Session 13
Session 13
Session 13
Tesla’s meteoric climb to become one of the world’s most powerful automakers has ushered in a new
era in the global car business. The conventional automakers have been eclipsed by Tesla’s supremacy.
According to political, economic, social and technological views, Tesla’s market value may be inflated
due to its dominant position in the electric cars sector. This case talks about the different strategies applied
and the future scope for Tesla Inc. in the automobile market. Tesla aims to not only be one of the
promising automakers, but also introduce a line of patented technologies in the stream. Tesla’s entry into
the emerging markets will be a true test for Tesla. The case critically looks at the challenges faced and
the competitive strategies used by Tesla in the automobile industry.
Introduction
Tesla Inc., the electric car manufacturing giant, unveiled its first model of EV (electric
vehicle) in the form of a light sport car that went beyond all expectations, to start a
revolution in a 150-year-old industry. It was the birth of a whole new business model in
the automotive market, altering the way current incumbents view the future.
In this case study, Tesla Inc. is analyzed and evaluated on every aspect of the firm’s
competitive strategy, as well as how the firm interacts with the market environment.
Tesla’s qualities and the strategy they used to position, diversify, enter and expand into
the automobile industry are critically analyzed.
© 2021
Case IUP. All Rights Reserved.
Study 57
Tesla Inc. has several assembly and manufacturing facilities. The Tesla plants in
Fremont, California, Giga Shanghai in Shanghai, China, Giga New York in Buffalo, New
York, and Giga Nevada in Reno, Nevada are the company’s major car production facilities.
Tesla Motors was started in July 2003 by Martin Eberhard and Marc Tarpenning. Tesla
Motors changed their name to Tesla in February 2017. The name ‘Tesla’ is a tribute to
Nikola Tesla, an inventor and electrical engineer. Ian Wright, J B Straubel and Elon Musk,
the company’s next three workers, were all given permission to declare themselves as co-
founders of Tesla retrospectively.
Elon Musk is the company’s current CEO and previous chairman. He described Tesla
as an independent carmaker and a technological business with the goal of selling electric
automobiles to the public at cheap costs in near future.
As of 2020, Tesla sells Model 3, Model S, Model X and Model Y cars. It also offers
batteries such as the Powerpack, Powerwall and Megapack, as well as solar roof tiles, solar
panels and other related items. With over 500,000 vehicles sold, Model 3 is the world’s
bestselling plug-in EV.
Tesla had numerous successful quarters but never had a complete year that was
profitable. September 2018, December 2018, September 2019, December 2019, and March
2020 were the most recent profitable quarters for the Company. Tesla’s market value
surpassed $190 bn on June 10, 2020.
Case Study 59
Tesla already has a significant marketing edge in certain sectors. Who would not
want to possess a car that does not pollute the environment, does not require
trips to the gas station, and is genuinely green? For a long time, other
manufacturers will be playing catchup on this issue. Traditional automakers
must now consider how to transform into software businesses, which, given
their current position, will require them to do what legacy software companies
do when start-ups threaten their core markets: purchase competitors to
consolidate the market.
• Tesla has empowered customers by simplifying the buying process.
Tesla does not follow traditional advertisement strategy of advertising in leading
newspapers or advertising on television or radio, instead, it employs the
traditional software “inbound” sales strategy. They assume that customers are
clever and would seek them out if they create the need properly. They have a
thorough understanding of the buyer’s journey.
• Tesla lengthens the lifetime value by utilizing better battery technology which
also minimizes the total production cost.
Tesla’s electric automobiles are far less complicated than their internal
combustion counterparts. They contain about 20 components per car, compared
to 2,000 in internal combustion engines, according to some estimates. The total
cost of ownership for customers is substantially reduced because of this simplicity.
• Tesla manufactures cars not as machinery but as software product.
Tesla creates automobiles by creating software for specific hardware, like how
Apple creates the iPhone or Microsoft uses Intel processors and Dell PCs. This
allows the firm to update the software capability of its vehicles every few weeks.
In contrast to the old car business paradigm, where the product remains the
same for as long as you drive it, this is a significant change.
The total cost of ownership of a Tesla is substantially cheaper than that of an internal
combustion car since it has fewer components. There is no need for costly oil changes,
tune-ups or muffler replacements. The automakers, who earn handsomely from their
service operations, are aware of this.
Case Study 61
The reason for the market’s rapid development may be noticed when they reach new
worldwide regions. Based on this intense approach, a strategic goal is to expand the firm
through aggressive marketing to boost sales revenues, as evidenced by their company’s
growth “Tesla’s stock market valuation, starting at $100 bn (£72 bn) and growing to $650
bn”(https://www.livemint.com/companies/news/tesla-races-past-100-bn-in-market-
valuation-triggering-payout-plan-for-musk-11579709773018.html).
