prices would relegate the brand to a small niche of customers. But by outselling all other manufacturers in its price point, Tesla has demonstrated its cars are clearly not a niche market. Likewise many analysts argued that electric cars were dependent on high gasoline prices so that “economic buyers” could justify higher prices. Yet, as gasoline prices have declined to prices not seen for nearly a decade Tesla sales keep going up. Clearly Tesla demand is based on more than just economic analysis of petroleum prices.
People really like, and want, Tesla cars. Even if the prices are higher, and if gasoline prices are low.
Emerging is a new group of detractors. They point to the volume of cars produced in 2015, and first quarter output of just under 15,000 vehicles, then note that Tesla has not “scaled up” manufacturing at anywhere near the necessary rate to keep customers happy. Meanwhile, constructing the “gigafactory” in Nevada to build batteries has slowed and won’t meet earlier expectations for 2016 construction and jobs. Even at 20,000 cars/quarter, current demand for Model S and Model 3 They project lots of order cancellations would take 4.5 years to fulfill.
Which leads us to the beauty of sales growth. When products tap an under- or unfilled need they frequently far outsell projections. Think about the iPod, iPhone and iPad. There is naturally concern about scaling up production. Will the money be there? Can the capacity come online fast enough?
Of course, of all the problems in business this is one every leader should want. It is certainly a lot more fun to worry about selling too much rather than selling too little. Especially when you are commanding a significant price premium for your product, and thus can be sure that demand is not an artificial, price-induced variance.
With rare exceptions, investors understand the value of high sales at high prices. When gross margins are good, and capacity is low, then it is time to expand capacity because good returns are in the future. The Model 3 release projects a backlog of almost $12B. Booked orders at that level are extremely rare. Further, short-term those orders have produced nearly $300million of short-term cash. Thus, it is a great time for an additional equity offering, possibly augmented with bond sales, to invest rapidly in expansion. Problematic, yes. Insolvable, highly unlikely.
On the face of it Tesla appears to be another car company. But something much more significant is afoot. This sales level, at these prices, when the underlying economics of use seem to be moving in the opposite direction indicates that Tesla has tapped into an unmet need. It’s products are impressing a large number of people, and they are buying at premium prices. Based on recent orders Tesla is vastly outselling competitive electric automobiles made by competitors, all of whom are much bigger and better resourced. And those are all the signs of a real Game Changer.
by Adam Hartung | Mar 11, 2010 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership
I don't know the source of the phrase, but since a young boy I've heard "Nero fiddled while Rome burned." The phrase was used to describe a leader who was so out of touch he was unable to do the necessary things to save his city and the people in it. Lately, it seems like General Motors is ancient Rome.
"General Motors to launch the 'un-Dealership" is the Mediapost.com headline. Trying to leverage auto shows, GM is going to open minimally-branded brick-and-mortar locations in 3 or 4 cities where customers can test drive Chevrolet and other cars. The idea is that with less pressure from salespeople, customers will come use the internet cafe and hang out while occasionally test driving a car. Then they'll be fired up to go buy a GM product.
If that isn't fiddling…… well…… When will leaders admit GM is in seriously dire trouble? The company has lopped off complete product lines (Saturn, Hummer, Saab and Pontiac) and whacked away large numbers of dealers. Their cars are uninteresting, and losing market share to domestic (Ford) and foreign manufacturers. Design cycles are too long, products do not meet customer needs and competitors are zeroing in on GM customers. Product sales, and even dealerships, are being propped up using government subsidies. The best news in the GM business has been all the troubles Toyota is having.
During this malaise, the new GM Board agreed to appoint Ed Whitacre as the permanent CEO (see ABCnews.com article "GM Chairman Ed Whitacre Named Permanent CEO.") Great, just what GM needed. Another 70 year old white male as CEO who developed his business experience in the monopoly of the phone industry. Who's primary claim to fame was that after Judge Green tore AT&T apart to create competition he was able to put it back together – only after the marketplace for land-line phones had begun declining and without growth businesses like mobile data.
As the ABC article notes, Mr. Whitacre sees his role running GM as "a public service… I think this company is good for America. I think America needs this." Just the kind of enthusiasm we all like to hear from a turnaround CEO.
GM needs to get aggressive about change if it is going to survive in a flat auto business with global competitors. The company has no clear view of how it will be part of a different future, nor any keen insight to competitors. It is floundering to manage its historical products and distribution, with no insight as to how it will outmaneuver tough companies like Honda, Kia and Tata. It has not attacked its outdated product line, nor its design cycle, nor its approach to manufacturing. It has very little R&D, and is behind practically all competitors with innovations. A caretaker is NOT what GM needs.
