Strategy is the key to success. Tesla Motors has separated from the competition in the automobile industry. The question is how and why It all comes to the type of strategy the company has implemented and what makes them different form their competitors. In todays global economy having a unique strategy on how to market to customers is very important. The customer needs will always change due to changes in their environment. This is why it is important to develop a strategy that fits the needs of the target customer. In this strategic analysis of Tesla Motors could reveal why the company is different and how well the company executes their strategy. Problem Statement Tesla Motors (TM) has been able to enter an industry that has not been threatened since WWII. TM brings new competition to competitors with new products that cannot be duplicated. The strategy that TM executes is out performing the competition and could show signs of dominance in the industry in the long term. Analysis Tesla Motors has introduced a high performance product to the market called the Tesla Roadster.
This electric sports car is out performing the competition in the automobile industry. However, some competitors are aware of the long term plan for Tesla to build a wide range of models, which will include affordably priced family cars. This is because Tesla Motors wants to change the automobile industry from a mine-and-burn hydrocarbon power source automobile to a solar electric power source automobile. The entrance of a successful U.S. auto firm has not accomplished since WWII. Creating an electric car like the Tesla Roadster that is designed to outperform gasoline sports cars like a Porsche or Ferrari has competitors worried. The roadster has twice the energy efficiency of a Prius and handles better, because of how it is designed. Tesla has created new technology that has a high unit cost for electric cars. The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model. Tesla is planning to have a second model that will be a sporty four door family car at roughly half the 89k price point of the Tesla Roadster. The third model will be even more affordable.
Tesla is a fast growing technology company that uses its cash flow to finance their own RD ventures. Overtime this will drive down the costs of the Roadster and allow them to introduce more products to market as fast as possible. The big picture is that high end customers are actually helping pay for development of the low cost family car. So, with that knowledge Tesla is changing the way customers shop for cars. They have built high end company owned stores in areas where customers shop. This is different from the traditional dealership route that many Tesla competitors take to sell their products. This has caused some problems within the auto dealership industry. This approach put Tesla in conflict with the dealership lobby, which had pushed many states to pass laws requiring car companies to sell through independent dealerships recognized by the dealership association (Tesla Motors) With this option Tesla could control all sales of their products and interactions with customers that may want to go green.
Musk argued that existing franchise dealers have a fundamental conflict of interest impossible for them to explain the advantages of going electric without simultaneously undermining their traditional business. (Tesla Motors) The belief that traditional dealership could send conflicting messages to the customers by focusing on the gasoline powered cars is true. Many of the traditional dealerships operate on a red ocean strategy, in which all of the products they sell are similar. But to sell a Tesla the blue ocean strategy implemented by Tesla does not match their business model. Also, unlike many of the dealerships Teslas service operations are independent from the sales network. (Tesla Motors) This allows the customer to have the flexibility to choose how repairs and services to their Model S were offered. The customer could go to a licensed Tesla service center, call up a mobile service and repair team (Tesla Rangers) or have their car exchanged for a loaner through Teslas valet service. (Tesla Motors) In marketing the Model S Tesla stressed speed, comfort, and handling before talking low emissions.
Also, the salespeople for Tesla worked on salary rather than commission in the company owned stores. Although, Tesla has its own unique way of getting the product to the customer they also are smart about their operations. Unlike Fisker Automotive, which was started by Henrik Fisker who worked on the Model S for Tesla in the beginning stages of production Fisker designed his own car body, but outsourced almost everything else, including the design and manufacturing of the powertrain. (Tesla Motors) Tesla in the beginning designed and produced the cars powertrain in-house in California and then combined it with a body and chassis-derived from the Lotus Elise which assembled the car in the U.K. Then Elon Musk decided to move the operations to California because it was better to have engineering and manufacturing under one roof. By making this move Tesla could have complete autonomy over the product without the financial burden of paying for outsourced manufacturing. Tesla avoided the traditional cost to build an auto manufacturing plant that cost between 1 and 2 billion dollars.
How did they do this Tesla purchased the massive and recently idled NUMMI plant in Fremont California that could hold 500,000 cars per year for 42 million and purchased most of its production equipment from struggling manufactures at discounted prices. (Tesla Motors) With the purchase of this property Tesla now could surpass the output of 21,000 cars per year to 100,000 cars per year without stretching the production equipment. This gives Tesla full control over its product by acquiring this facility at less than a third of the 1 billion cost to get such a plant operational. Tesla can now bring in parts production in-house making 90 of the Model S-specific plastic parts on its injection molding machines and manufacturing its complete powertrain in-house.
If you travel less than 350 miles per week, you will therefore be energy positive with respect to your personal transportation. This is a step beyond conserving or even nullifying your use of energy for transport you will actually be putting more energy back into the system than you consume in transportation So, in short, the master plan is 1. Build sports car 2. Use that money to build an affordable car 3. Use that money to build an even more affordable car 4. While doing above, also provide zero emission electric power generation options Dont tell anyone. Becoming Energy Positive I should mention that Tesla Motors will be co-marketing sustainable energy products from other companies along with the car.
For example, among other choices, we will be offering a modestly sized and priced solar panel from SolarCity, a photovoltaics company (where I am also the principal financier). This system can be installed on your roof in an out of the way location, because of its small size, or set up as a carport and will generate about 50 miles per day of electricity.