This article is part of our Business Strategies series, an insight and analysis into the makeup and model of some of the world's most successful startups.
In late 2018, Tesla Motors CEO Elon Musk revealed on Twitter that he was thinking about taking the company private. An investment firm, AKR Invest, pleaded with him to reconsider by making the case that selling at $420 a share would undervalue the company significantly.
Fast forward to a little more than a year later and Musk must be pleased that he ditched the idea. With company stock trading in the range of $800 to $900, AKR now anticipates that Tesla shares could spike to $7,000 by 2024. Too good to be true, or a realistic possibility?
Either way, Tesla has made a significant dent into the automotive industry, the energy sector, and even the way automakers sell cars. What started as a perturbed reaction to General Motors recalling its fleet of EV1 electric vehicles has transformed into a juggernaut that is selling cars, energy products and infrastructure across the globe.
So how has the company managed to achieve this? To answer this question, we've compiled an in-depth analysis of the Tesla business strategy – as well as what your company could potentially learn from it.
Vital Information
Andrei - stock.adobe.comTesla HQ in Silicon Valley
- Founded: July 2003
- Founders: Martin Eberhard, Marc Tarpenning, Elon Musk, JB Straubel and Ian Wright
- Headquarters: Palo Alto, CA, USA
- Current CEO: Elon Musk
- Global Employees: 48,000 (2019)
- Type: Public (Floated June 2010)
- Initial Funding: $7.5m in venture capital (February 2004)
- Key Products / Services: Electric vehicles
To accelerate the world's transition to sustainable energy.
To create the most compelling car company of the 21st century by driving the world's transition to electric vehicles.
History
Officially incorporated in 2003 by two engineers and named in honour of the legendary electrical engineer and inventor of the same name, Tesla underwent several funding rounds between 2004 and 2007. One of the earliest investors was former PayPal CEO Elon Musk, who was keen to develop the company's vision beyond just electric vehicles to renewable energy sources, too.
In January 2020, the company became the most valuable US automaker ever to exist (and the second most valuable in the world, behind Japanese car giant Toyota).
Tesla's Business Model
In general, experts continue to be bullish over electric vehicle (EV) dominance in the global auto market. A 2018 report by the International Energy Agency (IEA) forecasts that electric car ownership will rise from the current four-million mark to more than 120 million by 2030. To put it another way, EV prevalence will jump from 0.3% to approximately 7% of the global car fleet. Estimates vary between conservative and optimistic, but either way, the EV market will be integral to both the auto industry and the global economy in the coming decade.
There are three primary reasons for EV growth, of which Tesla is currently leading the way in terms of development:
- Consumer demands and customer expectations.
- Technological advancements in electric cars.
- Government regulations on safety and vehicle emissions.
However, it was not always thus.
When Tesla first opened its doors, Musk took a unique approach to sell electric automobiles: creating a sports car that could compete with gasoline-powered vehicles rather than a cheap, mass-produced vehicle. Musk explained that it would have been impossible for the startup to mass market its first product because it was never constructed, enduring several technology hiccups and possessing zero economies of scale. As a result, the company's first release was the Tesla Roadster, a high-powered performance vehicle powered entirely by a lithium-ion battery.
The Roadster proved a moderate success, shifting around 3,000 units before curtailing output in January 2012 and, with the infancy stage out of the way, Tesla was able to become an established brand that attracted both customers and capital. The company then evolved its business model to selling, servicing and charging:
Sales: Tesla is unique in that it sells its automobiles directly to customers without relying on dealers. It uses close to 400 company-owned showrooms and galleries in major urban centres around the world to boost product development speeds and improve the buying experience. Tesla has also utilised an online sales platform.
Service: Many of the Tesla-owned and operated sales centres are combined with service centres. Tesla also has a mobile technical service comprised of Tesla "Rangers", who travel to customer homes to assess and repair any issues. In another considerable advancement, Tesla's cars can also wirelessly upload data to the company so that remote technical support teams can view and fix malfunctions.
Charging Network: A common concern for the EV market is the power charging aspect. Tesla has developed a vast network of supercharging stations where owners can charge their cars for free. Tesla believes that these stations can increase the adoption rate for its EVs, which explains the growth in stations across the US, Europe and Asia.
Over the years – and in line with Musk's wider vision – Tesla has branched out from just vehicles. It sells parts and components to other automakers and retailers, including a range of home batteries, solar panels, full solar roofing and energy storage systems.
Value
EVs are nothing new and existed in various shapes and forms well before Tesla's existence; however, Musk was able to take a different approach to create value for the company and establish themselves as the market leader.
Through transformational leadership practices and a focus on engineering and design, Tesla has driven the advancement of a technology which is becoming ever more mainstream, and is tied into the core concerns of both consumers and governments. Tesla vehicles will no longer represent niche vehicles, but the groundwork of an infrastructure that will change unimaginably over the next 30 years.
Key People
Elon Musk | Co-Founder and CEO
Although only deemed a cofounder as a result of a 2009 legal settlement, Musk is undoubtedly the face and driving force of Tesla as we know it. His visionary approach to leadership and management has created massive growth and, despite his increasingly bizarre personal behaviour, it is safe to say that Tesla stocks would plummet if he were to step down as CEO.
