Tesla is a rising champion in the
automotive industry and this paper focuses on analyzing what makes Tesla grow
so significant in the short amount of time and its strategy to compete in the
very competitive market.
Automotive industry is a red ocean filled with strong
competitors. Tesla which is a newcomer in the industry and just founded in 2003
entered a niche electric car market which has big potential in the future
In the current electric car
industry some of the strong players such as BMW, Toyota, Volkswagen have the
upper hand due to the long experience in the automotive industry, compared to
them Tesla is still very new.
Huge car manufacturer like
Volkswagen have also started producing electric car which is E-Golf, an
electric version of VW Golf. Volkswagen announced that it is
going to double their production
capacity in the VW factory in Dresden. Production will gradually
increase from 35 to 70 vehicles a day starting in March 2018, the automaker
also announced. The plant in Dresden will add a second shift to accommodate
this change. (Lambert and Lambert, 2018)
According to Voigt, Buliga and Michl (2017), until the year of 1990s, most big players in automotive industry saw
no big need to develop
electric vehicle technology, largely due to low oil prices and facile
environmental policies. By the turn of the millennium, some car manufacturers,
for instance GM, made initial attempts to introduce environmentally friendly
vehicles, such as the Chevrolet S-10 Electric. Such projects mostly failed, due
to a lack of market driving factors.
most significant among them was the lack of good performance batteries and recharging
stations. However, some
of those projects
cars such as the Nissan Altra, and hybrid cars such as the Toyota Prius and the Honda
Insight found a good position as
adopters. The higher sales numbers of hybrid cars compared to purely electric cars were largely due to the higher performance
of the hybrid’s
internal combustion engine, these were able to reduce the biggest disadvantage
of electric vehicles which is its short
travel range on one charge.
During a short period of
time compared to its competitors, Tesla has done much more than any other car manufacturer has. One of the proofs
can be seen from a data obtain by McCarthy from Statista (2017) about Tesla
dominated the United States electric vehicle sales share based on unit in the
period of January until June 2017.
Figure 1. US Electric Vehicle Sales
Share; Source: McCarthy, 2017
In November 2017, Tesla launched
its new generation two roadster. Tesla wanted
to create an electric roadster which can beat gasoline sports car. He claimed the base model will
do accelerate from 0 to 60 in 1.9 seconds and
the top speed will be above 250 miles per hour. The Roadster has a 200kWh battery pack and a
620-mile range every charge, or over 1,000 kilometers. (J. Hawkins and Warren, 2017).
Secret for its Tremendous Growth in a Short Time
Co-Founder, Martin Eberhard
noticed that people did not buy hybrid cars such as the Toyota Prius just to save money on gas, but it is because they
care about positive environmental impact by using
the car, they are shifting to more the eco-friendly lifestyle. Tesla’s founders came to believe that they
could begin by addressing this potential in the niche market segment and only subsequently address the
mass market through more affordable electric cars. If any Tesla could have a
chance on the market, it first had to reach early adopters, in order to make
electric vehicles desirable to the mainstream. Tesla’s business model was
therefore primarily triggered by an emergent demand for high-performance electric vehicles. At the
same time, the founders envisioned the company’s evolution towards
mass-producing cost-effective models. (Voigt, Buliga and Michl,
Growth Driver Analyzed with VRIO Framework
What can be said, however, is that during short period of time
compared to its competitor, Tesla
has done much more than any other car manufacturer has.
is a rising champion in electric vehicle industry. We can prove it by looking
at its uniqueness and its competitive advantages by using the VRIO framework. VRIO is used to assess the
situation inside the company and its resources,and
which part of it has possible potential for improvement. The tool which
is called VRIO framework was originally developed by Barney, J. B. (1991).
VRIO framework is one of many frameworks or tools which can be suitable to
identify what makes successful growth of the company.
Costly to Imitate
Products (Electric Car
Sales Team and Procedure
Management of TESLA
Table 1: VRIO
Framework on Tesla’s Resource; Source: Author’s own illustration
Value: Tesla’s resources are all valuable. Tesla’s production plants can
produce high tech electric car and efficient battery are solving major problems for the humanity such as reducing reliance on fossil fuels, its
products 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, they
need to increase the production plant capacity.
