What Makes Tesla’s Business Model Different?

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What Makes Tesla’s Business Model Different?

The market for all electric automobiles is expanding. There are several causes for this, including new restrictions on car safety and pollution, technology advancements, and altering consumer expectations. However, Tesla Motors Inc. (TSLA) and its unique business strategy are responsible for most of the public acceptance and enthusiasm for electric vehicles.

Elon Musk, Tesla’s creator and CEO, founded the firm with the goal of “accelerating the advent of sustainable transportation by bringing attractive mass-market electric automobiles to market as quickly as feasible.” This objective is the foundation of Tesla’s profitable business strategy.

Key Takeaways

  • Tesla’s business strategy is not based on franchised dealerships, but on direct sales and servicing.
  • Tesla’s business strategy prioritizes the installation of charging stations. This might be the most significant barrier to the widespread adoption of electric automobiles.
  • Tesla’s business model has been expanded to include energy storage devices for households and businesses.

Tesla’s First Product

Tesla takes an unconventional strategy to market entry. Instead of attempting to make a reasonably inexpensive car that could be mass-produced and marketed, it chose the opposite strategy, concentrating instead on building an appealing automobile that would generate demand for electric cars.

Tesla CEO Elon Musk said regarding the business’s objective in a blog post: “If we could have [mass marketed] our first product, we would have, but it was just impossible to do for a startup company that had never manufactured a vehicle and that had one technical iteration and no economies of scale.” Our initial product was going to be costly regardless of how it appeared, so we opted to develop a sports vehicle since it seemed to have the greatest chance of competing with gasoline alternatives.”

As a result, Tesla introduced the Tesla Roadster, the world’s first high-performance electric luxury sports automobile. Before ceasing manufacture in January 2012, the firm sold around 2,500 Roadsters. Not a figure that would make anybody at General Motors nervous.

The Next Stage

Tesla’s business strategy was strengthened once it established its brand and developed and delivered its prototype vehicle to the market. Tesla’s business strategy is built on three pillars: selling, maintaining, and charging electric automobiles.

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Direct Sales

Unlike other automobile manufacturers, Tesla sells directly to people rather than via franchised dealerships. It has established a worldwide network of company-owned showrooms and galleries, the most of which are located in metropolitan areas.

Tesla thinks that by controlling the sales channel, it would be able to accelerate product development. More significantly, it improves the client purchasing experience. Tesla showrooms, unlike automotive dealerships, have no possible conflicts of interest. Customers solely deal with Tesla-employed sales and service representatives.

As of May 25, 2022, Tesla has 823 sites worldwide, including showrooms, Service Plus centers (a mix of retail and service center), and service facilities. Tesla has also used Internet sales, allowing customers to personalize and buy a Tesla online.

Home Services

Tesla employs Mobile Service Support (previously known as Tesla Rangers) in select places, who are mobile technicians that conduct home visits. The service is sometimes provided remotely. The Model Scan electronically uploads data, allowing professionals to examine and repair various issues without ever physically touching the vehicle.

The Supercharger Network

Tesla has built its own network of over 30,000 Global Superchargers, allowing drivers to charge their Tesla cars in around 15 minutes for a fraction of the price of gasoline. The goal, of course, is to accelerate the adoption of electric vehicles by making it cheaper and simpler to maintain them.

Tesla’s Models

Tesla made its debut in the market with the sporty Roadster. When Tesla released the Model S vehicle in June 2012, it discontinued production of the Roadster.

In September 2015, Tesla started shipping its first SUV, the Model X.

The first Model 3 deliveries began in July 2017 as Tesla’s foray into the cheap automobile segment. In 2022, the basic model will cost $48,490.

$200,000

The starting price of the supercharged Tesla Roadster 2023, billed as “the fastest automobile in the world.”

Tesla has merged several of its sales and service locations, which include charging stations. They feel that building a new service center correlates to growing client demand. Customers may charge their cars or have them serviced at the service centers or Service Plus sites.

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Tesla also manufactures an all-electric Semi Truck. The vehicle consumes less than 2kWh every mile of travel. The business says it can already go 400 miles on a 30-minute charge and plans to increase it to more than 600 miles in the future. UPS was among the firms that placed pre-orders for the vehicle, which will be available in 2019.

Tesla’s newest model is a supercharged version of the original Roadster, which the firm says is the “quickest automobile in the world,” capable of travelling from zero to sixty in 1.9 seconds. The new Roadster will be available in 2023, with a starting price of $200,000. A new Roadster may be reserved for a $5,000 initial card payment and a $45,000 wire transfer, which is required within 10 days after the original payment.

Other Tesla Products

As previously stated, Tesla’s objective is to “accelerate the advent of sustainable transportation.” Tesla offers powertrain systems and components to other automakers to that purpose.

It launched the Powerwall series of home batteries in April 2015, which act as energy storage devices in homes or businesses. They are designed to be connected to a solar energy system and utilized as backup power when electricity is off or peak demand is high. Tesla also offers solar panels and complete solar roofing, which is a roof composed entirely of solar panels but still seems to be a roof.

Tesla, like its competitors, provides financial services such as car loans and leases. It used to provide a resale value guarantee clause for various credit programs. This gave some downside protection on the value of a car if the client wanted to resell it.

Is Tesla a Tech Company?

Tesla is seen by many financial experts and investors as a technology firm rather than an automotive company. At least, that’s how they explained its stock price skyrocketing by more than 300% in a single year beginning in 2013.

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Publications tried to draw parallels between Tesla and firms in the technology sector that saw comparable growth rates. Slate, an online journal, even carried a story comparing Tesla to Apple Inc. (AAPL) and Alphabet Inc. (GOOGL).

Back then, Morgan Stanley analyst Adam Jonas, who has been a Tesla bull from the company’s inception, set a price objective of $103 for the stock “after full maturity.” TSLA was trading at $661.58 on May 25, 2022.

There are significant parallels between Tesla and the IT industry. Tesla has adopted the tech industry’s disruptive ethic. Tesla, like other internet businesses, is determined to disrupt established business practices in the staid automobile sector by selling directly to customers. Its product pipeline and founder elicit a devoted following comparable to that of legendary IT businesses such as Apple.

And Tesla investors, like investors in many other technological businesses, were patient over a protracted period of quarterly losses. They were eventually rewarded: Tesla turned a profit for the first time in fiscal year 2021.

The Bottom Line

This is the most significant barrier to widespread adoption of electric vehicles: it cannot occur without on-the-go charging infrastructure. Tesla intends to expand its network of Supercharger stations in the United States, Europe, and Asia.

Tesla did not create the electric vehicle or the premium electric vehicle. Tesla, on the other hand, created a successful business strategy for delivering enticing electric vehicles to market. Building a network of charging stations was part of the effort to address one of the most significant barriers to the adoption of electric vehicles: refilling on long journeys. Tesla’s unusual business plan, which includes maintaining control over sales and servicing, is one of the reasons its stock has risen since its IPO.

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