Skeptics Will Soon Associate The ‘Osborne Effect’ With Tesla

2 days ago by EVANNEX 38

Tesla

One of the early spy shots of a black Tesla Model 3 release candidate

GET READY FOR WALL STREET NAYSAYERS TO CITE THE ‘OSBORNE EFFECT’ FOR TESLA

If Tesla’s Model 3 isn’t the most anticipated product in history, it’s surely right up there (sliced bread comes to mind). Having a backlog of orders that will take years to deliver sounds like a good problem to have, and it is – but it is a problem, and it can be a serious one if not handled properly.

*This article comes to us courtesy of Evannex (which also makes aftermarket Tesla accessories). Authored by Charles Morris.

Tesla

Recent spy shot of a black Tesla Model 3 release candidate in San Francisco 

More than one young company has gone out of business after experiencing such massive demand for its products. One that is famous in business lore is the Osborne Computer Corporation. Founder Adam Osborne was one of the developers of the world’s first portable computer. His company’s first product, the Osborne 1, came out in the early 1980s, and it sold well at first. However, when Osborne began showing an improved version, the Osborne Executive, dealers cancelled orders for the Osborne 1, unsold inventory piled up, and the company ran out of cash and died.

Some writers attribute the failure to other causes, including budding competition from Apple, IBM and Compaq, but be that as it may, the company’s history became an oft-cited case study, and spawned a new term: the Osborne effect.

Tesla

The Osborne 1 computer (Image: Old Computers)

The Osborne effect comes into play when a company announces a future product too soon. Anticipating that there’s something better on the way, customers cancel or delay orders for the current product, slashing the company’s cash flow just when it is needed to meet the expenses of the new product launch.

Could this happen with Tesla? There are several reasons why it’s unlikely. Even CNBC’s Jim Cramer, a critic of Tesla, reminds us that the capital markets (including deep-pocketed investors like Tencent) have a history of backing Tesla. One other thing – Adam Osborne was no Elon Musk. However, with Tesla [NASDAQ: TSLA] stock hitting all-time highs and short interest (those betting against the stock) ballooning along with it, the Osborne effect could become a mantra for Tesla’s naysayers.

Is Elon Musk concerned? He took to Twitter yesterday saying, “Could be worse… these [shorts] want us to die so bad they can taste it… Just wish they would stop sticking pins in voodoo dolls of me. That hurts, ok?”

Tesla

Elon Musk openly taunting the “shorts” on Wall Street (Twitter: @elonmusk)

Regardless of the Osborne effect, companies do announce new products before they’re available, and they do it for good reasons – it reassures current customers, piques the interest of the media, and keeps competitors on their toes. However, the timing has to be right. In announcing the second-generation LEAF, Nissan took pains to sidestep the Osborne effect: it delayed announcing the 2018 LEAF even as competitors GM and Tesla trumpeted their new 200-mile EVs; it made existing leaseholders an offer they couldn’t refuse, allowing them to extend their leases on generous terms and trade up to a new LEAF when it’s ready; and it offered blowout discounts on the remaining 2016 and 2017 vehicles, to clear them from dealers’ lots.

Tesla’s situation is a bit different. Unlike the 2018 LEAF, Tesla’s Model 3 is not an upgrade from its predecessor – it’s a downgrade, a lower-priced model – so the Model S remains the company’s top-of-the-line sedan. Logically, there should be little threat from the ghost of Osborne – either you can afford a $70,000 car or you can’t, and if you can, why buy the cheaper model? However, it may be that many don’t grasp the relationship between the two sedans. The name “Model 3” certainly sounds like a next-generation product, and today’s consumers are used to new products that are better and cheaper than their forerunners.

Nissan is still keeping its 2018 LEAF under wraps

Tesla-watchers in the media and on the forums continue to ponder the possibility of Osbornishness in great detail. Elon Musk is plainly well aware of the danger – Tesla salespeople have been “anti-selling” the Model 3 for months, trying to steer prospective buyers to the instant gratification (and, for the company, instant cash) of a Model S. Tesla also went back to offering its free Supercharger incentive for Model S buyers. And, the company penned a blog post and published a chart that compares the two sedans in detail, making it clear which one is the big daddy.

“We’re doing our best to clear up that confusion so people do not think that Model 3 is somehow superior to Model S,” said Musk on a recent conference call. “Model S will be better than Model 3, as it should be because it’s a more expensive car.” He admitted that the company has seen some impact on Model S orders as a result of confusion about the two models. The Model-3-good-Model-S-better message “has not filtered down to all of our customers.”

