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Investor's Corner

Tesla’s word of mouth strategy in focus: Why Elon Musk’s owner-based initiative works

(Credit: Tesla)

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Tesla’s (NASDAQ:TSLA) avoidance of traditional advertising initiatives is one of the most recognizable things about the company, yet it is one that has been questioned several times over the years by Wall Street analysts, investors and even avid fans. Yet, despite these questions, CEO Elon Musk’s answer has always been the same: Tesla does not do traditional advertising. Musk emphasized this point during the last earnings call too, stating that if Tesla would do some form of marketing, it would be strictly informational in nature.

“What we’re seeing is that word of mouth is more than enough to drive our demand in excess of production. We have no plans to advertise at this time. At some point in the future, we may do advertising not in the traditional sense but more to just inform people and make sure they are aware of the product, but not engage in the typical trickery that is commonplace in advertising,” Musk said.

In a conversation with Teslarati, investor and economist @Incentives101 explained that if one looks at Tesla’s word-of-mouth strategy from a mathematical perspective, it would seem that Elon Musk’s stern stance against traditional advertising may actually be well justified. Considering the manner that Tesla has been growing so far, the economist noted that “Elon is probably right. They don’t need advertisement and probably will never need it.” The following sections explains this point.

Tesla’s volunteer owners help out during the company’s end-of-quarter push in Q3 2018. [Credit: Sean M Mitchell/Twitter]

How Customers Learn About Tesla

There are generally three ways a new customer could learn about Tesla and its products: 1)Elon’s/Tesla goodwill, 2) customers’ own research, or 3) through an existing Tesla owner. Tesla relies heavily on current owners spreading the word and converting people they know into new electric car owners. Most people call this strategy the “Network Effect,” but the economist states that this is a misinterpretation.

“The Network Effect is technically applied to how a product increases its value from a network. The telephone is the most obvious example. One or two telephones in the world are useless, but the more there, are the more useful they become. In a way, you have to treat this like a disease. If you analyze (Tesla’s) strategy, you not only need information to flow. You need the information that changed hands to have an effect. In this case, the purchase of another Tesla. The most similar models to this strategy out there are how diseases spread,” the investor said.

These mathematical models try to predict how a disease will be spread considering different assumptions and variables. Among those variables are the number of susceptible individuals, of infected people and of recovered people, as well as the rate of contagion. For purposes of this illustration, information is equal to a virus and the main variables are the number of people that want to buy a car in that period of time within a target price range or TCO (susceptible individuals), the number of owners at the time (infected people), and the average number of people that an owner would convert in that period of time (contagion). This will be referred to in this article as the ‘T’ variable.

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A Tesla Model 3 driving at night. (Photo: Andres GE)

How Tesla spreads

The investor explains this further in the following statement. “The easiest way to understand this is the following. Imagine you’re looking at a decision tree. Each node is a new person with a Tesla in a period of time and how many nodes come out of that person is our ‘T.’ In each period of time that you’d want to measure, there are more assumptions that would need to be made. For example, an owner never ‘recovers’ so not only they ‘infect’ people but they will be contagious in perpetuity.

“Let’s analyze the spectrum of possible solutions. If T>=1, it would mean that information is flowing very efficiently and it will behave exponentially even if the time it takes for an owner to spread enough information to convert someone is relatively high. You need to consider that today, there are more than half a million owners. The faster the person transmits the ‘virus,’ the better,” he said.

There is no way to approximate these variables with the information available to us today. But recently, Tom Randall from Bloomberg released the findings of a study involving 5,000 Model 3 owners. According to the study’s results, 99% of Model 3 owners are pretty much satisfied with the vehicle, and they are willing to recommend the electric car to friends and family. A number of assumptions could be drawn from these results, as per the investor.

“If you consider what would be the worst scenario for Tesla, it would mean a very long time for contagion to spread, with the ‘T’ variable being very close to zero. But with the information provided in the Bloomberg report, there is a very high probability that ‘T’ is not close to zero at all. Instead, there’s a good chance that ‘T’ is probably very close to 1,” the economist said.

(Credit: Tesla)

Growing Without Traditional Advertising

These assumptions would mean that Tesla can continue to grow without engaging in traditional advertising. Looking at Tesla’s history, we can see that this strategy or combination of strategies have worked. But is there an optimal time to have an information campaign? “It seems that the sooner, the better” the investor explained. “If you look at how this strategy functions, theoretically, the best time to have an information campaign is when they’ll have the least amount of owners and when they’ll increase production dramatically. So in theory this means in the next few months as Tesla continues to hit its stride with Model 3 and begin producing the Model Y, high volume vehicle that Elon Musk expects will outsell the Model S, X, and Model 3 combined. This doesn’t mean they need one, it just means it could be the best time,” he added.

It wouldn’t be accurate to assume that this strategy or combination of strategies is what creates demand. Any company could choose to have either this strategy or spend millions of dollars in advertising and demand wouldn’t necessarily go up or down. “Consumers need information to make decisions — it’s a very important factor — but demand is a function of several factors, particularly consumer preferences. Under perfect information, there is zero doubt demand for Tesla’s will rise as we explained in this note,” the investor noted.

“Tesla’s word-of-mouth strategy helps spread information, but if this product didn’t have a fundamental effect in consumers, it wouldn’t really matter. I’m confident that if banks or media had someone looking at this problem from the consumer side, we would never see a note about alleged ‘demand problems’ again. Tesla has never had a demand problem and data shows that they won’t face one. But they might face an information gap, particularly with how media misinforms consumers,” the economist said.

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Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.

Simon is an experienced automotive reporter with a passion for electric cars and clean energy. Fascinated by the world envisioned by Elon Musk, he hopes to make it to Mars (at least as a tourist) someday. For stories or tips--or even to just say a simple hello--send a message to his email, simon@teslarati.com or his handle on X, @ResidentSponge.

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Investor's Corner

Tesla welcomes Chipotle President Jack Hartung to its Board of Directors

Tesla announced the addition of its new director in a post on social media platform X.

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Credit: @ArthurFromX/X

Tesla has welcomed Chipotle president Jack Hartung to its Board of Directors. Hartung will officially start his tenure at the electric vehicle maker on June 1, 2025.

Tesla announced the addition of its new director in a post on social media platform X.

Jack Hartung’s Role

With Hartung’s addition, the Tesla Board will now have nine members. It’s been a while since the company added a new director. Prior to Hartung, the last addition to the Tesla Board was Airbnb co-founder Joe Gebbia back in 2022. As noted in a Reuters report, Hartung will serve on the Tesla Board’s audit committee. He will also retire from his position as president and chief strategy officer at Chipotle, and transition into a senior advisor’s role at the restaurant chain, next month.

Hartung has had a long career in the Mexican grill, joining Chipotle in 2002. He held several positions in the company, most recently serving as Chipotle’s President and Chief Strategy Officer. Tesla highlighted Hartung’s accomplishments in a post on its official account on X.

“Over the past 20+ years under Jack’s financial leadership, Chipotle has seen significant growth with over 3,700 restaurants today across the United States, Canada, the United Kingdom, France, Germany, Kuwait and the United Arab Emirates. Jack was named ‘CFO of the Year’ by Orange County Business Journal and Best CFO in the restaurant category by Institutional Investor,” Tesla wrote in its post on X.

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Tesla Board and Musk

Tesla is a controversial company with a controversial CEO, so it is no surprise that the Board of Directors tend to get flak as well. Two weeks ago, for example, Tesla Board Chair Robyn Denholm slammed The Wall Street Journal for publishing an article alleging that company directors had considered a search for a potential successor to Elon Musk. Denholm herself has also been criticized for offloading her TSLA shares.

More recently, news emerged suggesting that the Tesla Board of Directors had formed a special committee aimed at exploring a new pay package for CEO Elon Musk. The committee is reportedly comprised of Tesla board Chair Robyn Denholm and independent director Kathleen Wilson-Thompson, and they would be exploring alternative compensation methods for Musk’s contributions to the company.

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Rivian stock rises as analysts boost price targets post Q1 earnings

Rivian impressed with smaller-than-expected losses & strong revenue, pushing analysts to raise price targets.

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(Credit: Rivian)

Rivian stock is gaining traction as Wall Street analysts raise price targets following the electric vehicle (EV) maker’s first-quarter earnings report. Despite a dip after the announcement, optimism surrounds Rivian’s cost control and upcoming lower-priced cars.

