Table of Contents
- What is the strategy of Tesla Motors and how does its business model differ from that of the leading automakers?
1.1 Definition of strategy and types of strategy.
1.2 Strategy of Tesla Motors.
1.3 Tesla’s business canvas.
1.4 How Tesla’s business model differs from that of the leading automakers.
- In the market for plug-in electric vehicles, how do the resources and capabilities of Tesla compare to those of the established automakers?.
2.1 What is the value chain?.
2.2 Tesla’s value chain analysis.
2.3 Competitive advantages gain by Tesla and its competitors.
3.0 Explain the rationale for Tesla’s strategy. To what extent does this represent an optimal response to Tesla’s strengths and weaknesses relative to the established automakers?.
3.1 Rational for Tesla’s strategies.
3.2 How Tesla is responding to its strengths and weaknesses.
- Assess Tesla’s decision to make available its patents to other companies.
4.1 What is a patent?.
4.2 Tesla’s patents.
4.3 Why has Tesla decided to make its patents available to other companies?.
4.4 What are the companies Tesla has given its patents to?.
- At the end of 2015, Tesla’s shares are trading at $240, giving Tesla a market capitalization of $30 billion (General Motors market cap was $54 billion). Would you buy or short Tesla’s shares?.
Appendix: Tesla’s SWOT Analysis.
1. What is the strategy of Tesla Motors and how does its business model differ from that of the leading automakers?
1.1 Definition of strategy and types of strategy
Definition of strategy
The term “strategy” is defined by experts in different ways. Kotler et al. (2014) defined the business strategy as the long-term plan of action designed to achieve the organizational goals and objectives. Palmer (2016) said the business strategy is the management action plan to improve business performance. Johnon et al. (2012) stated that strategy is the roadmap of a business to gain organizational goals and objectives.
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Types of strategy
Johnson et al. (2012) classified the strategy into a number of groups that are defined as follows:
Growth strategy: growth strategy adds new features to existing products or develops new products. In addition, this strategy strengthens operations in an existing market or develops a new market (Johnson et al., 2012).
Product differentiation strategy: product differentiation strategy focuses on superior quality or services, and added product values to gain competitive advantages (Johnson et al., 2012).
Price differentiation/cost leadership strategy: price differentiation and cost leadership strategy focuses on lower prices in comparison to competitors to gin sustainable competitive advantages (Kotler et al. 2014)
Acquisition and merger strategy: Acquisition strategy entails other companies or some product lines of other companies. The merger strategy merges the business with other renowned companies (Palmer, 2016)
Corporate strategy: this strategy is developed focusing on business corporate and business goals and objectives (Kotler et al. 2014)
1.2 Strategy of Tesla Motors
Tesla’s growth (market development) strategy
Musk (2015) disclosed that Tesla’s strategy is to enter into the high-end market, where consumers will pay premium prices. Then, Tesla provides a higher unit of volume that will reduce prices with every successive model. Tesla’s R&D will continually measure customer satisfaction and follow on products to meet customer changing demand. Tesla’s battery pack and electronic power system have made it a market leader in delivery range capability on its electric cars. Tesla now targets to sell 500,000 per year by 2020 (DeBord, 2016).
Tesla’s product differentiation strategy
According to Musk (2015), Tesla’s plan is to build high-performance electric sports cars. Tesla’s first electric sports car is “Tesla Roadster” that was launched in 2007. This car has been popular with Hollywood celebrities and recognized as an environmentally friendly car by the super-rich. The first mass-produced car of Tesla is Model S. Tesla’s Model S is designed with different battery options in comparison to its competitors. Tesla’s technology includes a charge balancing system, safety system, cooling systems, battery engineering for environmental durability and vibration. Electronic management system customized motor design. In a word, the technical advantages of Tesla’s electric cars include integration in software and electric power system. Therefore, Tesla’s Model S was recognized as the prestigious Motor Cars in 2013 and it gained the highest customer satisfaction score in 2013 in comparison to other cars. Model S also gained the highest satisfaction and safety rating in 2015 by the National Highway Traffic Safety Administration in US (Musk, 2015).
