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Marketing Strategy Analysis of Tesla

3069 words (12 pages) Essay in Business

15/04/19 Business Reference this

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Ingenious innovation. Practical application. Forward thinking. These three phrases summarize the progressive and aggressive marketing strategy of Tesla, Inc. Driven to mainstream popularity by CEO Elon Musk, the brand name Tesla has created the perfect the perfect automotive combination that no other car manufacturing had attained – technology, power, environmental consciousness. As the world’s only fully integrated sustainable energy company, Tesla is leading the inevitable shift toward a sustainable energy platform.

The conception of Tesla Motors, Inc. is rooted in fierce competition of the automotive industry. Initially established as Tesla Motors, the company was founded in 2003 by Marc Tarpenning, Martin Eberhard, JB Straubel, Ian Wright and Elon Musk in Palo Alto, California. The two American engineers and entrepreneurs were mainly motivated by big car companies attempts to terminate Electric Vehicle (EV) Programs. In particular, General Motors (GM) produced the EV1 from the late 1990s to the early 2000s, only available to consumers under leasing agreements. Believing the electric car sector to be a significant profit loss, GM forcibly reclaimed all EV1 models from consumers in 2003, sending all models to be destroyed in junkyards. In the documentary director Chris Paine contends GM sabotaged the EV1, fearing electric vehicles would undermine its conventional business. Outraged by General Motor’s decision to isolate the American public from the electric car market, Tarpenning, Eberhard, and Musk ventured to create an innovative, affordable car brand with widespread availability. Although officially incorporated by Tarpenning and Eberhard in 2003, Elon Musk led both major Series A and Series B investment funding operations, eventually taking over as Chief Executive Officer (CEO) after the Great Recession of 2008.

Tesla Inc. has a well-developed organizational mission and vision statement that focuses and highlights its comparative advantage against other major car manufacturing companies. As –the company’s 2018 annual report explicitly states:

“Our design and vehicle engineering capabilities, combined with the technical advancements of our powertrain system, have enabled us to design and develop electric vehicles that we believe overcome the design, styling, and performance issues that have historically limited broad adoption of electric vehicles.”

Tesla Inc. incorporates three main categories into its organizational objectives: long range and recharging flexibility, high-performance without compromised design, and energy efficiency. First and foremost, Tesla Inc. actively works to provide the longest charge range of any commercially available electric vehicles in the current market. Secondly, the company focuses heavily on the style of their car models, designed them in a futuristic fashion that promotes its unique high-technology features. Lastly, Tesla Inc. aims to produce electric vehicles with more charging efficiency and lower relative maintenance costs in comparison to its main competition: internal combustion vehicles. To mirror its expanding line of business, Tesla Inc. has recently updated and declared its new mission statement. Although the company does not publish an annual CSR report to the public, corporate social responsibility is factored in to every action Tesla takes, as demonstrated in its new mission statement. Formerly, the mission statement expressed, “Tesla’s mission is to accelerate the world’s transition to sustainable transport.” The newly released mission statement now communicates, “Tesla’s mission is to accelerate the world’s transition to sustainable energy.”  

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A significant aspect of Tesla’s corporate structure is its functional hierarchy organizational chart, with emphasis global regions and centralization. However, as Tesla remains a technology-driven company, the functional structure follows a flat organization method (Figure 1.1).

In this structure, the use of middle-managers is either limited or eliminated in order to create fewer management layers and promote more open communication channels. 

In Tesla’s official communication policy to employees, Elon Musk states, “Anyone at Tesla can and should email/talk to anyone else according to what they think is the fastest way to solve a problem for the benefit of the whole company.” Employees are encouraged to have a participative role in the company in an attempt to resolve any issue in the most efficient and —- manner possible. As seen in Figure 1.1, Tesla Inc. refers to its marketing division as “Global Sales and Service”. Due to the wide scope off the company, Tesla divides it marketing division by geographic region: North America, China, Norway, and Other. The inclusion of China represents Tesla’s recent manufacturing expansion in Shanghai, China. The marketing organization structure follows suit if its overall flat, centralized, functional organizational structure.

