The Tesla Effect: Why Elon Musk's Company Will Succeed

Tesla announced Tuesday it would raise $178 million in an IPO. Skeptics have long asked why anyone would buy shares in a company with scant profits and a hefty loan from Uncle Sam, let alone a stiff $50,000 price tag on its first mass-market vehicle. Further, they intone, CEO Elon Musk has no experience running a car company.

With a final sniff, the critics say the electric-car market is a mirage, that battery prices remain too high and sticker shock will ensue as consumers realize they can't get much electric car for their money.

"It" Car for the IT Set

To the critics, I say, "Don't you want to go for a ride?" In a Tesla, that is. For the vast majority of Northern California residents, the answer is an emphatic yes. In a mere two years, the Tesla Roadster has supplanted stately brands with massive marketing budgets as the most sought-after vehicle in one of the most expensive places to live in the world. Plain and simple, the Roadster is the "it" car for the IT set.

I confess. I've driven one. And it's awesome. Whenever I tell other people, "Yes, I've driven one," their reaction is remarkable. "Really? What was it like? Would you buy one if you could?"

This is precisely the type of reaction that the major automakers currently pay billions of dollars per year in advertising to try getting. Yet they fall far, far short.

What Buyers Think

The excitement the Tesla generates is truly like money in the bank. In this country, at least, a car has become an extension of our pysche. Each brand has its own hard-to-define yet differentiated image.

Toyotas (TM) and Hondas (HMC) are safe, high quality and moderately sporty Japanese cars. Volvos are still boxy and safe. Mercedes (DDAIF) and BMW are both German luxury automobiles (even when they are manufactured in Alabama).

It took these brands years of both heavy marketing and delivery of products to match the hype to cement these images in car buyers' minds. No surprise, the images have stuck. Even though Consumer Reports has found in recent years that American cars actually surpass Japanese cars in key quality measures, the average U.S. car buyer still thinks the Japanese makes are the best (even after the Toyota recalls of the past year).

Firing Up People Who Have Everything

What's perhaps even more impressive has been the power of Tesla's brand to make inroads even among those who can buy anything. It's hard not to talk to a decent amount of really rich people when covering industries in Silicon Valley, and I crafted my exposure into a little test.

To some of these rich folks, I mentioned off-handedly that I had driven a Lamborghini last weekend. Few blinked. To others, I said I had driven a Tesla. "What was it like? How did it feel?" The eyes of people who have everything lit up as they asked me these questions. So in two years, Tesla has captured the imagination of even the hardest-to-please customers.

This all bodes quite well for the future of this little car company. Am I overstating things a bit? Certainly. If Tesla delivers crappy cars, then all the image burnishing will be moot. If it can't bring prices down into the $30,000 range, then the company will remain a niche operation.

Victim of the Tesla Effect

But what Tesla has done in such a short time is restore the sheer excitement that characterized the American car industry when it was young, and driving was still an amazing treat. When my Tesla ride came to an end, I reluctantly got out of the car and swore to myself that if I could figure out a way to buy a part-ownership in a Tesla (the only possibility for my financial situation), I would do it. And I'd most definitely consider the sedan for a family vehicle.

I was a victim of the Tesla Effect, and it felt pretty good.