Introduction
Tesla Inc. was founded in 2003 by two engineers Marc Tarpenning and Martin Eberhard as an energy, automotive, and lifestyle company. It was formerly known as Tesla Motors Inc. Tesla operates on a “Direct-to-Consumer (D2C) business model” selling its products directly to the consumers and cutting out dealerships. The first product of Tesla was the high-performing electric sports car named as Tesla Roadster which was a luxury car and relatively expensive for the middle class to afford (Bohnsack, Pinkse, and Kolk, 2014). The reason for the relatively higher price of the first product as Elon Musk, the CEO of the company explained was the compelling and advanced technology of the car.
However, since the launch of its first product, Tesla has heavily invested in research, development, and marketing to make safe charging cars accessible to a large number of customers (Mangram, 2012). Consequently, it became the largest seller of electric cars and ranked as the bestselling electric car manufacturer in the whole industry capturing a 12% market share (Liu and Meng, 2017). In this regard, the following report discusses the Tesla Business Model Canvas to highlight its major strengths as an electric car manufacturing company that differentiates it from its other competitors.
Business Model Canvas of Tesla
Value Propositions
According to Martins, Rindova, and Greenbaum (2015), Tesla provides energy-efficient, long-range, and sleek design electric vehicles that are highly advanced in technology. Furthermore, as illustrated by Chen and Perez (2018), Tesla EVs are distinguished in terms of high-miles-per-charge, free software updates, dual-motor, and low-cost electric-charging stations. Another factor that makes Tesla very competitive in the market for renewable energy is its huge investment in solar panels which provides green energy solutions to residential and commercial customers.
Customer Segments
As explained earlier, the first product of Tesla was very expensive, however, with time, it has adopted more economical solutions and thus now manufactures products for all kinds of customers ranging from affordable cars for mid-market to luxurious sports cars for the elite class (Yun et al., 2019). Moreover, it is also covering the commercial vehicle sector to provide greener solutions for shipping and transportation. These segments can be listed as:
- Luxury
- Commercial Vehicles
- Mid-price range
- Autopilot
- Green Community
- Fast sports car enthusiast
Key Partners
The main key partners of Tesla are its suppliers, alliances, government, and charging points. Although it manufactures the entire units of its cars, it also purchases some parts from third parties which are served as the biggest key partners to sustain the continuous production of EVs. Similarly, to increase its market shares and production capacity for electric vehicles and solar panels, it has allied with Toyota and Panasonic. The government also provides various Tax incentives to Tesla for creating huge employment opportunities and focusing on green energy solutions in the United States. Lastly, to provide charging facilities to its customers, the company has established various charging stations at different hotels, restaurants, resorts, and shopping centers which also serve as its business partners.
Key Activities
As described by Stringham, Miller, and Clark (2015), the key activities of Tesla are car manufacturing and production of batteries and solar panels, research, and development to find innovative and eco-friendly technology, designing, building and maintenance, software development, and sales and marketing
Customer Relationships
Tesla provides value and quality to its loyal customers by providing them Omni-channel experience based on a Direct-to-Consumer business model and thus has earned the reputation of a luxury brand in the industry and the best choice for customers by providing the most innovative and advanced electric vehicles. Moreover, its free or low-cost charging station network with a built-in navigation system provides customers with great assistance to run their vehicles comfortably.
Key Resources
The key resources of Tesla are its advanced technology, design, engineering, software, and long-life battery systems that allow it to execute its business activities (Krommes and Schmidt, 2017). Notably, superior engine design, highly efficient engine components, inverter, battery system, cooling methodology, and reliable big data has helped the company to generate potential customers and engage in different business activities.
Channels
Tesla utilizes various effective channels such as stores, websites, conferences, and sales events to reach out to its potential customers. However, it does not invest in advertising believing in the power of its own reputation.
Cost Structure
The cost structure of Tesla is very broad as per the following:
- The total cost of material, its manufacturing overhead, and labor: 81% of the total revenue
- The Administrative and Selling cost: 13% of the revenue
- Restructuring cost: 1% of the total revenue
- Research & development cost: 7% of the revenue
- Taxes, Interest-based expenses, and others: 3 % of the total revenue
Revenue Streams
According to Yang et al. (2017), Tesla has created an entire eco-system for the top-of-the-line-green vehicles along with introducing lifestyle products and energy customers. Therefore, the two segments of its revenue streams are automotive which includes direct sales from EVs, software updates, and retail merchandise, and energy generation and storage which consists of sales from solar roof panels, etc.
Conclusion
After assessing the various components of the Tesla Business Model Canvas, it can be observed that the company has marked a huge success in the automotive industry by relying on innovative and green energy solutions for the transportation as well as the energy sector. Due to its extensive research and development policy, the company is now well known for the supply of safe, reliable, and efficient electric vehicles. However, to sustain continuous development and innovation, the company needs to capture the foreign markets as well by investing in product innovation and reducing the supply chain risks. Moreover, the company needs to offer cheaper products to stay competitive in the market considering that many other companies are not heavily investing in the EV industry.
References
Bohnsack, R., Pinkse, J. and Kolk, A. (2014). Business models for sustainable technologies: Exploring business model evolution in the case of electric vehicles. Research Policy, 43(2), pp.284–300.
Chen, Y. and Perez, Y. (2018). Business Model Design: Lessons Learned from Tesla Motors. Towards a Sustainable Economy, [online] pp.53–69. Available at: https://link.springer.com/chapter/10.1007%2F978-3-319-79060-2_4.
Krommes, S. and Schmidt, F. (2017). Business model analysis of electric mobility products and services. International Journal of Automotive Technology and Management, 17(3), p.316.
Liu, J. and Meng, Z. (2017). Innovation Model Analysis of New Energy Vehicles: Taking Toyota, Tesla and BYD as an Example. Procedia Engineering, 174, pp.965–972.
Mangram, M.E. (2012). The globalization of Tesla Motors: a strategic marketing plan analysis. Journal of Strategic Marketing, 20(4), pp.289–312.
Martins, L.L., Rindova, V.P. and Greenbaum, B.E. (2015). Unlocking the Hidden Value of Concepts: A Cognitive Approach to Business Model Innovation. Strategic Entrepreneurship Journal, 9(1), pp.99–117.
Stringham, E.P., Miller, J.K. and Clark, J.R. (2015). Overcoming Barriers to Entry in an Established Industry: Tesla Motors. California Management Review, 57(4), pp.85–103.
Teece, D.J. (2018). Tesla and the Reshaping of the Auto Industry. Management and Organization Review, 14(3), pp.501–512.
Yang, M., Evans, S., Vladimirova, D. and Rana, P. (2017). Value uncaptured perspective for sustainable business model innovation. Journal of Cleaner Production, 140, pp.1794–1804.
Yun, J.J., Won, D., Park, K., Jeong, E., and Zhao, X. (2019). The role of a business model in market growth: The difference between the converted industry and the emerging industry. Technological Forecasting and Social Change, [online] 146, pp.534–562. Available at: http://web.2ver.com/HOME/data/download/soitmc/Yunetal_lecture01.pdf [Accessed 28 Jan. 2020].
Appendix 1
Figure 1: Graphical Representation of BMC