The target market of Tesla Inc. has shifted drastically in recent years. Prior to 2017, Tesla made it clear that its primary and secondary target markets were for exclusive market demographics. On the primary level, Tesla’s directly targeted older upper middle class males between $100,000 and $350,000) with a strong desire for an affordable luxury car with high safety value. In addition, the factor of being concerned about gas consumption and economic value must also be considered. In respects to the secondary target market, Tesla aimed to appeal to a demographic that could not yet afford their luxury vehicles: young male college students who attend prestigious universities, who hold strong likelihood of having a high-paying specialized profession in the near future. However, Tesla Inc. has expanded its target market to include a much wider and diverse target market. This is reflected in the introduction of the two newest models: the Model X and the Model 3. The Model X, a seven-seat SUV, represents the shift towards a more family-oriented appeal, especially towards women and children. The Model 3 focuses on lower income brackets, having a starting price considerably less than other Tesla models. This lower model price represents Tesla’s shift in target market from older wealthy males to younger middle income adults of both genders.

An overall SWOT analysis of Tesla, Inc. demonstrates that the car manufacturer has strong advantage in the car industry going forward. First and foremost, Tesla shows a vital strength in its sustainable innovation practices. Every single product manufactured and sold by Tesla, Inc. has a strong focus on sustainability, with all three car models being fully electric vehicles. Its expansion into solar energy storage and Solar Roof products furthers its environmental sustainability efforts. This distinguishes Tesla from other car manufacturers, presenting them as more of a clean energy company. Moreover, Elon Musk himself directly recruits the best the engineering and technology fields have to offer. As states by Tesla, “…We design and engineer bodies, chassis, interiors, heating and cooling and low voltage electrical systems in house and to a lesser extent in conjunction with our suppliers…” Moreover, Tesla relies on its expert computer programmers to test the models in crash test simulation, reducing the product development timeline and achieving high safety ratings. This emphasized reliability of the brand works to increase consumer sales, loyalty, and brand recognition.

In terms of weaknesses, Tesla faces research and development costs and high production costs resulting in high purchases prices for the consumer, limiting sales from growing fast. Recently, suffered delays in the “design, manufacture, launch, and production ramp” of the Model 3, which tesla acknowledges may “harm our brand, business, prospects, financial condition, and operating results.” This disrupted the projected volume of Model 3s to be produced in 2018. Many of these issues were rooted in supply chain constraints and technical issues on the lithium battery assembly line. The lithium batteries also present another vast issue for the production of Tesla’s electric vehicles.  The risks involving the supply shortage of lithium batteries include the increased cost of lithium-ion cells, increased risk of lithium-ion battery recall from suppliers, and fluctuations of the Japanese yen against U.S. that affect Tesla’s purchasing power of lithium-ion cells.

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Despite the weaknesses, Tesla Inc. sees a major sales growth due to the expansion of its Supercharge Network. Currently, there are 1210 Supercharge stations collectively equipped with 9,428 Superchargers across North America, Asia, Europe, and the Middle East. Tesla is actively venturing to expand the presence of Superchargers in more urban areas at grocery stores, shopping centers, and high-traffic areas. With the possibility of long-distance travel and widespread acceptance of electric vehicles across North America, Europe, and Asia, this effort should work to increase customer appeal and ultimately sales revenue. The main threats facing Tesla Inc. are rooted in intense levels of competition and legal/regulatory issues. Tesla currently relies on its premium brand image to offset other electric vehicles from other car manufacturers, such as the Nissan LEAF, Chevrolet Bolt, and BMW i3. Currently, many states within American do not allow the direct sale of a vehicle from a manufacturer. This is damaging to the widespread expansion of Tesla, as the company only sells their products directly from Internet orders and/or Tesla stores.

Tesla, Inc. has a very distinct and unusual, yet vastly successful marketing strategy that sets it apart from its competition. As stated by Elon Musk, “Tesla is a technology company and independent automaker, aiming to offer electric cars affordable to the average consumer.” The original line of business for Tesla Inc. was the production of electric vehicles (EVs), with the introduction of the Model S in June 2012. The Model S is noted as the longest range all-electric production sedan in the world, with an estimated 335 miles per full charge. In the performance version, the Model S remains the “quickest accelerating production vehicle ever.” The EV line continued in September 2015 with the release of the Model X, with “seating for up to seven people, all-wheel drive, and our autopilot functionality”. Finally, Tesla Inc. began producing the Model 3 in July 2017, which focused on delivering the luxury quality of the Model S and X at a lower price for the mass market. With the introduction of Solar Roof, Tesla now offers a full suite of energy products.

All Tesla car models are categorized in premium price bracket in relation to other electric cars, due to its high research and development and production costs. However, when compared to competitors, the car models are strategically priced. The 2018 Tesla Model S fluctuates between a price range of $74,500-$135,000. In a price comparison, the 2018 Ford Fusion has a starting price of only $33,120. To compensation for such drastic levels of price completion, Tesla released the Model 3 with a more competitive starting price of $35,000. 

