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December 19, 2017, vizologi

TESLA BUSINESS MODEL | HOW DOES TESLA MAKE MONEY | STRATEGY AND INSIGHTS

Right from the invention of the wheel to the beauty of a Lamborghini, transportation through cars has been a much talked about topic among people. One such invention in the history of cars, that changed the course of the future, is the electric car. Robert Davidson of Aberdeen, maker of the first known electric car, built it in 1837. Today, what is the first thing that comes to your mind when an electric car is mentioned? Tesla!

In this article we will see how Tesla is one of the most significant companies in shaping the future of the automotive industry in the world, and understand the business model.

Tesla Inc. is mainly an American automaker company. It, however, also provides energy services. The company was founded in 2003 and specializes in electric cars, energy storage and photovoltaic panels. The company came to be through Martin Eberhard and Marc Tarpenning form Silicon Valley. Although many people think that Elon Musk is the founder of Tesla, Martin and Marc are the ones that came up with the original idea. However, Elon Musk, Ian Wright and JB Straubel were added to the founders list of the company.

The climb

Tesla’s journey of success began in 2008, after facing many failures and disappointment. The company took off with the Roadster. The Roadster is a sports car which is electric and not fueled. Tesla sold 2,250 models of the car between 2008 and 2012.

On 22 June 2012, Tesla announced its first car in the Model S series. This was supposed to be Tesla’s family sedan at an affordable price. This was another great success to be a part of Tesla’s story book. Model X was the next model of tesla that was unveiled on February 9, 2012. The actual deliveries began in 2015. The Model X, like the other previous models is an all-electric car. The model X is a full sized crossover SUV. Tesla’s fourth vehicle is the Model 3. It is a luxury sedan, electric and mid-sized. Just under a week of unveiling the car, Tesla said, they had taken 325,000 reservations for their Model 3. These were the different vehicles made by Tesla. In 2015 and 2016 about 186,000 electric cars were sold by Tesla and they went on to become the second leading plug-in electric cars manufacturer. A network of Superchargers are provided for their customers across states. Tesla is also involved in solar roof systems.

The business model of Tesla is a design of pure excellence. This is how it started: they introduced themselves in the market with expensive high end cars meant for the affluent class of society. So they wanted their vision and mission out there first. Later they would cater to the other classes in society and enter a more competitive market.

Tesla have their business model based on three fronts: selling their products, providing servicing facilities, and charging its electric vehicles.

  1.  Direct Sales: Most manufacturers use franchise dealerships to promote sales and spread a network of stores. Tesla did not adopt this style. Their products are sold directly in showrooms owned by themselves, in many urban places across the world. However, they emphasize on this more for the customer’s buying experience. Service facilities, showrooms, and Service Plus locations are all provided by Tesla for their customers. This has helped them gain more control over their sales and the business development. Although this might seem risky to most business models, they went ahead with such an approach and so evidently succeeded.
  2. Servicing: Tesla have brought direct sales and service centers under one roof. According to them customer demand seems to work better with service centers provided and thus their retail centers called “Service Plus”. These centers have servicing and charging facilities. They also have something called Tesla Rangers: technicians who can visit you at your house. Model S’s allow them to deal with the car over the air.
  3. Charger’s network: For customers to charge their vehicles, the company has provided them with a large network of chargers. Supercharger Stations are stations, where in half an hour, customers can charge their vehicles. This works well with the customers.

That’s not all, besides the business model, Tesla also grants loans in order to help their customers with finances, or even leases. And these are just their cars. Their products also include home batteries (Powerwall) and solar roof system.

Business Model Canvas of Tesla

Business model canvas of Tesla explaining the different aspects of a business model like customer segments, value propositions, channels, customer relations, revenue stream, key activities, key resources, key partners and cost structure are given below:

Click the image to enlarge:

Tesla business model | How does Tesla make money?

Customer Segments: This denotes the people for whom Tesla is useful.

  • Entrepreneurs that are early adopters and are fairly wealthy.
  • Eco-friendly customers that are pollution conscious
  • Tech savvy individuals.

Value Propositions: What all problems can Tesla solve and what all do they have to offer.

  • Deliver highly efficient electric cars that can easily compete with and even take over regular fuel driven cars.
  • Serve the purpose of clean and eco-friendly transport.
  • Highly satisfying customer service with its self-owned retail stores and on the go service.
  • Easy and supportive buying options available to their customers.
  • A supercharger network that allows continuous travel across long distances.