I blogged months ago that GM needed a leader who was ready to change the company. Ready to adopt scenario planning, competitor obsession, Disruptions and White Space to drive industry change and give GM a fighting chance at competing in the future. It's going to take a lot more than 4 test drive centers with internet access and latte machines to make GM competitive. But given what the new Board did, putting Mr. Whitacre in the CEO role, the odds are between slim and none the right things will happen.
To survive you have to BEAT the competition. Read more about "The 10 ways to Beat the Competition" at BusinessInsider.com
by Adam Hartung | Jan 15, 2010 | Disruptions, eBooks, In the Swamp, Innovation, Leadership, Lock-in
Many people think the best way to grow is by setting big goals – even Big Audacious Hairy Goals (BHAGs). But increasingly we're learning that goal setting is not correlated with success. At AmericanPublicRadio.org there's a partial text, and MP3 download, of a recent interview between General Motors leaders and a University of Arizona Professor titled "It's not always good to create goals."
The story relates how about a decade a go, with market share hovering at 25%, GM set the goal of moving back to 29%. It became a huge, multi-year campaign. Lapel pins with "29" were made and all kinds of motivational programs were put in place. The GM organization had its goal, and it was highly aligned to the goal. But it didn't happen. Despite the goal, and all the energy and talent put into focusing on the goal, GM continued to struggle, lose share – and eventually file bankruptcy. The goal made no difference.
Worse, the interview goes on to discuss how goals often lead to decidedly undesirable, sometimes unethical – even illegal – behavior. Instances are cited where goal obsession led company employees to falsify documents, even ship bricks in place of products to meet sales targets. No executive wants this, but goals and goal obsession – especially when there is a lot of reinforcement socially and monetarily on the goal – can become a serious problem.
Results are exactly that. Results. They are an outcome. They are the way we track our behaviors and activities – our decisions. When we focus on goals – usually some sort of result – we lose track of what is important. We have to focus on what we do. And for most organizations a big goal merely leads people to try working harder, faster,better, cheaper. But when the Success Formula is mis-aligned with the market – even when the whole organization is aligned on maximizing the Success Formula results will still struggle – even falter. Goals don't help you fix a Success Formula returning poor results. Just look at GM.
In fact, it can make matters worse. In "White Bears and Other Unwanted Thoughts" (available on Amazon.com) the authors point out that when you try to turn a negative (a problem) into a positive (a challenge, or goal), you often achieve a rebound effect making people obsess about the problem. Tell somebody not to think about a white bear – and it's all they think about. When your company has a problem and you try to tell employees "hey, don't think about the problem. Go do your job. Work harder, increase your focus, and all will work out. Sure share is down, but don't think about lost share, instead think about the goal of higher market share" frequently the employees will start to become obsessive about the problem. It will reinforce doing more of the same – perhaps manicly. Instead of becoming innovative and doing something new, obsessive devotion to trying to make the old methods produce better results becomes the norm. Goals don't produce innovation – they produce repetition.
So what should you do when facing a problem? Disruptions. GM didn't need a big goal. GM needed to Disrupt its broken Success Formula. GM needed to attack a Lock-in (or two). GM leaders needed to admit the market had shifted, and that competitors were changing the game. GM needed to recognize, admit and encourage employees to engage in attacking old assumptions – and recognize that market share would continue eroding if they didn't do things differently. Setting a big goal reinforced the old Lock-ins and even an aligned organization – working it's metaphorical tail off – couldn't make the outdated Success Formula produce positive results.
Only a Disruption would have helped save GM. After attacking some Lock-ins, like the desire to move all customers to bigger and more expensive cars, or the desire to focus on long production runs, GM should have set up White Space teams to discover new Success Formulas. Instead of putting all its management energy and money into growing volume at Chevrolet, Cadillac, Buick and GM nameplates, General Motors leadership should have revitalized the innovative Saturn and Saab to do new things – to develop new approaches that would be more competitive. Instead of pushing Hummer to have 3 identical cars in 3 sizes, GM leadership should have unleashed Hummer to explore the market for truly unique, limited production vehicles. GM should have allowed Pontiac to really take advantage of the design breakthroughs happening at the Australian design studio – to change the nameplate into a performance car segment leader. By attacking Lock-ins, Disrupting, and using White Space GM really could have turned around. Instead, by creating a BHAG GM reinforced its focus on its Hedgehog concept – and drove the company into bankruptcy.
You can see a 40 second video about the value and importance of Disruptions on YouTube here.
A 75 second video on White Space effectiveness on YouTube here.
