Executive Summary
This report covers the business operations of Tesla and how they use technology to enhance their business operations. Tesla manufactures their cars in Gigafactories allowing them to cut costs and time of production. The company has developed a new way of marketing cars; relying on brand reputation and customer experience with among other things a luxurious referral program. Purchasing one of their cars is fun and easy, designing and purchasing from your home, with the possibility for pickup at a local center. The company relies on their use of technology through the use of databases to gather information and improving efficiency in their business process. We believe Tesla’s uses technology intelligently, from their online design studios to analysing market research and spotting the opportunity to open stores within malls and shopping centers.
Background Information
Tesla Inc is a worldwide electric-automobile manufacturer, founded in 2003, when a group of engineers decided to show the world that there is no need to compromise to drive electric cars. Although firstly set up as a car manufacturing company, they have since expanded to produce energy storage systems, as well as install, operate and maintain solar products. At the start, there was a clear business model; build a sports car, use that money to build an affordable car, use that money to build an even more affordable car. They launched their first car in 2008 the Tesla Roadster- then in 2012 they launched Model S, which took the world by surprise- being the leading car in every single category. Model S- has had global sales of over 12,550 units in 2017 (Clean Techninca,2017). From the launch of its first car in 2008, Tesla has made a revenue of $7Billion by the end of 2016 (Tesla Annual Report,2016). Tesla produces 3 different types of cars in their factories; Model S- which is a fully electric, zero emissions vehicle, Model X- which is the longest range all-electric sports vehicle in the world, lastly Model 3- which is the third-generation electric vehicle that will be a more affordable vehicle (Tesla Annual Report,2016).
Introduction
The Tesla name is one which is associated with innovation and quality. Whether it be in electric car design or space travel, CEO Elon Musk has continually strived to not only be an industry leader, but a world one. It is clear that electric cars are the future. Every year governments introduce new legislation to discourage petrol and encourage electric. Take the announcement earlier this year, that from 2040 the UK will ban sales of new petrol and diesel cars, following on from a similar announcement in France (The Guardian, 25 July 2017). While this may be some time off, consumers are already looking to electric as the way forward. Tesla delivered 25,000 new cars to the UK in the first quarter of the year (The Telegraph, 3 April 2017) and rationally this consumption will only increase, especially as charging points are becoming a more common sight and fears over pollution levels are a reasonable worry.
Tesla recognises this and have designed a business model which seeks to ‘accelerate the advent of sustainable transport by bringing mass market electric cars to market as soon as possible’ (Elon Musk, 2013). With this as their goal Tesla have managed to combine timeless looks with modern engineering to create electric cars which cater to the performance obsessed ‘petrolhead’ while still being practical to the everyday family. However, the innovation doesn’t stop there, Tesla have recognised that with today’s fast-moving world comes the need for an easy and quick way to purchase the perfect car.
Business Operations
Tesla focuses heavily on Research and Development, spending 17.7% of its revenue on R&D(Company Reports Statista, 2015); researching new ideas, trying to cut down costs and ensuring that their cars will be affordable. Telsa starts manufacturing its products in the factories mainly in the United States. They have now built two Gigafactories, in Nevada and New York. Tesla manufacturers the vehicles battery packs within the Gigafactory, which allows for a lower cost of production. Telsa does not have a specific marketing strategy, the CEO, Elon Musk, understands the power of doing lots of interviews and media appearances, which allows Tesla to have a public image without the costs of marketing. Tesla sells their products directly to its customers, reducing costs and ensuring the brand is luxury.
