The growth of Tesla has been truly astonishing over the past decade, the company was founded in 2003 and in under 20 years has grown to be the largest producer of Electric Vehicles (EVs) globally.
Tesla is often pitted against its automotive rivals like Toyota, GM, and BMW however Tesla in fact calls itself an automotive and clean energy company which may go some of the way to explain why their market capitalization is at least 3 times higher than its closest (automotive) competitor, Toyota, despite the latter selling more than 13 times the number of vehicles that Tesla sold in 2022 (JATO Dynamics).
All this has been achieved in 20 years and without the need for any large-scale above or below the line advertising. Contrast this with automotive rivals Toyota and VW Group which spent $4.5bn and $3.5bn respectively on advertising in 2022 (according to Statista).
Tesla has always proclaimed (perhaps arrogantly) that it did not need to advertise; Elon Musk (Tesla’s CEO and largest single shareholder) once famously went to the extent of proclaiming that he “hated” advertising so what’s changed?
Some market commentators have taken Tesla’s news about a potential U-turn on advertising to be a sign of weakness; a somewhat contradictory and desperate attempt to shore up demand which also happens to have come at a time when they have slashed the cost of their vehicles by up to 15%.
There may be some truth to this narrative; the EV market is certainly becoming increasingly competitive with pure play competitors like BYD and SAIC Motors hot on Tesla’s heals with 9.2% and 8% of global market share to Tesla’s 13.9% (International Energy Agency (IEA), 2022) and the more traditional European and North American automakers VW Group – 7.8% and General Motors – 6.1% also starting to make ground in the EV market.
It’s also true that demand, and therefore prices of new vehicles, has dropped now that stimulus cheques, supply chain bottlenecks, and lockdowns have been replaced with high-interest rates and a cost of living crisis.
Having said this it is hard to believe that a company as financially strong, with a brand that is Apple-esque in terms of customer loyalty, and with such bold future plans that stretch well beyond manufacturing EVs, could abandon its position on advertising purely for a few % points of market share or a few additional $billion on the balance sheet. What could the other reasons for this apparent U-turn be?
There could be other reasons driving this change of strategy:
- The Chief Twit – Elon Musk bought Twitter in 2022, the purchase was marred in controversy from the beginning and the subsequent turbulence that ensued post take take-over resulted in many advertisers terminating their relationship with Twitter. Business on Apps estimate that 90% of Twitter’s revenue came from advertising in 2022, and revenues have been hit hard. A move for Tesla to embrace advertising (alongside the appointment of former NBCUniversal advertising executive Linda Yaccarino as the new CEO) could have positive effects for both companies and rebuild some of those burnt bridges with the advertising establishment.
- Robo Taxis – in a recent interview Elon Musk said that Tesla was due its “Chatgpt moment – maybe if not this year, I’d say no later than next year”. Musk was referring to the point where Tesla’s FSD (Full self-driving) technology reaches a level of autonomy that is comparable to that of a human driver making Tesla autonomous vehicles a practical reality. Tesla already has contractual language embedded in its terms and conditions that will aid the implementation of this when the time is right, so it certainly seems that it is a question of when and not if this happens. At such point, the value to Tesla of having the maximum number of vehicles operating in the market becomes all-important; who cares about a small hit to purchase price margin through advertising or a price drop if this has the desired impact on boosting the number of vehicles on the road and helps achieve the nirvana of moated long-term, sustainable per mile revenue (not to mention the environmental and social benefits this would have through much higher use of clean, green, cheap, safe transportation 24/7 that benefits both the vehicle owner and the technology provider).
- It’s just the right time – the final reason and perhaps the one with the simplest logic is that it’s just the right time for Tesla to do this. Tesla has become a global top 10 market cap business without advertising so imagine what they could achieve with advertising. Tesla is not unique in adopting this strategy, Amazon and Apple are examples of companies that shied away from mass market advertising in their teenage years (with a few iconic campaign exceptions), playing the role of disrupter and seeking endorsement from early adopters who follow them in an almost cult-like fashion while they optimize the product to perfection before broadening their appeal to the entire population. Both companies are now heavily reliant on advertising to continue to drive revenue (Amazon is the 2nd largest and Apple 12th globally by Ad spend according to Statista). Few companies, if any, have played the disrupter/early adopter card better than Tesla but now it’s time to grow up and appeal to a truly mass market and for that advertising, love it or hate it, plays a pivotal role.
Whatever the reason for this decision on advertising we see this as a positive decision for both Tesla and the advertising industry more generally which has suffered from many disruptive brands questioning its value both in terms of building long-term brand equity and ability to drive sales growth.
This decision clearly strengthens the argument that there is value to advertising and it’s a question of how and when you advertise and not if.
What’s this got to do with procurement? It has everything to do with markets and therefore Marketing Procurement professionals will be taking note.
A move by Tesla is akin to an Apple or Amazon moment. In its own way, it will be market-defining; likely not just enormous volume, but also something innovative that will make us all sit up and take notice. If Tesla has shown us one thing, it’s that it never wants to blend in.
Elon – If you need any support in sourcing an agency that can help Tesla deliver informative and entertaining content let us know, Proxima would be happy to help.
