Business Model Canvas Generation of Tesla Inc
Founded in 2003, Tesla Inc. operates on the Direct-to-Consumer model in the energy, automotive, and lifestyle sector (Mangram, 2012). The first product of the company was the high-performing electric car named as Tesla Roadster, designed for luxury purpose targeting the elite class of the society (Bohnsack, Pinkse, and Kolk, 2014). Elon Musk, the CEO of the company explained that the primary reason for such an expensive model was the high cost of the most advanced equipment being used in the car. However, since the launch of its first product, the company is heavily investing in research and development to invent more sophisticated technologies that can potentially reduce the cost of its products, and hence the middle class can also purchase them (Mangram, 2012). This is also the only way the company can reach out to more customers (Liu and Meng, 2017).
However, the company already shares the highest position as a manufacturer of electric vehicles in the market because they are considered to be the most reliable among its competitors. In the previous report, while discussing the Business Model Canvas of the company, it was highlighted that the company has many novel practices such as controlling the whole supply chain that strengthens its position in the market. Moreover, since the company is highly investing in research and development, every new model is more reliable and advanced as compared to the previous one which shows its commitment towards innovation and growth (Gali, 2020). This is also the fundamental reason for the company’s huge success in the electric vehicles market. However, as shown in the BMC of the company, to capture the foreign market and become a global brand, Tesla needs to reduce the prices of its products significantly by investing in product innovation and reducing the risks of the supply chain. This way, the company can sustain its competitive position in the market.
Moreover, as Kamkoum (2018) observed, Tesla’s primary mission is to accelerate the transition of sustainable energy by building zero-emission electric sports cars. Therefore, once the company has made significant profits by selling these sports cars, it aims to manufacture affordable family cars for the middle class which is the largest fraction of the society. Kamkoum (2018) also analyzed that this price skimming strategy is the integral component of the company’s master business plan. For instance, the Tesla Roadster was an expensive model, while the profit generated from this model was used to offer a less expensive model, the Tesla Model S. And similarly, the profit made from the Model S was used to lower down the prices of the Tesla Model X which was targeted at a broader market.
However, the company is still unable to offer cheaper products and therefore many consumers prefer fuel-based cars because primarily they are cheaper. For example, as noted by Kamkoum (2018), an average of US$ 30,700 was paid by Europeans for new fuel-using cars but the cost of the Tesla cars was US$80,000 in the year 2016. Thus, this relative expensiveness of the Tesla cars is one of the major reasons why consumers still prefer to purchase fuel-using cars despite knowing their climate effects.
The second problem is the successful entry and the expansion of Tesla in the foreign market. The expansion of the company started initially in 2009 when it opened its first showroom in London and subsequently established its store in Munich a few months later. According to Kamkoum (2018), the company has sold over 186000 electric cars worldwide and has around 17782 employees, 272 stores in 26 different countries in 2016. But to increase its market share in the other countries, the company can utilize various acquisitions and joint venture options which are considered to be effective ways for rapid market entry, and gain immediate access to distribution systems and customers which collectively provide the company a unique recognition in the foreign market.
The acquisitions are the main source to reduce the cost of establishing the new infrastructure while joint ventures can help the company utilize the success of the local company for its benefits. However, this is the main factor that Tesla lacks in its strategy to expand the business to the foreign market. Therefore, Rexaline (2016) mentioned that the only acquisitions that the company has are with SolarCity and Riviera Tool which both are US-based companies. The limited number of stores in the foreign markets is also a hindering factor for the company’s competitive position globally. As of 2015, the company has only 164 stores outside the United States which are far less than its main competitors such as Ford which has around 8733 foreign stores (Kamkoum, 2018).
Therefore, the company needs to open several new stores in foreign markets to strengthen its position as a global brand. The greater number of stores in other countries can also help the company to increase the number of charging stations so that the customers do not have to travel long distances to charge their cars. Thus, the value proposition of Tesla according to Martins, Rindova, and Greenbaum (2015) and Chen and Perez (2018) are its highly efficient design of electric vehicles. But with the new methods implemented, the company can also market its products based on their comparatively lower prices as well.
The value integration of Tesla also involves a very high level of vertical integration towards battery and recharging network. This is primarily very helpful in reducing the cost between manufacturers and suppliers and also minimize the risks that are often associated with the lack of supporting infrastructure. But on the same hand, as noted by Movsesyan and Anokhina (2020), the high vertical integration strategy also involves many investment risks because the EV industry is very uncertain. Therefore, trade-offs and the transaction cost must be valued by the manufacturers to organize their processes more effectively.
This can be easily assessed that Tesla is operating only in the high-end segment in competition with many other established companies. This high-end market is very profitable for the incumbent firms as observed by (Thomas and Maine, 2019). But Tesla has successfully challenged the incumbent firms by using the Attackers’ Advantage strategy and establishing itself as a technological leader in the market. Therefore, the complementary assets of the company have become a novel value proposition for the company.
So, Tesla mainly covers the elite segment of the market for its electric vehicles (Yun et al., 2019). But in general, considering all the products of the company, the following are the specified customer segments of the company:
- Mid-price range
- Commercial Vehicles
- Green Community
- Fast sports car enthusiast
However, since the EVs are the main product of the company, lowering their prices and by entering the new market, the company can easily target the high-segment and low segment of the market.
