Conversation about Tesla Cars as a game changer in electric car industry is everywhere right now. Tesla Motors Inc. is an American based company, which started its operations in 2003. The company was founded by a group of Silicon Valley Engineers who saw an opportunity to mass-produce electric vehicles as substitutes for the ordinary gasoline powered vehicles (Lui, et al., 2014). The future of Tesla is founded on the disruptive quality of its high-performance models notably the “Model X” which is an X-Factor that will help the company to succeed where other electric carmakers have failed to succeed. Tesla is today progressively breaking the barriers that had seen the sudden death of electric cars and held other companies back. Just like Nokia did in the mobile phone market, Tesla’s opportunity to revolutionize the electric car market is huge and real.
Tesla Motors, which was founded in 2003, has in its 10 years of operation roused the auto industry towards a future that is more sustainable, and in the process managed to challenge every perception of what a car really is. Tesla, which issued its IPO in 2010, became the second listed American motor company after Ford, which went public in 1956. Compared to the Big Three American automakers Ford, Chrysler, and GM, Tesla has proved to be different in every imaginable way (“Tesla Motors executives”). Besides being not using the traditional internally combustion engines like the incumbent auto makers, Tesla opted to manufacture its vehicles in California, far from Detroit, which has been home to the Big Three. Tesla’s headquarters is Palo Alto, which expresses its declination to status quo, and also shows its emphasis on cutting edge technology.
Toyota and Nissan as the other car manufacturers that have electric cars have ventured into electric car making as supplements for their existing models. However, Tesla has gone full throttle into this market, cutting a niche for themselves as sole electric car producers. The electric car market is still at its infancy, but Tesla seem undeterred in plunging into the high-risk industry, as this is the only way that can pave the market for electric vehicles (Hardester, 2010). It is with this resilience that this high-risk company has realized many of its initial milestones. Tesla will still need to continue taking even bigger risks with its business as the only way that will make the electric vehicle a mainstream product. It is a burden that Tesla has taken in its attempt to create an all-new market.
The automotive world has many players, however, power remains in the hands of a few industry titans: Toyota, GM and Volkswagen, which are the three largest firms. The three giants hold a disproportionate amount of power when it comes to the value chain. Consumers of the traditional auto industry wield a relatively high power owing to the fact that switching costs are relatively low and that there is a wide choice of significantly substitutable products. At the same time, the large amount of extensive and capital network limits power suppliers. Moreover, many components of automobiles can be gotten form different suppliers, by and large maintaining competitive input pricing (“Tesla Motors Supercharger”). The high intensive nature of manufacturing and development is a major barrier to new entrants. Correspondingly, the entrenched nature and general familiarity and association of vehicles to internal combustion engines (ICEs) have to a great extent nullified any threats of substitutes since the discovery of the ICEs. This high intra-industry rivalry and dense concentration has according to Nandi (2013) “pressured the narrow margins of the traditional auto industry” (9).
Nevertheless, the Electric Vehicle (EV) industry introduces a different type of dynamic. Consumers do not hold a significant power because with EVs, the switching costs are slightly higher. This is largely so because the charging accessories vary from one vehicle to another. There is also a limited selection of mass produced electric vehicles in the market today. Further, supplier power is also quite higher because of the limited number of battery suppliers, though this gets partly addressed by EV companies entering into long-term contracts with battery producers. The threat for entrants into this market is even higher now that traditional automakers are progressively entering the electric vehicles market (Eberhard and Tarpenning, 2006.3). Their entry has been nothing short of a soft landing as it has been complimented by a continually increasing number of startups.
In addition, the threat of substitutes is equally significantly higher because there are a number of many alternatives that are currently available being developed; though electric vehicles have so far developed the highest traction, natural gas power trains and hydrogen powered vehicles are also feasible prospects in the long-term. There is a vicious intra-industry rivalry as carmakers reduce prices and invest in R&D as they position themselves to earn first-mover advantage and earn a place in the burgeoning sector. Nonetheless, with the recent exit of Fisker, Tesla is now the only player in the high-end, luxury electric vehicle market (Nandi, 2013). As its innovative technology and convenience is translated into its more affordable vehicles, the company should continue maintaining that competitive edge that it currently holds.