Market Development
They utilize market development as a means of expanding the EV market. As they expand
into new areas, they attract new types of customers, such as semi-trucks, sedans, coupes,
solar panels, and/or power walls. The plan is that entering new markets would result in
an increase in sales and growth. Tesla sells automobiles in the Netherlands, Norway and
Germany. Switzerland, Denmark, France and China are among the other countries having
Tesla’s footprints. Tesla has built offices and facilities in the United States and the United
Kingdom and is anticipated to grow to additional worldwide areas.
According to the market expansion plan, Tesla will follow a strategy of collaborating
through joint ventures with other firms to expand into new markets.
Diversification
This is Tesla’s fourth and final growth plan. This growth strategy aids the company’s
progress by allowing it to produce a variety of goods. Tesla, for example, developed Tesla
Powerwall battery solutions for a range of non-automotive uses. It has also entered the
Tesla’s Competitors
Tesla, Inc. operates in a very competitive environment. The impact of competition on the
energy solutions and automotive industry environment is outlined by studying the Porter
Five Forces Model. The external elements and their intensities in Tesla’s instance that are
accountable for the powerful force of competitive rivalry are as follows:
• Small number of firms;
• High aggressiveness of firms; and
• Low switching costs
Case Study 63
The EV industry is dominated by a small number of companies. This additional
element, according to the Five Forces research methodology, reduces the impact of
competition on firms like Tesla. These businesses are known for being aggressive in their
marketing and product development.
Here are the top three competitor firms of Tesla Inc.:
NIO
NIO, which was founded in 2014, produces luxury electric automobiles for the
international market. Though its products have typically received positive reviews, the
business has also earned a reputation for being hazardous and unpredictable. Some
observers stress that its price is predicated on a hazy idea of “potential” rather than actual
financial performance—yet a similar criticism might be levelled against Tesla.
In 2020, NIO delivered 36,000 vehicles, representing a 111% increase in sales, while
its share price rose more than 1,000% year to date. Its fast-increasing delivery numbers
and excellent financial indicators have made it a viable choice for investors looking for
a Tesla alternative.
Volkswagen
The Volkswagen Group is one of the industry titans that has long promised to change this.
In 2019, the firm made good on its promise by launching the manufacturing of the “ID.3,”
a new electric car.
Volkswagen announced plans to invest €73 bn over the next five years on digital and
electric car technologies, intending to produce 1.5 million EVs by 2025, in preparation
for the EU’s new emission goals.
The 82-year-old Volkswagen, one of the world’s largest corporations, had weathered
several boom-and-bust cycles—not to mention dictatorships, wars and the split and
reunification of its host nation—making it particularly effective at accomplishing long-
term goals like this one.
BYD Company
BYD Company, based in Shenzhen, is one of the world’s fastest-growing car companies.
The firm radiates the kind of confidence associated with Silicon Valley’s early days, from
its odd name (an abbreviation for “Build Your Dreams”) to its distinctive offices.
BYD, despite its lack of worldwide recognition, is already a powerhouse in China, with
a vast product line that spans nearly every high-tech industry, from consumer electronics
to energy storage. The business is already the largest manufacturer of battery-powered
automobiles in the world.
Even though the firm has had minimal influence outside of China and has yet to
demonstrate any genuine global ambition, there is still an opportunity for tremendous
development. EVs account for just 2% of total automobile sales in China, owing to the
Economies of Scale
Established market participants profit greatly from economies of scale, which new market
entrants do not have access to, at least for the first few years of their operations. Another
important obstacle for new market entrants into the electric car sector is the high capital needs.
At the same time, it is worth noting that Tesla’s choice to renounce its patent rights
and make its methods and ideas open-source and accessible to others raises the risk of new
competitors.
Despite the obstacles for new entrants described above, the timing of entry into the
electric car market is a key element enticing both current and new manufacturers to claim
a piece of the expanding sector.
Electric car sales in the United States are anticipated to surpass 6.5 million units by
2040, with autonomous EV sales expected to exceed 8.5 million units globally (https://
about.bnef.com/electric-vehicle-outlook/).
Case Study 65
The Threat of Substitution to Tesla
The immediate threat to a green car is the existing prevalent usage of gas automobiles.
This alternative occurs because the cost of making green, let alone an electric automobile
is fairly high, therefore the firm must charge a higher price to sustain economically. For
a long time, the notion of a low-cost hybrid vehicle seemed impossible. However,
technical advancements and discoveries have enabled economic manufacturing processes,
resulting in lower car prices for consumers.
Different forms of transportation can also be used as a replacement. Cycling, riding the
bus, and walking can all be used as replacements to some extent. However, because they
do not completely grasp the consumer’s demands, the danger of these types of
replacements is minimal.
The appeal lies in Tesla’s product offering, which responds to the public’s desire for a car
that is not just gas-free but also entirely electric. Tesla automobiles are priced more than gas-
powered cars, but they are comparable with cars like the Chevy Volt and Nissan Leaf.