Channels: What all are the platforms used by Tesla to reach the customers.

  • Self-owned retail stores with professional well-trained staff.
  • Twitter: tweets from Elon Musk to gain publicity.
  • User forums and user community.
  • A deep customer relationship to create word-of-mouth marketing web.

Customer Relationships: Features offered by Tesla to connect with the customers.

  • Making the buying experience personal and authentic
  • Engaging with the customers through movement or their blog.
  • Super quick and efficient after sales service.
  • Word of mouth marketing.

Revenue Stream: What are the main income sources?

  • Retail Sales.

Key Activities: What are the activities undertaken by Tesla.

  • Manufacturing.
  • Sales.
  • After-sales service.
  • Blog and customer engagement.

Key Resources: What all resources did Tesla used to be successful?

  • Highly trained employees.
  • Over 200 self owned retail stores over the world.
  • Goodwill of its founders and CEO.
  • Psychological tactics.
  • A very strong and widely supported mission.
  • Customer satisfaction.

Key Partners: Who all help Tesla? What all do they do?

SolarCity

Headquartered in San Mateo in California, a subsidiary of Tesla is SolarCity which is a company specialized in energy services. It was founded by Peter and Lyndon Rive, in 2006. Their cousin Elon Musk suggested to them to start a solar company, and they rightly did. On November 21, 2016, Tesla acquired SolarCity for about 2.6 billion. It sells solar panels while manufacturing and doing the marketing for them, there is a direct feedback between the business models of Tesla and Solar City, due to both companies use energy as a core of their business strategy.

Business Model Canvas of Solar City

Solar City business model | How does Solar City make money?

Cost Structures within the Telsa’s business model: What are the types and relative proportions of fixed and variable costs that Tesla incurs?

  • High expenditure on R&D.
  • Employs well-trained staff that need to be furnished with the products.
  • Hosting self-owned retail stores.
  • Sales and After-sales costs.

The man that changed Tesla Inc.

Known for many accomplishments in his career, Elon Musk is also known for the reason behind Tesla’s unbelievable success.

Elon Musk the CEO at Tesla is also the product architect of the company. He is in charge of the product development of their cars. In 2004, he joined as a director and became the chairman. Elon took it upon himself to lead the company being the CEO as well as the product architect, after the crisis of 2008. And so heading the company, he is revolutionizing the industry with Tesla. Apart from the cool cars, he also parents the design of the solar panels and battery products.

A fun fact: Only in February 2016, Tesla changed its homepage to Tesla.com after Elon got it from Stu Grossman.

Outside of Tesla, Elon has acquired many accolades for himself, through projects like SpaceX and Paypal. This is what made him an iconic entrepreneur in general. Elon Musk became a new form of what success looks like. This, in actuality, was one of the main reasons why Tesla became so popular so quick. People believed in Elon and what he could do with his inventions. Apart from the technical excellence of his cars, the goodwill of his name contributed significantly to the success of the company. While other car companies require spending millions on marketing, all Tesla needed was a tweet from Elon Musk and the next hot topic in the industry it was.

The future of Tesla

Tesla Inc. has its mission beyond what one might assume. The company is not solely based on profit making and manufacturing the coolest cars for the more wealthy class of society. This is their mission: to make the world’s changeover to energy that is sustainable, much faster.

Tesla wants to completely change the way people think of buying cars. They want to center it around efficiency as well as ‘eco-friendly’. They realize the harm the emissions from automobiles  are doing to the environment and are making, what most might call, a successful effort at reducing it.

They keep improving and improving. After successfully making the electric car a viable thing, they wanted to overcome another challenge of long distance travel by electric cars. The Superchargers made that a reality. Every step of theirs is bringing their envisioned future closer to the present. Tesla salesmen give their customers all the details of every car rather than shoving them down their customers throats. Tesla makes sure that its staff know all about their cars, even more than their customers. This makes the buying experience so much more professional and easy. Even the car itself is such a class apart. Not one competitively priced car, in the same price, either electric or gas, would beat it to 100 km/h.

Tesla made the electric car dream a reality. It has such an excellent business model which was so beautifully executed that it made the daunting task of bringing the electric vehicle to penetrate the market seem like a walk in the park. Tesla is truly the future of safe and clean travel.

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