Tesla is among the global leaders of the electric car market. The company successfully focuses on differentiation strategy. The latter has many benefits, such as the focus on innovation, publicity, the high quality of services, and ambitious plans, and all of them contribute to the market success of Tesla. Thus, the company is likely to become more profitable and successful in the future.
Tesla's Entry Strategy
Tesla uses particular entry and generic strategies to act on the market of electric cars. Thus, its entry and generic strategy is close to focused differentiation one (Thompson, Peteraf, Gamble, & Strickland, 2016). Specifically, the company has focused on a narrow segment of target customers (electric car market only) and it offers a wide choice of products to its customers (different models of electric cars). In its entry strategy, Tesla had to overcome different barriers. The first one was in new technologies related to the development and production of electric cars. As those cars only started gaining their popularity in the 2010s, many electric cars producers were uncertain about the safety, value, and longevity of their technologies. Despite the government assistance in popularizing electric cars, this barrier was difficult for these producers, including Tesla. However, the company has managed to overcome this barrier by attracting investors and promoting its brand, and finally, it became profitable with its new and expensive technologies (van Den Steen, 2015). The second important barrier was related to the issues with charging electric cars since the number of charging stations was limited. Because of this barrier, many customers of electric cars had problems with charging, and consequently, with using their cars regularly. Tesla has also managed to overcome this barrier by introducing a network of its own charging stations, where customers could use free charge services for their electric cars (van Den Steen, 2015). In addition, they could change the batteries at those stations.
Example for Nissan
It seems that Nissan should learn something from Tesla's approach since the latter has Tesla demonstrated its success and fast growth on the market for electric cars. Nissan introduced Nissan Leaf, an electric car of sedan form that was aimed at mid-sized families (van Den Steen, 2015). The form of this electric car was convenient and similar to popular gasoline cars such as Ford Focus and Volkswagen Golf. Nissan was very ambitions about its venture due to its convenience and innovative technologies, used in production, and it planned to sell nearly 500,000 cars by 2013. However, the actual sales were much lower – only nearly 26,000 in 2012 (van Den Steen, 2015). In order to improve the situation, Nissan changed its head of EV unit, reduced the price of EV, and selected a new plant for production. Sales increased, but they still were lower than planned. Thus, it would be positive for Nissan to use Tesla’s experience in order to raise its sales quickly and reach estimated sales level.
Example for Other Car Producers
It seems that other car manufacturers will also follow Tesla's approach on the EV market. Tesla became the most successful producer of electric cars in the 2010s, and its key competitors, such as Nissan and Fisker, had showed much lower results. Tesla’s approach contributed to its global success, and its key competitors can be recommended to use some tips of its market approach in order to become successful. For instance, other electric car producers can focus on innovations, similarly to Tesla. The company produces not only electric cars, but it also has other innovative and interesting projects such as space transportation programs (van Den Steen, 2015). Due to that, Tesla becomes attractive for investors, while its key competitors lack these features. In addition, main competitors can increase their publicity and public awareness, similarly to Tesla. They can also offer charging stations for free, as Tesla has done in order to attract potential customers (van Den Steen, 2015). All those actions can help Nissan and other competitors succeed on the electric vehicle market and compete seriously with Tesla.
In order to determine whether Tesla is profitable or not, key profitability indicators will be calculated. Calculations are shown in Exhibit 1. Due to limited financial data provided in the case study, only two profitability ratios were calculated – profit margin, or net income divided by revenues, and return on assets, or net income divided by total assets. Two ratios were calculated for years 2013 and 2012. Based on calculations, it could be stated that Tesla was not profitable in 2012, as it had losses (negative net income). Losses were relatively high in relation to revenues. In particular, its profit margin was -95.9%, and ROA was -35.6%, which indicated high risks for the company because it could go bankrupt, if its losses grew. However, in 2013, Tesla managed to become profitable for the first time of its history. Nevertheless, its level of profitability was very low because net income was only $49,000 (van Den Steen, 2015). Profit margin of Tesla was 0.0051%, and its ROA was 0.0026% (van Den Steen, 2015). Thus, Tesla became profitable in 2013, but the company had to take further steps to increase its profitability in the subsequent periods.
