Tesla is a rising champion in theautomotive industry and this paper focuses on analyzing what makes Tesla growso significant in the short amount of time and its strategy to compete in thevery competitive market.
Automotive industry is a red ocean filled with strongcompetitors. Tesla which is a newcomer in the industry and just founded in 2003entered a niche electric car market which has big potential in the futureautomotive Industry.In the current electric carindustry some of the strong players such as BMW, Toyota, Volkswagen have theupper hand due to the long experience in the automotive industry, compared tothem Tesla is still very new.
Huge car manufacturer likeVolkswagen have also started producing electric car which is E-Golf, anelectric version of VW Golf. Volkswagen announced that it isgoing to double their productioncapacity in the VW factory in Dresden. Production will graduallyincrease from 35 to 70 vehicles a day starting in March 2018, the automakeralso announced. The plant in Dresden will add a second shift to accommodatethis change. (Lambert and Lambert, 2018)According to Voigt, Buliga and Michl (2017), until the year of 1990s, most big players in automotive industry sawno big need to developelectric vehicle technology, largely due to low oil prices and facileenvironmental policies.
By the turn of the millennium, some car manufacturers,for instance GM, made initial attempts to introduce environmentally friendlyvehicles, such as the Chevrolet S-10 Electric. Such projects mostly failed, dueto a lack of market driving factors. Themost significant among them was the lack of good performance batteries and rechargingstations. However, someof those projectssucceeded.
Some electriccars such as the Nissan Altra, and hybrid cars such as the Toyota Prius and the HondaInsight found a good position asthe earlyadopters. The higher sales numbers of hybrid cars compared to purely electric cars were largely due to the higher performanceof the hybrid’sinternal combustion engine, these were able to reduce the biggest disadvantageof electric vehicles which is its shorttravel range on one charge.During a short period oftime compared to its competitors, Tesla has done much more than any other car manufacturer has. One of the proofscan be seen from a data obtain by McCarthy from Statista (2017) about Tesladominated the United States electric vehicle sales share based on unit in theperiod of January until June 2017. Figure 1.
US Electric Vehicle SalesShare; Source: McCarthy, 2017In November 2017, Tesla launchedits new generation two roadster. Tesla wantedto create an electric roadster which can beat gasoline sports car. He claimed the base model willdo accelerate from 0 to 60 in 1.
9 seconds andthe top speed will be above 250 miles per hour. The Roadster has a 200kWh battery pack and a620-mile range every charge, or over 1,000 kilometers. (J. Hawkins and Warren, 2017).1. Tesla’sSecret for its Tremendous Growth in a Short TimeThe Tesla’sCo-Founder, Martin Eberhardnoticed that people did not buy hybrid cars such as the Toyota Prius just to save money on gas, but it is because theycare about positive environmental impact by usingthe car, they are shifting to more the eco-friendly lifestyle. Tesla’s founders came to believe that theycould begin by addressing this potential in the niche market segment and only subsequently address themass market through more affordable electric cars.
If any Tesla could have achance on the market, it first had to reach early adopters, in order to makeelectric vehicles desirable to the mainstream. Tesla’s business model wastherefore primarily triggered by an emergent demand for high-performance electric vehicles. At thesame time, the founders envisioned the company’s evolution towardsmass-producing cost-effective models.
(Voigt, Buliga and Michl,2017) 1.1Tesla’sGrowth Driver Analyzed with VRIO FrameworkWhat can be said, however, is that during short period of timecompared to its competitor, Teslahas done much more than any other car manufacturer has. Teslais a rising champion in electric vehicle industry. We can prove it by lookingat its uniqueness and its competitive advantages by using the VRIO framework. VRIO is used to assess thesituation inside the company and its resources,andwhich part of it has possible potential for improvement. The tool whichis called VRIO framework was originally developed by Barney, J. B.
(1991).VRIO framework is one of many frameworks or tools which can be suitable toidentify what makes successful growth of the company. Resource Type Valuable Rare Costly to Imitate Organized Competitive Advantages? Products (Electric Car & Battery) Yes Yes Yes Yes Sustainable Competitive Advantages Production Plants YES Yes Yes Partially Potential Competitive Advantages Sales Team and Procedure YES No No Partially Potential Competitive Advantages Management of TESLA YES YES Yes Yes Sustainable Competitive Advantages Table 1: VRIOFramework on Tesla’s Resource; Source: Author’s own illustrationValue: Tesla’s resources are all valuable.
