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Detroit Wouldn’t be Bankrupt With Tesla Motors’ Business Model

The financial meltdown of Detroit is largely attributed to the decline of its once-dominant auto industry. That decline began a long time ago, when foreign car makers began to flood the American market with better quality vehicles—with which American manufacturers were unable to compete. While blame is often placed on outside sources like foreign car makers and outsourcing, the truth is: Detroit car makers continued to unravel, because they failed to innovate.

However, in recent years, a new American car company has been pushing innovation to the limits. California-based Tesla Motors has become the darling of the auto industry and the stock market for their innovative approach to the car industry. Detroit can definitely learn from them. That’s the opinion of Shai Agassi, the onetime electric car innovator. As reported by

“Better Place founder Shai Agassi offer[s] his thoughts on the lesson automakers should learn from the runaway success of rival electric carmaker Tesla Motors: Study the business model, not the Model S.

“While most of them most likely already drove and even tore apart a Tesla Model S, they will likely learn more from reading Tesla’s [profit and loss statement] than they would from the car’s engineering,’ Agassi wrote in a commentary published on LinkedIn. ‘Understand the economics underlying Tesla, and design a better mass produced GM, Ford or Hyundai car for the masses. Produce a car that can change the market in 2017 and capture a bigger share of the profits in the competitive car industry.”
Agassi doesn’t think the Detroit car makers should replicate Tesla’s model exactly. Alternatively, Agassi thinks they should take on the Elon Musk company’s spirit of innovation to provide the market with value. In a LinkedIn post, Agassi notes what American car makers should be analyzing:
“1) An electric car is an object of desire: Your next electric car should offer more of a car for less cost than comparable gasoline cars…not the other way around.
2) An electric car is a modern appliance: Design a car that provides car buyers with the possibility of upgrading both battery and software, while retaining the car.
3) An electric car is Moore’s Law on wheels: Carmakers should design the next EV assuming exponential improvement in battery technology, not in denial of that inevitable curve.
4) An electric car drives — and sells — differently: If you launch a new category, consider very seriously launching it under a new brand with a whole new experience. Direct sales will allow incumbent carmakers not only to control its brand experience.”
Looking at this list, what Agassi is essentially saying is that car makers should: do for the car industry, that which Apple did for the computer industry. Which is why it should be no surprise that an innovative car company like Tesla Motors emerged from Silicon Valley, as opposed to Detroit. Innovation is part of the culture there. So if Detroit car makers, and the city itself, want to reclaim the prominence in the car market, they might want to take heed.
You can read Shai Agassi’s entire post here.
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