Tesla Incorporation is an American company that was founded in 2003, and that has been in operation for approximately 15 years. It specializes in the manufacture and sale of electric vehicles, solar panels, and energy storage systems. It manufactures and sells photovoltaic panels through one of its subsidiary companies known as SolarCity. Since its founding, Tesla has grown immensely to become one of the leading manufacturers of electric vehicles in the United States. According to Elon Musk, the company’s CEO, Tesla’s main goal is to become the leading manufacturer of affordable electric cars (EVs). In the last decade, the company has achieved several milestones that have made it a key player in the EV industry. Its Model S, Model X, and Model 3 cars have garnered high sales that have enhanced its success. Tesla’s continued growth can be attributed to its business strategies, structure, and model.
Competitive Advantages
Tesla’s competitive advantages include the adoption of advanced technologies, diversification into other businesses, the creation of a supercharger network, superior designs, and an organizational culture that is based on honesty.
Adoption of New Technologies
Tesla has been described as a company that develops technology platforms for various applications. In that regard, its cars are superior to other EVs. For instance, the BMW i3, the Nissan Leaf, the Chevy Bolt, and the Mercedes B-class have been criticized for the utilization of old technologies that do not match Tesla’s (Thursby, 2016). The majority of functions in Tesla cars are controlled by specific software programs. This feature allows the company to continually collect and analyze data in order to enhance the performance of the cars (Thursby, 2016). This exploitation of new technologies gives Tesla an advantage of other manufacturers of electric vehicles (Wenkart, 2013). In 2016, the CEO announced that the company would use their advanced technologies to develop a ride-sharing platform for its customers known as the Tesla Network.
Diversification
Tesla is famous for its electric vehicles. However, it has diversified into other businesses including solar panel manufacturing and energy storage. The company also manufactures residential photovoltaic panels and lithium-ion battery energy storage (Wenkart, 2013). Other products include solar roof tiles, Powerpack batteries, solar panels, and the Tesla Powerwall (Thursby, 2016). The sale of these products has been highly successful. For instance, Tesla received orders of about $800 million after unveiling its Powerwall battery packs (Team, 2017). The production cost of the battery packs will reduce by about 30% when Tesla opens its Gigafactroy. The Powerwall and the solar roof tiles are used together as their functions are complementary. This integration has been compared to the iPhone, which incorporates features such as music, computer applications, and telephony into a single device (Thursby, 2016). Tesla is offering systems to enhance energy storage, and hopes to reduce the cost of production by increasing the demand for its products.
Supercharger Network
Charging the vehicles was one of the major challenges that Tesla had to overcome. Unlike other electric vehicle manufacturers, the company has created ubiquitous fast-charging stations for its customers (Chew, 2016). Other automakers have avoided this move thus giving Tesla a competitive advantage. The network comprises 480-volt supercharger stations that have the potential to provide a full charge in approximately 75 minutes (Chew, 2016). Tesla has created more than 1000 supercharger stations. In 2014, the company provided chargers to restaurants, resorts, and shopping centers that are more powerful than the typical chargers (Thursby, 2016). Charge locations are integrated into the vehicle’s navigation system so that drivers can find the nearest charge station in case their batteries run low.
Superior Designs and Honesty
Tesla, like Apple, has developed a reputation for outstanding products. For example, the Tesla Roadster changed people’s perceptions about electric vehicles. Prior to its unveiling, many people believed that electric cars were small and slow (Wenkart, 2013). The Model S has an excellent design, incorporates new technologies that improve safety and navigation, and it has received numerous awards for its unique design. Tesla’s reputation for excellence has enhanced the embracement of electric vehicles among the public (Team, 2017). The company is also committed to serving customers honestly and refraining from providing services for the sake of profits only. Tesla’s products are highly priced. However, they have a quality that matches the price.
A Key Strategic Option
One of Tesla’s key strategic options that give it competitive advantage is differentiation. In that regard, Tesla develops products that differentiate it from other manufacturers of electric vehicles (Halla, 2015). For example, its vehicles incorporate technologies that are environmentally friendly. The company has moved from internal combustion engines to lithium-ion batteries that store electric energy and so, protect the environment from pollution. This strategy allows Tesla to attract the growing population of customers who are looking for environmentally-friendly vehicles (Halla, 2015). The strategy also gives a competitive advantage because it focuses on the products’ unique qualities (Chew, 2016).