The electric vehicle industry is actually older than what many people imagine. The first radium electric vehicles were produced in the 1830, which is forty years before the gasoline vehicles emerged. The first American electric car was created in 1890. It was a car that was powered by 24 batteries and had the capacity to go for 50 miles going up to a speed of 20 mph. towards the beginning of 20th century one in every three vehicles sold in the fledging auto industry of the US was an electric car. However, in 1912, the electric vehicle industry started a century-long decline. By 1920, electric vehicles were associated with high prices and a limited range. The situation was compounded by oil becoming cheaper which largely contributed to a sudden plummeting for electric car price. However, it was in 1940 that Detroit Electric hammered the last nail in the coffin of electric vehicles after it shifted to producing commercial vehicles (Nandi, 2013). Detroit Electric outlasted all its competitors who had no alternative but to close shop. Then, approximately 65 years later in Palo Alto, California, Tesla Motors was founded.
Tesla is the only company in America that is bullishly leading the charge towards an electric future. Today there is a great excitement and apprehension at the same time in the air of the automotives. We have reached a point where a synthesis of innovation and technology has the potential to significantly change the world. For us to change the world for the better, we need to understand after fully analyzing the domestic, international as well as the environmental impacts of any transition (Van den Steen, 2014). However, what is certain is that our decisions today will in one way or another change the next hundreds of years to come. It is with this background that Tesla Motors operates, leading the world into a revolution by mass-producing a line of all-electric cars. Tesla has taken the idea of an electric future beyond theory. In doing so, the company has activated the real world implications of fundamentally changing one of the most significant aspects of our lives.
Tesla Motors is making legitimate strides in spearheading a global revolution, which is to a great extent reorganizing our national infrastructure, the economy as well as the modern day conceptions and perceptions of transportation.
Indeed it has been a bumpy ride for this car manufacturer, from 2008 when it run out of cash and had trouble raising funds during the credit crunch of that year. Further, Tesla also experienced technical hitches with the luxury electric Roadster; its first car. The car manufacturer would then experience another risky period in 2012 when it was trying to scale up the production of its beloved electric car Model S (Tesla Motors). However, the fortunes of the company changed for the better when they secured more funding from investors. The company was given a loan by the Department of Energy, and went public (Lui, et al, 2014). Tesla then went on to make a great car, which it succeeded to deliver on time, and within the budget. Today, the company’s stock is trading at a share price of $200. The company which had close to 6,000 employees by the end of 2013 is also making 600 Model S cars weekly, and has a plan raising the production capacity to 1,000 cars weekly before the year ends.
Tesla is yet to meet its CEO Elon Musk’s long-term vision of making mass-producing electric cars, and making them equally affordable. However, achieving this is pegged on its third-generation cars which the company estimates could cost no more than $40,000 which could go as low as $30,000 which are expected to be out before 2017 (Owen, 2010). In order to realize this, The Company is in the process of assembling a gigantic battery factory in the U.S., which is expected to bring down the cost of its batteries by 30 percent. This massive facility that is dubbed the “Gigafactory” is crucial to the future of Tesla. The plant is the key that the company needs to so that it can enter the realm of major automakers, as it will enable the company to produce affordable long-range electric vehicles.
The Gigafactory is easily the future of Tesla because for the company to produce affordable long-range vehicles, then it needs to cut down the costs of the battery by half so as to be in a position to produce half an million cars. The size of the plant that is already under construction is massive. According to Musk, the company CEO, the plant is expected to have the same capacity as that of all lithium ion battery factories around the globe (Owen, 2010). Currently Tesla relies on Panasonic who are its main battery supplier. It is expected that the two will partner in the project. Tesla has made it clear in the past that its growth and production capacity has been hampered by shortage of battery supplies. From the onset, it has been Tesla’s goal to produce a mass-market car that can travel long distances entirely on electric charge and which will be priced at between $30,000 and $40,000.
Tesla’s current car Model S can do a distance of 200 miles between charges; however the car is priced at $69,000. The plant is aligned to the company’s vision of mass-producing the car within a three-year period. The carmaker is on the right trajectory, as investors have welcomed news of Tesla upping its sales target for the year 2014 to 35,000 cars with great expectations. In addition, the company intends to sell 10 times more next generation cars that will be available at the market at that time (Owen, 2010). This will effectively dwarf all other electric cars available at the market. Moreover, it will thrust Tesla from being a niche luxury brand that it currently is, to become a major competitor among traditional car manufacturers.
Tesla has simply been an evolution, an idea that started as a dream. Today, the mentality in the company is that they are close enough to revolutionize the whole industry in the next 10 years that will culminate in the electric car being the most preferred mode of transportation. The cost of building the plant has not been officially given, however, the company CEO has suggested that the company was planning to issue more shares off its high-flying stock so as to raise a part of the money required to build the plant. Industry analysts have however estimated that the cost could be as high as $5 billion or even more (Van den Steen, 2014).
More than 100 years after the invention of internal combustion engine, many of the major automotive manufacturers are faced with many industry-wide challenges. The reliance of incumbent automobile manufacturers on gasoline-powered internal combustion engine has raised many environmental issues. Further, it has created a situation of industrialized and developing nations have been dependent on oil mainly imported from foreign nations, which has exposed their citizens to volatile fuel prices. Moreover, legacy investments made by the major automobile manufacturers have by and large prevented rapid innovations in the area of alternative fuel technologies for powering automobiles. These challenges offer a huge opportunity for Tesla and other companies pursuing electric power train technologies, which will see them lead in automotive industry,’s next technological era.
Tesla uses propriety technology, which is a world-class design and innovative manufacturing process in creating new generation electric vehicles that are highway capable. The car maker utilizes a robust distribution model drawn from the sales and service centers that are company-owned. This approach allows the company to maintain a high level of customer experience; it also benefits from customer feedback that is easy to generate using this approach (Van den Steen, 2014). The operational structures at Tesla provide the company with the competitive advantage compared to incumbent automobile manufacturers.
Tesla is building a brand that is associated with quality, however customers cannot be said to be buying the cars primarily because of the Tesla brand. In matters patents, the company has designed some very top-of-the art electric power train components. Tesla’s innovativeness has made them to be contracted by Toyota and Daimler. Daimler for instance wants Tesla to develop an entire power train for a new model of Mercedes-Benz in a deal that could be worth a whopping $280 million or even more (Van den Steen, 2014). Toyota on their part has signed a deal with the company that is worth $100 million for its RAV-4 electric car. These two examples clearly evidence that though Tesla is a new player in the automobile industry, incumbent automakers are reaching out to it to get help in producing electric cars. Clearly, this is simply a vote of confidence on this new kid on the block. Tesla continues to take a lead in the production of electric vehicles, and other industry players are keenly following.
Tesla’s Model S, which is a seven passenger electric vehicle, is designed to simply revolutionize the auto world. The performance target of this beloved vehicle includes the ability to achieve zero to 60 miles per hour in just 5.6 seconds. Further, it also has a top speed of 120 mile-per-hour. While these are extraordinary targets, the business model of the company tells and even more compelling tale. Tesla lacks enough engineering resources as well as the volume efficiencies that established automakers have. However, the company sells Model S at a price that is the same or less that of other competing models produced by incumbent auto manufacturers (Tesla Motors) Tesla believes that it can surmount these challenges with top-of-the art innovations such as making a full range approach to vehicle architecture.
Tesla has taken useful lessons from the proven and road tested technology used in their first model Roadster, as well as its innovative electric technology. However, Tesla appreciates that in a fiercely competitive market, there is nothing that stays the same for a very long time. Any genuine innovation that Tesla incorporates could very well become common property. However, Electric Vehicles have introduced a new category that the company could take a lead in considering that new entrants are the one that tend to win when there is an emergence of new technologies. The company CEO Elon Musk could very well be s Steve Jobs in being a visionary in the realm of technology and effectively manage to create shareholder value.
Another competitive advantage that Tesla has is in its leadership. Its founder and CEO Elon Musk is a visionary who is endowed with a rare innovative acumen, and has a relentless work ethics. Musk has been instrumental in pushing the company to the limits of where they can be. Musk already has a successful record of accomplishment as PayPal Co-founder, which he later sold to eBay for a huge figure of $1.5 billion in 2002 besides serving as the CEO of Tesla; he is also the chairperson of Solar City and the CEO of Space-X (Nandi, 2013). Musk comes along as a perfectionist who pays great attention to details. This is indeed a very important quality for a CEO in a luxury car manufacturing company. Further, he has invested a significant amount of his own money into the Tesla stock, an indication of his confidence in Tesla’s future success.
The other factor that could effectively give Tesla an edge compared to its competitors in the automobile industry is an extremely driven workforce. Tesla employees have a resolute commitment to their work where they work for six days a week and for up to 10 and 12 hours a day. This clearly shows that the company has a dedicated workforce which is very important for a company entering a very competitive market. The company’s Co-founder JB Straubel who is the Chief Technical Officer at the company has a proven track record of designing energy systems. The company’s Chief Financial Officer Deepak Ahuja on his par has over 15 years experience in Sales, Manufacturing, and Financial with Ford (Van den Steen, 2014). He recently served as the Controller of Small Cars Product Development a position that required him to bring fuel-efficient vehicles to the North American market. Ford has an established pipeline of future Ford Automobiles and Ahuja must have seen something very compelling that caused him to leave a large corporation for a small startup company.
Customer experience is the other factor that has been Tesla’s game changer. Word-of-mouth is one attribute that the company has proved to excel in. Tesla sold its first electric car the Roadster to prominent personalities. These individuals proudly displayed this luxury car in valet parking spots for others to gaze at the vehicle in ewe. This has been of great benefit to Tesla as it allows them to freely promote their luxury high-end brand (Hardester, 2010). The company is therefore able to raise awareness of their brands even without having to spend millions in advertising. In addition, customer reviews on the Roadster has been nothing but inspiring. Many painted the Roadster driving experience as a roller coaster ride, a precision drive and not a merely mundane computer vehicle. Such reviews have served to promote the image of the company as one that is associated with fine-tuned, quality vehicles.
The legacy automakers like stated are progressively not watching from the sidelines and easily letting Tesla Motors to take the lead in electric autos. Already, there is word that Toyota Motors (TM) and Honda (HMC) are both in the process of upgrading their fuel-cell vehicles. Both companies have put plans in place that will see them launch fuel-cell cars into the market in 2015. They plan to produce 1,000 eco-friendly vehicles every year. These zero-emission vehicles will have the ability to cover a longer distance than electric vehicles. However, Tesla still has the necessary competitive advantage that will help it withstand the competition. At the moment Toyota still holds a 60 percent market share of the U.S. Hybrid Electric Vehicle market. This has been so 17 years after the Prius was first introduced (Nandi, 2013). Likewise, the competitive advantage of Toyota has been obscured by those of Tesla in the market of battery electric autos. Additionally, Tesla’s market share objective, which includes producing 500,000 units by 2020, is achievable. This can be best enumerated using the example of BMW who sell 538,000 units of their BMW 3-Series every year (Owen. 2010). Of these, they sell 120,000 units in the U.S. alone. With this, BMW manages to achieve a global small luxury sedan market share of 30 percent. On its part Tesla with its Model S has already clinched a 13 percent market share for vehicles selling within price ranges of between $70,000 and $110,000 in the U.S market (Van den Steen, 2014). Further, BMW faces a competition that is significantly more developed in the premium sedan market as compared to the level of competition that Tesla faces in the Electric Vehicle market.
Future trends and risks factors with Electric Vehicle
Currently, as much as 40 percent of energy consumed in the U.S is supplied by petroleum. That proportion has remained as it is since 1950. Equally unchanged is the almost total dependence on petroleum (mostly gasoline) by the transportation sector. Today the United States is the largest oil consumer in the world, using approximately 18.9 million barrels of oil every single day (Nandi, 2013). Though the U.S. consumes 20 percent of the world’s oil, its global oil reserve is only 2 percent, which inevitably leads to dependence on foreign oil, which has been detrimental for the economy and become a hazard for national security. Fossils accounts for 80 percent of the total energy consumption, a third of this is taken up by oil. The reliance of foreign oil to cater for the country’s deficit is not a noble energy strategy for the country because oil is a very expensive resource, which comes with many indefinite long-term supply outlooks (Owen, 2010).
There is need to fully incorporate and appreciate the many negative externalities that are fueled by oil consumption. The U.S. greenhouse gas emissions in 2011 were 6,700 million metric tons. This by far exceeds the billions of dollars that the country spends every year on petroleum imports. There is therefore need for action to be taken to avoid passing on an earth that will be unrecognizable to our future generations. However, the future still rests in our hands. If Tesla thrives and the vision of the company is realized, then the earth today and that which our future generations will inherit from us will be brighter than the situation we have now. Tesla’s CEO Musk predicts that in 20 years, half of cars that will be manufactured will be fully electric (Owen, 2010). The United States and the world at large will naturally progress from oil towards renewable energy that will replace fossil fuels.
There are more and more people today who want to drive environmentally friendly cars, all they require is an opportunity. That opportunity is in part driven by products. Tesla sees a long-term benefit by presenting a car that has been built with the finery and art with the foresight that gasoline vehicle will probably be absolute in the near future. The shiftless complacency and short-sightedness of gasoline and diesel car manufacturers has led to many internal logical mistakes which for decades has remained unchecked. That was until one bold company emerged and dared to challenge the status quo.
However, there are several factors that could pose a great threat to Tesla’s vision. These factors are not limited to the company itself, but equally to the electric vehicle industry as a whole. To begin with is the auto industry is a dynamic and intensively competitive industry. The traditional automotive industry is extremely flooded. This means that most volumes and profits go a few manufacturing behemoths. The underlying competitive dynamics for the electric vehicle industry is yet to be fully determined. However, it would not be hard to imagine an EV industry as being as aggressively intense as that of internally combustion engine sector (Eberhard and Tarpenning, 2006.5). Traditional manufacturers can react to the burgeoning movement and decide to leverage their scale and expertise and offer products that are competitive at or even below the one being offered by Tesla.
The greater risk will be a failure of the electric vehicles to gain full momentum altogether. In such an eventuality, Tesla would not be looking at diminishing profit, but rather at absolute losses. The feasibility of alternative energy forces could very well be one of the risk factors. This is given the widespread familiarity of internally combustion engines and general acceptance of gasoline. In addition oil prices are likely to go down which could to a great extent slow the adoption of electric technology. Even in the face of better technologies, risk aware customers will most likely go for the safer and cheaper option. In addition, there also the challenge of other alternative energy power trains such as hydrogen energy and natural gas, which pose a huge threat to EVs, however natural gas power trains are not as effective as their gasoline counterparts (Nandi, 2013) are.
Tesla Motors is just in the process of transforming every aspect of the automotive and tech world that have long been taken for granted. It top-of-the range vehicles, business model and ambitious vision hemmed in its pursuit of a brighter future will continue to revolutionize standards across industries. Tesla was founded with a vision of accelerating the advent of electric vehicles. It leaves to be seen if a day will come when Tesla will declare that the coming to light of EVs is a success. However, waiting for the ICE to become absolute is not realistic because their winding down and total extinction will take a very long time to happen, if ever. It would be more realistic benchmark to consider a ‘tipping point” phase. The tipping point will be that moment when units of electric cars produced will be higher than that of gasoline manufactured cars. In Tesla’s vision as enumerated by their CEO, that milestone is likely to take place within twenty years from now (by 2033). Today, the number of EVs is less than 1 percent that makes the idea of a turnaround within two years sound unlikely. However, in the light of rising fuel prices, environmental concerns coming with stricter regulations and developments in more efficient batteries, two decades could be a rather conservative estimate. Nevertheless, what remains certain is that even before that transition is realized, Tesla will continue to be a game changer with innovativeness and relentless drive.
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