Tesla Motors: Trouble on the Green Energy Horizon

Tesla Motors is currently at the vanguard of autonomous electrical vehicle (EV) production. However, fierce competition by traditional automobile manufacturers is imminent. Rivals such as Volkswagen plan to achieve 25% of their sales revenue from EVs by 2025 and is planning an extensive range of 20 models.

In support, the ever-expanding technological advances with regards to battery innovation have fuelled greater consumer adoption. Increased range in excess of 300 kilometres, along with falling prices of battery packs, are streamlining the EV market in line with that of conventional internal combustion engine vehicles.

However, with Tesla’s 400,000 pre-sales of the Model 3, a car for which drivers were required to put down $1000 each without even sitting in the vehicle, demonstrates the potential of the EV market and the ever-increasing transition.

BNEF’s latest projection has sales of EVs overtaking traditional ICEs in 2038. Looked at differently, BNEF’s projection suggests electric vehicles account for all the growth in global vehicle sales within a decade from now.

Nonetheless, the EV market today is similar to where the smartphone was in 2010 — it has just taken off and is ready to explode.

The Success Story Thus Far

The introduction of an entrepreneur’s mindset has helped with Tesla’s market penetration of the stubborn automobile industry. The three main constraints Tesla faces are primarily capital requirements, technology and consumer adoption.

In the light of inadequate capital infrastructure and manufacturing procedures, Tesla developed alliances and partnerships with various other members of the automobile industry. The relationship between that of Tesla and Lotus produced Tesla’s first automobile, the Roadster.

This was the result of “modular relationships” which included expertise and infrastructure leveraged from Lotus to create Tesla’s first minimum viable product.

The aim of this strategy was to act as a signal of Tesla’s small-scale success and attract further investment in order to scale up to today’s Model S. Similarly, Tesla acquired General Motor and Toyota’s manufacturing plant in Fremont, California.

Further technological constraints, in terms of software, were another barrier to entry, especially for many firms other than Tesla wishing to compete in the autonomous EV market. The strategy adopted by Tesla was to release all their cutting-edge software patents to the public domain in order to boost the number of suppliers in this market and increase the level of EVs on the road today. The success of this strategy can be attributed to the ecosystem that facilitates both competition and collaboration.

Finally, consumer adoption was a risk for Tesla. However, the short period for Tesla to get their vehicles to market (shorter than any other competitor) showed consumers and investors that a high standard EV is a viable option.

In fact, this is evident from the fact that Tesla developed the Roadster and Model S at approximately $140m and $650m respectively; however, General Motor’s first electric vehicle cost nearly $1bn to bring to the marketplace.

This reoccurring theme of “build-measure-learn” has reduced the costs of both entry and learning curves Tesla faces.

How to Improve Current Market Position

Tesla’s strategy for future success should be clear and direct in order to catapult EVs to the forefront of the automobile industry and slowly start the process of eradicating the use of combustion engines.

The need for an easily replaceable battery should be focused on. This will ensure that the resale value of Tesla’s vehicles remains high allowing depreciation to be minimised and an attractive secondary market to develop. This will be key in attracting new Tesla customers and ultimately broadening Tesla’s current customer base to a wider range of income groups.

However, Tesla batteries are currently provided by Panasonic. Thus, Panasonic must understand the new focus and added need to create never seen before, long lasting, efficient batteries.

Similarly, Tesla should aim to extend its partnerships with other pioneers within the industry in terms of both software and hardware. While the focus was previously on hardware alliances, now may be the time to focus on software alliances to benefit from economies of scale.

A critical assumption of Tesla’s future success is dependent on mitigating the network effects currently being experienced within the EV industry. Incentives to purchase Tesla’s vehicles is greatly hindered by the lack of charging stations globally.

Both current ownership and subsidised charging stations by Tesla are inadequate to attract the necessary level of new customers. Thus, this should be a priority for Tesla if it wishes for EVs to be more accepted within society and for EVs to become more a common feature of everyday life rather than a hindrance.

Further to this, those that live in cities without garages or driveways do not have access to charging points other than those present on the side of popular roads. This is a great inconvenience as it means parking away from your residence. This issue must be rectified for Tesla to increase its current market share within the automobile industry.

Practicality and Option to Economise

The supercharger network that Tesla is rolling out is somewhat a step in the right direction of needs and requirements of consumers, a ubiquitous network of fast-charging stations. Alongside the network, current benefits and features include a lifetime free supply of fast charging.

The price of these charging systems is rolled into the price of the Tesla automobile. This added convenience is another critical factor in the story of Tesla’s success and the consolidation of its competitive advantage.

In support, for occasions when Tesla’s free supercharged network is not an option, the possibility to utilise the Economy 7 electric usage policy is an attractive alternative. A common case in which the Economy 7 is used tends to be when consumers wish to charge their EV’s at their household overnight.

Conclusion

It is clear that Tesla have taken a step in the right direction in terms of where the automobile industry ought to be heading. It is no longer a question of whether this happens — but how quickly. In light of the recent Paris Climate Change Agreement and India’s pledge to sell only EV’s by 2030, Tesla’s success appears to be on the horizon.

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