In addition, it attracts the early adopters of new technologies in the electric cars’ high-end market. In many cases, customers in this market are wealthy individuals who can afford to pay premium prices for innovative products (Team, 2017). The strategy has helped Tesla to grow and reduce the cost of production. This growth has led to a shift in strategy from differentiation to broad differentiation in order to target more customers in the automobile market (Chew, 2016). As mentioned earlier, Tesla has diversified its business operations to other areas that include solar panel manufacturing and energy storage systems (Chew, 2016). One of the strategic objectives is to increase its investment in research and development so that it can develop innovative products that will broaden its market reach and increase its brand value.
Justification
Companies implement the broad differentiation strategy when they have a unique product or service that is appealing to many customers regardless of its premium price. In this case, Tesla has a unique product that is different from those of its competitors (Halla, 2015). Its electric vehicles are unique because they are environmentally friendly and incorporate new technologies that make them safer, faster, and more efficient (Chew, 2016). Moreover, customers in the high-end electric vehicle market are willing to pay a high price in order to become early adopters of the new technology (Halla, 2015). The main focus of the strategy is market segmentation.
Advantages and Disadvantages
Advantages
The advantages of differentiation include buyer loyalty, premium prices, and the creation of barriers to entry. Tesla charges a premium price for its products, and so, it enjoys strong profit margins (Team, 2017). This implies that the company does not need a large customer base in order to make the business profitable. Product differentiation also creates customer loyalty. Tesla offers high-quality products that are unique. Therefore, it highly unlikely that satisfied customers will shift to other manufacturers because their products are inferior to Tesla’s. Loyal customers are not price sensitive and pay premium prices for products because of their superior qualities (Chew, 2016). Customer loyalty also makes it difficult for new companies to enter an existing market (creates barriers to entry). In that regard, customer loyalty will make it hard for other companies to enter the EV market and compete with Tesla (Chew, 2016). In the future, its name will be synonymous with quality electric vehicles.
Disadvantages
Disadvantages of differentiation include customers’ possible shift to cheaper alternatives, the unwillingness to pay more to support the strategy, and the risk of imitation from competitors. One of the main disadvantages of differentiation is that customers might not be ready to pay extra in order to enjoy the unique features that Tesla incorporates into its products to make them unique (Bomey, 2017). In addition, customers might go for cheaper alternatives. Price-conscious customers might not be willing to pay premium prices for products that they can get from another company at a lower price. Their focus is on the price of the product on not on its quality. Differentiation increases the risk of imitation from competitors. Tesla’s competitors might copy its car designs and adopt technologies similar to those incorporated in its products (Bomey, 2017). If that happens, the company’s products lose their exceptionality and its loyal customers stop paying premium prices for products that have lost their uniqueness.
Conclusion
In the past decade, Tesla has become one of the leading manufacturers of electric vehicles primarily due to its differentiation strategy. It manufactures unique products whose features are unavailable in similar products provided by other companies. The technologies applied and the availability of ubiquitous charge locations are the main sources of Tesla’s competitive advantage. Differentiation is beneficial because it creates customer loyalty and attracts a premium price for different products. However, customers might be unwilling to pay more in order to enjoy the unique features and the strategy increases the risk of imitation from competitors.
References
Bomey, N. (2017). Top four threats to Tesla’s plan for electric vehicle dominance. USA Today. Web.
Chew, W. (2016). Differentiation: How to win in a disruptive market. New York, NY: Write Editions/Tusitala (RLS) Pte Ltd.
Halla, B. (2015). Piecing together the Tesla strategy puzzle. Harvard Business Review. Web.
Team, T. (2017). How strong is Tesla’s economic moat? Forbes. Web.
Thursby, M. C. (2016). Technological innovation: Generating economic results. New York, NY: Emerald Group Publishing.
Wenkart, M. (2013). The Tesla motor’s way: How to build a car manufacturer from scratch. New York, NY: Books on Demand.