Memo to Mr. Musk: The Auto Industry Is a Fashion Industry

From 1906 to 1929, the Ford Motor Co. dominated global car sales. Henry Ford was convinced that by constantly improving the Model T and lowering its price, the T would roll on forever. He was wrong.

The Model T made Henry the richest man in the world and he was notoriously protective of it. He accepted the mechanical improvements his engineers came up with but refused to update its styling. In one famous incident captured in the history of the company (“The Fords,” by Collier & Horowitz), Henry and his wife traveled to Europe in 1912, and while they were gone, his engineers decided to surprise Henry with a streamlined version of the T. When he got back, Henry was furious to see what they had done. He ripped the doors off their hinges, jumped on the hood, kicked in the windshield and stomped on the roof.

Everyone got the message: Don’t mess with the T.

Meanwhile, General Motors was experimenting with different body styles, different body colors and different cabin appointments for each of its brands. And by the time Henry (“any color you want so long as it’s black”) realized it was time to replace the T with something more modern, it was too late. In 1929 GM surpassed Ford in sales and Ford never again regained its No.1 position.

Fast forward to today and this episode reminds me so much of what’s happening at Tesla. Elon Musk, one of the world’s richest men, is constantly improving his cars with over-the-air updates, but he refuses to update their styling. He argues the money spent on new body styles is better spent on improving his cars. That worked as long as Tesla was the only battery-electric vehicle game in town, but now his cars are starting to look dated. The Model X and S have not been redone in a decade and the 3 and Y are unchanged since they debuted 5 years ago – except for the mild facelift the Model 3 got this year, so mild that it’s virtually invisible to the general public.

So, it comes as no surprise to me that so far this year, Tesla’s automotive sales, revenues and profits are down sharply. Meanwhile, BYD is experimenting with different body styles in different segments and will surpass Tesla in global BEV sales this year. Talk about history repeating itself.

Elon’s answer to slow sales has been to slash the prices of his cars and the results have been disastrous. Besides the aforementioned slide in revenue and profits, it destroyed the residual value of the cars in customers’ hands.

This is a key reason why Hertz had to dump all the Teslas in its fleet at a great loss. That’s because the daily rental companies don’t make their money by renting cars; they make their money by selling them. The rental fees merely pay for the maintenance and depreciation, and the rental companies then make their profit by selling those cars in the used-car market. So, when Tesla slashed the prices of its cars and destroyed their residual value, Hertz was forced to dump them as fast as it could.

So, I ask you, what’s cheaper? Not changing the styling of your cars, then chopping the price when sales slow down, and then watching your revenue and profits drop by billions of dollars? Or instead, spending several hundred million dollars on new styling that lures more customers into the fold? I think you know where I stand.

Updating the look of your cars is no different than why department stores in big cities change their window displays every month or so. If a window display doesn’t change, it just becomes part of the background and soon no one notices it. A new window display gets people to turn their heads and look. You want the same thing to happen with your cars.

Look at how successful the Hyundai Group has been lately with its styling. Hyundai, Kia and Genesis now boast bold, head-turning designs and the results have been dramatic. Higher sales, more market share, rising revenue and plumper profits. That’s how you play the automotive game. You come out with freshly designed cars that make people want to be seen in them.

Genesis G90

Detroit’s automakers were the masters of the game in the 1950s and 1960s. They changed the styling of their cars every year. But they did it very intelligently. And they did it on a four-year cycle.

First, they’d come out with an all-new car. Then, in year two, they might change the front-end styling. In year three they might change the rear-end styling. And in year four they might change the roofline. To the car companies, the annual styling change was actually capital-efficient, because they only changed one part of the car. To the public, these changes gave them a reason to run to the showrooms. 

You see, buying a new car is exciting. It feels good. It gives you a warm feeling. You get an emotional uplift. And you want everyone around you to see that you’re driving a new car. But that doesn’t happen when your cars look like something that came out years ago. No one notices.

Tesla’s top designer, Franz von Holzhausen, is one of the best in the business. I’ll bet he’s dying to update all of Tesla’s cars. In fact, I’ll bet his design team already has design sketches, hidden out of sight, just waiting for the day when Elon decides it’s time to do something new. Well, that day is now.I’m reminded of something Steve Pasteiner, the former GM designer, told me years ago. “Of course, design matters,” he said. “If people don’t notice your car, how do they know if they even want to buy it?”