Tesla is the world’s most valuable automaker, as well as the best-selling battery electric vehicle
(BEV) brand. Last year, it also surpassed BMW to become the sales leader in America’s luxury
segment. In addition to that, the Texas-based automaker was ranked the most innovative car
company by Boston Consulting Group (BCG) and the world’s most valuable automotive brand by
London-based marketing agency Brand Finance.

Tesla’s incredible success has encouraged many other entrepreneurs and investors to push into the electric vehicle (EV) sector, despite the considerable challenges associated with automotive manufacturing. In America, this has led to the growth of companies like Lucid, which won the 2022 MotorTrend Car of the Year award for its Air sedan, and Amazon-backed Rivian. There are also firms from China, such as BYD, NIO, XPeng, and Li Auto, that are looking to shake the auto industry’s status quo.

To that end, established automotive manufacturers (OEMs) like Ford, General Motors, and the Volkswagen Group are now collaborating with these upstarts to protect their own turf. The VW Group has invested in XPeng; Ford once owned a significant stake in Rivian; Aston Martin has a strategic partnership with Lucid; and the likes of GM, Nissan, and BMW are adopting Tesla’s Supercharger network for their own EVs.

So how have these startups achieved so much in an industry where success is usually hard to come by?

Winning Brand Strategy of Sustainability

Climate change is one of the biggest threats facing America, and the clear majority of consumers expect not just the government but also the private sector to do something about it. In a study by McKinsey & Co., 66 percent of the respondents said that they kept sustainability in mind while making a purchase, and in a NielsenIQ poll, 78 percent of the respondents said that they valued a sustainable lifestyle.

READ MORE: Is There Room for Self-driving Cars in Luxury Motoring? 

Furthermore, Wall Street investors have also become increasingly vocal about environmental, social, and governance (ESG) issues in recent years. “We believe that it is important for companies to ‘do well by doing good’ and that our investors and shareholders can benefit when companies in which we invest develop unique, differentiated strategies, to create sustainable businesses that ultimately have a beneficial impact on all of its stakeholders,” states billionaire Ron Baron’s asset management firm, Baron Funds. 

Entrepreneurs like Elon Musk and RJ Scaringe understood this sentiment and accordingly positioned their brands as champions of sustainability and environmental protection. While legacy brands like BMW, Lexus, and Mercedes-Benz were about performance, luxury, or reliability, EV startups were about saving the planet. This idea greatly appealed to Americans, who are extremely passionate about solving global issues. As the Council on Foreign Relations declared a couple of years ago, “saving the world” was America’s “greatest priority.”

Needless to say, EV adoption virtually became a social movement, and Tesla, the campaign’s mascot, has emerged as an American cultural icon on par with Apple, Coca-Cola, Harley Davidson, and Barbie. Undoubtedly, Tesla has been heavily reliant on Musk for visibility, and that might be one of the reasons it has finally warmed up to traditional advertising.

Building Computers on Wheels

The automotive industry is a product-driven industry, and Industry 4.0 is turning cars into “computers on wheels.” Accordingly, entrants like Tesla and Lucid have spearheaded a software-centric approach to automotive design, which has given them a major competitive edge over their hardware-centric rivals from Detroit, Europe, and Asia.

Tesla, of course, has led the way in this regard with its iPad-like infotainment system, smartphone-like over-the-air (OTA) updates, and Autopilot driver-assistance system. But others are not far behind. In fact, Tesla’s Chinese counterparts, like NIO and XPeng, have even come up with premium smartphones and flying cars.

Many legacy automakers have tried copying this software-driven approach to product development, but most of them haven’t really succeeded. Why? Because EV startups have a more nimble work culture that places a greater emphasis on digitisation. They are not weighed down by corporate bureaucracy or traditional structures.

That said, practically all EV startups also face manufacturing bottlenecks, liquidity issues, major legal and regulatory hurdles, and quality concerns. Even Tesla has not been immune to these difficulties. Established carmakers, too, face a steep learning curve when it comes to e-vehicles, but their prior industrial experience and size have their benefits. Perhaps this is why the Ford Mustang Mach-E was America’s third-best-selling electric car in 2022, and the VW Group is Europe’s EV leader.

Notably, manufacturers like Volkswagen, Toyota and General Motors had started investing in clean-tech mobility solutions long before Tesla and Rivian rose to prominence. Unfortunately, they remained a bit too concentrated on their internal combustion engine (ICE) business, and also never really used the power of software to make their EVs chic and trendy. Even so, as Toyota emphasises, they can now provide a multifaceted approach to sustainable transportation, which encompasses digitally-advanced electric vehicles, hydrogen cars, hybrids, plug-in hybrids, and clean fuel vehicles.

Going Directly to Consumers

A study by Edmunds showed that 83 percent of customers didn’t want to haggle with car dealers, and another study by CarEdge found that 44 percent of shoppers wanted to avoid auto dealerships completely.

For this reason, startups like Tesla, Lucid, and Rivian have shunned the dealership model in favour of direct sales. This approach enables them to offer a more smooth and transparent purchasing experience, while also developing more personal relationships with their customers. “The consumer experience and the consumer journey is too precious to delegate to a third party,” said Lucid’s CEO, Peter Rawlinson.

Of course, it has not been easy for these companies to sell their vehicles directly to consumers because of the legal constraints on this business model in America. But then, they have fought lawsuits and found other ways around those restrictions. Crucially, they have public support for this. Some of our readers may remember that a few years ago, a White House petition advocating Tesla’s direct-sale model got over 100,000 signatures and compelled a response from the Obama Administration.

Admittedly, most legacy automakers are trying to improve their sales programme by incorporating elements of direct-sale strategy into their retail model (e.g., fixed pricing), but that is not going to be easy for them. We have seen during the vehicle shortage crisis how automakers like Ford, Hyundai, and Subaru have had to warn dealers about unfair markups and other unethical practices.

At the end of the day, what customers want is an honest and seamless purchasing experience, and EV startups appear to be doing a better job at providing that than traditional carmakers. 

All said and done, legacy OEMs have been in the auto industry for decades, so they know how to deal with new competitors and stay ahead of the pack. Remember that, while Tesla made USD12.5 billion last year and sold over 1.3 million vehicles, other startups like Lucid, Rivian, NIO, and XPeng lack scale and financial stability. The recent bankruptcy of China’s WM Motor has clearly demonstrated the obstacles that these firms confront. In any case, many argue that Chinese brands have yet to catch up to the Germans and the Japanese when it comes to quality and dependability.

So there is still a tough road ahead for these upstarts. Captivating investors and early adopters with a compelling vision is one thing, but turning that vision into reality is quite another.

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