Tesla’s production plants canproduce high tech electric car and efficient battery are solving major problems for the humanity such as reducing reliance on fossil fuels, itsclean energyproducts can become perfect with improved technology and solve energy demand problems for the entire world.Their sales procedure is sell and produce by order. Due to high demand, theyneed to increase the production plant capacity. Rarity: Tesla’s high end technology such as battery which is patented and ongoing R&D and also productionplant to develop innovative and improved alternative energyproducts such as cars and batteries can be considered rare.Imitability: It is costly and difficult to imitate Tesla’s uniquetechnology,manufacturing strength, R capabilities and it isnot easy to find the CEO which has leadership skill like Elon Musk. Tesla has spent huge amount of resources and effort to reach this current stage which is going to be difficult to copy by other competitor in theautomobile industry.
Organization: Tesla’s utilization of its battery efficiencyand the intangible resources like the corporate culture lead by the CEO aregood enough however the production plan and sales team are not fully organizedyet, as we all know they have problems with supply and demand of the electriccars. In the future when they are as big as Volkswagen or Toyota, they can be areal giant in this industry and they can mass produce their electric car. Tesla’s strong leadership, organizational cultureand practices indeed makethe company capable to obtain sustain competitive advantage by exploiting opportunities in the alternative energy segment. Tosum up, their products and management culture are sustainable competitiveadvantages but their production plants and sales team need to be improved.
1.2 Tesla’s Business Model ValueProposition : Tesla offers something more than the competitor can offer which isLuxury electric car with high performance (high speed, long battery life, fastcharging, infrastructures such as charging stations distributed in variouslocations. Key Partner and Activity : Panasonic and Tesla has partneredsince the beginning of 2017, the partnership aims to produce new batteries which areslightly larger size in size than the ones it has been using in order to increaseefficiency and lowering the cost. (Fehrenbacher, 2017)Resources : TeslaGigafactory, Tesla with the help of Panasonic planned production rate of 500,000 cars peryear by 2018,High Tech Research and development in Silicon Valley.
Customer Relationship: PersonalAssistance, strong engagementCustomer Segments: Niche market for the electric luxury carChannels and Revenue Streams: Tesla has Online store in the teslawebsite for the customer in order to purchase the car, accessories or evenapparels. Tesla gained the revenue streams for these. 2.3 Tesla’s StrategyObserved by Porter’s Generic StrategyPorter’s GenericStrategy describes how a company pursues competitive advantageacross its chosen market scope. There are cost leadership(narrow/focus or broad), and differentiation (narrow/focus or broad). Figure.
2 Porter Generic Strategy; Source: Author’s own Illustration (using Porter’sGeneric Strategy Canvas created in 1980.)From what is look like, Tesla’s genericcompetitive strategy is using differentiation strategy (Initially it usesnarrow or focus differentiation and now it is starting to move to broaddifferentiation strategy). Tesla has a big competitive advantage by developingelectric cars and also luxury electric cars which differentiate the companyfrom other firms in the automotive industry.Tesla’s electric cars are also has ahuge competitive advantage because they are using electric as the energy sourcewhich is more environmental friendly technology compared to combustion enginetechnology in ordinary carsBy using this Porter’s genericstrategy to observe Tesla’s mission, we can see that Tesla is able to attractpotential customers especially the guys who are interested in environmentallyfriendly products. Initially, Tesla used to choose differentiation focus as itsgeneric strategy before, the company focused on the uniqueness of its productswhich are electric cars and the battery. It also specialized as the earlyadopters in the mid to luxury car market. As this paper is written, Tesla has grown tremendously and it haspotential to reduce production costs.
Tesla’s Porter generic competitivestrategy will possibly shift to completely broad differentiation. The decliningproduction costs after doing more sales until it passes the breakeven point andget profits. In addition to that point, Tesla’s increasing brand popularity whichattracts more investors and buyers will open a new door for the company to produceelectric cars in higher quantity and broadly target customers in the automobilemarket.According to Block and Harrison (2014), the increasing growth of electric cars during the beginning phasewill have a lot ofchallenges upon the costof vehicle, vehicle mileage between charging, vehicle maintenance, battery life, availability of charging stations, charging duration, infrastructure, standards,and permitting, and also publicknowledge and education.
These are what Tesla has beendeveloping in a short time and keep on improving. 2. ConclusionAs it is written above, Tesla is arising champion in the automotive industry, specialized in electric carmanufacturing.
Tesla use broad differentiation as it is strategy and utilizeits resources As we can see from the Valuewhich is offered by Tesla, it offers premiumquality electric car with high performance (high speed, long battery life, fastcharging, infrastructures such as charging stations distributed in variouslocations. Tesla has strong key resources partnersand will obtain more in the future. Some of the challenges which Tesla needs toovercome right now are such as the production capacity to fulfill the demand ofthe battery and the cars from the market.