Tesla Marketing Plan Essay

Custom Student Mr. Teacher ENG 1001-04 16 September 2016

Tesla Marketing Plan

(Received 7 October 2011; final version received 10 January 2012) This case study provides analysis of the strategic marketing plan of electric vehicle manufacturer, Tesla Motors. It has profound marketing management implications, as it addresses this investigation from the unique perspective of Tesla’s ‘new technology’based approach to automobile marketing and relates it to the successful marketing model of Apple Computer. This marketing approach is counter to the traditional automobile industry’s marketing management approach which favors mass marketing and mass production. A qualitative, exploratory research approach was adopted for this analysis.

Research was conducted via extensive secondary literature collection and data analysis, as well as in-depth examination of case studies focusing primarily on Apple Computer. Key findings conclude that: (1) the battery electric vehicle industry is poised for explosive growth; (2) Tesla Motors is uniquely positioned to capitalize upon this growth opportunity; and (3) a ‘new technology’-based approach to marketing management is central to Tesla’s current and future growth. Keywords: Tesla Motors; Apple Computer paradigm; strategic marketing plan; qualitative marketing analysis; international marketing management; battery electric vehicles


Tesla Motors (‘Tesla’) is a global enterprise that designs, produces and markets electric powered vehicles and components. Presently, it is the only vehicle manufacturer selling zero-emission sports cars in serial production (as opposed to concept vehicles or prototypes). It is now expanding this technological advantage to the luxury vehicle sedan market. Tesla’s strategy of selling sleek, eco-friendly designs at high margins echoes Apple Computer’s business model, and differs greatly from its industry peers Chrysler, Ford and General Motors in Detroit, which have been struggling to evolve their aging lines to meet the increasing demands for electric and hybrid vehicles (Sun, 2011).

In spite of the global strides made by Tesla in terms of technological developments, global branding and market adoption, it remains a relatively young company within a nascent industry – compared to the 150-year-old internal combustion vehicle industry. Not surprisingly, the amount of literature and research devoted to the company and the electric vehicle industry in general is limited. Further exacerbating current research gaps, existing research and analysis of Tesla has focused almost exclusively on the technological strides made by the company. As such, an even more serious research gap exists related to the marketing and business aspects of the company and its products.

In light of these research gaps, the central issues addressed in this research report include: (1) the major developments within the electric vehicle ecosystem that have created a unique market environment for Tesla; (2) Tesla’s response to capitalize upon this market opportunity; and (3) analysis of Tesla’s unique marketing strategy – current and prospective – to expand upon this market opportunity. Additionally, this writing represents the first in-depth research report to analyze Tesla from a strategic marketing perspective using Apple Computer as a comparative new technology marketing model. Investors and analysts remain deeply divided on the future of Tesla. Many detractors view the company, which has experienced only limited profitability since its inception in 2003, as an ‘emperor with no clothes’, while more bullish proponents are calling it the ‘Apple of automakers’ (Sun, 2011).

Situation analysis: electric vehicles

A new generation of vehicles – powered by electric drivetrains with energy from electric storage batteries – has emerged over the past several years. These vehicles include advanced gas electric hybrids, plug-in hybrids and battery electric vehicles (BEVs) (Mintzer, 2009). Gas electric hybrids, such as the pre-2004 Toyota Prius, are powered by gasoline and batteries but are not considered true ‘electric’ vehicles since they do not have a ‘plug-in’ charging feature. Plug-in hybrids (e.g. the Chevrolet Volt), rely in part on conventional fuels but are still designed to be recharged via the power grid. BEVs, such as Tesla’s Roadster, rely entirely on electricity and will be the focus of this report.

Electric vehicle market overview

Analysis of some of the most credible recent forecasts indicate that BEVs could account for as much as 53% of all electric vehicle sales through 2020 and 5% of total global automobile sales (Ashtiani et al., 2011; Week in Review, 2010). (See Figure 1.) At this stage of BEV industry development, forecasting future sales volumes is complicated and speculative. The sales prospects of the market are highly contingent upon various market drivers, which are discussed later. In any event, two leading studies detailing projected BEV production by the Boston Consulting Group and Deutsche Bank, predict annual sales of up to one million BEVs by 2015 in North America alone (Cunningham, 2009). Table 1 highlights several additional, credible medium-term average annual BEV global sales estimates.

It should be noted that the above forecasts reflect fairly conservative projections since they are based upon technology developments which reflect a fairly limited BEV range of Electric vehicle market share about 100 miles – and, therefore, reveal more limited market adoption. However, Google (2011), in its comprehensive ‘Impact of clean energy innovation’ report, predicts that battery breakthroughs reflecting a range of 300 miles on a single charge could propel BEVs’ market share of the total automobile industry to over 30%. As noted, Tesla’s breakthrough battery technology is already capable of this range objective. A central argument in favor of rapid electric vehicle adoption is the positive environmental effects.

