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Tesla: Business Model and Strategic Analysis
Tesla: Business Model and Strategic Analysis
Analysis
Apr 21, 2020
Abstract:
Tesla has stated that its mission is to accelerate the world to sustainable energy. The company
started its innovation of the automobile industry as a niche differentiator, offering market-
disrupting products in the form of luxury electric vehicles. Model S and Model X are examples of
products that have disrupted the automobile industry through their environmentally friendly
differentiation. Elon Musk and the company have since transitioned from a niche differentiator to
a broad differentiator business strategy through the implementation of lithium battery products
and the acquisition of the company SolarCity. Tesla’s investments in automation and research
were a liability in early 2015, however, they became an asset in 2018–2019 due to their long term
sustainable competitive advantage in terms of product quality. Their product differentiation comes
in the form of customizable cars, regular software updates, solar panels, supercharging
compatibility, and self-driving features. Built-in relationships with material suppliers have scored
Tesla lithium deposits, decreasing the material costs of their highly automated assembly lines.
Sales are an innovative factor in Tesla’s marketing division, offering online customizable orders.
Marketing is organic, as Elon Musk’s twitter accounts for the majority of their earned media, with
zero paid advertising. Their HR department prioritized productivity, and hence Tesla has an
intense work culture and high-level TQM metrics. Tesla’s broad differentiation strategy is a long
term play, with a focus on electric automobile automation, battery technology, and
According to the About Tesla page, Tesla’s mission is to accelerate the world’s transition to
sustainable energy. Throwing back to 2008, Tesla introduced its very first cutting-edge and high-
performance electric sports car — Tesla Roadster. Elon Musk, the CEO of Tesla Motors and Co-
Founder, stated that “Tesla Motors is to help expedite the move from a mine-and-burn
hydrocarbon economy towards a solar electric economy, which I believe to be the primary, but
not exclusive, sustainable solution”(Musk, 2006). The Roadster is based on the Lotus Elise
chassis. It can travel 244 mi on a single charge with its lithium-ion battery pack, priced at
$109,000. Tesla was first introduced into the automobile market by targeting high-tech car
segments as a Niche Differentiator, with its sustainable competitive advantage to distinguish itself
from the traditional automobile makers with sustainable, eco-friendly electric cars.
In the meanwhile, Musk also pointed out that “Tesla is to enter at the high end of the market,
where customers are prepared to pay a premium, and then drive down market as fast as possible to
high unit volume and lower prices with each successive model”(Musk, 2006). In other words,
premium buyers and low-price buyers in the automobile industry. Based on that generic strategy,
Tesla differentiates itself among the competitors by increasing its research and developing
investment every year to develop a highly innovative unique ecosystem for increasing returns to
an economics scale.
In addition, Tesla provides a variety of products and services all over the world, including
premium electric sedan Model S, Model 3, Model Y, an SUV version of Model Y. They have a
range of 250 miles to 370 miles, plus come with different battery performance and customizable
seats and storage. They also sell solar roof solutions, solar Panels powerpack, megapack batteries,
and some other related products. Aligned with the broad differentiation
strategy, SolarCity merged with Tesla, Inc. to better build up a clean-energy ecosystem. Musk
said, “we believe quite that Solar city’s technology on the Silevo Front added to Panasonic’s cell
technology will make it the most efficient and ultimately the cheapest solar cell in the world”
(Pressman 2016). To capitalize on their competitive advantages, Tesla will reduce its material
cost on batteries via Research and Development and Automation to drive down the market with a
In general, Tesla increased its investment in the Research and Development department.
According to the article “How Does Tesla Spend Its Money” published in Forbes.com, Tesla kept
investing more in the past two years. “Tesla’s R&D Expenses grew from $0.7 billion in 2015 to
about $1.5 billion in 2018. We expect R&D spending to fall to about $1.4 billion over the next 2
years.” However, with huge investment in research and Development, Tesla still reports a loss up
to 2015.
Tesla is playing the long game with Research and Development, focusing on Automation,
Material Costs, and Software Updates. “We believe that an approach based on advanced AI for
vision and planning, supported by efficient use of inference hardware is the only way to achieve a
general solution to full self-driving.” Their huge spending in long term Research and
Development distinguishes them from the market of motor vehicles. “one of the company’s
strategic objectives is to increase investment in research and development (R&D) to develop new
products that satisfy market demand for enhanced renewable energy solutions, such as batteries
for various purposes’’, Christine Rowland claimed in an annalistic report about Tesla’s strategy
on Panmore Institute. However, electric vehicles are being adopted by many other companies as
well, and Tesla wants to sustain their competitive advantage by making their products hard to
imitate. The heavy spending in Research and Development is aimed to develop more
sophisticated technology for their products, increasing the barrier to entry in the electric vehicle
and battery markets. The significantly higher amount of investment in R&D compared to other
companies in the market granted Tesla the position of being the innovator and the leader of the
market, which keeps Tesla in the niche position of having a sustainable competitive advantage in
Tesla’s autopilot feature which differentiates itself from the current automobile market. Within
the Diamond Strategy, the staging of software update packages lowers the perceived age of Tesla
car models. Software iterations differentiate their products from the market by enabling a
customizable UI interface for the end-user, plus adds the side benefit of self-parking and self-
driving features. Automation and Customization research has been a vehicle for their entrance to
the automobile arena, lowering the costs and increasing Tesla’s position as the leading electric car
seller. Lithium batteries have also been an innovative area for Tesla. Software updates have
caused an increase in battery performance, but battery hardware technology is arising from
Tesla’s RnD spending, allowing for more range out of their niched, electric engines.
