Introduction
Tesla Inc., which is headed by Elon Musk, is a California-based company that concentrates on the manufacture of electric vehicles. Besides, this global giant is well known for the production of solar panels and clean energy storage devices. Musk identified the need for innovation as crucial towards meeting the energy demands of contemporary society. For this reason, the company’s CEO emphasized the manufacture of electric vehicles as one of the sustainable approaches to addressing issues of increased energy consumption and climate change. As a result, Tesla introduced various electric cars into the market, including the Roadster, Model X, the Model S, and Model 3 versions. The innovative approach by Tesla has made the company pose considerable competition against rivals in the electric cars industry such as Nissan and General Motors (GM). This achievement has enabled it to penetrate the high-end market successfully. Tesla’s innovativeness led to not only the realization of substantial sales but also an increase in the value of its stock in the market. In this respect, this paper discusses Tesla’s competitive advantages before identifying one of the company’s strategic options. The advantages and disadvantages of the selected option will also be examined.
Tesla’s Competitive Advantages
Tesla has emerged as a highly competitive player in the automotive sector because it deployed technology primarily to facilitate the development of electric vehicles (EVs). Such cars have boosted the company’s global standing because they consumed cleaner energy, as opposed to gasoline that is linked to harmful emissions (Bose, 2013). In particular, Musk identified the need for developing automobiles that could save the world from the detriments of pollution and climate change as central towards fostering sustainable development. The company’s EV car designs appeared at a time when global dignitaries were calling for the embracement of eco-friendly means of production to save the environment from global warming.
Notably, Tesla’s powertrain model was meant to bolster the energy efficiency of the electric vehicles it availed in the market (Bose, 2013). For this reason, governments are currently encouraging citizens to consider purchasing electric cars from companies such as Tesla. This move is founded on the awareness of the impressive performance of such vehicles in addition to their capacity to facilitate environmental sustainability. Similarly, according to Bohnsack, Pinkse, and Kolk (2014), customers identify the concept of electric cars developed by Tesla as suitable for meeting the financial and efficiency needs and expectations of the contemporary society. Therefore, the move by Tesla to produce items that are in line with the current global demands concerning pollution has enabled it to acquire a competitive edge in the EV market compared to other players such as Nissan and General Motors.
Also, Tesla has recorded a considerable competitive advantage in the electric vehicle sector following the adoption of hi-tech inventions, especially the development of unique supercharger bases where clients could be served free of charge. Such car-charging spots are located in various places to enhance convenience. Tesla’s establishment of technology platforms and rechargeable power units in the automotive sector positioned it as a leading player in the industry among other related industries including the energy area. For instance, the EV technology platform recorded significant success that was marked by the launching of high-end electric vehicles, especially the Roadster and the Model S products, both of which have an efficient performance compared to rivals’ products.
The design of Tesla’s electric vehicles outperforms that of other competitors in the EV category of automobiles. Specifically, the impressive performance of the Model S made the company attain greater sales compared to the collective returns for the BMW 7 and Audi A8 (Van den Steen, 2015). The unique design and performance of the Model S also offered considerable competition to the Nissan Leaf, which was its rival high-end model in the EV category. In particular, the Model S has the potential of accelerating from 0-60mph in less than six seconds. In other words, such a speed presents the car as considerably faster compared to the BMW 5 and the Nissan Leaf (Van den Steen, 2015). The Roadster also integrated a design that made it outperform the conventional sports car in the high-end market, including the Ferrari Testarossa among other recent models. Therefore, Tesla’s competitive advantage emanates from the design of high-performance engines that foster the penetration of the company in the high-end market, as well as other segments in the automotive sector.
The cost-effectiveness of Tesla’s manufacturing approaches has boosted the company’s competitive edge compared to its rivals. Notably, Tesla produces power units for its electric vehicles at a reasonable cost concerning the price incurred by rivals such as Nissan and BMW. For instance, Tesla incurred $250-$300 per KWh in the production of batteries for the Model S, an amount that is 50% lower compared to the cost sustained in the production of power units for its rival, the Nissan Leaf (Van den Steen, 2015). In this respect, Tesla identifies cost leadership as a strategy that bolsters its competitiveness in the EV sector.
Besides, Tesla sells powertrains to other EV companies in the sector as a way of enhancing its sales. The proprietary rights of the company’s powertrains have seen it consider selling the services to other corporations such as Toyota to facilitate the development of energy-efficient electric cars as denoted by the Toyota Rav4 EV deal. Specifically, the deal with Toyota was estimated to bring about $100 million to Tesla (Van den Steen, 2015). Therefore, partnering with other EV manufacturing businesses facilitates the competitiveness of Tesla. This conclusion is founded on the understanding the partnership move may enable the company to gain profits from its innovation amid doing business with rival institutions.