Jeffrey B. Straubel | CTO
Unfortunately for Tesla, Straubel – who served as its chief technology officer – departed the company in July 2019. He was an essential figure in the company, overseeing the technical and engineering designs of all the company's cars. While he still serves in an advisory capacity, Straubel was responsible for day-to-day technological evaluation, research and development and technical diligence. Put simply, if you drive a Roadster, Straubel's imprint is all over it.
Martin Eberhard and Marc Tarpenning | Co-Founders and Financers
Martin Eberhard and Marc Tarpenning incorporated Tesla Motors in July 2003 and financed the firm until it received Series A venture capital funding. Suffice it to say, these men laid the groundwork for Musk, Straubel and others to make Tesla's business plan of commercialising electric cars a reality. They had active roles within the company for several years before their ousting in 2008.
Tesla's Branding Strategy
What would you say about a company with a market capitalisation of $153bn and an advertising budget of $0? That's right. Tesla successfully sells cars worth $100,000 to $250,000 without any formal marketing plan. Compare this to Ford, who spent $2.3bn on advertising in the US in 2018, or Honda doling out $1.39bn to reach the public. So, how is Tesla able to do it?
The first component of this strategy is that the company plays hard to get. It's the classic exclusivity play: the more difficult it is to get your hands on a Roadster, the more you want one. To illustrate this further:
- Every car is built to order; Tesla does not maintain an inventory of vehicles, negating the need for forecasts.
- As noted, there are no dealerships.
- A deposit of $100 is required (this used to be as high as $5,000).
- Customers are required to book a test drive before buying.
- Most buyers do not get to the see vehicle before they buy it.
- Customers must wait several months before the vehicle is delivered.
Ultimately, Tesla makes it seem like it does not want your money – an effective if somewhat unorthodox brand strategy.
The company also maintains a referral program for its cars and solar products. Anytime owners refer potential customers, they receive awards when they buy a Tesla product (points, cash reward, or a contest to win a car), inspiring further loyalty to the Tesla brand.
Another critical element of Tesla's branding endeavours is the cult of personality around Musk himself. His tweets generate headlines, and his appearances in front of television cameras are usually must-see. Whenever there is a Tesla product launch, it becomes a global event rather than a public relations campaign, which elicits the kind of free publicity that many companies can only dream about.
Competition
As the world starts coming to terms with the impact of carbon emissions and the viability of EVs as a credible long-term alternative, every auto manufacturer is now seemingly delving into the EV market, attempting to take a slice of the pie. It is a wise investment for every company to make, considering the bullish projections for the industry, but will anyone topple Tesla from its throne?
While it can be hard to predict accurately and time the market, some businesses can realistically go toe to toe with Tesla, especially over a long-term trajectory.
Here are some brands to file for future reference:
General Motors: GM and its shareholders have accepted that the company's Bolt and Volt models will not compete with Tesla today, but the brand might rival that of Tesla tomorrow. Not only is it investing in both EVs and autonomous cars, but GM is also preparing to disrupt transportation (as evidenced by investments in Lyft) and manufacturing with its Cruise model. In the next decade, GM will likely be as attractive as Tesla to consumers and traders.
Volkswagen: The Volkswagen Group is going all-in on electric, promising to deliver 70 new EV models in the next decade. The 80-year-old industry giant may not be trying to take on Tesla, but it could rival Musk's company over time by homing in on the mass-market aspect.
Nio: Although unfamiliar to many, this Chinese firm is generating a lot of buzz in venture capital circles for its pioneering technology. The company has experienced a lot of success as of late, including a 35% sales surge, a partnership agreement with Intel, and critical acclaim from industry experts. Despite Tesla's market play in China, Nio may rise to be the chief player in the years to come.
Tesla's Company Culture
Over the years, Tesla has been known to miss quarterly targets, oversell on its promises, and experience numerous technological mishaps. Rather than dwelling on the negatives and apologising profusely, though, the company has turned these hiccups into a positive. As Tesla's corporate strategy states: "We do not cut corners, and we do not settle. No forecast is perfect, but try anyway. We constantly strive to improve the accuracy of our forecasts as well as the reliability and service with which they are delivered. Respect and encourage people."
On the one hand, this emphasises how the company strives to be the best at what it does. On the other, however, it admits that its forecasts need improvement, but that it only misses these estimates because it does not cut corners or settle for anything but premium quality.
Meanwhile, Tesla's corporate culture encourages autonomy among its workforce, fostering an environment of innovation to search for ideal solutions to a whole host of problems related to automobiles, energy generation and industrial storage. Many company reviews by former or current employees typically state that it is a great place to work with competitive pay, plenty of benefits and perks and a positive atmosphere.
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Tesla Motors can serve as a corporate role model for any young entrepreneur or large business that is looking to turn things around. A lot of Tesla's success can be attributed to Musk's innovation and outside-the-box thinking, but the company can only go so far as the people it employs, which is a key takeaway.
Indeed, as Musk has stated repeatedly, practical skills and critical thinking supersede any piece of paper. If you are a technology firm or you are solely focused on the development of a single product, then this is wise recruitment advice to follow. There are also numerous leadership lessons to learn from Musk's tenure, including the idea that company management is about fine-tuning, adapting, innovating, creating and, most important of all, listening.
Whether it is a new product or a feeling of exclusivity, Tesla checks off all the boxes of how 21st-century businesses should and could operate, and there is no reason why your enterprise cannot follow suit.
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