Is Elon Musk Taking A Page From Henry Ford's Playbook?

When I was deciding which electric car to order in 2021 it was between the Hyundai Ioniq 5 and the Telsa Model Y.  The Ioniq was a much fresher and more interesting design with better packaging and faster charging. The Tesla had much more advanced software, a far superior charging infrastructure and was significantly faster in the Performance trim. The Ioniq was put together a bit better than the Tesla and had more pleasing interior materials - it felt a couple notches above the Tesla in terms of quality and interior ambiance.  The Tesla's optional Autopilot was much more sophisticated than the driver aids that were in the Ioniq.

For highway driving and using a fast charge network, it would have been no contest: the Tesla.  But since the EV wasn't our only car, and we could charge it from home,  that didn't really matter.   The Ioniq was fast enough with 300hp, I didn't need 500hp to drive my kids around.  I would have been happy with either car.  

I priced the top-of-the-line Tesla out at $105,000 and the Ioniq 5 at $63,000. The Ioniq was eligible for the $5,000 Federal Government rebate, while the Tesla was not as its base price was too high.  I could have saved maybe $20k by ordering the Long Range version of the Model Y without the autopilot, but it still would have come in at $85,000 and not been eligible for the Federal $5,000 rebate.  The Tesla was at least $25,000 more expensive when comparing similarly equipped cars.

We bought the Ioniq 5.  With winter wheels, some protective film and the f*****g etch protection package that the dealer insisted on, it came to just under $70,000 including GST.  At least I talked them out of charging me for a block heater...

Two years later, the top-of-the-line Model Y Performance is $76,000 and Dual Motor AWD Long Range is $70,000.  The later is eligible for the $5,000 rebate.  If I ordered today, Tesla could deliver my car by June.  I wouldn't  have to deal with the dealer adding the usual 'mandatory option' crap to the Bill Of Sale, nor explain to the 'Finance Manager' why my electric car doesn't need a block heater.  The price on the configurator is $69,500 including tax.  Only thing not in there is a winter wheel set, which would cost $3,500 or so.

If I tried to order an Ioniq 5 again, the dealers are quoting a 2 year wait.  Today I would order the Tesla.

Musk reduced the price of all of the Tesla models several times over the last few months.  The Model Y, the way I would spec it, dropped from $85k to $65k. That makes a big difference. He can also build you a car and get it to you in a few months and most of the competition can't.

Two years ago pundits were saying that when all the legacy manufacturers started to build EVs Tesla would be in real trouble, because the Germans and Japanese knew how to build cars and Tesla was suffering some quality control issues at the time.  That isn't the way it worked out.

When the semi-conductor chip shortage hit all auto manufacturers, grinding all the global supplier sourced, just-in-time, just-in-place assembly factories to a halt, Tesla pivoted and re-wrote their operating system code and changed to a different chip. Tesla production barely skipped a beat.  

The VW Audi Group created a subsidiary Cariad and hired thousands of software engineers to write all the code for the group's vehicles. They failed miserably, delaying the introduction of even their ICE vehicles. VW CEO Herbert Diess lost his job, and the supervisory board is dismissing all but one of the Cariad executives.  VW's ID series EVs remain plagued by electrical and software issues.

Nissan has been trying to build Ariya's for 4 years but can't, not helped by the Ghosn fiasco.  The production version of the Ariya was announced in 2019 but they still don't have a dual motor AWD version for sale in Canada.

Hyundai-Kia-Genesis EVs are arguably the class of the field, and they are being built in reasonable numbers, but demand is massively outstripping supply.  Any E-GMP platform car (Ioniq 5, Ioniq 6, Kia EV6, Genesis GV60) has at least a 2 year wait.

The situation now is that the demand for EVs has come on really strong - much higher than the global 13% EV market share would indicate - but there is an acute shortage of product.  

Tesla's vertical integration and massive investment in facility and production have given Musk extremely competitive production efficiencies, and allowed him to drive down prices. So, Musk ramps up production, cuts his prices and is stealing major amounts of market share from rivals whose customers are fed up with waiting, or are not willing to pay extra dealer charges on the few cars that land.

That, as many have noticed, is very similar to what Henry Ford did with the Model T more than 100 years ago.  The Model T came out in 1909 at price of $850.  By 1925 the price was cut down to $290.  This drove many competitors out of business and gave Ford more than 50% market share.  

Henry Ford thought the Model T was the perfect car and didn't need to be changed.  As far as basic transportation was concerned, he was right. Ford was entirely focused on the production process and owned everything from the mines, forests and plantations necessary to supply the metal, wood and rubber that went into constructing the cars.  He chose the colour based on the enamel's drying time.   Only reluctantly, with considerable pressure from his board and son Edsel, did he agree on the Model A, which was available with some comfort and convenience items and could be ordered in different colours.  By that time Alfred Sloan from General Motors had pioneered 'planned obsolescence' with annual model changes and a tiered model system from Chevrolet to Cadillac.  Ford never regained its control over the market.

Jim Farley, CEO of Ford, was quoted, "I think what he's [Musk] to learn is product freshness means a lot. The product gets commoditized and then you lose your pricing premium. That's a really dangerous thing."

The Tesla line up is starting to age, but Musk is safe for a while. The new electric car designs that are coming out look much more interesting and are, at least to me, more appealing. But you can't get them.  I'd love a VW ID. Buzz but you have to win the lottery - literally win an ID. Buzz lottery through VW - to buy one. I have a deposit on a the 'N' version of the Ionic 5, but don't have any idea when or if I will get a car.

I can order any Tesla I want in two minutes on my phone and have it delivered within 3 months...

Lawrence Romanosky is a 'Car Guy' who is running a specialty car brokerage, service and restoration business in Calgary Canada.  

403-607-8625   Lromanosky@me.com