Tesla Model 3

An up-close look at a white Tesla Model 3 release candidate

At Tesla’s recent shareholder meeting, Musk continued to anti-sell the Model 3 and pushed customers towards a comparably-priced (and more immediate) Model S deal. He announced that “the used Tesla section of the website is going to get a lot more attention. Particularly if the car is 4 years old, [if] it has got a lot of mileage, you can buy a Model S for as much as a Model 3. It’s like, maybe somebody wants to buy a Model S for $35,000 or $40,000 and they can have that [instead] today.”

Whatever’s up with Model S, interest in Model 3 continues to flourish. Sure, in the coming weeks and months, Model 3 may cannibalize some sales of Model S. But, over the long haul, the sheer volume of Model 3 sales should overcome any early hiccups. Tesla hasn’t offered an updated reservation count since May 2016 (when orders stood at 373,000), but Musk says that the number is consistently rising. “Our net reservations continue to climb week after week,” he said. “No advertising. Anti-selling. Nothing to test drive. Still grows every week.”

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers. Our thanks go out to EVANNEX, Check out the site here.

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39 responses to "Skeptics Will Soon Associate The ‘Osborne Effect’ With Tesla"

  1. albertito says:

    The “wrapped nissan leaf” is surprisingly identical to the nissan pulsar.Maybe they use the pulsar platform for prototyping issues , or maybe the new leaf is using this kind of design.

  2. James says:

    Finally put my deposit down on a 3 last week. I would guess Chevy has more to lose here than Tesla. I looked at a Bolt, but for a few thousand more I can have a Tesla in a year or so. That’s a no-brainer, and I’d most certainly rather have a car comparable to a BMW 3-series than comparable to a Honda Fit. I know the 3 won’t have the bells and whistles of the S, but I don’t care too much. It will have autopilot, and it will fit in my garage (the S is iffy in this department).

    1. dsfsd says:

      >but for a few thousand more I can have a Tesla in a year or so

      Few thousand more? You’ll get the full tax credit.

    2. ffbj says:

      Waves at James from another part of the same boat. My garage was built for a Model-T, circa 1930.

  3. Aaron says:

    Osbourne Computers went out of business because of the early information on their new computer that is better than their old one.

    Tesla’s situation isn’t the same. Their new car isn’t as good as the new one. (Not to say the Model 3 isn’t good!) This prevents the Osbourne effect.

    1. Pushmi-Pullyu says:

      The article does say that, quite clearly.

      So indeed, the Osborne Effect doesn’t apply to Tesla. But that won’t stop Tesla FUDsters from trying to convince everyone it does!

      It would be better to call the Model S –> Model 3 progression “The BMW Effect”.

      BMW 5 Series debuted in 1972
      BMW 3 Series debuted in 1975

      When BMW put the 3 Series into production, did that cause 5 Series sales to tank? Heck no! According to Wikipedia, “[T]he 5 Series… is BMW’s second best-selling model after the 3-Series and in 2010 produced about 50% of the BMW’s profits.”

      1. Ambulator says:

        Yeah, but with a 5 versus a 3 you expect the 5 to be better. Just like with an S and the E. Changing the E to a 3 was a minor mistake; better would have been a letter before S.

        1. Pushmi-Pullyu says:

          Tesla changing “Model E” to “Model 3” was not a “mistake”, in that it wasn’t Tesla’s choice. The change was a result of Ford putting its foot down and saying “The name ‘Model E’ belongs to us, and you can’t use it!”

    2. Doggydogworld says:

      The Model 3 is a much better value proposition than the Model S. Slightly smaller for half the price.

      Whether you call it Osborning or not, the Model 3 is clearly cannibalizing the Model S. It’s not the end of the world, just something Tesla has to manage.

      1. Pushmi-Pullyu says:

        “…the Model 3 is clearly cannibalizing the Model S.”

        Do you make a habit of pronouncing things as “clear” when there is no evidence to indicate it is happening or will happen? Let’s wait until we have some actual evidence to argue over, hmmmm?

        I think it’s reasonable to believe the Model 3 will bring Tesla to the attention of more car buyers, and some of those will certainly buy the Model S. Whether that factor will outweigh any “cannibalizing” of Model S sales by the Model 3, remains to be seen.

      2. arne-nl says:

        Same argument applies to all models from all manufacturers. Anything with 4 wheels and a motor can get you from A to B just as fast as a >$100k luxury car.

