Introduction
Today, Tesla as a company provides an example of a genuinely modern brand relevant in every capacity. Its value proposition relies on scientific innovation that gets progressively upgraded as the technology allows. The nearly personal, case-by-case approach the firm has to its sales process fosters customer loyalty and adds to the brand’s refinement. This paper examines and discusses Tesla’s business model within the context of its industry to understand the company’s unique appeal to customers today. It also applies Porter’s Five Forces framework to Tesla to study and comment on the structure of its competitive advantage.
Business Model Focus
Tesla’s business model is generally unique due to the company’s leadership status in a new, rapidly evolving industry and an overall innovation focus. Its electric cars are sold, serviced, and charged using a three-pronged strategy. First, Tesla sees a market of environmentally conscientious, rich customers who want electric vehicles but not at the sacrifice of comfort, performance, or design (Alghalith, 2018). On the other hand, the Model S taps into the ambitions of Tesla’s first consumer segment. It was dubbed the “greatest automobile ever tested” in 2013 and became the best-selling vehicle in eight of America’s wealthiest zip codes.
Tesla understands its consumers’ concerns about the battery range. It significantly increases charging speed and establishes its network of free superchargers in high-traffic locations. Furthermore, the company is mainly reliant on its successful branding as the future vehicle maker that is now here. In a record amount of time, Tesla established a love mark brand. Its commitment to environmental protection, high-quality cars, and personalized customer service engendered considerable brand loyalty. The Tesla Model S was named the “most loved automobile in America” in 2014.
Tesla sells to consumers directly, without any franchise distributors involved as middlemen, thus increasing the degree of personal association with customers. The firm has established a network of galleries and corporate centers where the models are displayed to potential buyers, delivering them a unique purchasing experience (Ahmad and Mohd, 2019; Chen and Perez, 2018). Tesla showrooms, unlike automobile dealerships, are free of possible conflicts of interest. Customers exclusively deal with Tesla sales and service representatives.
In addition, the firm has built a well-developed infrastructure to service its clients across the country. Tesla employs a team of Rangers, mobile technicians who conduct house calls in select locations. The service may be supplied remotely in some situations. The Model S can remotely transfer data, allowing personnel to examine and correct various issues without touching the vehicle. Finally, Tesla has developed its network of “supercharger stations,” where drivers may get a free 30-minute charge for their Tesla automobiles. Of course, the goal is to accelerate the adoption of electric vehicles by making them cheaper and simpler to maintain.
Industry Definition
One of the critical features of Tesla as a company lies in its unique position in the overlap between two extensive, highly profitable markets: automobile construction and renewable energy. The famous model S, as well as other products of the company, successfully combine the two. In a way, Tesla is an industry in itself, proving that a client does not need to compromise the speed and comforts of a car journey for the sake of planet preservation, as the two are not mutually exclusive (Baffour-Awuah, 2018; Thomas and Elicia, 2019). Nevertheless, in terms of external threats and trends to consider, both automobile and renewable energy industries remain relevant for Tesla.
Porter’s Five Forces
Industry Rivalry
The car business in the United States is a mature multibillion-dollar oligopoly with high barriers to entry and established parties within the field. Major rivals and brands control market share and the sector is fiercely competitive. Competitors create new vehicle models, remodel old car models, and provide enticing incentives to sway potential consumers in the race for flat market share (Jing, 2020). At the same time, at the moment, Tesla occupies the undoubtedly leading position in the sub-field of ecologically friendly cars that do not utilize fossil fuel. It is likely to be the first choice for any customer that is willing to buy a renewable energy-based automobile.
Bargaining Power of Suppliers
Tesla’s suppliers have little negotiating leverage because Tesla’s output is currently restricted in comparison to other competitors in the sector, and Tesla is reliant on its suppliers. The innovative nature of Tesla cars and their hardware-software mix in the value proposition increase the need for specific supplies that are not utilized within the automobile market in general (Jing, 2020). Tesla is particularly reliant on Panasonic, its battery provider, with whom it has a supply deal that runs until the end of 2017. (Gamble, Thompson and Peteraf, 2016). Other possible suppliers exist in the sector, and Tesla expects to boost output, dramatically giving it more bargaining leverage.
Bargaining Power of Buyers
Because there are so many various manufacturers, brands, and models to select from, and many dealers will negotiate selling prices, consumers have a lot of bargaining power in the automobile business. On the other hand, Tesla consumers have little negotiating leverage because other rivals provide all-electric and hybrid options; nonetheless, the firm does not negotiate their rates. As a luxury segment company, Tesla can afford premium pricing and prioritizes the uniqueness of its models over attempts at mass production.
The threat of New Entrants
Because of the significant barriers to entry and the vast scale of the industry’s top competitors, the danger of new entrants is minimal. The high cost of research and development to design an automobile, the high cost of manufacture (materials, labor), significant economies of scale, and the high cost of brand creation and marketing are all examples of high barriers to entry. New entrants would need a lot of money upfront to manufacture a car and compete in the business. Established name brands that profit from economies of scale and offer unique product lines would compete against new entrants.
Threat of Substitutes
Because of alternatives supplied by rivals and public transport, the danger of replacements to Tesla in the automobile sector is moderate. Tesla’s strategic management addresses it via the ever-updating market research and attention to the shifts in consumer desires. Switching from one car manufacturer to another, or using public transit as an alternative, is relatively inexpensive. Competitors also offer other electric/hybrid versions in various pricing levels that function admirably.
Conclusion
In conclusion, Tesla appears to have achieved the golden ratio between production and scientific research, comfort and environmental responsibility, luxury and simplicity. Due to the high barriers to entry in either of the industries, it is shaped by the brand and is unlikely to be faced with a complete substitute any time soon. Nevertheless, the Tesla management updates its market research base yearly to ensure the brand never loses its relevancy.
References
Ahmad, Salma, and Mohd Khan. “Tesla: Disruptor or Sustaining Innovator.” Journal of Case Research 10, no. 1 (2019). Web.
Alghalith, Nabil. “Tesla: innovation with information technology”. International Journal of Business Research and Information Technology 5, no. 1 (2018): 37-51. Gale Academic OneFile. Web.
Baffour-Awuah, Deborah. “Essence of Corporate Social Responsibility–Case Study of Tesla Inc”. International Journal of Business Research and Information Technology 5, no. 1 (2018): 37+. Gale Academic OneFile. Web.
Chen, Yurong, and Yannick Perez. “Business model design: lessons learned from Tesla Motors”. In Towards a Sustainable Economy, pp. 53-69., (2018) Springer, Cham.
Endsley, Mica R. “Autonomous driving systems: A preliminary naturalistic study of the Tesla Model S”. Journal of Cognitive Engineering and Decision Making 11, no. 3 (2017): 225-238. Web.
Gamble., John, Arthur A Thompson, and Margaret Ann Peteraf. Essentials Of Strategic Management., 2016, New York: McGraw-Hill Education.
Jing, Na. “Research on Tesla’s Customer Care Innovation.” In 2020 Management Science Informatization and Economic Innovation Development Conference (MSIEID),2020, pp. 469-478. IEEE.
Thomas, V. J., and Elicia Maine. “Market entry strategies for electric vehicle start-ups in the automotive industry–Lessons from Tesla Motors“. Journal of Cleaner Production 235 (2019): 653-663. Web.