Tesla’s marketing strategies
Tesla applied a direct sales model by directly selling to consumers and end-users without using nay dealers (O’Hara, 2015). In addition, it uses its website as marketing communication channels and distribution channels. It is promoting its products and services through both digital and traditional marketing campaigns. Tesla car has been delivered directly to the end-users without using any dealers and providing huge campaigns of changing people’s perceptions of electric cars.
Tesla’s price differentiation strategies
Musk (2015) disclosed that almost all new technologies have initially high unit costs. However, after optimization, the unit price comes down. Therefore, Tesla’s strategy is to design and launch affordable cars for its consumers. Although Tesla’s cars are expensive (about $109,000 for Tesla’s Roadster, and about $52,400 to $72,400 for Model S) in comparison to competitors, they include better-added values and features (Musk, 2015). Now Tesla is thinking to introduce the second model as a “sporty four-door family car” that would be about $89, 000 per unit, about half the price of the Tesla Roadster. Then, the third model will be more affordable for consumers (Tesla, 2016).
Tesla’s corporate strategies
Tesla’s goal is to a technological leader in designing and launching environment-friendly cars with zero-emission electric power general options. Tesla targets to design and launch environment-friendly cars with zero-emission electric power general options (Halla, 2015). Tesla’s long time plan is to develop a wide range of affordability priced family cars. In addition, it is moving from mine-and-burn hydro-carbon cars to electric cars to provide sustainable solutions for the environment.
1.3 Tesla’s business canvas
|Tesla Business Canvas|
|Key Partners |
Battery cell supplier (Panasonic)
Partners to rent spaces for power stations. Partners for Gigafactory to manufacture products
Above 150 suppliers to supply about 2000 different parts, regulators.
|Key activities |
Engineering (including design, assembler, energy, motors)
Sales and marketing
Supply chain management, vehicle testing, and analytics.
|Value proposition |
Performance: high battery capacity, fast charging stations, speed acceleration.
Connectivity: infotainment, station navigation, connected cars with the maintenance center.
Convenience: free recharging stations, auto-driven cars, and free recharging stations, environment-friendly cars, different battery options, car customization, upgrades via remote access, and high miles per charge.
Recognition: luxury cars
Accessibility: the latest Model 3 is cheaper (about $35,000 than previous Model S (about $80,000)
|Customer relationship |
|Customer segments |
Above-average income individuals (Niche Market)
|Key resources |
Silicon Valley location,
Gigfactory, R&D, manufacturing and assembling software, electric car, and technological knowledge.
Dedicated direct physical stores (Tesla Stores)
|Cost structure |
Supercharge network, real estate, maintenance, technologies, car manufacturing
Air software updates
Distribution networks (through physical stores and digital platform)
|Revenue streams |
Car sales and leasing
1.4 How Tesla’s business model differs from that of the leading automakers
Tesla’s Roadster is a luxury sports car and capable of accelerating from 0 to 60 miles per hour in four seconds. This car is faster than many of the Ferraris and range 260 miles on a single charge that has exceeded the plug-in cars developed over time in the automotive industry. Tesla Roadster is designed to beat the gasoline sports car including Ferrari and Porsche by head to head showdown. In a word, it is energy efficiency (twice of Prius) and a high-performance sports car that makes a difference to global carbon emission (Lambert, 2016).
According to Musk (2015), the discharge and full-cycle charge efficiency of the Tesla Roadster is 86%, where the merit is 1.14 km/MJ. On the other hand, its key competitor, Prius, provides 0.56 MJ energy efficiency and Toyota Camry provides 0.28 km/MJ. The CO2 emission rate of Tesla’s Roadster and its competitors are shown in the following figure…………