It seems that Tesla has a competitive advantage in 2013, and it can use this advantage to continue its growth and improve profitability. Specifically, several competitive benefits of Tesla should be mentioned. The first advantage is in the deep focus on the company’s management on innovations. Tesla cars are produced of innovative parts, such as batteries, and research and development is used in the different spheres of its activities. In particular, in 2013, R&D expenses of the company were above $107 million, or about 11% of total revenues (van Den Steen2015). Moreover, Tesla is focused on innovations in other spheres such as space transportation and other projects. From innovations, the second competitive advantage of Tesla is evolving and it is related to the publicity of the company. Tesla can be considered the most famous manufacturer of electric cars in the world because press often publishes information about it and its ambitious and innovative projects (van Den Steen, 2015). Consequently, Tesla manages to attract the attention of customers and increase its sales rapidly. The third competitive advantage of Tesla is related to its customer service of high quality. For instance, when owners of electric cars had issues with charging them due to lack of charging stations, Tesla introduced free stations for its customers (van Den Steen, 2015). Moreover, it has a convenient system of retailing to customers, as cars were sold directly by the producer. The fourth competitive advantage is related to the wide choice of products, as Tesla sells various electric car models to satisfy different demands. For example, its popular car models include Model S and Roadster (van Den Steen, 2015). Finally, Tesla pays much attention to the marketing and promotion of its cars and vision, based on R&D. Promotion is based on such benefits of its cars as being friendly to the environment, safe, and comfortable.
Tesla's position can improve by the end of 2014 in comparison with the situation in 2013. There are serious grounds for such a suggestion because the company demonstrated a significant improvement of its performance in 2013, which was shown in a form of positive profitability for the first time. Moreover, the company’s CEO Elon Musk had many plans for the nearest future. In particular, he planned to sell 40,000 Model S cars in 2014 as compared to 10,500 in 2013 (van Den Steen, 2015). It was also planned to start the production of a new vehicle, Model X. Other great plans were related to building lower-end mass EV models that would be affordable for more customers. Elon Musk planned to sell new affordable models for the price of about $35,000 (van Den Steen, 2015). Thus, it is correctly expected that Tesla is the first car producer that has successfully entered the market since WWII.
Revenue and Cost Change
Revenue and operational cost numbers for Tesla will be likely to change in the nearest years because current trends show such changes. As it was already mentioned, Tesla had demonstrated a rapid growth of profitability, from having losses in 2012 to the first year of profitability in 2013 (van Den Steen, 2015). As the company promotes itself actively and has plans to make its products cheaper, it is likely that its revenues and operational costs will grow in the next several years. If Tesla uses efficient cost management and focuses on profitability, it will be also able to continue its positive profitability and make it higher gradually.
The Car Industry
Tesla for Tomorrow
Tesla should do several important things today to position itself for tomorrow. First, it should continue its focus on innovations. The company became famous for this feature, and if it continues new developments, it will be likely to develop cars that will be even more competitive and attract more customers. Second, the company should focus on financials in order to become more profitable and avoid losses in the future. Third, Tesla should implement its plans to develop relatively cheap electric cars, and with them, it will be able to work globally, even in the countries with lower income level. Finally, Tesla should continue its focus on the high quality of customer service to attract more customers.
Preventing Imitation and Entry
Tesla can prevent imitation or entry by competitors. Thus, it should develop cars and their parts with patented technologies that cannot be imitated by other car producers. Tesla should also gain a positive reputation via media and word of mouth. Consequently, Tesla will be able to sell more cars and have more loyal customers as compared to its rivals. This advantage is hard to be imitated. Finally, Tesla should use its technologies and knowledge to developed relatively cheap electric vehicles and increase its global sales. If competitors do not have such technologies, their vehicles will remain more expensive.
Tesla is successful as for 2012 and it has shown positive financial change. The strategy of the company is focus differentiation. Moreover, the company is competitive due to innovation in products and high public awareness. Tesla can become a positive example for its competitors such as Nissan. In general, future projections for the company are positive. With taking a right strategy, Tesla can increase its profitability and attract more customers on the global markets in the nearest years.