Shai Agassi: The Auto Industry Should Learn from Tesla Motors

By · August 20, 2013

Shai Agassi

Shai Agassi, founder of the now-bankrupt Better Place battery-swapping company, considers himself an electric vehicle visionary. As such, Agassi yesterday published his musings—as part of LinkedIn’s “Influencer” program—about why Tesla Motor Co. is important to the entire automobile industry.

Some observers might wonder if Agassi should similarly explore the lessons to be learned from Better Place's demise. But that will wait for another day.

Agassi praises Tesla’s technology and vehicles, but suggests that Tesla’s “underlying [business] assumptions are more interesting than the shape of their car.” It should be noted that Tesla’s influence is also greater than its modest sales reach. The company is on pace to deliver about 20,000 vehicles this year—in a new car market of about 16 or 17 million units. It is simply too soon to know the electric carmaker’s long-term impact on the industry. Nonetheless, Agassi describes four lessons we can already learn.

The first lesson: Don’t charge more for your electric vehicle than a comparable gas car. Charge less. Agassi points out that buyers will become brand ambassadors if an automaker can exceed its customers' expectations, even when a car sells for around $100,000. In the case of the Model S, judging from owners I know or have met, they are certainly devoted brand zealots.

Lesson number two: Don’t produce a car that will become obsolete. Instead, produce a car in which the battery and the software can be upgraded. (Agassi steers clear of talking about battery swaps, a likely sore subject.) Given the huge percentage of electronics in a modern gasoline-powered vehicle, automakers are already learning that a car must accept software upgrades (ideally via connected services). It follows that the battery – which is currently the most expensive component in an electric vehicle– should also be capable of being upgraded, especially as its capability increases and costs come down.

Lesson number three: Calculate your future costs based on a much lower dollar-per-kilowatt-hour for batteries. This lesson is a bit sketchier since we don’t know when and how batteries are going to hit any magical inflection point—such as $100/kWh (or 200 miles on a single charge). And, we don’t know when electric vehicles will be sold in large enough volumes to produce economies of scale that will meaningfully contribute to the falling price. Unlike Elon Musk, who is a risk-taker that can personally bankroll Tesla if need be, most automakers carefully consider current cost and profits when doing the math on electric vehicles.

Lesson number four: Don’t make your regular dealers sell your electric vehicles. Consider launching a separate EV brand so the customer experience will fit the product, and salespeople won’t resent devoting time to a product that, at least initially, won’t result in tons of sales.

Tesla’s sales model isn’t just direct; it is also much more straightforward than buying from a franchised dealership. That is the lesson that automakers may have to learn from Tesla, suggested Kaitlyn Aurillo, an assistant product manager, S/CL/SL- Mercedes-Benz, at Mercedes-Benz USA. Speaking at a recent meeting of the Motor Press Guild, the Los Angeles automotive journalists’ club, Aurilio said, “The ease of the sales process at Tesla might change the industry.”

Agassi pointed out that General Motors vice chairman Steve Girsky revealed that GM has a team studying Tesla. And as another speaker at the Press Guild event, Melody Lee, director of brand reputation and strategy for Cadillac, said, GM would be very “short-sighted” not to closely watch Tesla. With or without Agassi to egg them on, executives at the major car companies have an eye on Tesla.

New to EVs? Start here

  1. Seven Things To Know About Buying a Plug-In Car
    A few simple tips before you visit the dealership.
  2. Incentives for Plug-in Hybrids and Electric Cars
    Take advantage of credits and rebates to reduce EV costs.
  3. Buying Your First Home EV Charger
    You'll want a home charger. Here's how to buy the right one.