        Still, more than enough people pay the extra price for for a luxury car.

        Now ask yourself: why?

        1. Asak says:

          “Why?”

          Stupidity.

  4. jelloslug says:

    This is not exactly the Osborne effect.

  5. ffbj says:

    To me the article seems to insinuate that short interest is something that is bad for a stock, while in this case it’s one of the things that has pushed and is keeping the stock up so high.
    Classic short-squeeze. Like toothpaste from a tube, it’s squeezed out.(up in this case).

    1. Pushmi-Pullyu says:

      There are a lot of people who seem to know what they are talking about who say that the extreme level of “short interest” in Tesla’s stock is pushing the price up. So I suppose it’s true.

      What’s not so great about the short “interest” is all the shorters who have become obsessed with posting FUD and lies about Tesla and its cars all over the Internet on a daily basis. Unfortunately, there are several “serial Tesla bashers” (as we call them) who post regularly to InsideEVs.

      Like many or perhaps most Big Lies, if liars repeat them often enough, at least some people will start believing they are true. Or at least the Tesla bashers and FUDsters hope so!

      1. Brave Lil' Toaster says:

        You know, I’m really not worried about the FUD being posted to niche sites like InsideEVs.

        I’m *far* more worried about the same trolls posting to mainstream sites. That would be the place to change public opinion.

        1. Pushmi-Pullyu says:

          I agree, it does seem that the anti-Tesla trolls are mostly wasting their time by posting here. Either they are so stupid that they don’t realize they would get a better return on their investment of time by posting to forums which don’t attract a high percentage of EV supporters, or else their real objective is not actually to convince anyone their FUD is true, but rather to disrupt meaningful discussion of EVs.

          I suspect the latter, altho the former is possible, at least in some cases. Being a troll doesn’t preclude one from having an exceptionally low intelligence!

  6. georgeS says:

    Tesla’s biggest threat is that they get too many Model 3’s in customer’s hands before all the bugs are worked out and there is some significant issue resulting in service centers being overwhelmed.

    Thus resulting in a very dissatisfied group and a big deterrent to further sales.

    1. Stimpacker says:

      Where I am at in NorCal, the local Tesla service center is already being overwhelmed.

      2 weeks to get a simple rear windshield defroster heater element replaced. Grrrr….

  7. Kdawg says:

    I was going to read this IEVs article about the Osborn Effect, but I think I’ll wait for the next/better article to show up.

    1. ffbj says:

      Good One!

      1. Jay Cole says:

        indeed, I hereby allocate an official InsideEVs +1

        (only the 7th to be given out all-time, so it almost has a monetary value…almost)

    2. GeorgeS says:

      Very whitty kdawg. I almost got it.

    3. James says:

      I cancelled my subscription to InsideEVs because of that. Oh wait! It’s FREE! 🙂

      1. Jay Cole says:

        Still priced too high IMO, (=

        1. James says:

          * I would pay for a “print edition” if more extensive like a magazine that I could download monthly, however.

          In the future? We’re at a point where we’re about 3 years from utter EV mayhem if Model 3 doesn’t drown from service hiccups and quality issues. When EVs reach 30% of all vehicles sold – the enthusiast publications will be flying out the door!

  8. Chris O says:

    Maybe Model 3 steals sales from Model S but it’s not like Tesla had much choice I think: it had to show investors and suppliers what it was up to including a reservation list to prove demand.

    I’m sure that reservation list also ended up stealing sales from some of Tesla’s competitors, surely Bolt would have sold *a lot* better without Model 3 just around the corner.

    I think it’s actually GM -despite its efforts to beat Tesla to the market-that’s experiencing most of the “Osborne effect” albeit one derived from a third party product announcement.

    1. Asak says:

      I think GM actually has a lot to gain when the Model 3 finally comes out and it’s not everything people expect. Right now the Model 3 is like a unicorn, it’s all things to all people, but eventually a real product has to be released dispelling those hopes.

  9. MikeM says:

    I’m not aware that Model S sales have come to a dead stop!

    That would define/replicate the Osbourne situation.

  10. James P Heartney says:

    My mother had an Osborne. I remember learning WordStar on it, and even typing in a Basic program from a magazine. First “portable” (for generous values of the word) computer.

    The time to short Tesla (like the time to buy it) was a few years ago, I think. The stock is expensive, but the company is pretty solid. It may keep going up eventually (as more Gigafactories etc. come on line), but it’s not about to die.