Read free ebook on "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes"
by Adam Hartung | Dec 2, 2009 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership
"Henderson Never Fit In At GM Helm" is the Detroit Free Press headline. Imagine that – the CEO of GM has been asked to leave. Industry sales are down about 24%, and GM is down 32%. Meanwhile, Mr. Henderson had proposed selling 4 divisions (Saab, Opel, Hummer and Saturn) – which were the most interesting divisions in the company – and none of those deals have closed. In fact, 3 have fallen apart completely. Only the Hummer sale to a Chinese firm is potentially going to happen. In fact, it's hard to find anything good that's happened at GM since Mr. Henderson took over. Including closing Pontiac.
When the government invested in GM this year the existing Chairman/CEO, Rick Waggoner, was forced to resign. Imagine that, after puting several bilion in a company the investor's transition team replaced the CEO who got the company into bankruptcy, almost out of cash, with no plan for recovery. Also, the Board, which had allowed GM to get into such a mess without even raising tough questions, was replaced. All seems remarkably sensible given the sorry state of the company.
The goverment led transition team, which rocketed GM through bankruptcy, cleaned the ceiling, but then selected Mr. Waggoner's hand-picked successor (Mr. Henderson) to replace him. The claim was they'd need 6 months to search for somebody new and didn't want to take the time. And they put in a lifetime monopolist, Mr. Whiteacre of AT&T, as Chairman. And a 40+ year industry veteran was made head of marketing (Mr. Lutz.) And a 40+ year company employee was kept as CFO. And we're supposed to be surprised that things aren't going well?
The Chairman and replacement CEO says of the company says "Whiteacre: GM On the Right Path," also in the Detroit Free Press. But do you believe him? What does he know about competing successfully against intense foreign led competitors who move fast? The AT&T that trained him early in his career failed horribly, never succeeding in any market outside the U.S. and getting cleaned by offshore competitors in hardware and mobile telephony. And as head of Southwestern Bell, all he did was rebuild the old "Bell system" of land-line companies – without effectively taking a leading position in any new telephony business. Or any other business. Broadband, mobile phones, digital television – can you think of any market where today's AT&T is a technology, product development, innovation or other market leader? He may have bought up a bunch of the old spun out businesses, but those are on their last legs as people give up land lines and transition to a different sort of connected future.
What's surprising is that GM isn't doing worse. But it's unlikely Mr. Whiteacre, or Mr. Henderson's replacement, will do much better. Several candidates are from inside GM – all with the same Lock-ins that allowed Messrs. Waggoner, Henderson and Lutz to perform so abysmally – despite incredible pay packages for many years. In "Selling GM's CEO Job to be Tough Task" (Detroit Free Press) headhunters claim that the industry is so complex they'll have a hard time finding someone talented who will work for the pay. Balderdash. That's only true because they are so Locked-in to traditional thinking about who should lead GM that they keep trying to recycle already overpaid CEOs who have done little for shareholders. That's not what's needed at GM.
Give us a break. Who would want an industry veteran in the job at all? And why would a recruiter hunt for somebody with a lot of industrial-era Lock-ins. GM's investors (that's the citizens of the USA and Canada,) employees and vendors need somebody who's ready to move beyond the old industry and company Success Formulas and do something very different. Willing to develop entirely new scenarios of the future which alter the competitive playing field and then Disrupt the organization in order to start doing new things. Before Tata Motors and China's Chery auto join the other companies ready to put GM into the grave.
It's amazing how "inside the box" the people who are leading GM, and advising the company, remain. Why not try to recruit somebody from Tesla to take over? The long-delayed electric Chevy Volt might well get to market faster – and in a more desirable form – if that were to happen. Or how about an heir apparent at fast growing Cisco Systems? Those people know how to pay attention to the market and move quickly to give customers what they need – profitably.
Turning around GM requires leadership that will change the Success Formula. Not try to Defend it, or Extend it with slowly evolving variations and minimal change. The whole house needs to be cleaned. The investor representatives who led the transition pulled up short of finishing their job. Only by bringing in new managers who are willing to see a very different future, unbounded by the GM legacy, can GM's competitive position be changed – and if GM tries to keep competing the way it has Toyota, Honda, Hyundai, Kia, Tata Motors, et. all will eat GM's dinner. And only by Disrupting the old Lock-ins, using White Space teams to develop new solutions, can GM regain viability.
by Adam Hartung | Nov 19, 2009 | Current Affairs, General, Innovation, Leadership, Lifecycle, Lock-in
According to Marketing Daily "Electric Cars Set to Tiptoe Into Showrooms." Nissan is supposed to introduce the Leaf. Chevrolet, Toyota and Ford are all supposed to begin offering a plug-in hybrid. None have announced prices, but all indicate they intend to price them at the high end – more costly than a like-sized traditional gasoline powered automobile. One reason for the higher price is that dealers normally expect to make 20% of a traditional vehicle's price in high-margin maintenance and repairs, and because these electrics won't provide that revenue and margin the manufacturers believe the dealer has to make more on the initial auto sale – or they won't sell them.