Unlike emissions from gasoline powered vehicles, which contribute an estimated 56.6% of the total global greenhouse gas emissions, BEVs emit zero emissions into the atmosphere (US Environmental Protection Agency, 2007). Hardester (2010) notes that the argument can be made that while BEVs do not emit any pollution, the power sources used to charge the vehicles emit pollution. Counter to this position, much of the power necessary to charge BEVs could be produced by zero emissions pollutions sources such as wind, solar, geothermal, hydrogen and even nuclear power plants. Market forecasts aside, the BEV industry continues to evolve in an unusual and uneven manner, with premium sports models, mini-cars and commercial vehicles leading the way prior to the technology being targeted toward the mainstream consumer. However, given the characteristics of BEVs and the underlying factors driving this ‘new technologydriven’ industry, such a market beginning was not only likely, but also well anticipated.

BEV market drivers

A driver is a major factor that contributes to the growth or change of a particular industry. Four key market drivers will have the greatest impact on the competitive position of BEVs in the vehicle market: (1) technological developments (advances in battery technology, vehicle performance improvements); (2) infrastructure developments (spread of recharging stations, smart-grid developments); (3) public policy; and (4) energy economics (price of electricity and gasoline). (See Figure 2.)

Technological developments

The advancement of the BEV market is highly contingent upon continued improvements in core technologies including vehicle batteries and overall vehicle performance. This includes improvements in battery characteristics such as range/power, production costs, safety and reliability. It also comprises vehicle performance improvements such as torque, efficiency and reliability.

Battery innovation

Two of the biggest factors inhibiting the mass adoption of BEVs are battery range limitations and high battery costs. In that regard, there are promising prospects for battery technology advancements that will continue to improve range performance and reduce costs. The original acid-based electric vehicle battery was extremely heavy and had a limited range of only about 60 miles. Comparatively, lithium-ion batteries weigh substantially less, are about the same size and have nearly five times the range (Eberhard & Tarpenning, 2006). Tesla’s leading-edge lithium-ion based battery, for instance, is 500 pounds lighter and has a range of up to 300 miles.

While breakthroughs in advanced battery technologies have already resulted in meaningful cost reductions, BEV batteries are still very relatively expensive (Ashtiani et al., 2011). Lithium-ion batteries can account for up to 50% of the cost of a BEV, with current battery prices estimated at around $15,000 (Ramsey, 2010). A major concern is the high demand and short supply of battery component parts, including rare metals such as cobalt, manganese and nickel. Figure 3 illustrates a typical production cost breakdown for a lithium-ion battery.

Continued advances in R&D and anticipated economies of scale are likely to spur the type of significant battery price reductions necessary to make BEV prices more competitive. The US Department of Energy has established an attainable vehicle battery cost reduction goal of 70% between 2010 and 2014 (Ramsey, 2010). By comparison, the Gale encyclopedia of U.S. economic history reveals that computer processors (a comparable new technology development) were introduced at high relative prices, but steadily declined by an average of 20% per year since 1950 (Carson, 1999).

BEV improvements

The primary manner in which a BEV dramatically outperforms a gasoline powered vehicle (aside from obvious emissions advantages) is its high torque ratio. A gas engine has diminished torque capability in the low ‘rpm’ range and only delivers limited horsepower within a narrow rpm range. By comparison, an electric motor has high torque capabilities even at zero rpms, delivers near continuous torque within the 6000 rpm range and continues

to deliver exceptional power beyond 13,500 rpms (Eberhard & Tarpenning, 2006). What this means is that electric vehicles are extremely fast at any level of rpm output. In terms of efficiency, electric vehicles are six times as efficient and produce less than one-tenth the pollution than the most efficient gasoline powered vehicle (Eberhard & Tarpenning, 2006). BEVs are mechanically much simpler (10 times fewer moving parts, no engine, no transmission, etc.) than both gasoline powered vehicles and hybrid electric vehicles. The BEV motor has only one moving part, has no clutch and boasts a highly simplified transmission.

Moreover, due to a technological advancement known as ‘regenerative braking’, even the friction brakes experience little wear. Service for a well-designed electric car is limited to routine vehicle inspection, possible simple software updates and tire maintenance, for the first 100,000 miles.

Infrastructure development
Charging stations
The prevailing theory is that in order for the BEV industry to gain significant global market share, a supportive charging station infrastructure needs to be developed that is on a similar scale as that of the gasoline powered vehicle infrastructure (Hardester, 2010). This translates into a viable network of quick-charging stations which are capable of rapid charging a BEV in less than 30 minutes, as opposed to home chargers which take up to eight hours. What the above theory fails to factor is that the public infrastructure issue is neither new nor unique. In the
early stages of the gasoline powered vehicle, fueling stations were few and far between. Moreover, the automobile was an unproven technology and was more costly than the horse drawn carriage. In spite of that, the number of automobiles on American roads grew from only 8000 in 1900 to over 17.5 million in 1925 (Wynn & Lafleur, 2009). The above theory also fails to factor rapid advances in battery technology (see earlier ‘BEV improvements’).

