I’m a car geek and have been all my life. I’m also fascinated with the transition from internal combustion engine (ICE as they say) cars to electric vehicles (EV). Looking from the outside in I see where VW is staking out a brilliant (and logical) position as it enters the EV market and Ford is not.
Let’s start with some basic information about the EV market. The market penetration for EVs is estimated to be about 3%. Meaning that of all the cars purchased in the last year (regardless of propulsion), only 3% of them were EVs. The market leader in EVs is Tesla, estimated at 18% market share. Reminder: that’s 18% of 3%. There is a very long way to go not only for Tesla but for the entire market.
If you were a legacy automobile manufacturer and you are entering the EV market for the first time, what market position would you choose? You only have two choices and one is much better than the other.
Ford has introduced the Mustang Mach-E and has chosen to position the Mach-E against the Tesla model Y. History and common sense tells me that’s a bad move. There are two things wrong with this market position. First, Tesla has a 10 year jump on Ford in designing, engineering, manufacturing, selling, delivering, and servicing an EV. Second, why compete for a small percentage of a small percentage?
There are very smart people at Ford and they have (hopefully) chosen this path after careful consideration.
“The vehicle is a game changer. For me, the Mach-E is the first true competitor with Tesla. It’s got Detroit swagger. It’s a Mustang. Tesla is not a Mustang.” Jim Farley, CEO Ford
VW has introduced the ID.3 and the ID.4 EVs. They are positioning their products to compete with the equivalent ICE cars, not Tesla. Meaning, they are not going to directly compete with Tesla. They are choosing (staking a market position) to compete against similar ICE cars from Honda, Toyota, and Nissan.
VW’s decision is logical. The EV market is growing rapidly so why compete with Tesla (and encourage a comparison) when there is plenty of business for everyone? The VW chairman even invited Elon Musk to Germany to drive the new VW EVs.
Let’s toss logic aside for a moment and consider the underlying politics that could be driving (pun intended) each organization’s decision.
Both companies have a significant investment in ICE products and infrastructure. The transition to EVs is a profound business change. It affects every aspect of their business. No matter which EV path they take there are winners and losers inside and outside of their respective organizations.
VW is still recovering from the diesel-gate scandal. It cost the company billions of dollars and damaged their reputation. It gave them a once-in-a-lifetime opportunity to make structural changes to their business at a time when the market is approaching an inflection point. But I can only imagine the pressure VW leadership is getting from their dealer network, their labor unions, and politicians.
Every new EV cannibalizes sales from an equivalent ICE car. Dealers make more money from ICE cars than EVs (parts, services, etc.). If you weren’t aware, EVs have a much simpler design and far fewer moving parts. They don’t need a tuneup or an oil change, for example, and they are easier to manufacture (requiring less labor).
Ford - and I’m speculating - is taking a risky path. Perhaps Ford are hoping to avoid conflict with their dealers and their labor unions. They know the Mustang Mach-E cannibalizes sales of Ford ICE cars. Stealing customers from Tesla is a small percentage of a small percentage, but it doesn’t ruffle as many Ford feathers.
If I were CEO for a day at Ford the last thing I’d want with my new, unproven EV is a comparison to the market leader. And the industry press is falling in line with headlines that include “Tesla Killer”.
I would shift the Mustang Mach-E positioning to compete against ICE cars, just like the VW approach. There is plenty of business for everyone. Now is the time to grow the market, not compete head-to-head for crumbs.
This example should give you pause about the market position for new products you will launch. Are you chasing the market leader because you assume they have all the right answers or are you choosing the best path for your product's success?