Tesla is now a public company (IPO in 2010). I feel like Tesla is going for a cost-leadership strategy in that the company is purposefully trying to lower costs to make electric cars affordable to the general population. However, Tesla does not fit perfectly into either generic competitive strategy. Tesla produces very expensive cars and is trying to produce commercial cars. This tells me that Tesla is trying to preserve its image as a luxury brand, but make their cars more affordable to consumers, which is one of the company’s main objectives. Tesla differs from its competitors because of government regulations. Companies that produce fuel cars are subject to regulations, while Tesla has actually acquired credits for complying with regulations and commitments. Tesla’s business model is extremely different, as the government subsidizes the company in exchange for it complying with regulatory credits. Tesla is valued at 50 billion dollars but has racked up billions in debt. The idea behind Tesla is that when electric cars become mainstream, the company will begin to be profitable. Other companies do not have as much leeway selling this position to investors, and they are also not backed by government subsidies like Tesla is. Tesla’s business model is different because the company needs to take into account infrastructures, such as charging stations and batteries. This fits into the overall costs that Tesla charges and incurs.
Tesla went for the brand first; they produced an extremely expensive sports car, and now it is trying to move into the commercial market. Tesla has transformed into a company that wants to offer cars through direct sales, service centers, and supercharger network. Tesla has gone from some futuristic company to a company that has tried to move the present to the future.
Tesla has been extremely successful in the past. The company has been able to leverage incremental innovation in order to continue to stay competitive. Tesla needs to be able to cross the chasm. Right now, most people do not want an electric car because they believe it is too technologically advanced (costly) for them.
Tesla should reduce its costs in order for it to reduce its debt and become profitable. This would allow for more shareholder wealth and also allow the company to normalize and integrate into the normal car market.
Yes, Tesla needs to be able to invest in its processes to figure out how to lower costs and be able to leverage itself into the market.
Tesla needs to be able to invest and construct more charging stations. Tesla can go into a strategic alliance with an electrical company to build charging stations around the globe. This will allow Tesla to cross the chasm, something it has yet to fully do.
Challenges:
- Gasoline prices tend to fluctuate, and when they are relatively low Tesla sees a decline in sales.
- Internal competition from car manufacturers who are trying to get into the electric car market.
- Lowering costs to become price competitive and profitable.
Tesla can solve these challenges through the use of strategic alliances and the ability to lower the costs of electricity to charge the cars. Tesla needs to find a way to undercut the price of gasoline enough so that consumers are comfortable investing in an electric car.
Tesla has already done a great job of convincing the U.S. government to provide subsidies to the company in order to allow for more R&D and innovative strategies. Furthermore, Tesla should try to broaden its strategic alliance by vertically integrating itself on the supply chain inputs.
The costs of vertically integrating are always high if the vertical integration ends up not working. Tesla needs to ensure that it has the infrastructure in place in order to successfully vertically integrate down its supply chain. Tesla already is nearly fully integrated towards the top of the supply chain, as it holds auctions and direct sales of its cars. Tesla also has a terrific customer support center.
Tesla is currently a question mark, according to the BCG matrix. Tesla needs to leverage its first mover’s advantage and become a star if it is going to succeed. Tesla must invest more in its research and development, aiming to lower its operating costs in order to become a more profitable company. Right now, Tesla is operating with so much debt; investors will eventually not tolerate this and Tesla will be left behind for a company like Mercedes, which is in the midst of developing its own electric car.
- Build more charging stations in order to cross the chasm
- Create more low-cost cars for cost-conscious consumers
- Do more to lower operating costs by vertically integrating, which may cost a lot short-term but will pay off in the long-term
- Be able to leverage the first-mover’s advantage.
- Find a way to get past gasoline prices
Internal stakeholders need to be able to carry out non-waste, lean six sigma approaches. Outside stakeholders need to be able to be patient with the process of Tesla crossing the chasm. Stakeholders need to be able to remain calm in the face of change, and they need to be able to adapt to changing alliances and shifting supply chain allocations.
Tesla is currently being subsidized by the government for a ton of money; Tesla also is still a target of investors, even with Elon Musk’s behavior. Tesla remains in a strategic position, but it needs to leverage this before some other company copies and surpasses them.
- Step 1: Hire a research firm to analyze the market around the world and induce corporate clients to join Tesla.
- Step 2: Meet with potential partners for strategic alliances in order to get on the same page and understand the needs of both sides.
- Step 3: Conduct testing on cars to see if there is an efficient option to deal with the gas price issue
- Step 4: Thoroughly analyze companies in terms of the financials in ensuring you are partnering with a compatible company.
- Step 5: Partner with the companies in order to gain a competitive advantage and beat out potential competitors.
Tesla needs to be able to modernize the inner workings of the company. The culture needs to be geared towards a three-pronged approach of people, planets, and profit. Tesla needs to push towards sustainability in order for the message to resonate with both employees and the public.
Tesla should be across the chasm and in the early adopter’s phase of electric cars. Tesla has the potential to raise its customer base and sales, but it needs to make its cars more accessible to the middle class.
The price of gas remains a wildcard. Whenever gas goes up high, the demand for electric cars goes down. According to some projections, this is a good thing for Tesla since gas is expected to rise in price due to the scarcity of the resource.
This is a growing market; there are more and more companies such as Mercedes and BMW that are trying to penetrate into the electric car market. This poses a challenge to Tesla, as the competition it is facing is, in many cases, backed by more resources and revenue. Furthermore, this matters because Tesla not only needs to compete with gas vehicles but other vehicles within its own niche. Electric vehicles seem to me like they are incremental. In 1900s New York City, 30% of all vehicles were actually electric, so this does not seem new. I think it is more architectural; an example of disruptive would be something like a flying car.
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