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Tesla Motors. Essay

Should Tesla move start to produce gasoline- or hybrid powered vehicles? Tesla Motors, unlike most other automobile companies, started with creating the most top notch, innovative, electric cars in the market. With their products like the Roadster and Model S, their capability in being the number one automobile in the EV market is pronounced. Tesla Motors came to market with one model at a time. This shows that the company is not focused on producing different lines of products but focused on making the best product. Other companies, like Nissan, started with simpler cars in the ICEs and HVs first then go up the innovation, technology ladder with EVs afterwards. Tesla’s commitment to offering the best technology allowed them to be placed in the high-end share of the electric vehicle industry on the same level as BMW’s 5 Series and Audi’s A6.

For the reasons mentioned above, Tesla should not move to produce gasoline or hybrid automobiles because this will move away from their core competency of building cars with large capacity battery packs. Additionally, Tesla’s resources and capabilities, where resources are defined as “assets that can be used to generate surplus” (1) and capabilities as “collections of activities that the firm knows how to perform and that help create or capture surplus” (1), currently don’t allow Tesla to produce anything other than electric cars without having to lower its value and increase its costs. Tesla’s whole branding is based off its principles of providing an environment friendly, low emissions vehicle that matches or outperforms high-end ICE vehicles. For Tesla to dive into the ICE or HV market, it would have to deviate from what it stands for.

Also, producing anything aside from electric cars forces Tesla to re-structure its factory, and expand at a quicker pace to mass-produce gas or Hybrid powered cars, which involves incurring more costs. Tesla has a plant in Fremont, CA that has a production capacity of 100,000 cars/year, but Tesla’s current production level is only 21,000 cars/year. This brings up the issue of feasibility, of whether the excess resources available or the management team “are capable of carrying out the strategy, and whether the strategy creates unsolvable subproblems in order to be carried out” (2).

In order to build ICEs or HVs, Tesla would have to be able to use its current capacity to fulfill production needs, apply technological and specific industry knowledge, and reposition its brand as tradeoffs for any new product recommendations to be feasible. Tesla also doesn’t have the physical structure and distribution channels like most automobile manufacturers of ICEs and HVs vehicles. Technology is also another reason why Tesla should not move to produce gasoline or hybrid vehicles because the company only has experience in designing electrical vehicles. Tesla has no experience in the gasoline and hybrid technology. Moving to these technologies would only cause the company to divert their focus to learning the ICE and HV markets, and gradually reduce their market share and position in the EV market, hence compromising the company’s branding of “future of the automobile” (3).

Since the Model S was placed in the same level as the BMW 5 series and Audi A6, the next step for Tesla should be to build smaller, more compact, and affordable EV cars that are in the same price level as BMW’s 3 series, Mercedes’ C class, or lower Audi’s A class models. Unlike building gasoline or Hybrid vehicles, which currently the company does not have experience in or the capacity to produce, building a more affordable compact EV vehicle for Tesla should not be a problem, especially since they have excess EV plant capacity to utilize. They currently have the technology and battery available to support a lower model that could be targeted to more consumers. The company also invested heavily on building a network of more than 15 supercharger stations, which would be a waste of costs and resources if Tesla didn’t optimize its EV product line. With the lower models, the company can gain synergy by producing more electric vehicles, making these charging stations more meaningful.

References:

(1) “Notes of Strategic Advantage”, Steven Postrel, Course Reader, 2008, Pg. 44 (2) “Notes of Strategic Advantage”, Steven Postrel, Course Reader, 2008, Pg. 48 (3) “Tesla Motors”, Eric Van Den Steen, Harvard Business School, Jan 24, 2014, Pg. 7


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