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Allen Adamson

Co-founder and Managing Partner

Product differentiation has not sold cars for decades. Cars today all drive and mostly look the same, equipped with the same features, from rain-sensing windshield wipers to LED headlights and surround sound. Automakers now rely on being badge brands, much like fashion or beer companies. They hope buying a particular brand will make you feel like an off-road adventure seeker or a race car driver.

Tesla once boasted the most significant product differentiation since the automatic transmission—an electric car with sufficient range and a charging network capable of replacing combustion engine vehicles built by a tech, not automotive culture. It signaled this difference in kind, not degree, with a monitor-sized screen inside that made the car feel like a computer on wheels, not a car with a computer (now all brands have copied that).

Perhaps more crucially, Tesla also had a brand image fueled by a CEO whose star power has not been seen since Lee Iacocca's Chrysler days. Elon Musk, a visionary often likened to Thomas Edison, has been the driving force behind Tesla's success, his charisma and daring fueling the company's brand differentiation—Tesla had an inventor leading the company like the original auto firms, not just another suit in the C-suite.

However, Tesla has lost both of these invaluable assets. While Tesla's once-unique product now faces fierce competition from established automakers, Elon Musk has spectacularly tarnished his own reputation. His divisive political views, broadcast incessantly on his newly acquired platform X (formerly known as Twitter, in a Prince-esque rebranding move), have alienated many of Tesla's core customers and supporters.

Tesla is facing a harsh new reality in this context. The company's worldwide sales declined by 9% in the first quarter of 2024, and in a surprising shift, Tesla has resorted to advertising, a strategy it once rejected. As if the challenges weren't steep enough, the brand must navigate this difficult period without its recently laid-off marketing team.

As Tesla confronts this challenging landscape, it must acknowledge that its two main brand pillars – a one-of-a-kind product and Elon Musk's brand – have crumbled.

Rebuilding either of these brand pillars is an uphill battle.

 

1) Developing new Tesla product differences that will provide competitive advantages vs. other electric cars is a long shot.

Once a brand starts cutting prices, as Tesla did in 2024, it signals to consumers that its product-relevant brand differences vs. competition are decreasing. If consumers cannot see the difference, they will not pay the difference. Competing on product differences is challenging as the cost of developing meaningful differences is high (early results on Cybertruck indicate that its differences may not be relevant to many customers), and the time it takes for competitors (such as Chinese autos) to match or surpass them is shrinking. I suspect Robotaxi will meet the same fate. If you think consumers have range anxiety today; wait for the anxiety when they get into a self-driving taxi and see a "spinning ball" on the computer screen.

2) Rebuilding the Musk brand is an even taller order.

Most CEOs follow Aaron Burr's philosophy, as captured in the song lyric from the Broadway show Hamilton: "Talk less, smile more, don't let them know what you're against, or what you're for." While this did not end well for Aaron Burr, it is a mission-critical first step in rebuilding the Musk brand.

The other critical advice for CEO success can be summed up from the movie High School Musical: "You gotta getcha getcha head in the game."

Given recent history, I don't think either song will play in Mr. Musk's head, and there is no one to "sing" these songs to him as the Tesla board is comprised of cronies who are captive to Musk's whims.

Most leaders can't change their brand image, so the classic response to a CEO "issue" is to announce a new CEO for Tesla. However, given the reality of Linda Yaccarino X's "independence" (Wizard of Oz - "Pay no attention to the man behind the curtain"), that play will not fly.

Can Tesla navigate this crisis and develop a unique product differentiation, or can it prove that its brand is more than just Elon Musk? Only time will tell, but one thing is certain: it won't be easy.

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