Tesla, known for high-performance electric cars, turned profitable in the first quarter of this year after 10 years in business. Its Model S performance sedan had surpassed Mercedes S-Class and BMW 7-series in sales during the same period.
Just a decade ago, it would have been hard to imagine a successful new entrant into the U.S. auto industry, which had not added any new companies, probably since the early 20th century. Earlier this month, Tesla announced its plan to dramatically expand its supercharger network, making it possible for the car owners to drive across the country without power shortage. This could lead to increasing adoption of electric cars.
Another new auto company also made history this year. Local Motors launched the world’s first car designed based on a crowdsourcing model. John Rogers Jr, President and CEO of the company, explained the company’s business model during an interview on the Business Reinvention show this week. He predicts that it can be profitable making small quantity of cars. Local Motors is trying to reinvent auto manufacturing and the business model. It hopes to reduce design cost to $3 million and cut the lead time to 18 months. The company taps into a virtual community of designers and engineers. Consumers can post ideas on their website and vote to determine which idea gets developed. Rogers estimates the break-even point at 2,000 cars for each design. This would be a huge change, compared to billions of dollars that big car companies now spend on car designs, which usually take about 3 years.
Not only is the company challenging the way cars are designed and built, it is also betting on a new way of selling the car. The company plans to build 2 additional microfactories in the U.S. Instead of building the factories where labor is cheap, the company is actually looking for locations where the communities of car enthusiasts are. It may sound counter-intuitive but if you take a close look at their business model, it makes a lot of sense. Orders can be placed online, a new way pioneered by eBay Motors and is gaining popularity.
Currently, the company only has a microfactory in Phoenix. It uses parts and chips already available on the market to help reduce the production cost. It acts as show room or dealership as well as a manufacturing site. Many enthusiasts will drive hours to the microfactory to take a look at the car.
The collaborative approach could also be a draw for the Millennial generation who would otherwise prefer to rent than to own a car. According to the Federal Highway Administration, only 43% of potential drivers 19 years old and younger had driversâ licenses in 2008, compared with 64.4 percent in 1998, The crowdsourcing model could re-engage the young drivers and get them excited about having their own cars.
Jay Rogers Jr. worked for a medical start-up in China after college. He served in the Marine Corps for 7 years before going to Harvard Business School. He co-founded Local Motors in 2007. Now he is focusing on transforming the auto industry. When asked if he likes to live dangerously and make a big impact in the world, he answered without hesitation, “That’s exactly right!”
So will Local Motors be the next Tesla? He tweeted back, “No, we will innovate 5 times faster at 100 times less cost.”
Listen to the entire interview for more insights.
About the Guest Blogger
Nancy Lin is Host and Producer for Business Reinvention. The show features innovative companies and trends that have the potential to transform industries and reinvent business models. She brings to her show a strong understanding of business having worked for Yahoo, DHL, Johnson & Johnson and Pepsi in the US and international markets and driven strong growth with innovative business strategies. She is also an executive coach, a business consultant and the founder of Change Agent SF, which helps clients transform the way they look at their businesses and leadership. Follow Nancy on Twitter @BizReinvention for more innovation news.