Tesla, for instance, has already developed battery technology which extends the range of BEVs to 300 miles. This gives rise for optimism for similar growth of the BEV industry and the development of a supportive charging station infrastructure. Besides charging stations, there are a number of viable charging options that could spur sector growth including: the availability of plug-ins in parking garages, restaurants and other commercial establishments, as well as the rapid evolution of workplace recharging facilities (Ashtiani et al., 2011; Wynn & Lafleur, 2009). Another innovation, battery swapping stations, provides yet another potential solution. In that regard, a partnership between Israel, Nissan/Renault and Silicon Valley-based Better Place was formed with the objective of building a nationwide battery swapping and charging infrastructure with the capacity to handle 100,000 electric vehicles by late 2011 (Cunningham, 2009). In any event, overcoming consumer ‘range anxiety’ is a critical factor in quickening the adoption rates of BEVs (Patel & Aalok, 2010).

Smart-grid development

Even a partial shift from gasoline to electricity as a transportation fuel will have major ramifications on the demands and operation of electric grid power systems. One potential solution to these issues is the development of smart-grid technologies which incorporate advanced distribution, transmission, metering and consumer technologies (Ashtiani et al., 2011). Smart-grid technologies include two-way communications processes between electricity users and energy providers, enhanced electricity load monitoring and management of two-way electricity flows.

In a joint study released by Better Place and PJM, it is argued that another viable solution for maintaining lower BEV-related electricity grid costs is via a central charging infrastructure managed by a single independent system operator (Schneider et al., 2011). Additionally, Ashtiani et al. (2011) assert that policies aiming to optimize electric power systems must be adopted, including the acceleration of smart-grid standards and implementation and the expansion of lower-priced, off-peak pricing.

Public policy

The transportation sector has become a focal point for international policymakers because it accounts for nearly 57% of all environmentally damaging greenhouse gases and up to 70% of petroleum consumption (Ashtiani et al., 2011; US Environmental Protection Agency, 2007). (See Figure 4.)

As a result, governments around the world are encouraging electric vehicle adoption as an alternative transportation technology. This encouragement comes in the form of government subsidies for electric vehicle producers, consumer price incentives, tax credits for producers and consumers and sponsorship of technological research and development (R&D) (Cunningham, 2009; Week in Review, 2010). Other countries, including the European Union, have focused on promoting technology-neutral measures such as strict new vehicle carbon emissions standards.

A significant degree of governmental support is necessary because of private sector underinvestment in critical areas such as electric vehicle R&D and infrastructure development (Ashtiani et al., 2011). Public policy measures have been implemented to counter this underinvestment, including support for production and infrastructure, R&D grants, loan guarantees and public –private partnerships. China, for example, is currently committed to supportive policies and annual government investments of $150 billion a year into the clean energy industry – citing the ‘emerging’ electric vehicle sector as a core strategic industry component (Week in Review, 2010). Moreover, many countries, including the United States, China and Japan, have established near-term electric vehicle production targets which serve to drive investment and resource focus into the industry sector.

Energy economics

The economics of the electric vehicle industry entail comparative analysis between the price of electricity on one hand, and the price of gasoline on the other. Both are subject to change, but crude oil price volatility serves to undermine investment in alternative energy sources (Ashtiani et al., 2011). The average price of gas in the United States, for example is expected to increase from below $2 per gallon for most of the 1990s to an estimated $3.60 per gallon in 2011 and beyond in the United States and nearly twice as much in countries such as Norway, Denmark and Germany (Ashtiani et al., 2011, p. 53).

At the same time, the US Energy Information Administration (2011) forecasts crude oil prices to rise from an average $79 per barrel in 2010 to over $100 per barrel in 2011 and beyond. The price of gasoline is tightly linked to global oil prices, but electricity prices in most major countries are only weakly related to oil prices (Ashtiani et al., 2011). Electricity prices in these countries are more directly related to the prices of natural gas and coal. Overall, energy economics trends and the other major market drivers are highly favorable to BEV commercialization.

In terms of the economics of purchasing an electric vehicle, the total cost of ownership gap between electric vehicles and gasoline powered vehicles should continue to narrow as countries worldwide scale back the estimated $300 billion in fossil fuel subsidies currently provided to oil companies. As a case in point, leaders of the Group of 20 Nations in November 2010 re-affirmed their prior commitments to this type of subsidy phase-out (Week in Review, 2010).