Production
In terms of production, Tesla manufactures all of its vehicles in Fremont, California. Most
recently, they have built a sort of “tent” or factory within the Fremont headquarters in order to
accommodate the production of 5,000 model 3 vehicles per week. Additionally, they produce
their own key components of each car including the electric motor, the battery pack, and the
charger. Aside from its Fremont headquarters, Tesla manufactures its lithium-ion batteries in a
subassembly factory in Nevada. They also buy necessary manufacturing parts across the U.S.,
Europe, China, and varying locations. For instance, Tesla often purchases its lithium supply from
China and Australia. Furthermore, lithium prices have been steadily increasing as electric vehicles
become more popular. Tesla now has a slight competitive advantage over various companies due
to their secured relationship with a Ganfeng lithium supplier. Tesla is guaranteed 20% of their
needed supply of Lithium throughout 2020 and possibly for years to come.
Within the Five Forces frameworks, their production tactic of supply guarantees reduces the
leverage of suppliers in addition to automation and in-house parts. Tesla minimizes the leverage
of buyers by offering customizable automobiles via their production techniques. Within the
SWOT analysis, Tesla replaces its previous supply chain weakness/threat (capacity limits) with a
effectively and efficiently crafting their automation performance. For instance, Tesla’s automation
systems are able to help make entire workflows, learning, and adaptation automated. Additionally,
automated robots are implemented to assist in the assembly line, helping with things such as
automated stamping, painting, welding, and even final assembly. However, while machines and
robots can be beneficial to the production sector, Tesla also replaces robots that are slow and
underperforming with human employees. Overall, automation is one of Tesla’s many strengths
that sets them apart from other companies and aid them in being able to supply large quantities of
custom vehicles that are necessary to keep up with the high demand.
Human Resources
Human resources are utilized to fulfill their strategies for production effectiveness and efficiency
through hiring the people who carry the same vision of the company, having a fast-paced, long
hour work environment, intense recruitment and training process and their continuous expansion
sustainable energy” by hiring the world’s best and brightest people that share the same passions in
changing the world and are willing to work in their fast-paced and innovative culture. Pauline
Meyer of Panmore Institute mentions that Tesla’s strategy is to keep innovating continuous
increase growth in the global market of electric cars. By achieving these goals, Tesla instills an
organizational culture that encourages its employees to keep being creative and innovative to
improve their technological capabilities in which employees are rewarded and compensated.
The company demands long hours to achieve production efficiency. Elon Musk admits, “the
Model 3 production ramp was only made possible due to “excruciating effort” and “hundred-hour
workweeks by everyone.” According to Justin Alvarez, this intense work culture attracts young
applicants because it provides a flat organizational structure that allows anyone regardless of any
background the opportunity to be heard and express their creative ideas which not a lot of big
companies exercise. Through their increasing ambitious innovation targets, the company expects
The company also undergoes an intense recruitment process. According to ex-Tesla recruiter
Marissa Peretz, the hiring process starts with background screening of each candidate’s
background, accomplishments, and technical abilities, then asking them about the company’s
cultural questions, the next step is onsite with interviews with Tesla’s employees and undergoing
technical and engineering tests and finally is to get the approval of the CEO. Meyer says, Tesla’s
HR management also provides a training program to orient employees about their organizational
culture and how it is an important factor in their business strategies. By doing this, they take
The company aims to expand its market worldwide by establishing new offices and facilities upon
which as part of its strategy of being a global leader in the automotive industry. In their career
page, they state that they aim to solve the world’s problems by hiring talented individuals
worldwide and building an inclusive environment. This is their strategy for production efficiency
to push their company into the global market, by opening offices and hiring employees from
around the world rather than just relying on their local bases.
