Hitting A (Great) Wall

Elon Musk’s recent months have been marred by controversies, impacting Tesla’s operations and market standing. A profanity-filled outburst at the Dealbook Summit was followed by a major recall of over 2 million vehicles in December due to a flaw in Tesla’s Autopilot system.

In January, a Wall Street Journal report raised concerns that Musk’s illegal drug use was concerning executives at Tesla and SpaceX.

Then it emerged that BYD, a Chinese electric vehicle maker, overtook Tesla in the last quarter of 2023 to become the world’s top producer of purely battery-powered electric vehicles.

Tesla’s market capitalization has fallen 14% since the beginning of the year.

U.S. demand for electric vehicles (EVs) is declining. EV stock on dealers’ lots doubled in the past year, reaching 114 days compared with 71 days for the overall auto industry, according to Cox Automotive.?

On average, EVs cost about $13,000 more than internal combustion engine vehicles.?

Enduring 'range anxiety' remains a significant barrier, now that earlier adopter demand has been met.?

No one wants to pay a premium to worry.

Contrastingly, China’s EV market is booming. EVs accounted for 42% of China’s car sales in November 2023, with projections suggesting 80-90% of all cars sold in China will be EVs by 2030.

Facing a crowded market and price war on their own turf, Chinese automotive brands now have their eyes set on Europe. Tariffs are low at 10% compared to 27.5% for imported EVs in the US. 9% of EVs sold in Europe in 2023 were Chinese manufactured and UBS estimates Chinese car makers market share could rise to 20% in 2030.

However, Chinese brands face hurdles in establishing strong market presence against established Western automakers. Building distribution networks and a strong brand requires substantial investment and time. Powerful brands result from consistent, disciplined investment over years.?

Legacy automakers might think their moats are deep and wide enough to repel any invasion.?

However, there is something in the DNA of Chinese automotive brands that makes them different. Incumbents in the US and Europe would do well to read the tea leaves.

I’ve spent a large portion of my career to date working with automotive brands. My experience has taught me that the industry is slow to evolve. Product replacement cycles are predictable. Technology improves incrementally. The brand building and activation playbook is well-thumbed.

Yes, Tesla's arrival and rapid rise initially shocked the system. It prompted a reappraisal of legacy approaches, but not a reinvention. I predict it's nothing compared to the advent of the Chinese brands. They will up-end how automotive brands are built and activated in the market. In this new playing field, incumbency will not be as advantageous as many believe.

Chinese automotive companies are different. They move fast.? At ‘China Speed’. Continually introducing new models and technology to keep consumer interest high.?

They take more risks and are more willing to experiment. They find what works and quickly abandon what doesn’t.?

Their approach to brand building and activation will be no different.

Currently, the most visible Chinese EV brands in Europe are MG, part of SAIC, and BYD. They don’t appear to be doing much differently. At the more progressive end sit brands like Nio and Lynk&Co. (Lynk&Co is owned by Geely Automotive, which also owns Volvo, Polestar, and Zeekr.)

Nio is estimated to lose $35,000 on every car sold. However, a recent $2.2BN investment from a UAE-based investment fund and generous subsidies from the Chinese government will let them keep investing to build a unique brand experience.

Nio and Lynk&Co’s approach is different. They don’t focus on the end user. Instead, they focus on building a community. Increasing belonging among customers and potential customers.?

The Nio House and the Lynk&Co Clubs are the physical centerpieces of this approach. Immersing the consumer in an ecosystem of value.?

Nio is combining experiential retail, hospitality, collaboration, content, and merchandising in the Nio Houses. There are already 6 of them across Europe, and plans for more. Part co-working space, part cafe, part day-care center and lifestyle boutique, each Nio House is built around a design forward lifestyle.?

Nio collaborates with forward-thinking designers, applying Nio's design philosophy to everyday products. They create a universe of associations, values, and experiences in both the physical Nio Houses and across the community it is building, through their Nio Life sub-brand.

Lynk&Co offers subscriptions, ownership, or the right to borrow vehicles through a membership program. The program also provides access to Lynk&Co Clubs. These spaces host events and provide a place to experience Lynk&Co’s collaborations with local musicians, designers, and brands. Lynk&Co clubs are currently in Belgium, The Netherlands, Germany, Sweden, and Spain.?

Many of these ‘experiments’ won’t gain traction, but some will. Those that do can then be amplified through the community.?

In these brand worlds, there isn’t one big moment of planned brand activity. Instead, there are many different moments that the brand creates, curates, and (over time) builds the credibility to comment on.?

Nio and Lynk&Co aren’t thinking in terms of the traditional automotive sales funnel. For them, events, exclusive access, collaborations, and content all complement each other. Building a continuous presence in culture and the customer’s life.

It’s easy to dismiss Nio Houses and Lynk&Co clubs as glorified dealerships that won’t match the scale of established legacy brand dealer networks. But Nio has already experimented with using the community as its own distribution channel.?

In China, Nio pioneered a peer-to-peer sales program. They incentivized community members to bring new members into the Nio ownership world. They have also used social commerce. This has shown that people are willing to buy vehicles from those with a social following, instead of a dedicated sales channel.

This doesn’t mean that Chinese automotive brands won’t combine approaches. They are trying to find what works best. Nio is also said to be working on project ‘Firefly’ to launch a more affordable EV brand. It will export the brand to Europe in the coming years and is looking to build a dealership network to scale more quickly.

In the marketing world, we tend to view strategy as a binary choice in a competition for finite resources.?

A or B.?

This or That.

Emotion or Function.

Long or Short.

Brand or Performance.

Chinese automotive brands entering the marketplace don’t subscribe to the dichotomies that dictate conventional marketing practice. They’ve already shown an ability to experiment with different approaches as they seek to establish themselves. They are more willing to explore combinations of approaches and tactics at ‘China Speed’ to find what works.

Brands like Nio and Lynk&Co are demonstrating that marketing can become its own product if it provides value to the consumer. Marketing should help consumers want to be consumers. A dogmatic focus on the traditional marketing funnel will not help. Particularly if it focuses too much on performance marketing and paid social media carpet bombing.

Advertising is any commercial activity designed to shape the memories of customers and potential customers in the brand’s favor. Tesla used to have an enviable weapon that it could deploy in their favor in this regard. The asset's unpredictable behavior has made its value more questionable lately.?

The new question for Tesla is: What will it do now to shape customer and potential customer memories in the brand’s favor?

Either that or risk meeting a (great) wall at speed.