Last week, Rivian reported a better-than-expected Q1 gross profit, surpassing Wall Street’s forecasts with adjusted losses of $0.48 per share against expectations of $0.92 per share. The company also reported a revenue of $1.24 billion compared to the $1.01 billion anticipated.

However, the EV automaker cut its 2025 delivery forecast and capital spending due to President Donald Trump’s tariffs. It explained that it is “not immune to the impacts of the global trade and economic environment.” RIVN stock dropped nearly 6% post-earnings, closing at $12.72 per share.

Wall Street remains upbeat about Rivian, citing progress toward launching lower-priced vehicles in 2026 and effective cost management. On Monday, Stifel analyst Stephen Gengaro raised his RIVN price target to $18 from $16, maintaining a “Buy” rating. He highlighted Rivian’s “solid progress” toward key milestones.

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Conversely, Bernstein’s Daniel Roeska gave RIVN a “Sell” rating. However, Roeska also lifted his Rivian price target to $7.05 from $6.10, acknowledging “better” Q1 results. He warned that profitability remains distant and hinges on multiple product launches by the decade’s end.

Overall, Wall Street’s average price target for RIVN climbed from $14.18 to $14.31, a modest 13-cent increase reflecting positive sentiment. About one-third of analysts covering Rivian rate it a Buy, compared to the S&P 500’s average Buy-rating ratio of 55%.

On Monday, Rivian stock rose 2.7% to $14.64, slightly trailing the S&P 500 and Dow Jones Industrial Average, which gained 3.3% and 2.8%, respectively. The uptick may also stem from broader market gains tied to news of a temporary U.S.-China tariff suspension.

As Rivian navigates trade challenges and scales production at its Illinois factory, its Q1 performance and analyst support signal resilience. With lower-priced EVs on the horizon, Rivian’s strategic moves could bolster its position in the competitive EV market, offering investors cautious optimism for long-term growth.

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Tesla (TSLA) poised to hit $1 trillion valuation again amid reports of Trump China deal

TSLA stock was up about 8% at $322.56 per share on Monday’s premarket.

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(Credit: Tesla)

Tesla shares (NASDAQ:TSLA) are on a tear on Monday’s premarket amidst reports that the United States and China have agreed to significantly roll back tariffs on each other’s goods for an initial 90-day period.

As of writing, the premarket price of TSLA shares suggests that the electric vehicle maker might end Monday with a $1 trillion valuation once more.

Tesla and China

TSLA stock was up about 8% at $322.56 per share on Monday’s premarket. As noted in a report from Barron’s, these prices suggest that the company could achieve a trillion-dollar valuation again, a level not seen since late February. Similar to Tesla, the S&P 500 and the Dow Jones Industrial Average were also up 2.8% and 2.1%, respectively, on Monday’s premarket.

The United States and China’s decision to roll back its tariffs would likely be appreciated by CEO Elon Musk. Despite working for the Trump administration’s Department of Government Efficiency (DOGE), and despite Tesla being least affected by the Trump administration’s tariffs due to its strong domestic supply chains in the United States, China, and Europe, Musk has noted that he is a supporter of non-predatory tariffs.

The United States and China’s Agreement

In a joint statement from the United States and China posted on the White House’s official website, the two countries agreed to lower reciprocal tariffs on each other by 115% for 90 days. This means that the United States will temporarily lower its overall tariffs on Chinese goods from 145% to 30%, as noted in an ABC 12 report. China, on the other hand, will also lower its tariffs on American goods from 125% to 10%.

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The talks were led by Chinese Vice Premier He Lifeng and Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer, as per the joint statement. Bessent shared his thoughts about the matter in a comment in Geneva. “The consensus from both delegations is neither side wants to be decoupled, and what have occurred with these very high tariffs … was an equivalent of an embargo, and neither side wants that. We do want trade. We want more balance in trade. And I think both sides are committed to achieving that,” he said. 

A spokesperson from China’s Commerce Ministry also shared a statement about the matter. As per the spokesperson, the deal was an “important step by both sides to resolve differences through equal-footing dialogue and consultation, laying the groundwork and creating conditions for further bridging gaps and deepening cooperation.”

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