Should Tesla Start Advertising?

Tesla shareholders are scheduled to vote in July on whether or not the brand should start advertising product like every other automaker on the planet. It’s something the board and CEO Elon Musk have long resisted, and not without good reason. As a car brand, Tesla probably enjoys more free publicity than anyone else.

Musk has effectively mastered social media. He knows what buttons to press to earn more attention, and his one-man campaign has helped the company get where it is today more than the slickest ad copy could have hoped to.

Tesla also managed to spin this into a strength against would-be critics. Anytime someone laughs at the brand for not spending on traditional marketing, its acolytes point to the Musk talking point that cash is better used for development — a claim that holds some real weight, thanks to the brand having some of the most desirable electric vehicles on the market. But Tesla’s mystique won’t last forever, and it won’t be able to count on Elon Musk’s upper echelon Twitter game indefinitely.  

Buried within Tesla’s latest filings with the U.S. Securities and Exchange Commission (SEC), is a proposal to a spend “at least $50 [per car] produced to advertise its products/services in order to increase brand and product awareness and interest.”

Penned by James Danforth, a Californian shareholder with 850 Tesla shares, the proposal suggests that advertising became necessary the moment Tesla announced it would shut down retail stores and start focusing solely on website-based sales in first quarter of 2019:

First, its [sic] self-evident that advertising can increase brand value, product awareness and interest. Second, Tesla ads can help mitigate and dilute substantial FUD (“Fear, Uncertainty, Doubt”) and misinformation campaigns sponsored by competitors and detractors worldwide and steer the narrative more favorably. Third, impacts caused by less public visibility, due to retail store closings announced in Q1-19, can be explained and softened by ads.

Finally, Tesla ads will, by their very nature, increase knowledge and support for climate damage avoidance worldwide. This is a core desire of Tesla and a key driver of better company results too.

Tesla’s call to action via advertisements will ring loudly and credibly with billions of consumers, many of whom who don’t know who Tesla is at all. This call to action has never been more necessary or important than right now.

Does anybody in this country really not know Tesla? I’ve seen Cybertruck appearing in all manner of entertainment-related programming over the past month. It has appeared in cartoons, enjoyed one of the most-watched premieres in recent memory, and every podcast has talked about it for months. Meanwhile, people with zero interest in automobiles have been coming up to me to say they’ve been thinking long and hard about purchasing a Model 3 since that car debuted in 2017.

Tesla is everywhere and everyone is talking about it.

But this hasn’t come without problems. A lot of the language Tesla uses has been under fire, as it’s been rather aggressive with its autonomy claims. Terms like “Full Self Driving” and “Autopilot” don’t effectively convey what these systems are capable of in their current form, and we think it’s irresponsible for any automaker to be so cavalier with its terminology (and most are) after the realities of vehicular autonomy came crashing down around us. An organized marketing team could help alleviate this.

Meanwhile, Elon Musk is routinely guilty of over promising. While this is an accusation that could could levied against just about every politician in existence, as well as corporate entities around the world, Tesla/Musk’s messaging missteps are isolated to just one very high-profile individual and have left an easy-to-follow trail of mid-grade nonsense.

In 2015, he said it was his belief that Tesla would have “complete autonomy” in roughly two years. The following year, Musk suggested a self-driving Model S would make a cross-country journey with no input from the driver by the end of 2017. In 2018, he said the company would begin affixing solar panels to charging stations. None of this ever happened. And that’s to say nothing about the numerous production, efficiency, or financial claims — including the one that got him in trouble with the SEC.

However, it could be argued that the South African hype machine performed expertly overall. As annoyed as we get when an automaker fails to deliver on its claims, it’s a pretty routine occurrence and we often don’t find out we were mislead (intentionally or not) until after a car is already on sale and the collective consciousness has forgotten what was being promised in the first place. In fact, this seems fairly routine among businesses these days.

How many data companies promised not to harvest and sell your personal information and then did so anyway? How many video games were sold to customers as incomplete Beta versions at full price with developers promising the experience would gradually evolve into the finished product and then never did? How many automakers promised self-driving by 2020 and now seem to be embracing the worst aspects of the previous examples?

Lots and lots.

This isn’t said to excuse increasingly grimy business practices and misleading language, but to help frame the bigger picture. Tesla is only slightly more guilty than other brands when it comes to misleading consumers, but it may have a lower threshold overall. Few are neutral on Tesla. It’s either their favorite brand, blazing a trail into the world of tomorrow, or an overhyped business that’s been propped by the government until it can stand on its own two legs. That means naysayers are front and center anytime Elon says something online. While the ensuring spirited discourse (the stuff that doesn’t diverge into other topics, anyway) helps draw attention to his words, it may not be sustainable. Look at the mainstream coverage of Musk over the past five years. He went from the upstart savior of humanity to an opinionated businessman — though we doubt he changed that much as a person within the given time frame.

It could be argued that Tesla advertises already, at least when it comes to cross branding. SpaceX, which is also headed by Mr. Musk, incorporates Tesla products at every opportunity. It launched a Roadster into space in 2018 (top of the page) that is now orbiting our sun and currently has its astronauts riding around in the Model X. Tesla’s board has already issued its response to the proposal to incorporate traditional advertising, sticking to its guns:

The Board has considered this proposal and has determined that it would not serve the best interests of Tesla or our stockholders. While we welcome stockholder feedback, we also believe we have an experienced management team that is best situated to determine Tesla’s day-to-day business operations, including our sales and marketing practices and expenditures.

Moreover, the proponent’s key premise is based on an apparent misunderstanding of Tesla’s retail operations. Specifically, Tesla has made clear in statements since the first quarter of 2019 that we frequently optimize our retail operations, which means both closing or downsizing locations with underperforming foot traffic or sales throughput, as well as adding locations in our target markets with high foot traffic. As a result, our net store count remained stable across 2019. Moreover, Tesla does not focus solely on online sales as the proponent asserts. Rather, whether a customer places an order from his or her home or at a Tesla store, it is transacted by accessing Tesla’s website.

The proponent also presents no evidence that Tesla has insufficient visibility with prospective customers or that paid advertising, whether at the arbitrary amount suggested by the proponent or at all, would increase such visibility in a manner favorable to the Company or its stockholders. On the contrary, among the milestones achieved in 2019 without traditional advertising and at relatively low marketing costs, Tesla delivered a record 367,656 vehicles, or a 50 [percent] increase from the prior year, and Model 3 outsold the BMW 3-Series, Mercedes C-class, Audi A4 and Lexus IS combined in the United
States.

The vote is a little over a month away, and we’re inclined to believe the board will get its way. But what do you think? Is Tesla playing this smart by leaving Musk at the center of it all, or is there good reason for the EV company to transition to more traditional marketing?

[Images: Tesla]