Recently, Tesla is experiencing a high turnover rate among its executives. According to
AllianceBernstein, Tesla has an annual turnover rate of 44% during the past nine months which is
dramatically higher than other companies according to analyst Sacconaghi. They are also
experiencing a decline in external hires. According to Matousek, “Tesla has lost external hires and
executives in particularly important roles, like chief accounting officer, general counsel, and head
of global security, at abnormally high rates.” The high turnover rate is possible through the effects
of the demanding work culture and the pressure to keep innovating. According to the data
gathered by Fruhlinger, Tesla’s hiring got declines in spite of turnovers and layoffs and limited
open positions are not being filled. They are also focusing on hires in their Fremont headquarters
Tesla’s products are known for their outstanding performance, sustainable energy, and unique
design. However, balancing and improving productivity without sacrificing quality has been a
huge challenge for Tesla in the past. Overpromising and under-delivering problems happened
frequently in the early stages. Reliability has been a huge factor for customers purchasing
decisions according to Consumer Reports 2015 Annual Auto Reliability Survey. Frequent
worldwide recalls further confirmed the poor quality control. To improve productivity and
quality, Tesla invested a lot of money on factories and automation. Instead of outsourcing from
parts suppliers, Tesla directly participated more in manufacturers. Tesla owns several Giga
factories worldwide, Shanghai Giga factory has 150K already and Tesla will deliver 500k+ cars in
2020. Instead of using different sizes of batteries, Tesla uniformed batteries size in the Model 3
and simplified processes. This shift increases the administrative cost but improves quality and
productivity.
Marketing
Tesla uses the four P’s in their marketing strategies to achieve their corporate objectives in their
energy storage, and solar panels. The company also adds new products gradually. They also offer
solar panel installation services and batteries for home and industry. Tesla is focusing more on its
electric vehicles as they seek expansion as a multinational and global company because of its
Place. The locations where they display their products and services have been the same over the
years. They are found mostly in company-owned stores, official company websites, company-
owned service centers, and charging stations. They are also located in some mall locations for
easy public access. This acts as a showroom and to also promote their products through car
displays in these public areas. Tesla has its own service centers for repairing and maintaining their
customer’s cars. This also adds to its sales strategy in terms of them only handling the services of
their cars. Tesla utilizes its media presence and website to offer their online purchasing
Promotion. Tesla’s promotion relies primarily on viral marketing but it also utilizes personal
selling, public relations, sales promotion, and direct marketing. According to Daniel Kissinger of
Panmore Institute, “the Tesla Model S for Kids is largely promoted through viral videos on social
media, thereby also promoting the company’s product mix.” They leverage social media as a
prime earned media tactic. CEO Elon Musk engages with his loyal 17.9 million followers on
Twitter and shares tweets that are often casual by taking advantage of memes and personifying
the company’s brand image. He is also open about the failures of the company which makes the
company personable gains the interest of customers. Tesla uses public relations by building the
support sustainable energy. They make use of sales personnel in their store locations for personal
marketing and direct marketing to promote their components and batteries. According to
Marketing Manage Anna Melton they also make use of referral campaigns as promotions. She
says, “You can get exclusive benefits with a personal referral code. From charging points, Model
S’s for kids to sporty alloys, extended warranties and even solar panels, it’s fair to say it certainly
pays to refer your friend to Tesla.” Tesla does not invest too much in advertising because their
promotional strong points are word of mouth due to their strong brand identity from its media
Price. Tesla’s pricing supports their profits and customer’s perception. They make use of
premium pricing primarily when the company was starting out as a niche differentiator. As they
were transitioning to a Broad differentiator strategy, they made use of both premium pricing and
customizable price points for their selection of cars. Premium pricing makes use of high price
points upon which customers value high performing technologies that cannot be found in any
other products out in the market. They also make use of market-oriented pricing where it makes
us of lower pricing that is used with their newer car model 3 and their other products such as solar
panels and their services. All of their transactions are only done online which is unique to other
car companies and this is also a strategy to lower the selling cost.
Recently, their strategy is entering the global market. They are opening new locations, expanding
their promotions and they are developing new unique products that will attract customers and
generate sales. They are currently forming new relations with other companies to expand their
business ventures. Tesla avoids the use of intermediaries as they prioritize the Direct-to-
Consumer strategy to aim better service delivery and cost minimization. They have full control
over their distribution channels which are their online website and company-owned stores to
process their sales. B2B markets could be lucrative for Tesla in the future.
Conclusion:
Tesla started as a luxury car niche differentiator and is now driving down the market with a broad
differentiator strategy. The company uses its earned media and online sales sites to stage its
marketing campaign, while automation, supplier relations, and research differentiate their
products. Their SolarCity acquisition was a significant move, allowing for their movement into
other markets such as solar panels which are also eco-friendly. Effective HR and TQM tactics
have provided the company with an innovative, hard-working culture that drives their
performance in the respective markets and arenas. As economic success provides the company
with positive cash flow and tremendous momentum, Tesla continues to pursue its mission: