Tesla recently passed Ford as the most valuable car manufacturer in the world. While many observers ten years ago would not have believed that a new entrant, let alone one specialized in electric vehicles, would be capable of this, there have been many things Tesla has worked hard on for a long time to get to this position.
Tesla is now engrained as a brand in consumers’ minds and will play a crucial role in how we think about cars in the future. It is an exciting company, and businesses and drivers can learn a lot from the company about the future of cars, as well as how to run an automobile business. Here are some of the reasons for Tesla’s success:
Vision
For the past two decades, there has been growing enthusiasm for the potential of electric vehicles, but Tesla could envision how to grow the market and exploit advances in technology better than any other company. In fact, Ford has also invested heavily in the electric car market, and Toyota advanced much of the consumer demand in the space with their Prius.
Unlike the established companies that have been somewhat constrained in their ability to aggressively focus on the electric car space, Tesla has had a complete vision from day one for how to revolutionize the industry. This is a classic example of the innovator’s dilemma: incumbents are weighed down by their commitment to existing markets, while agiler new companies can target high-growth areas. An example of Tesla’s vision is their willingness to market an electric high-performance sports car—something many critics would have seen as not fitting with the image of electric vehicles, seen as being more low-key and utilitarian.
Technology
Of course, vision is not worth much without the engineering expertise to back it up. Tesla’s commitment to engineering excellence is clear from the way they could make their latest car the fastest accelerating of any type of road vehicle on the today.
Tesla has done several things with their cars that make them stand out from a tech perspective from the rest of the market. Their one-pedal technology even impacts the driving experience in a big way—a big innovation that changes the basic design of a car. The batteries used by Tesla and the way they are laid out also makes a significant difference to the car performance.
The batteries are possibly the most important feature that gives them a technological edge. They have used commodity-grade standard batteries in new and innovative ways, which make the production costs lower, thanks to economies of scale.
They are making, even more, innovations in the coming months in their Gigafactory plant, which should add even more efficiency to their offerings. They just announced they would be releasing an 18-wheeler and pickup truck later in 2017, which should leverage the research they have done on battery technology.
One of the main efficiency breakthroughs made by Tesla was the inverter they use. Previously, inverters were separate to the motor and hefty and space-consuming to process the substantial amounts of DC current needed. Tesla realized that, by incorporating the inverter into the motor, more space could be saved and much-reduced weights achieved.
One of the remarkable aspects of Tesla’s technological prowess is that there is no one “killer” feature—instead, their cars represent an agglomeration of various incremental advances, well executed. They focus on making a limited number of cars that work better than any other electric vehicles, and the talent and engineering expertise of Musk is evident from the success of the SpaceX program.
Marketing
In keeping with the engineering drive to make the cars as full of quality as possible, Tesla’s marketing is focused on communicating this value proposition and changing the way people view electric vehicles.
There were two early realizations made by the directors of Tesla that shaped how they chose to market their products. First, the fact that batteries can cost a lot to manufacture meant the overall quality of electric vehicles was low since so much had to be spent on the engine.
This meant that manufacturers trying to make an economical option had to cut back on the total quality of the vehicle. Tesla realized it would be better to market the vehicle as a high-end product since the cost of the batteries would be easier to subsume into the overall price.
Furthering this line of reasoning, the second realization they made was since the electric vehicle market had this bad reputation for quality, no expense should be spared in making the cars as high-quality as possible. The first vehicle they released widely, the Roadster, completely skipped the middle of the market and targeted those willing to spend a lot of money on a high-end electric vehicle.
Before this, no one believed there was either the demand or the possibility to make a high-performance offering like this one. So, the focus on quality and high-end targeting merged together in a revolutionary strategy.
Other companies have made significant progress in their electric offerings, but Tesla has been rewarded by their first-mover advantage in the high-end bracket. Many companies have latched on to the importance of making cars more eco-friendly, but Tesla has done it in a way that opens up the market.
Sales
One of the more interesting aspects of Tesla’s business is how they drive and manage sales. Unlike many next-generation companies, Tesla has eschewed traditional advertising channels. You won’t see many TV advertisements or online ads for their products. More importantly, they have turned their attention away from traditional car sales methods—showrooms with car dealers are the standard in the industry, but this is not part of the focus for Tesla’s strategy.
Aside from making their sales more unique, this also frees up a substantial budget for reinvesting in the engineering of their cars, but also for streamlining their distribution network.
So, like other aspects of their strategy, they chose not to adjust incrementally but go for a big-bet innovation away from the traditional way of doing business. Like the other parts of what makes them unique, this was fraught with risk, but it paid off well.
Last Thoughts
In passing Ford as the most valuable car company Tesla has made history. It is remarkable they did this not by beating the industry at their own game (like Uber) but, also, not by leveraging one innovation for success (like Google with their search engine).
Instead, they crafted a targeted strategy that incorporated innovation in many areas, from engineering to marketing. Individually, most of these innovations might not be considered monumental, but, in combination, they make up a daring strategy. Tesla has reached the top in a very deliberate, carefully planned way.
