What is the Beauty of Tesla? and How can They Remain Competitive in the Market?

Tesla is one of the cutting-edge company that manufactures electric vehicles and energy storage options for home and businesses. The company has been making a remarkable history in the automotive industry since the first new car called The Tesla Roadster has been introduced in 2008. Nowadays, it has been predicted that the firm will have $700 billion value, added the public stock offering.

Looking at the Tesla’s potentiality in its internal environment, the firm defines what benefit it can deliver not only just to the customers, but also to the planet that we live in. Tesla creates the value of “transport evolution” to the clients by bringing up electric cars as a lifestyle to reduce the pollution and make the world a better place. From this point, Tesla has set a standard that its cars will far away from the mainstream population in car industries, yet it is able to compete equally with high prestige brands such as Mercedes, Ferrari, Lamborghini and etc.

Looking at Tesla’s tangible resources, it is very obvious that Elon Musk, the Co-founder, and CEO of Tesla, invested a lot of cash in this business. His personal funding, which mostly came from sold his startup company – Zip2 for $305 million to Compaq; PayPal for $1.5 billion to eBay, has become a strong pillar for Tesla to do the business. According to Department of Energy website, in 2010 Tesla was granted $465 million loans based on Advanced Technology Vehicle Manufacturing (ATVM) program. It is a platform where the government can subsidize manufacturers to do progressive technology that benefits the society and environment. The funding did help to build the Model S, the second model of the Tesla Roadster that creates zero emission sells for $57000 before tax credits and relies on electricity from 120V or 220V outlet. Unlike the other competitor, Tesla was able to fully pay back the loan with interest in 2013. During that time, the company has accumulated profit through selling more than 20,000 Model S cars worldwide and offering the common stock.

Considering the resources and capabilities, the firm forms core competencies that create competitive advantages. Tesla itself has competitive advantages than other brands, such as outstanding Battery Electric Vehicles (BEV), strong brand recognition, the leader in the breakthrough market, and exclusive product lines (Powerwall, power pad, etc.). Therefore, by defining the competitive advantages, the company is able to draw the business-level strategy.

Ten years ago Elon Musk wrote a blog about Tesla’s future plan stating that their strategy is to go into a premium market, where customers expected to spend high cost, and then shift the market instantly to higher unit volume and affordable prices with each straight model. In addition, Tesla understands the market that they want to serve. Mostly the firm’s target market is upper-class business executives, managers and business owners that aim for luxury cars with household income are above $100,000 per year.  Tesla’s segment is predominantly male that looks for high-end sports cars with electric fuel capacity. Their lifestyle is individual who is keen about technology and concern about environmental issues.

Tesla cleverly packages its products based on market segmentation. It promotes the benefits and features of each product; Tesla Roadster is the first electric sports car that can perform 0 to 60 mph within five seconds (Tesla discontinued making this car in January 2012), Model S comes with adaptive lighting, autopilot, 17-inch LED touchscreen that built-in with high technology, and ability to supercharge within 30 minutes for 200 miles, Model X is a semi-jeep model that has falcon wings for second and third seats and able to drive 298 miles with a 100 kWh battery,  Model 3 is a compelling electric car that has advanced battery technology and futuristic interior with affordable price.  Tesla also has improved to satisfy customer needs by constantly investing in Research and Development (R&D) projects. Based on the income statement posted in Yahoo Finance, Tesla’s R&D fund increased from 2013 to 2015 with $231 million to $717 million. Ultimately, Tesla always wants to be innovated and came up with great ideas.

The Tesla six years’ ago goals had achieved most of the part, in which became a milestone for this Silicon-Valley based electric car company. On July 20, 2016, Elon Musk shared his current projects according to Tesla Blogs. His ambitions are to generate solar power roofs that well functioned as a battery storage, to increase the Battery Electric Vehicle (BEV) product line available to all main segments in the market, to improve the auto-pilot feature, and to maximize the customers’ car as a money source when they don’t drive it.

Tesla falls into focused differentiation with distinctiveness and narrow market segments. The firm differentiates itself by producing non-gasoline powered cars that creating unique needs to the market because it is environmentally friendly. Elon Musk points out that sustainability is very vital in our world to preserve the earth for the next generation. Therefore, he challenges individuals from having a “gasoline mindset” to an “electric mindset”.  While he can’t produce the electric cars in economies of scale at this moment, the cars’ price remains expensive, yet it generates demands in a niche market.

Currently, Tesla is building a humongous factory with 5.8 million square feet in the Electric Avenue east of Sparks, Nevada. It aligns with Elon Musk’s vision enlarging the solar power roof sources to make lithium ion batteries. By manufacturing batteries abundantly, Tesla stated that it will drop down the cost by over 30% (Dapena, 2016). In the same time, Tesla will partner with Panasonic creating a dynamic synergy; Panasonic focuses on developing battery cells and Tesla put it together into battery packs. According to the Electrek, Elon Musk mentioned that the giant factory will develop exit rate of battery cells rapidly than bullets from a machine gun. Tesla’s goal by 2020 is to produce mass batteries that will supply the needs of making 500,000 cars per year.

According to the IBIS review, during the last five years, the car and automobile industry are expected to grow substantially.  As the number of cars sold worldwide has increased from 2000 to 2016, $52.57 million to $74.39 million, it shaped the industry’s performance. Nowadays, the major player’s automotive industry are Ford Motor Company with 13.9%, General Motors with 12%, Toyota with 11%, Honda with 7.6% and Fiat Chrysler with 6.7%.  By increasing the car productions’ efficiency, the automakers have invested into advanced technology equipment with focusing on the environmental issue. Toyota has introduced the gas-electric hybrid since the model “Prius” released in 1997. Ford and General Motors followed and entered into plug-in hybrids (PHEV) trend, such as; Ford Fusion and Chevrolet Volt. It is a new gas alternative that used rechargeable batteries. Even though Tesla only has 3.1% market share, the total sales of Tesla’s car has surpassed all the competitors, as it shown below

Based on the industry analysis, below is the strategy recommendations that Tesla needs to apply in the future:

  • Making it more “Bigger”: With building showrooms in malls in major cities around the world, Tesla has thrived promoting its product. Tesla and Apple are similar in term of how they market their product to the world. Tesla should imitate Apples’ biggest annually event called “MacWorlds Expo” to be “Tesla Expo” or “Tesla Tech”. This campaign could give Tesla an opportunity to share its plan and educate Battery Electric Vehicle (BEV) in real time involving a massive number of people including the customers, the press, the automakers and the industry analysts.
  • Pursue more partnerships: Since the company and SolarCity combined in August 2016, Tesla shouldn’t stop to find any chance to do joint ventures. As Tesla’s goal is to improve the auto-pilot feature, the company needs to collaborate with Google Self-Driving project to do trial-error creating real “autonomous” car. This strategic alliance could advance its technology and strengthen the safety features. Tesla also may need a partnership with the biggest auto manufacturers like Ford and General Motors to achieve the efficient supply chain management.
  • Stay innovative: Tesla’s innovation has become a momentous event in humans’ history. By integrating solar power to electric energy, Tesla has an opportunity to change the infrastructure of the auto-modern industry. Tesla needs to stay nimble and thinks out of the box to face the challenges from its competitors. Beside Elon Musk, Tesla has strongly been encouraged to hire highly qualified employees that stay hungry for technology improvement.

Overall, Tesla has a strong position in terms of its competitive advantage in the market. As the competitions become fierce in the future, Tesla could expand in a bigger space at constantly maintaining being a pioneer, building an empire electric vehicles market industry, and changing the world.

 

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