July 23rd, 2020 by Johnna Crider
When it comes to affordability, Tesla has come a long way but still has a bit further to go. It will get there, I believe, but it will require more hard work, persistence, and faith. Just this month Tesla announced that you can lease a Model Y for $499 a month. That is still a high price for a car for most Americans, let alone most people of the world.
During the company’s earnings call for the second quarter of this year, Elon Musk commented on the goal of Tesla being affordable. “The thing that bugs me the most is that our cars are not affordable enough. We need to fix that. We want to be slightly positive and maximize growth, and make the cars as affordable as possible,” he said in response to a question about how he balances Tesla’s mission and a goal of industry-leading gross margin.
This is a beautiful thing. Many CEOs would rather just cash in and move on, They don’t care about the fact some potential customers cannot afford their products. Tesla is different because its mission, the CEO’s mission, has led from the heart since the beginning.
However, Elon is right. A Tesla is still a pretty expensive vehicle — even the cheapest one. Yes, the price has come down drastically, but he wants to serve more people and help lift them up, and one thing for him to consider that he does seem to think about is that there are a lot more people in need of being lifted up.
The Key To Making Tesla Vehicles Even More Affordable
It’s simple, really. Consider low-income families. Make them your target market. Tesla’s focus, in the beginning, was on the ultra-wealthy, and at that time, that was the right place for it to be. Tesla wouldn’t be here today if it didn’t take that route. As Tesla began to grow, its product focus expanded to include the upper middle class and then the middle class — because the economies of scale and lower costs to make EVs made that possible, as envisioned in Elon Musk’s “Secret Master Plan.”
As of now, only middle-class families can afford a Tesla — and just barely. Unfortunately, due to the coronavirus, many middle-class families will be joining the ranks of the lower-income families who are struggling to make ends meet. Millions of Americans lost their jobs this year. We’ve only seen a tiny portion of the effects.
The idea of buying a brand new car — fresh from the assembly line — is nuts to those working 2–3 minimum-wage jobs. The challenge of making Tesla vehicles affordable lies in acknowledging the lower-income families exist, and not just the upper-middle class. I am among that former sector and even though I was able to put down a $100 deposit on the Tesla Cybertruck, actually getting it will require good credit. For me, that’s something I’m working on.
Millions of Americans have credit struggles whether they have made mistakes, got screwed over, or had emergencies that impacted them so heavily that they had to use up their credit to survive.
Why This Is Important
Tesla is all about looking at a challenge and not backing down. Elon Musk wants to help people in need. A great way to do this is to give those who may never have the opportunity to buy a brand new car the ability to do so. Yes, credit is going to be a factor for many, and so is insurance, but when it comes to pricing, dropping $40,000 on a car is a really big decision no matter how you cut it. It’s impossible for those who may never have more than $20 in the bank due to bills and trying to survive.
Those who have had the luxury of being in the middle class were taught about savings accounts and perhaps even stocks. I knew about savings, but all of my life I had to work and never really saw my money. I either took care of a sick mother (until she died) or paid bills. There was never any extra to save. Today, that has changed for me, but millions of Americans are still struggling financially. We live in a system that requires struggling.
Another Benefit Of Making Lower-Income Families A Target Market For Tesla
Another benefit that Tesla would gain if it focused on making lower-income families a primary target market is that it would boost sales considerably. Not only would lower-income families start to consider that the idea of owning not just a car, but a Tesla, is in the realm of possibility, opening up a new segment, but it would also push sales up among prudent buyers in the lower-middle class as well as the middle class and upper-middle class.
When you make something for everyone, everyone is interested. And eventually, Tesla vehicles could be as common as the cheapest Fords, Toyotas, and other economy cars. Of course, this isn’t going to be easy. One reason is the cost of supplies to make batteries, which is why Tesla’s work in battery development is very important.
When Considering Low-Income Families As A Target Market
One thing to note for a company specifically focusing on lower-income families as a target market for a product is that their lives are often not stable. They are always a paycheck away from homelessness, and will quickly substitute a car payment for their rent — or could eventually live out of their car, depending on the family dynamic. Before my mother lost her car (it exploded!), we actually lived in it when I was a small child. I have vague memories of a cramped neck and eating sunflower seeds for dinner.
If Tesla does focus on lower-income families as a target market, one thing it will have to consider is being a source of stability in some way. Whether enabling a family to take a low-cost emergency loan against your car (in the sense of a mortgage) in the case of emergencies or late payment forgiveness — something will have to be considered. [Editor’s note: Of course, there is also the possibility of making money on the car, something we’ve written about plenty. By the time that’s possible via robotaxis, any cars with that capability will cost a fortune. However, before self-driving capability, if Tesla launches an Uber-like service, owners/drivers might make a decent living in that network. Maybe.]
Also, Consider The Type Of Money Low-Income Families Make
Before the coronavirus hit, a family in poverty with three children brought in no more than $21,720 — that is the poverty guideline set forth by the U.S. Department of Health and Human Services. This family may have only one parent. Sometimes it may have both parents. Having lived in homeless shelters as a kid, I saw more single-parent dynamics like my own than not.
When someone has three kids and they are making less than $22,000 a year, that’s not much. Chances are they do have help with food (food stamps), but most of their money goes toward childcare, and this can be pretty costly. Remember, these numbers were before the coronavirus pandemic.
If Tesla can meet the challenges that prevent low-income families from buying a Tesla, not only will sales increase, but Tesla will have added success in meeting its goal to transition everyone to sustainable energy. I believe it can do this. Elon Musk is excellent at solving problems and he leads the company with his heart.
Some may argue that it’s not Tesla’s responsibility to help the poor, and they are right. However, if a company like Tesla is making EVs and wants everyone to have access to them, we have to remember that low-income families are a part of “everyone.” And Tesla would greatly benefit from finding ways to meet this challenge.
The challenge isn’t helping those in need — it’s making sure that everyone is using its product. And I think in order for everyone to be able to drive a Tesla, one has to at lease see that the idea of owning one is possible. Many people don’t. Tesla can change that. I believe it will.
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