Tesla Inc. currently produces its electric vehicles in Fremont, California; Lathrop, California; and Tilburg Netherlands. Its largest facility is a 5.3 million square feet office and manufacturing and facility in Fremont, California. To offset the current threat of lithium battery shortages, Tesla has commenced construction on a lithium battery production facility, called Gigafactory 1, in Reno, Nevada. Tesla plans to utilize this facility to achieve a 500,000 yearly vehicle production output and significantly reduce the production cost of its battery packs. Plans to follow with a Gigafactory 2 in Buffalo, New York have been announced by Musk in 2018.

 Tesla distinguishes itself from other manufacturers by solely relying on Internet platforms to promote its electric vehicles and energy services. In regards to their marketing approaches, Tesla Inc. states “To date, for vehicle sales, media coverage and word of mouth have been the primary drivers of our sales leads and have helped us achieve sales without traditional advertising and at relatively low market costs”. We incurred marketing, promotional and advertising costs of $66.5 million, $48.0 million and $58.3 million in the years ended December 31, 2017, 2016 and 2015, respectively. Tesla has built a strong brand recognition by means of modern social media publicity. Elon Musk himself creates transparency between the company and consumers by being very active on social media platforms, such as Twitter and Instagram. As the face of the brand, Musk utilizes communication with brand fanatics, often re-tweeting their posts about Tesla and directly answering questions, to hype the release of new products and company expansions.

Although many car manufacturers have a share of the electric car market, one of the biggest future competitors for Tesla is the 2019 Jaguar I-Pace, its first electric vehicle. Specifically, the I-Place will rival the Model X, as they are both innovative electric SUVs on the market. Some industry researches are even claiming that the introduction of this model will end Tesla’s monopoly of the electric SUV market segmentation. The jaguar I-Pace appeals more to the average consumer, possibly gaining market share from Tesla in the market segment of individuals looking for a stylish, yet practical electric vehicle without unnecessary innovative technology. The Jaguar I-Pace has a competitive mile range per charge to the Model X, even boasting a higher horsepower and faster 0-60 mph time. Most importantly, the Jaguar I-Pace will enter the electric vehicle market at a starting price $69,500, approximately $10,00 less than the Model X. 

Tesla Inc. remains a flawless exemplification of value proposition. Tesla focuses heavily on the car buying experience, allowing for customization and limit mass production. Very few physical stores exist as a method of reducing its environmental footprint. Even they are only merely for gallery and information purposes. Consumers are directed to the Tesla website to personalize their vehicle, commencing manufacturing only after an order has been placed. Unlike its competitors, this practice eliminates an excess of produced vehicles sitting in idle in inventory. “We market and sell our vehicles directly to consumers…which we believe enables us to better control costs of inventory, manage warranty service and pricing, maintain and strengthen the Tesla brand, and obtain rapid customer feedback”. This creates a truly unique car buying experience that cannot be replicated by a car dealership

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Tesla further demonstrates its value proposition in the products in its current and future marketing plans. In particular, one of the most innovative aspects of Tesla is its plan to make widespread self-driving cars a norm across the globe. Stemming off of this technology, Tesla has constructed a self-driving Semi truck, launching the product division in November 2017.  With Musk projecting an annual production output of 100,000 trucks per year, this would propel Tesla as one of the leading truck manufactures in the world. Tesla possesses the best battery technology on the current market, which is due in part to its close partnership with Panasonic. Together, Tesla and Panasonic are currently working on the battery pack production capacity of 50 gigawatt-hours (GWh) in 2018. Tesla has utilized this advanced technology to transfer existing car customers into the home energy sector with the introduction of its Powerwall home energy storage unit. This expansion and transfer of customers into the home market enables Tesla to have a competitive and differential advantage over its competitors.

With the expansion of new electric models and energy applications, Tesla Inc. has seen constant drastic increases in its revenue sales in the last three years. This is reflected in Tesla being the most dominate electric car manufacturer, holding a reported 29% of the current market share. However, due to high production costs and materials costs that cannot currently be offset by maximum production output, Tesla has experienced continual net losses. The company remains focused on increasing production numbers in order to decrease unit cost, although a high research and development cost will remain. This relationship is shown in Figure 2.

Due to the high competition levels in the car industry, the stock price of Tesla suffers from a high volatility rate, holding 52-week closing price range between 244.59-389.61. This is also reflected in its recent decreasing return-on-equity (ROE) rates. The current ROE is -38.8, which differs vastly from equity returns within the industry. Despite the declining stock value of Tesla, the Wall Street Consensus is to hold stock, as the continuing technological developments an innovative product release resulting in revenue increases remains promising for the company.

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