One of the efforts to reduce the cost of EVs as Elon Musk has mentioned is to recycle battery cells at Tesla’s Nevada factory (Movsesyan and Anokhina, 2020). Similarly, by reducing the content of cobalt which is the most expensive material in the batteries, the cost will be reduced significantly. Moreover, to offer cars even at cheaper rates, the company plans to manufacture its battery cells at different factories around the world which will be completely automated to optimize the processes (Movsesyan and Anokhina, 2020). Currently, as Yilei (2020) has stated, the company manufactures the battery cells in partnership with Panasonic which is a Japanese company. Two other companies i.e., LG Chem from south Korea and CATL from China also supply cells to the company’s Shanghai factory.
Thus, the key partners of Tesla are its suppliers, governments, alliances, and charging points. But with more acquisitions and Joint Ventures as proposed for successful market entry, many new companies across the world will share the business in partnership.
The activities of the company will remain unchanged even after implementing the proposed strategies and these according to Stringham, Miller, and Clark (2015), include manufacturing and production of batteries and solar panel, research, and development, designing, building and maintenance, software development, and sales and marketing.
The direct-to-consumer model of the company is very efficient to build a strong relationship with its customers. Also, the free or low-cost charging station network provides great assistance to customers. However, with acquisitions and joint ventures, the company can easily earn the trust of its foreign customers.
According to Krommes and Schmidt (2017), the company’s resources which include advanced technology, design, engineering, software, and long-life battery systems will be now shared with many other companies to which the company will partner to capture the foreign markets.
Tesla uses stores, websites, conferences, and sales events to reach out to its potential customers and this will remain intact during future growth strategies.
The cost structure of Tesla will considerably be changed after joint ventures and acquisitions as more partners will now be investing in the companies’ core activities and consequently will share the revenue. However, the total cost of material, selling cost, restricting cost, cost of R&D and taxes will account for 81%, 13%, 1%, 7%, and 3% of the revenue.
The two primary segments of revenue streams of Tesla will remain automotive that includes direct sales from EVs, software updates and retail merchandise, and energy generation and storage that consists of sales from solar roof panels, etc. Yang et al. (2017).
As mentioned by Nieuwenhuis (2018), the implementation strategy of the company can include supporting the local entrepreneurs in combing the EVs technologies with the existing IC technologies in the rural areas around many regions of the world which in fact contain a very large proportion of the world’s population. He further stated that some materials that are the integral component of the current EV technologies will run short in a few years. So, constant research and development are needed to sustain the development and the adoption of EVs on the large scale.
Another significant barrier that a company can face in achieving its goals is the unchangeable behavior of the EV owners with regards to charging their vehicles (Schmidt, Staudt, and Weinhardt, 2020). Currently, most EV owners are charging their vehicles at homes but this needs to be changed. In this regard, the company needs to focus on more charging stations not only the destinations but also along the way. Charging stations have also been a platform to offer many other services as well. In this regard, the company needs to implement different strategies such as the discount of fuel, etc. to improve the stay of the EV owners at the charging stations. This will increase the overall revenue of the company (Schmidt, Staudt, and Weinhardt, 2020).
Similarly, with regards to establishing more and more charging stations, Elma (2020) highlighted the increased load on the local grid stations. However, using the local energy sources to provide the necessary electricity support to the charging stations is an effective way to minimize the load on grid stations and thus improve the supply of electricity by preventing different voltage fluctuations, losses, and system faults (Elma, 2020).
Moreover, as highlighted by Lee et al. (2020), since the home charging stations are now widely used by EV owners, supporting the development of the home location charging can be an effective strategy for the company. This becomes even more important where street parking is not readily available. Although this can be a challenging factor for the company, it is equally important for successful growth (Lee et al., 2020).
Conclusion and Recommendations
There are a number of factors that have contributed to the huge success of the company as an electric car manufacturing company. These include but are not limited to the direct selling model of Tesla, the significant support from the government to promote sustainable energy and transportation solutions, and the weak competition (Kamkoum, 2018). The direct selling model of the company has been extremely successful to maintain the quality of services and improve the customers’ confidence.
However, the company needs to establish more factories especially outside the United States, and open new stores and showrooms in a large quantity in the foreign markets. Moreover, the company needs to devise new strategies driven by cost optimization to mark its success in the developing countries because people in such countries already have a very low income as compared to the developed nations. This way the company can successfully achieve its mission of accelerating the transition of words towards renewable and green energy by operating in all parts of the world on an extensively large scale.
Furthermore, Noel et al. (2020) noted that the prices of EVs are likely to decrease in the future, what exactly is more difficult is to change the consumers’ preferences with regards to transportation. The main factor is that they are not only interested in the capital cost of the vehicle but also in its maintenance cost as well (Noel et al., 2020). Therefore, the company needs to use proper strategies to educate the people and build their necessary technical awareness to build their confidence in EVs. This is the only way that Tesla can achieve the most competitive position in the market by addressing all the problems simultaneously towards its future growth.
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Figure 1: Tesla BMC