Situation analysis: Tesla Motors

Company overview

One battery electric vehicle manufacturer, Tesla Motors, is particularly well suited to capitalize upon the discussed market drivers, and is the focus of this marketing plan analysis.

Company background

Tesla Motors Inc. (Tesla) is a Silicon Valley-based company that designs, manufactures and markets battery electric vehicles (BEVs), as well as lithium-ion battery packs, and electric vehicle powertrain components.

Founded in 2003, Tesla was the first new American automobile manufacturer to emerge in decades. It was also the first automaker to manufacture and sell highway-capable BEVs in serial production. The company’s culture and marketing approach are more ‘Silicon Valley’ than ‘Detroit’, reflective of an approach that is highly innovative, extremely competitive and very efficient (Aden & Barray, 2008, p. 84). The company has grown from a single retail store (through which it markets its vehicles) in 2008, to 18 stores worldwide, a 350,000 square-foot production facility and global sales in at least 30 countries (Tesla Motors, 2011a). On 29 June 2010 Tesla (TSLA) successfully launched its initial public offering, raising over $226 million.

Company sales

Since 2008, Tesla has sold 1650 of its signature Tesla Roadsters worldwide at a base price of around $109,000. The company’s financial statements for the three months ended 31 March 2011 show total revenues of $49 million and a net loss of $48.9 million (Tesla Motors, 2011b). Tesla’s medium-term sales volume projections are fairly conservative – a 2% market share of the global mid-size luxury vehicle sedan market by 2013 (Patel & Aalok, 2010). Tesla’s longer-term success is highly contingent upon overall consumer adaptation of electric vehicles and the company’s ability to broaden its brand. Even though Tesla has yet to earn a steady profit, it has a market cap of about $2.24 billion and currently trades at around 20 times earnings, with per share prices consistently trading in the $25/share range – off its all-time highs, but at the high end of its historical range (LaMonica, 2011; Seeking Alpha, 2011).

Corporate strategy

Tesla’s primary goal is to increase the number of electric vehicles available to mainstream consumers in three ways: sales of its vehicles through its expanding network of company-owned showrooms and online; 2) sales of its patented electric powertrain components to other automakers to stimulate overall electric vehicle interest and sales; and 3) serve as a catalyst and positive example of how ‘fun’ and ‘social responsibility’ driving are mutually compatible. (Logan, 2011)

Tesla’s overall strategy is to first establish a foundation for electric vehicle sales via its high-end Roadster model – an objective it has already accomplished. Next, by 2012 it plans to begin mass production of its new Model S Sedan, a more affordable (around $57,000) BEV targeted at middle to upper-middle class consumers (Seeking Alpha, 2011). Finally, by 2015 Tesla plans to build and market a BEV (BlueStar) available for under $30,000, bringing its BEV lines into the mass-market consumer price range.

Product analysis

Tesla Roadster

Tesla’s flagship vehicle is the $109,000 (base price) Tesla Roadster (see Figure 5). This high-performance BEV, with a range of up to 250 miles, uses a proprietary lithium-ion polymer battery pack that stores as much as twice the energy – hence twice the range – of batteries used in older electric vehicles and hybrids present in the market today. Another distinguishing feature of the Roadster is its speed – capable of acceleration from zero to 60 mph in less than four seconds, with a self-limited top speed of 125 mph (Logan, 2011). A final major distinction of the Roadster is its modern, sporty appearance, designed to attract consumers in the luxury sports vehicle market occupied by automakers such as Ferrari and Porsche (Aden & Barray, 2008).

Tesla reports sales of 1650 Roadsters worldwide as of the end of April 2011. In spite of the fact that the Roadster accounts for most of Tesla’s revenue to date, the company plans to discontinue its production by the end of summer 2011 in order to focus on the debut of its next generation of BEVs – the Model S sedan.

Tesla Model S

Tesla’s next generation vehicle is the Model S sedan, which the company has targeted for consumer delivery by mid-2012 (see Figure 6). Priced at around $57,000, the Model S is positioned to compete in the luxury sedan market (e.g. Audi A6, Mercedes E-Class and BMW 5-Series) (Kanellos, 2011; Patel & Aalok, 2010). It will seat up to seven people when equipped with an optional third-row of rear-facing seats. The Model S will incorporate battery technology similar to the Roadster and will be available with batteries ranging from 160 miles to 300 miles.

Consumers will pay extra for the larger battery range options. A significant feature of the Model S is that it will be capable of quick battery swaps and recharging capabilities using 100V, 200V and 480V power sources (Cunningham, 2009). Tesla expects Model S to be a large volume driver for the company. Accordingly, it plans to build between 5000 to 7000 Model S vehicles in 2012. Tesla will then increase Model S manufacturing to 20,000 vehicles a year starting 2013 (Kanellos, 2011).

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