Tesla Motors was founded in 2003, right after the time when oil prices rapidly increased. At that time, electric cars become very popular due to the increased cost of gasoline coupled with an increased battery mileage-range that was the result of improvement in technology (Van den Steen, 2015). These factors made an opportunity for Tesla to enter the electric car industry. After Tesla had faced production delay problems, Elon Musk took over the company and became the CEO even though Tesla in spite of the fact the company was facing difficulties (Van den Steen, 2015). He eventually led the company into a new chapter and helped to build the most innovative electric vehicle company in the world.
Tesla was successful with its first models due to its ability to collaborate and later work in-house. The first car model Tesla worked on was the Roadster. Tesla used mergers and acquisitions as its market entry strategy in order to bring this product to market. The body design of the Roadster was derived by the company Lotus and, as a result, Tesla collaborated with Lotus in the car design, which was assembled by Lotus in the UK (Van den Steen, 2015). Other than that, Tesla designed and produced the car’s powertrain in-house in California (Van den Steen, 2015). By implementing this strategy, Tesla successfully created a new market for high-end electric sports cars which had changed consumers’ perception of electric vehicles (Van den Steen, 2015). After succeeding with the Roadster, Tesla started focusing on its Model S and Model X. This time, the company changed its market entry strategy from mergers and acquisitions to building in-house.
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The company took the advantage of its location in Silicon Valley where it had abundant an advanced technological resources to develop its new car models with a number of new and unique design features (Van den Steen, 2015). For example, the new features included software controlling, 17” touchscreen, a wireless fob, and so on (Van den Steen, 2015). By changing its market entry strategy, Tesla again received tremendous positive reviews for its Model S and Model X and won the highest Consumer Reports rating (Van den Steen, 2015). Tesla’s initial success was widely due to its ability to work with existing technology and eventually bring that technology in-house, helping to build its brand and expand the company.
Tesla did not, however, experience unbridled success and there were in fact several challenges the company faced. Although Tesla had successfully entered the car industry, it also had some barriers including powertrain shelf-life, high production costs for its new models, and the conflict with the dealership lobby, all of which needed to be overcome (Van den Steen, 2015). Due to building the powertrain in-house, it was not able to last as long as they desired for the Roadster. The company decided to partner with Panasonic in order to design a rechargeable battery pack and modify the design for car usage in terms of enhanced safety by developing a cooling system to keep the batteries from overheating in their cars. Tesla also realized the fact that it could save a lot of effort and costs on developing its powertrain from scratch by collaborating with Panasonic. However, some analysts thought these new features could be a cost disadvantage for the company (Van den Steen, 2015).
In order to reduce production costs for the Model S and Model X, Tesla decided to completely remain in-house for the design of the powertrain and change to assemble it by the company itself. Thus, the company purchased an idled plant in California which used to be a manufacturer of both GM and Toyota and also brought some production equipment at lower prices from struggling manufacturers due to the economic downturn in the automotive industry (Van den Steen, 2015). In order to grow the company in terms of sales, Tesla also overcame the barrier of the sales conflict of interest between electric cars and traditional cars by eliminating dealerships and building a network of company-owned stores (Van den Steen, 2015). This way, they wouldn’t have to worry about competitors undercutting the sales of Tesla cars by offering more competitive deals at ordinary car dealerships. By overcoming these barriers, Tesla finally was positioned to become profitable in 2013 and would consistently perform towards the top of the market.
Based on its net income, Tesla wasn’t profitable until 2013. Prior to 2013, the company frequently received loss in net income while its gross profits in those years were positive. This is because the company also spent a lot of money on research and development (R&D) as well as selling general and administrative (SG&A) in order to improve performance of its electric car. After deducting all the expenses, the company had been suffering losses for its expenses until 2013. According to the Tesla case (Van den Steen, 2015), the company changed strategies to build in- house for its new model S and Model X after ending the contact with Lotus in 2012. As a result, the company’s operation costs had a significant decrease which in turn generated more profits for the company by the next year in 2013.
By comparing the financial data for both Tesla and BMW, Tesla spent double the expenses of BMW on R&D and SG&A, and thus Tesla had a competitive advantage in its products’ performance and innovation which also could be seen in the comparison of the Tesla Model S, the Nissan Leaf, and the BMW 528i. To be more specific, the Tesla Model S had the highest speed, the most powerful horsepower, the largest range, and biggest volume and capacity among these three car models (Van den Steen, 2015). Tesla successfully entered the automotive industrial market which was due to the fact that it put a lot of effort and spent a lot of money on its product development in order to create a high performance electric car with many competitive market advantages and is finally now profitable.
Today, Tesla strives to gain many more market share and profit as Elon Musk has stated “he wanted to go further and build a lower end mass-production EV,” although this may be difficult to maintain in the years ahead (Van den Steen, 2015). Elon Musk gave his word, and has fulfilled his promise to customers and investors. Tesla has created a new Model 3 in 2018 and this new EV car has become the bestselling luxury car in America (Isidore, 2018). The Tesla Model 3 has been positioned and marketed as a lower-end, more affordable electric car model which is sold at starting price of $35,000. Its price is more affordable than other car models of Tesla as the company plans to target more customers by offering a lower priced car model to consumers, thereby increasing market shares and boost profits for the company.
However, it seems the companies good fortune won’t last much longer. Tesla has faced a “Delivery Logistics Hell” (Boudette, 2018) which essentially means that the company has had serious trouble getting its cars delivered to customers intact because its cars were damaged during the delivery process. Due to its poor car delivery operation, the company has had negative impacts on its brand reputation, sales volume, market share, and stock prices. Therefore, Tesla fell to number 27 out of 29 automakers according to ranking (Boudette, 2018). Tesla, aware of its own problems after this incident knows it needs to find solutions to overcome these problem in order to rebuild its brand reputation, but only time will tell of Elon Musk and his company can effectively remedy the dire situation Tesla finds itself in now.
I like the way that Tesla has been adhering to the ambitious idea of innovation to build its products and brand image and if it continues to innovate it can remedy past failures and protect itself against competitors. By the end of 2020, I expect Tesla’s position to redesign its electric cars to become even more competitive not only in terms of innovation and efficiency based on the car’s design and performance but also by making them more affordable and delivered in a safer, more reliable manner. Many car companies have tried to imitate successful companies’ strategies in order to succeed in the market. There are two ways for Tesla to prevent other companies from gaining entry into the market and outperforming Tesla.
One way is to continue innovating in order to build unique features and designs for its electric cars, powertrains, and other associated features which will help the company create a competitive advantage and set it apart from its rivals. The other way is to focus on niche markets where have inestimable wealth that the company has been exploring. By marketing these unique features that no other company possesses to high-net worth individuals, Tesla can continue to grow and expand under the guidance of Elon Musk, delivering innovated and exciting products in this new market for cars. Overall, Tesla has immeasurable potential in the electric vehicle industry based on the advantage of its location, innovative ideas, and financial competencies.
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