Customer Perspective
Locating
Car manufactures are renown for having large advertising budgets. Their extravagant ads have become a permanent fixture at events, such as The Super Bowl, and are often talked about for some time after. However, Tesla has devoted next to no money for adverts, which would seem to buck all of the industry trends. But the strategy has proven to a successful one for the company and Tesla grew to be the most valuable U.S car maker for three months this year (Thielman, 2017). Instead of normal commercials, the company has relied on building a solid reputation and a strong brand that is linked with excellence and quality. While building a brand is an expensive and tough job, it is worth more than any advertising campaign. Currently Tesla’s brand is valued at a little over $4Bn, this would make it the 16th most valuable automotive brand in the world (Interbrand Survey, 2017). Positive media feedback and a luxurious referral program rewarding both current and new customers has also played a role in Tesla’s success. Furthermore, while commercials aren’t a feature of the brand, other more subtle methods have been used to promote the Tesla brand. For example, while standard car dealerships are located along highway roads and off the grid usually around industrial parks. Tesla showrooms are placed in shopping malls exposing the car to a higher amount of people while linking the brand to what is trendy. (Reynolds, 2013)
Purchasing
Surveys suggest that up to 75% of consumers are left unhappy with the service they receive when buying a new car (Accenture, 2015). In the same survey consumers responded positively when asked if they would prefer to buy their car online through the manufacturer’s website. Tesla have responded to this by creating Teslamotors.com. With the company commenting that “ordering your Tesla is just like any buying experience on the internet”. The Tesla system allows customers to fully customise their car and purchase it all from the Tesla site, this is done through the ‘Design Studio’ section of their site. One particular benefit of this section is that it has the ability to give a quote to the user of how much the car will approximately cost which allows the customer to have a good idea of Tesla’s prices and can find out for themselves what features they can afford. This form of selling represents a B2C strategy where any 3rd party dealerships are removed. This is a technology which very few other manufacturers offer and therefore could be classed as a disruptive technology.
Receiving
The cars are delivered to nearest service centre for pickup or delivered directly to your front door if desired.
Technology within Tesla
Tesla is known for their use of technology and the role it plays in their day to day running of the business. Using technology from storing information on databases to making cars and equipping them with advanced technological features.
As with many businesses databases benefit Tesla logistically and in an information storing capacity. All of the research they carry out, every car they sell and every customer that buys a car gets their details stored on a database. Not only that, databases keep track of stock control. This means that without the use of databases Tesla’s day to day operations would not be efficient which will result in them not being able to run smoothly which will cause hinder the deliverance of the top-quality service which they are known for.
Using automated stock control through the databases is sensible because it means that the computers will keep track of their stock for them. This feature can automatically order new stock when it drops down to a specified limit. This is beneficial because there is no need to rely on any workers to do this which reduces the possibilities of errors. As mentioned already, Tesla use databases to store important customer information such as their order no, payment details and their names etc. Tesla also use databases to compile market research and store information about its results.
Without the databases, they will need to do tasks manually, this brings in the possibility that human error possibilities will increase and it will lead to their efficiency records dropping.
In terms of the technology used in their cars Tesla are seen as an industry leader. In 2015 the company offered a technology package which could be bought when buying the car. This included cameras and sensors to enhance the drivers safety as well as the performance of the car, it was also used to gather information on other road drivers. In the same year Tesla highlighted their ambitions in a statement from the company; “Tesla is a software company as much as it’s a hardware company. It’s the same way your updating your phone or laptop”.
Conclusion and Recommendations
The electric car industry is in its early years and while Tesla are the headline name just now, this may not always be the case, it is for this reason that we recommend Tesla continues to focus on innovations such as self-driving cars and a more sustainable battery range to make electric more practical. The idea of driverless cars is one which is faced with much hesitation and fear from consumers and we believe that if Tesla were to successfully incorporate this into their vehicles it would go a long way in cementing their name as a household name in the future.
As electric cars are in their early years there as some possible issues which may occur in the future, especially around The National Grid and its output capability in an electric car dominated market. Some analysts predict electricity demand by 2030 could be greater than our power stations can produce (The Guardian, 13 July 2017). With this in mind, Tesla could form working relationships with organisations like The National Grid and work towards reducing this potential hurdle. By being the first company to recognise this and combat it, Tesla will be looked upon favourably and have an all-important seat at the ‘decision making table’ of this emerging industry.
Despite these areas for potential growth and expanse we believe that Tesla use technology intelligently, from their ‘Design Studio’ to analysing market research and spotting the opportunity to open stores within malls and shopping centres. These successes are reflected in their numbers both sales and earnings wise, and we see no reason why this trend won’t continue.