Rarity: Tesla’s high end technology such as battery which is patented and ongoing R&D and also production
plant to develop innovative and improved alternative energy
products such as cars and batteries can be considered rare.
Imitability: It is costly and difficult to imitate Tesla’s unique
technology,manufacturing strength, R capabilities and it is
not 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 the
Organization: Tesla’s utilization of its battery efficiency
and the intangible resources like the corporate culture lead by the CEO are
good enough however the production plan and sales team are not fully organized
yet, as we all know they have problems with supply and demand of the electric
cars. In the future when they are as big as Volkswagen or Toyota, they can be a
real giant in this industry and they can mass produce their electric car. Tesla’s strong leadership, organizational culture
and practices indeed make
the company capable to obtain sustain competitive advantage by exploiting opportunities in the alternative energy segment. To
sum up, their products and management culture are sustainable competitive
advantages but their production plants and sales team need to be improved.
1.2 Tesla’s Business Model
Proposition : Tesla offers something more than the competitor can offer which is
Luxury electric car with high performance (high speed, long battery life, fast
charging, infrastructures such as charging stations distributed in various
Key Partner and Activity : Panasonic and Tesla has partnered
since the beginning of 2017, the partnership aims to produce new batteries which are
slightly larger size in size than the ones it has been using in order to increase
efficiency and lowering the cost. (Fehrenbacher, 2017)
Resources : Tesla
Gigafactory, Tesla with the help of Panasonic planned production rate of 500,000 cars per
year by 2018,
High Tech Research and development in Silicon Valley.
Customer Relationship: Personal
Assistance, strong engagement
Customer Segments: Niche market for the electric luxury car
Channels and Revenue Streams: Tesla has Online store in the tesla
website for the customer in order to purchase the car, accessories or even
apparels. Tesla gained the revenue streams for these.
2.3 Tesla’s Strategy
Observed by Porter’s Generic Strategy
Strategy describes how a company pursues competitive advantage
across its chosen market scope. There are cost leadership
(narrow/focus or broad), and differentiation (narrow/focus or broad).
2 Porter Generic Strategy; Source: Author’s own Illustration (using Porter’s
Generic Strategy Canvas created in 1980.)
From what is look like, Tesla’s generic
competitive strategy is using differentiation strategy (Initially it uses
narrow or focus differentiation and now it is starting to move to broad
differentiation strategy). Tesla has a big competitive advantage by developing
electric cars and also luxury electric cars which differentiate the company
from other firms in the automotive industry.
Tesla’s electric cars are also has a
huge competitive advantage because they are using electric as the energy source
which is more environmental friendly technology compared to combustion engine
technology in ordinary cars
By using this Porter’s generic
strategy to observe Tesla’s mission, we can see that Tesla is able to attract
potential customers especially the guys who are interested in environmentally
friendly products. Initially, Tesla used to choose differentiation focus as its
generic strategy before, the company focused on the uniqueness of its products
which are electric cars and the battery. It also specialized as the early
adopters in the mid to luxury car market.
As this paper is written, Tesla has grown tremendously and it has
potential to reduce production costs. Tesla’s Porter generic competitive
strategy will possibly shift to completely broad differentiation. The declining
production costs after doing more sales until it passes the breakeven point and
get profits. In addition to that point, Tesla’s increasing brand popularity which
attracts more investors and buyers will open a new door for the company to produce
electric cars in higher quantity and broadly target customers in the automobile
According to Block and Harrison (2014), the increasing growth of electric cars during the beginning phase
will have a lot of
challenges upon the cost
of vehicle, vehicle mileage between charging, vehicle maintenance, battery life, availability of charging stations, charging duration, infrastructure, standards,
and permitting, and also public
knowledge and education. These are what Tesla has been
developing in a short time and keep on improving.
As it is written above, Tesla is a
rising champion in the automotive industry, specialized in electric car
manufacturing. Tesla use broad differentiation as it is strategy and utilize
As we can see from the Value
which is offered by Tesla, it offers premium
quality electric car with high performance (high speed, long battery life, fast
charging, infrastructures such as charging stations distributed in various
locations. Tesla has strong key resources partners
and will obtain more in the future. Some of the challenges which Tesla needs to
overcome right now are such as the production capacity to fulfill the demand of
the battery and the cars from the market.