Electric vehicle giant Tesla Inc TSLA has dominated the electric vehicle segment of the automotive industry. And while competition is increasing from new players and incumbent automotive companies turning to electric, Tesla may have several key advantages.
What Happened: Tesla is guiding to sell between 1.8 million and 2 million vehicles in fiscal 2023, according to comments from CEO Elon Musk during the company’s recent earnings call.
Known for not spending millions on marketing through television commercials like rival automotive companies, Tesla has counted on loyal customers and strong word of mouth to bring in new customers and retain existing ones.
A new report from S&P Global Mobility highlights Tesla's strong loyalty.
The report said that customers known as nomads, or ones who leave after owning one model, hit 58% among automakers in the 12 months ending July 2022.
This marked the highest “one and done” rate in at least 10 years, the report said.
While the report says newer companies like Tesla will likely have a higher share of first-time owners compared to companies like Ford Motor Company F and General Motors Company GM that have decades of experience, it shows Tesla being dominant in several areas.
Tesla has the highest share of first-time owners at 83%, which the report says isn’t too surprising. The report says that Tesla's ability to keep those customers is “extraordinary.
“Tesla’s ‘One and Done’ rate is just 39% compared to 58% for the industry,” the report says.
The next best company in the “one and done” category is Ford at 50%.
“Loyalists have an average 13-point advantage on a brand’s loyalty rate than Nomads,” S&P Global Mobility Associate Director of Consulting Erin Gomez said. “Brands that fail to transform Nomads into Loyalists not only lose out on the immediate sale to the Nomad, but also the future loyalty benefit they could have provided as Loyalists.”
Other models that are listed as good at gaining Nomads are Mercedes-Benz, BMW, Audi, Toyota Motors TM and Volkswagen VWAGY.
Ranking last for companies at gaining Nomads among customers are Buick, GMC and Cadillac, all units of General Motors.
On The Nomad Loyalty Index, Ram, Jeep and Dodge all rank in the top five behind Tesla. Ram, Jeep and Dodge are all owned by Stellantis NV STLA.
Related Link: Tesla Q4 Earnings Highlights: Revenue And EPS Beat, Cybertruck And Crypto Holdings Updates
Why It’s Important: Brand loyalty in a space like automotive is incredibly important. Consumers often trade in their vehicles every five to 10 years to buy a new one, or in some cases lease a vehicle every two to three years.
“Aside from the massive, long-term undertaking of creating products in new segments, there are other ways automakers can increase loyalty from their current Nomads,” Gomez said.
"By understanding the loyalty makeup of their customer base, and where their Nomads are going, brands can take a more targeted and efficient marketing approach to retain them."
One item that may have hurt Tesla previously was not having an electric pickup truck, opening it up to losing first-time buyers who want a vehicle from this class or those who buy a vehicle from Tesla and then opt to get something bigger.
The launch of the Cybertruck in 2023 could help improve Tesla's already “extraordinary” loyalty and retention figures.
Recent price cuts by Tesla in the U.S. are helping with demand and could also help Tesla gain more first-time electric vehicle buyers thanks to a lower entry point.
The low marketing spend by Tesla appears to be working, based on the latest loyalty results.
TSLA Price Action: Tesla shares are up 3.57% to $169.34 on Tuesday morning versus a 52-week trading range of $101.81 to $384.29.
Read Next: Tesla Rallies Off Q4 Earnings, This Item Was All Bulls Needed To Hear, Analyst Says
Photo courtesy of Tesla.
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