Tesla has aimed, since its inception, to produce a complete EV that is affordable to the
ordinary user. If an average consumer can buy a fully electric car in ‘X’ years, then gas-
powered and probably hybrid car manufacturers will be replaced by this new wave of fully
EVs, which can cost the customer almost nothing to charge/fill because Tesla’s charging
stations are powered by solar energy and are therefore free.
Price Sensitivity
Another key aspect that influences buyers’ negotiating power is price sensitivity.
Customers may discover that Tesla costs are truly quite pricey when the range of electric
automobiles from various established and new automotive businesses grows.
As a result, purchasers may use their negotiating power to force Tesla to rethink its
price approach, putting further pressure on profit margins.
Product Differentiation
The degree to which different electric car manufacturers differentiate their products is a
key element influencing consumer bargaining power. Tesla’s EVs are now distinguished by
their performance and simple, as well as beautiful appearance.
For example, the Tesla Model S Plaid is currently the quickest electric car in the
market. As a result, buyers wanting high-performance and beautifully styled electric
automobiles have little negotiating power because there are few options in the market that
provide these benefits.
Autopilot
Tesla Inc. created autopilot mode as more than simply a substitute for driving; it was
created with the idea that the driver must remain focused on the road in order to manage
the vehicle if necessary. Tesla Autopilot began offering semiautonomous driving assistance
in September 2014. Tesla’s sensors have been enhanced.
Case Study 67
Adaptive cruise control, lane departure warning, emergency braking, autosteer, auto
park and summon (recalling the vehicle from a parking place) have all been part of
Autopilot since 2017.
HW2 with a second GPU and, for Model 3 only, a driver-facing camera was released
in mid-2017 and upgraded HW2 with eight cameras and twelve ultrasonic sensors, with
forward-facing radar, was released in mid-2017, and HW3 with a second GPU and, for the
Model 3 only, a driver-facing camera was installed in the Model S and X in Q1 2019 and
shortly thereafter in the Model 3.
Tesla was supposed to show complete autonomy by the end of 2016, but it was later
pushed out to the end of 2019. Elon Musk claimed in April 2017 that in two years, drivers
would be able to sleep in their cars as they drive themselves.
Tesla stated in April 2019 that, going forward, Autopilot mode will be standard on all
of its vehicles. Full self-driving is a software option available at an additional cost.
Tesla released a software upgrade on April 24, 2020, that will enable the EV to fully
self-drive. The automobiles now detect and automatically stop at stop signs as a result of
this upgrade. At traffic lights, the automobiles likewise slow down and finally halt, and
the driver indicates that it is safe to go through the light. The software is still in the beta
stage, according to Tesla, and is far from being a finished product.
Glass
The initiative to create roof glass for Tesla Model 3 and for use in SolarCity roof tiles,
which was revealed in October 2016, was announced in November 2016.
The roof tiles are one-third lighter than conventional tiles and have a solar collector
built in.
Battery Products
Tesla intended to make all of its patents available to the public. In April 2015, they got
orders totaling $800 for their Powerwall residential and Powerpack industrial batteries.
Larger-scale designs for industrial customers in quantities of less than 100 kWh were
announced. A 7-kilowatt-hour wall-mounted device and a 10-kilowatt-hour unit were
among the two types available.
Panasonic began mass-producing the first cells. The manufacturing was then moved to
Giga Nevada. Later that year, Tesla announced that it had been chosen “through a
competitive process” to provide 27,000 hp of battery storage power to Southern California
Edison.
Elon Musk volunteered to help with the Puerto Rican government to restore the
island’s electrical system after Hurricane Maria struck in September 2017. Later that
month, Tesla sent 700 solar panels to the “Hospital del Nio,” where the batteries helped
restore treatment to 3,000 patients who needed round-the-clock attention.
Motors
Tesla produces two different types of electric motors. A three-phase, four-pole AC
induction motor with a copper rotor (which inspired the Tesla logo) is utilized as the rear
motor in Model S and Model X, and is their oldest and most widely manufactured design.
Model 3 and Model Y permanent magnet motors are utilized in the front motor
of 2019-onward versions of the Model S and X, and the Semi is anticipated to
employ them as well. The permanent magnet motor improves efficiency in stop-
start driving.
Case Study 69
Nonetheless, Elon Musk, the company’s CEO, projected that the energy sector will one
day be on a par with its automotive division in terms of size. Tesla’s bottom line, on the
other hand, is all about electric automobiles, and the brief suspension of work at Tesla’s
Fremont facility owing to local health regulations had no impact on vehicle production
and delivery.
Elon Musk has a lot of plans for the future, including a million robot axis on the road
by the end of the year, complete self-driving software, a network of underground roads to
avoid traffic, hyperloop, zero-emission solar roofs, an online platform to sell Tesla cars,
Tesla’s child-sized submarines, a design and engineering center in China, and a small and
affordable Tesla Model 2.
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Case Study 71
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