New Electric Era? Tesla Must Adapt Its Vehicles to Succeed in Japan

Anyone paying attention to the stock market over the past six months will have borne witness to the incredible run up of the price of electric vehicle maker Tesla Motors, Inc.

Back in March the stock was trading in the mid thirties, but had reached almost $170 by September. At this price, the market capitalization of Tesla is $20.5 billion — two-fifths of that of General Motors Company (GM) — which is massive for a company that has been around barely a decade.

Tesla is clearly hot to trot and is shaping up to be the American industrial success story of the decade, if not beyond.

The company’s latest bout of publicity was driven by the fact that the Model S sedan was recently awarded a five-star safety rating in every category by the National Highway Traffic Safety Administration (NHTSA).

Although the NHTSA denies it, rumor has it that the Model S actually scored an average overall Vehicle Safety Score of 5.4 — a new record.

The brand is making strong gains in California, where it is the third-bestselling luxury sedan in the state. This means that it is already in greater demand than marques such as Cadillac, Porsche and Volvo.

Despite its high-end competitors, Elon Musk, the company’s young founder, has higher ambitions. Musk recently told reporters: “What the world really needs is a great, affordable electric car. I’m not going to let anything go, no matter what people offer, until I complete that mission.”

In the midst of this American industrial renaissance story, what is less well known are the company’s strong ties to Japan.

Key, of course, to any electric vehicle (EV) is the battery. Tesla is working very closely with Panasonic Corporation and, in June, the Japanese electronics manufacturer announced that shipments of their automotive-grade lithium-ion battery cells would surpass 100 million units by the end of the month.

The partnership with Panasonic runs deep. The two companies are also collaborating on technology for lithium-ion battery cells for the next generation of electric vehicles.

In addition, Tesla works with Toyota Motor Corporation, which has purchased a stake in the company and committed future investment. Meanwhile, Tesla has bought a section of Toyota’s Fremont-based plant.

As a result of that partnership, Toyota recently announced a full electric version of its popular RAV4 mini-SUV model. Tesla is working closely with Japanese industry, but what about Japan’s consumers? They have taken to modern propulsion technology like no others in the world.

Helped by government subsidies and tax incentives, hybrids make up 40 percent of Toyota’s sales and around 10 percent of the market overall, with Toyota’s Prius being the market leader.

Given this openness to innovation, Tesla should be fishing in the right pond but, despite the hype about a new electric era of motoring being just around the corner, hybrids are showing enduring popularity with car buyers here.

The immaturity of the pure electric category is very evident when you consider an issue that is relevant not only to Japan: range.

The Nissan Leaf, for example, gets only 75 miles per charge, whereas Toyota’s Prius hybrid has an expected range in the vicinity of 540 miles in “blended” mode.

While this highlights one of the main selling points of the Model S — provided you can cough up the roughly ¥7 million for a pure EV — its 265-mile range is quite impressive.

While pure EVs appeared a likely hit prior to the 2011 disasters, many Japanese now are put off by associations with TEPCO and the other Japanese power companies that provide the energy source that is necessary for Tesla to function.

It is still too early to say whether Tesla will make a significant impact in the Japanese market beyond a premium specialty niche. Further, for a foreign brand to succeed on any scale in Japan, it must adapt its products and sales practices to the needs of the market. Sometimes significant changes are required.

However, if they can convince Mr. and Mrs. Watanabe in Japan to finally go electric, Tesla seems well placed to chase a much wider target than just captains of industry.

CarterJMRN is a strategic market research agency that has been helping clients with consumers and businesses in Japan and beyond since 1989.

We believe that, although the terrain you face in building a successful marketing strategy and activation path sometimes seems obscure, the path to success is knowable and that the consumer is the guide who will show you the way.

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