Can Tesla Turn Brand Strength into Stronger Sales?

Electric car maker Tesla has a much stronger reputation among the general public, but will that enhanced brand perception lead to an increase in sales?

Feb 9, 2014 at 7:42AM

Tesla Motors (NASDAQ:TSLA), the electric car company that has been long on media coverage and short on sales, may be poised to grow as customers now have a strongly positive view of the brand.

Consumer Reports released its annual brand perception survey Feb. 5 , which showed Tesla to be a brand on the rise. The company, which sells its basic Model S for around $70,000, saw a 47-point jump in this survey, vaulting it to fifth position with 88 points.

"Tesla had a strong, very public year, with soaring stock prices, magazine awards, and exceptional crash-test performance," said a press release touting the survey. "Innovation, performance, and sleek styling is clearly gaining attention and making a positive impression. By gaining points in several categories, Tesla was able to raise its overall score. This highlights the value of being good at multiple things, rather than rely on a single facet."

The survey, which was conducted among 1,700 randomly selected car owners, didn't simply ask which car brands people liked best. Instead, participants were asked to rank seven aspects of a car-buying decision: design and style, performance, quality, safety, technology and innovation, value and, finally, fuel economy. Then they were asked to name which brand was a leader for each of those aspects. The results were then used to calculate the overall favorite brand.

Is being #5 good, when competitors are #1-4?

All of the companies that ranked ahead of Tesla -- #1 Toyota  (NYSE:TM), #2 Ford (NYSE:F), #3 General Motors (NYSE:GM), and Honda (NYSE:HMC) -- make electric or hybrid cars (those with both an electric and gas engine) that outsell Tesla's.

Toyota's hybrid Prius sold more than 234,000 units last year, according to the Los Angeles Times. Ford has not released a breakdown of hybrid sales for 2013, but the company reported that it surpassed its previous full-year hybrid sales record set in 2010 of 35,496 vehicles in just the first five months of 2013.

Tesla, which only sold 17,650 of its all-electric vehicles in 2013, according to a chart from Insideevs.com, still has a long way to go to compete with its rivals.

What about pure electric?

Hybrid cars dramatically outsell purely electric cars (likely due to price and the less-than-100 mile range of pure electrics), but electric car sales did grow in 2013 to over 96,000, compared to total U.S. passenger vehicle sales of 15.53 million, according to Hybridcars.com. Those numbers, however small they are, represent huge growth as sales climbed from 53,172 units in 2012 and 17,813 in 2011. That's admittedly a goldfish in the ocean compared to all car sales, but it's at least up from being plankton.

Who's winning pure electric?

Tesla's 17,650 was good for third place in pure-electric sales behind the Chevrolet Volt (at 23,094) and Nissan Leaf (22,610). Those numbers are especially impressive when you consider that the Tesla Model S starts at $70,000 while the Volt has an MSRP of $34,185 and the Leaf comes in at $28,800 MSRP.

Tesla CEO Elon Musk told CNN the company plans to have a model that costs around $35,000 for sale in "around three years." And though three years is a very long time to wait in car years, the prospects for a cheaper Tesla looks bright if the company maintains its positive brand perception. 

Will perception lead to sales?

Positive brand perception may be indicative of future sales, but it is not a straight line. For example, the public loves Tom Hanks, but, many many more of us are willing to pay to see him as "Forrest Gump" ($329 million U.S. box office) than as "Larry Crowne" ($35 million in U.S. box office).

The public's increasingly positive view of Tesla should help the company – as will a more competitively priced car. But if the market for fully electric vehicles, which despite its growth remains at the relatively small intersection of environmentally aware and high-net-worth – does not grow, gaining market share in a tiny market won't mean much.

For Tesla to compete with Ford or Toyota (or even Subaru), the company needs to capitalize on its brand perception to break out, or at least broaden, that niche.

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Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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