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Tesla Motors, Inc.

Essay by   •  December 5, 2018  •  Case Study  •  5,417 Words (22 Pages)  •  44 Views

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Tesla Motors, Inc.

Introduction

Highly regarded for its whimsical founder and leader as well as its innovative edge that it seeks to bring to the world of auto industry, Tesla Motors, Inc. is an American company that uniquely designs, manufactures, and sells electric cars as well as other electric vehicle power components. Founded in 2003 by Elon Musk, Martin Eberhard, JB Straubel, and Ian Wright and located in Palo Alto, California, Tesla Motors gained widespread attention by producing the Tesla Roadster which was at that time the first fully electric sports car followed by the Model S which was a fully electric luxury sedan. While becoming seemingly popular for its capabilities in producing electric vehicles, Tesla’s CEO, Elon Musk has taken steps to produce other formidable electric products that have quickly diversified the companies broad stretch of reach like that of its electric powertrain components that has peaked due its lithium-ion battery packs that are presently used by automakers like that of Daimler and Toyota. Musk envisions his company eventually having the ability to offer an affordable all in one electric car for the average consumer in both the U.S. and international markets.

Business Strategy Model

Tesla’s core business model hangs on the strategy of selling directly to the consumer by manufacturing their own automobiles in production, then distribute it thru their own company supply line to dealerships and company websites that are owned and run by themselves. Seeing that there is a major opportunity for penetration in both the U.S. and international markets, Tesla uses its’ tenacity for reaching outside the barriers of what others believe to be possible by the utilizing of franchising that targets a very specific market for its buyers. Tesla’s fearless leader, Musk, wants to target the high-end consumers and keep their focus primarily on an eco-friendly niche market that is increasingly growing with the availability of real time news and environmental awareness of the millennial generation. Elon Musk seeks to implement a very rewarding, yet high risk management strategy often referred to as “swinging for the fences”. In using this strategy, Tesla would create high quality products that would quickly align themselves with the likes of Porsche, Ferrari, and Bentley in order to gain the notoriety and distinguished values that those brands bring to the table but offers consumers the opportunity to leave gasoline and oil behind. This high-risk business venture can quickly build up the Tesla brand while generating high returns that will be needed in order to expand their market, increasingly targeting new customers that will eventually allow enough revenues for the price to become reasonably affordable on a middle-class consumer’s income. Many automobile and consumer experts believe that this strategy’s failure heavily outweighs the potential benefits. Automobile consumer experts’ opinion is that this strategy cannot generate over a long horizon, and it can only be relied upon, if at all, in the short-run.

Outlook

Going forward are some strengths and weaknesses that Tesla possesses and will need to exercise or fix in order to gain the success that they believe they have envisioned. Some of these strengths that we will discuss are the following: only manufacturer that produces advanced electric power train components, prepared for future demands on a friendly environmental footprint, increasingly are a strong supplier to legacy auto makers like Daimler and Toyota, have the capabilities to create their product completely in-house as well as their current development of the Model S is platformed to have inter-changeable parts that can be utilized across the board for any future model lines, and they have had continued technological expertise over their potential competitors.

Their weaknesses as well as opportunities are that while the electric car is a terrific, eco-friendly concept that seems to be catching on increasingly in the new generation of professionals, it still will be a hard sell with its hefty asking price in its early stages as they work to create a loyal following of generational consumers. Tesla’s continued and progressive development will require extensive investments in order to succeed in its quest of international market dominance as has been seen in the summer of 2018. While developing all of your parts in-house is a great concept, often times this can lead to higher costs of production as your economies of scale cannot be achieved by fully developing every single piece of your finished product.

Finally, Tesla has many opportunities to gain market ground as they share their concept of electric energized cars as well as accumulating support from governments that are being increasingly pressured to cut back on fuel emissions and meet the friendly climate standards that seek to preserve our world. Elon Musk’s team must work to improve the financial inefficiency that currently exists with Tesla’s quality control process and effectively campaign his product to gain loyal support that yields over time.

Company Store Model

        One of the major problems that Tesla continues to face is their utter defiance toward the traditional franchise-dealer system that has continually ruled car sales since its inception in 1898. Elon Musk’s rejection of the traditional sales concept is based on his belief that these dealerships do not nor cannot explain the advantages and benefits of his company’s car. Straight to the point, Tesla wants to sell their product directly to the consumer utilizing their people to sell their product. The company wants to establish a broad network of stores that allow a prospective consumer to check out their vehicles, take test drives, order the vehicle that they ultimately decide on, and get the service that satisfies their visit. If this sounds familiar to many consumers, but not necessarily in the form of a “car dealership”, that is because it is very similar to the model that Apple has employed for two decades now that allows all the same services inside of one concept. Only difference is that Musk wants to do it with objects that are one hundred times larger than an iPad.

        What is keeping the all-powerful billionaire and his company from implementing this concept? There are essentially two things that stand in Telsa’s way: politics that are backed by the funds of the traditional automobile makers and capital. Tesla has had some success in campaigning their strategy to various U.S. state legislators that have voted to either allow the company to implement this exact concept, or they have given ground to creative exceptions that apply to existing dealer-franchise laws already in place. Elon Musk has never been swayed by his every growing number of skeptics when he introduces his ideas and/or concepts, but many auto industry experts point to statistics of history that say that this “auto-store” model has never been successful. Bob Lutz, a Swiss-American automotive executive and industry veteran stated that, “Nobody has ever been successful with company stores, though plenty of manufacturers have tried them.” Experts point to the books to argue that the immense cost of successfully running a company dealer store over an extended period of time is not realistic if Tesla wants to use increased revenue to expand its product and manufacturing lines as well as making their vehicles cost efficient for the average consumer. When you own every aspect from inception of a product all the way to the sale of your product, then you are on the hook for the entire liability of its returned value. Legacy auto makers like Chevrolet, Ford, and Toyota offload their products to dealerships who then assume the risk and responsibility of selling them.

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