The manufacturers themselves are not optimistic about sales. They are targeting wealthy early adopter consumers for whom climate change and environment are critical issues. Citing a lack of infrastructure for recharging, and battery technology that takes too long to recharge, the manufacturers are non-committal on how many cars they will make – preferring to wait and see if demand develops.
Sort of sounds like a self-fulfilling prophecy, doesn't it? This approach is very unlikely to succeed, because they manufacturers are trying to sell electric cars to people who are already well served by existing petroleum powered traditional and hybrid cars. These people have little or no reason to pay extra for new technology, so will be a hard sell. And with built-in excuses for the technological limits, the manufacturers aren't being promotional. Simultaneously, the manufacturers are more worried about the impact on dealers than the success of the vehicles.
It's not the product that's wrong, its the approach. These manufacturers are trying to launch a very different product, that really needs to appeal to very different customers. But they are trying to do it in the totally traditional way. Same brand names, same distribution, same sales people, same marketing, same financing – same everything. They are trying to have the existing organization, with all its Lock-ins, do something very different. And that never works.
Electric cars are ideal for White Space team introduction. White Space projects are given permission to do what it takes to make a project succeed. They are given permission to operate outside the Lock-ins. It's that permission to find the right answer, to find the market-based solution, which allows the innovation to develop a new Success Formula that meets market needs.
Electric cars are not a solution for the way automobiles have been used in the past. To succeed requires appealing to different scenarios about the future. Electric cars need to appeal to people for whom a traditional auto has limitations they don't like, and instead the electric auto is something they want. People who are underserved by the current products. The electric car will succeed with buyers who have reasons to want one. For whom the electric car is the solution to their problem – not a second-rate, overpriced solution to an old need.
Cell phones didn't succeed because they were purchased by people who already had wired phones with long distance. Early cell phones, for all their expense and weakness, were bought by people who had a real need for mobile telephony. For years, mobile phones were used only by a small group of people. It took years for cell phones to become commonplace. We all now know younger generation people who have no land line phone – for whom the mobile phone has displaced a traditional phone. But the cell phone didn't succeed by trying to be a high-priced alternative to the existing solution, it was a product that was desired by people for the advantages it offered – even when it was expensive, big and had limited range. Only over time did the cell phone evolve to a new Success Formula that is making traditional phones obsolete – and leaving traditional phone companies with a very hard transition.
Electric cars need an entirely "greenfield" start. Those responsible need to be chartered to "make this work" in an environment where failure is not an option for them. They need to believe their careers depend on finding the right solution, and developing it. And they need permission to do what the market requires. They need to be able to have a stand-alone brand, and its own distribution system, and unique marketing. They need the White Space with permission to do what it takes, and the resources to accomplish the task. Free from worrying about dealer reaction, marketing impact on traditional autos in the brand, or requirements to solve "infrastructure issues."
Imagine urbanites who want cars just for short hauls. Think about the ZipCar business in most major U.S. cities as the target buyer, rather than selling cars to individuals. Or think about other markets – outside the USA. How about places like Taiwan or Malaysia where distances are short and traffic is bad and much fuel is wasted just sitting. Towns like Tel Aviv. Maybe as delivery vehicles in urban areas where traveling is rarely more than 200 miles in a day because most time is spent sitting at lights – or making the delivery. There are places for which an electric car could be an ideal solution – just as they are today. Where a head-to-head match-up favors the electric vehicle.
Secondly, who says a traditional dealer is the right way to sell this vehicle to these people? Maybe it should be sold on-line, with somebody delivering the vehicle to the buyer and offering personalized instruction? Maybe it should be sold out of a Home Depot, or Staples, or Best Buy like an expensive appliance or computer? It's not clear to me that people, or companies, have much value for auto dealers – so perhaps this is the time to change the distribution system entirely — and perhaps take a lot of cost out of auto distribution.
There is a market for electric cars. Today. Just as the technology exists. And if White Space teams were allowed to find and develop that market, we could have a robust electric car industry in just a few years. But it won't happen via traditional approaches, from companies Locked-in to their traditional ways. Those companies only see obstacles, not opportunity. Without White Space, this will be just another example of a technology delayed.
But it does leave the door wide open for a company like Tesla. Tesla is a stand-alone company pioneering the electric car market. They are operating in White Space. Easy as Tesla is now to ignore, they may prove to be the upstart like Southwest Airlines that succeeds and makes money while the traditional industry players keep struggling.