  11. George L. Parrott says:

    I had one of those original Osborne computers, and it was impressive AT THAT TIME, but the company did not accelerate evolution as the market around them quickly emerged. I migrated to a Commodore, heck it had a color screen and a pretty intuitive UI.

    Tesla, as noted, started at the top, and now is migrating, and migrating VERY quickly by automotive standards down and outwards as well.

    In the “tech domain” quick response is crucial, and it would appear so far, that Tesla is MUCH, MUCH quicker than anybody else (except amazingly GM with the Volt and then Bolt).

  12. Nix says:

    There indeed may be some effect similar to the Osborne Effect, but it won’t be the same for 2 reasons:

    1) Tesla doesn’t have a huge stock of already manufactured Model S cars that would become worthless. They have less than 1% of yearly production as inventory cars, many of which have miles one them for use as service cars. (Still technically “new”).

    2) Even with the Model 3, there is sufficient market differences between 3 and S, just like all the gas car companies.

  13. Brave Lil' Toaster says:

    “If Tesla’s Model 3 isn’t the most anticipated product in history”

    Ugh!

    The 1965 Ford Mustang sold – not preordered, *sold* – 607,500 units. That was the first full year of production, being introduced in 1964.

    That’s twice the expected manufacturing capacity of the Model 3 for next year’s full production year.

    “Most anticipated product in history” my ass. Maybe for you, me, and a bunch of Tesla fanboys out there, but not in the real world. Not by a long shot. Your hyperbole is clearly an effort to generate more hype for a product that you’ve got a fetish for. Understand this and pull your head out of your butt.

  14. James says:

    Elon Musk is going to make mistakes. He seems very good at recovering and then blossoming, though.

    It was a mistake to go with this “S-E-X-Y” model naming thing. First the E had to become three lines, than an actual 3. Second, the 3 just insinuates that it’s the next better model, a 3rd generation, so to speak.

    I’m predicting a name change for Tesla’s car models in the future. Model Y just sounds dumb, and the facts of the “3” naming are not lost on Musk. He spends more time explaining the 3 is not better than the S than he does building rockets and tunnel boring machines!

    The Germans have been doing this “1,2,3,A,B,C” naming ritual forever. We humans easily register that the iPhone 8 will be an upgrade of the 7, etc.

    Nobody predicted the demise of Mercedes when they announced the C class.

    Since Tesla is doing this upside down (they had to, let’s face it), the S will surely become more like a 7 Series or S Class for their respective companies = the top tier model with all the good stuff but a high price that sells in relatively small numbers compared to the more affordable priced models in the lineup.

    3 and Model Y will be best sellers, and someday a true 3 Series-sized Tesla will be the top seller and Model 3 will become the one (BMW 5 Series) slotted in the middle of the sandwich.

    1. Pushmi-Pullyu says:

      That’s a nice little argument you have convinced yourself with. Sadly, it doesn’t survive contact with reality.

      The “alphabetical progression” argument certainly did not stop Ford from following the Model T with the Model A, now did it?

      The progression may be important to you, but it won’t be to just about everyone else. Tesla would have had to explain the Model 3 isn’t intended to be “better” than the Model S, no matter what they called it.

      * * * * *

      Regarding Tesla “anti-selling” the Model 3: Perhaps, like Monty Python’s “Conquistador Coffee” ad campaign, it’s a “soft sell”. 😉

      https://www.youtube.com/watch?v=ijIq_-8HJo8

  15. James says:

    I’m glad this whole naming issue has shown itself to be such an important factor in conveying a brand to the public.

    This way, I can use Tesla as an example when talking about marketing. As you guys know, I spend a great deal of time explaining how what we name something has a great deal to do with it’s success or failure. Such as “mountain bikes” and “smartphones”, “minivans” and “Sport Utility Vehicles”.

    Ford ditched Model T in swift manner and nobody cared much when they started over with the Model A, and moved on from there.

    1. Pushmi-Pullyu says:

      How very, very odd that you’d cite the very thing — Ford’s progression of Model T –> Model A — which disproves your argument.

      Sure, “What’s in a name?” can be very important for branding. I’m sure that Ford’s Mustang wouldn’t have sold nearly as many if it had been named the “Turtle”!

      But when it comes to neutral names devoid of any emotional value, names like “Model T” or “Model 3”, one letter or number as good as the next… or the previous.

  16. Omar Sultan says:

    I guess no one is gong to get the iPhone 8 either,since the iPhone 8S is just around the corner.

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