How Tesla continues to succeed

March 29, 2018
Editor(s): Deeksha Kapoor
Writer(s): Dennis Berner, Shirley Tang, Thomas Yu

To any individual that has a keen interest in the automotive industry and modern technology, Elon Musk’s Tesla is not unheard of. It is one of the most outstanding performers in the automotive industry. The acute and evolving competition is a noteworthy feature of this industry in the current time. Despite this, Tesla continues to significantly outperform its competitors. Whilst total revenue of Tesla increased by 43.93 % in 2017, a significantly different  performance was shown by Tesla’s competitors, who’s revenue envisioned a reduction of 34.34 %.  Tesla is a company that primarily focuses on the creation of electric vehicles that have no need for petrol and is also known for dabbling in clean energy solutions. Throughout it’s lifespan, Tesla has seen exorbitant success through a variety of business tactics and strategies.

Reasons for Tesla’s success

Monopoly

When Tesla was founded in 2003, the market for high end electric cars was miniscule. This lack of competition allowed the company to charge a higher price for their flagship model – The Tesla Roadster, which was priced at 98950 USD on release. This allowed the company to rapidly grow and ultimately lead to Tesla becoming the ‘Category King’ (a company that controls a massive portion of the market and sets the trends in that industry, for example; Facebook in the Social Media domain). Moreover, through various actions by the company’s founder, Elon Musk, such as building a solar battery in one hundred days in Adelaide and launching a car into space, the brand image has been constantly improved.  It’s stellar performance can be potentially seen through the fact that ‘Electric Cars’ is second name for Tesla in the current time period. Owing to it’s market power and brand image, it would be unsurprising to equate Tesla is ‘the brand’ a person thinks of when they hear electric car and this is a significant part of the company’s success.

Distribution

Since 1898, when the first dealership was opened by William E. Metzger, cars have been primarily sold through a third party. However, when Elon Musk founded Tesla, he decided to avoid that concept entirely and instead opted to only sell his cars from the company’s own service centres. While this has caused legal disputes in some states in America, the benefits that this business strategy creates are undeniably enormous. From building stronger relationships between the brand and customer to simply promoting the brand image, these benefits are numerous. However, the main reason for this strategy is to avoid the ‘mark up’ costs that dealers place on their cars to make a profit. By avoiding these costs, the company can lower the selling price of their products and increase gross profit. Indisputably, cutting out the middleman in the form of dealerships has reaped many benefits for Tesla and has undoubtedly contributed to the company’s stellar success.

Technology

Tesla has established itself as the market leader in the electric vehicle industry through its relentless pursuit of innovating new technologies.  So, what makes Tesla technologically different to other existing vehicles in the market?

We all dream of hands-free, autonomous driving and that may become a reality sooner than you think. In October 2015, Musk introduced the initial launch of the autopilot, a semi-autonomous capability, set to be available on all commercial Tesla vehicles.  The autopilot is made possible through eight surrounding cameras which not only provides a 360-degree viewing angle but also depth. Furthermore, there are twelve updated ultrasonic sensors to complement the cameras, allowing processing and detection of objects twice the distance of cameras. With the collection of all the visual, sonar and radar data, the enhanced autopilot is made possible. Tesla vehicles can match speed to traffic conditions, keep within a lane, and automatically change lanes without required driver input. Most importantly, Tesla’s autopilot greatly enhances the safety capacity through automatic emergency braking, frontal and side collision warnings.

Design

If we have a look at the electric vehicles we have on offer today, none have the same aesthetic appeal as Tesla’s Model S/X/3. The reason lies behind designer Franz von Holzhausen. Having graduated from Art Center College of Design, one of the world’s most prestigious transportation programs, Holzhausen has been able to establish a strong recognition for himself due to his repertoire of designs at General Motors. After joining Tesla Motors in 2010, Holzhausen has been granted the artistic freedom to envision the future on his own terms. As a result, Tesla has been able to showcase gorgeous electric cars that set them apart from their competitors.

How Tesla overcomes problems and maintains success

It may be surprising that a company like Tesla which evidently holds a monopoly in the field of electric cars, like many other automotive companies, suffered start-up problems which include cash flow shortages and production delays. However, Tesla works its way up and continues to reach milestones every year that further demonstrates its success and consolidates its position in the market. It has continued to discover and experiment with breakthrough technology which dominates the automotive market. Tesla’s success as a company, owes part to a brilliant timing of it’s emergence in the market with its General Motors EV1. It’s proficiency at marketing and financing strategies fundamentally define and perhaps redefine its continual growth. All this alone is of course not enough to allow Tesla to leave its competitors behind. An amalgamation of its innovative, forward-thinking rapidly developing technology and an attractive design of its models, initiated by Elon Musk, work to attain much of consumer’s interest and invite further consumer appreciation. With the recent release of its new model 3 sedan, and several voices questioning the likelihood of its capacity to maintain its favourable position in the market, the anticipated outcome is that Tesla will continue to be a company that “should have failed long ago” but “hasn’t” and “won’t”.

The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ, its Partners and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Deeksha Kapoor
Editor

Deeksha is currently pursuing a Master of Management (Human Resources) at the University of Melbourne. She has a keen interest human resource management, economics and public policies.

Dennis Berner
Writer

Dennis is in his second year of a Bachelor of Commerce at Melbourne University. He is majoring in Finance and Economics and has a passion for both disciplines.

Shirley Tang
Writer
Thomas Yu
Writer

Thomas is currently studying a Bachelor of Commerce (Finance and Management Major). He is interested in the world of finance and technology.