Tesla Motors Innovation and Success

GROUP ASSIGNMENT - TESLA MOTORS

Introduction

Tesla Motors is a company that is often defined as innovative and currently it is the leader of the electric car market. In this report will be discussed why Tesla has been judged to be innovative and explained the impact of its competitiveness.

Tesla Motors was created in 2003 by Martin Eberhard, Marc Tarpenning, Ian Wright, JB Straubel and Elon Musk. Its current CEO is Elon Musk, founder of Paypal and SpaceX. The company is specialized in building electric cars. Their first product was the Tesla Roadster, a high end electric car, which was released in 2008. Their goal with this product was to be the first company to create an electric car with high performances, especially in terms of range (up to 500kms on this model) and power that are comparable to traditional cars. Today they are evolving by trying to produce fully electric cars that are more affordable to the public market.

Their vehicles are currently produced in Tesla’s main factory in Fremont, California. Other two facilities are settled in Lathrop, California, and Tilburg, Netherlands, where the product is assembled and distributed on the European market. In 2016 another factory was built in Nevada in partnership with Panasonic, focused on car batteries production only.^[1] The Tesla Gigafactory 1 will be fully operative in 2017 and will allow to produce more Lithium-ion cells than the amount that has been produced worldwide in 2013. Thanks to this facility Tesla will not only increase the electric cars production, but will be trying to fasten the transition of sustainable energy adopting batteries in other fields outside the vehicles market. The launch of this battery plant coincides with the release of their new product Tesla Model 3, which price will be around $35.000. This price will be possible due to the construction of the new factory, allowing to reduce the cost of their batteries approximately by 30%.

The market and Tesla’s strategy

What makes Tesla Motors the most innovative company on the Forbes list is not the product itself, but their strategy by Musk, which is completely different from all the market competitors. The idea of an electric car is not new: it exists since the 1890’s but never rivalled with the gasoline powered car market during the 20th century. Electric cars used to be slow and way below conventional cars in terms of range but in the past few years car manufacturers  have been able to provide to the market vehicles with performances comparable, if not better, to fuel cars.

Tesla’s cars are definitely the leaders of the new market growing up, but it is not just about the competitiveness. The company strategy can be defined as creative and unconventional, with no precedents. The aim is to build a strong brand image which will allow to obtain approval and trust from the new and existing customers, and not pointing at the biggest profit since the early start. But how to obtain satisfied and loyal customers without using an ordinary strategy?

The first vehicle, the Tesla Roadster, was available to the public in 2008 for a price of £70,000. Only 2,500 units have been sold, but this did not discourage the company as another two car models made their debut between 2012 and 2016. Their next products were the model X and model S which have a range up to 500km and a performance/price ratio really interesting compared to a fuel car. With these two models Tesla has revived the electric car market by introducing a new standard and showing what an electric car can really be capable of. Their goal with those vehicles was not to make any profit but to build a strong image among the customers.  The success of the model X and S is nothing if compared to the next vehicle, the Model 3, which will be available at the end of 2017. The price of the new luxury electric sedan will be around £23,000 and the company announced to have taken 325,000 reservations in the first week only.^[2] , which is approximately the amount of cars Tesla should be able to produce by 2018. Tesla’s goal with this model was to increase the production and finally make profit with economy of scale especially on their batteries with their new factory. That strategy seems to be working as for the first time, Tesla made a profit of 22 million dollars this year. This is a great success considering that no money has been spent on advertising, nor agencies or dealer networks.^[3]

Tesla’s marketing strategy breaks the code of the existing car market: car manufacturers are used to spend millions of dollars in commercials, but the new electric car company did not. Their strategy is based on the creation of a community, mainly on the internet, where existing customers can share their experiences which are accessible to everyone, and which attract new customers every day. They also sell their products online only and there is no conventional franchised dealerships yet, unlike any other company on the market, and just a small number of showrooms have been recently opened. They are focusing on customer experience: “Think like owner” is part of their organizational culture and this is the reason why they wanted to stay away from dealerships as they have realized that people do not like to feel forced to buy a car after walking in a car retailer. For the launch of the model X and S they have also organized trips through the US and the Europe and this was the only time you could see or test drive the cars. This was also a part of their strategy to build a community and gain people’s trust showing them that these cars can replace a traditional one. A key point of Tesla’s technology is the supercharging station, a charging point that can provide up to 180 miles range in half an hour.

Supercharger

Tesla have been investing most of the funds in building Supercharger stations, and today we can find over 700 across the Europe, North America and Pacific Asia.^[4] The numbers are going to increase in the near future not only due to the great investments by the company, but also because the CEO has released all the car patents making them open source for everyone. The announcement, made in 2014, explains the reasons that led Musk and his team to such a questionable decision:

Given that annual new vehicle production is approaching 100 million per year and the global fleet is approximately 2 billion cars, it is impossible for Tesla to build electric cars fast enough to address the carbon crisis. By the same token, it means the market is enormous. Our true competition is not the small trickle of non-Tesla electric cars being produced, but rather the enormous flood of gasoline cars pouring out of the world’s factories every day.^[5]