Tesla’s Strategic Options
Tesla has an array of strategic options that have the potential of fostering its competitiveness in the long term. The mass production of lower-end electric vehicles is one of the strategic options that Musk identifies as crucial towards promoting the success of Tesla in the end (Grant, 2016). Notably, Tesla began its business by focusing on the production of high-end electric vehicles such as Roadsters and the Model S car design. Such a move to manufacture high-class models cost much higher compared to vehicles produced for lower market segments. As such, the capital intensiveness of high-end electric vehicles may undermine the growth of Tesla in the long term upon bearing in mind the company’s goal of facilitating environmental sustainability.
The strategy of penetrating the lower-end customer segments is reasonable since it paves the way for the company to use the money gained from the sale of sports cars to manufacture more affordable items. The approach may enable Tesla to realize significant sales in various customer segments, thus enhancing its dominance and profitability in the EV sector (Eisler, 2016). Additionally, the option may put Tesla in a better position to meet the needs and expectations of various customers, especially regarding their financial capabilities. In this respect, Musk’s strategy of seeking to penetrate the lower-end market segment is justifiable because it offers the company an array of advantages that allow the business to grow substantially in several years to come (Bhuiyan, 2017). Nonetheless, as revealed in the next section, the strategic option may pose disadvantages that can potentially undermine the performance of the company.
Advantages and Disadvantages of Penetrating the Lower-End Market Segment
Tesla’s entry into the lower market ends is advantageous in an array of ways. For instance, according to Bhuiyan (2017), Tesla’s mass-market ambition can benefit the company by offering an opportunity to record greater sales in various customer segments. Important to note, the limited edition of high-end electric vehicles provided by Tesla bars customers with a lower purchasing power from acquiring sports cars. Nonetheless, as Bohnsack et al. (2014) reveal, the mass production of electric vehicles to suit the needs of different market segments will put Tesla in a better position to realize high sales volume for its units amid offering successive models at lower prices. Therefore, such a disruptive strategy is advantageous towards bolstering the sustainability of Tesla in the long term.
The strategy is also profitable because it will ensure that Tesla produces additional electric cars at a lower cost. According to Eisler (2016), the move to finance the production of lower-end EVs from the gains realized from the sale of high-end electric vehicles is seen as a reasonable strategy towards enhancing the cost-effectiveness of Tesla’s manufacturing processes. Therefore, cost leadership will offer Tesla an advantage to dominate the entire EV market, thus asserting its authority as a leading technology company in the electric vehicles industry.
However, the disruptive strategy may undermine the competitiveness of Tesla in the long term because new entrants into the lower-end market may apply Tesla’s resources, processes, as well as profit formula. Consequently, as Grant (2016) observes, Tesla may lose the product differentiation advantage following the move by more players trying to emulate its affordable electric vehicles. In other words, the threat of new entrants in the market after adopting the mass-production strategy has the potential of challenging the growth of Tesla at the global scene. Nonetheless, Tesla’s supercharger network offers it a competitive edge against the pressure from new competitors in the lower-end market segment.
Conclusion
Tesla is a leading player in the EV sector. The company’s competitive advantages emanate from its focus on environmental sustainability, its incorporation of technological innovations, product differentiation, and cost leadership among other aspects. The strategic option directed towards the mass production of affordable cars is advantageous because it provides an opportunity for Tesla to increase its unit sales volume amid lowering the prices of its subsequent models. Furthermore, the strategic option is reasonable since it fosters the lowering of production costs. However, the mass production plan offers an opportunity for entrants to emulate Tesla’s strategies, thus undermining its competitiveness. Therefore, Tesla must consider the incorporation of more innovative ways of bolstering the brand amid entering the lower-end market segment.
References
Bhuiyan, J. (2017). Elon Musk’s launch of his first mass-market electric car could be Tesla’s iPhone moment. Recode. Web.
Bohnsack, R., Pinkse, J., & Kolk, A. (2014). Business models for sustainable technologies: Exploring business model evolution in the case of electric vehicles. Research Policy, 43(2), 284-300.
Bose, B. (2013). Global energy scenario and the impact of power electronics in the 21st century. IEEE Transactions on Industrial Electronics, 60(7), 2638-2651.
Eisler, M. (2016). A Tesla in every garage? IEEE Spectrum, 53(2), 34-55.
Grant, R. (2016). Contemporary strategy analysis: Text and cases edition (9th ed.). Hoboken, NJ: John Wiley & Sons.
Van den Steen, E. (2015). Tesla Motors. Boston, MA: Harvard Business School.