Tesla’s Disruption and Sources of Competitive Advantage
Tesla is a disruptor because it sped up the adoption of electric vehicles (EVs). Specifically, Tesla developed the Roadster, an electric racing car that could accelerate from 0 to 60 mph as fast as the latest Ferrari models (Van den Steen et al., 2021). Furthermore, Tesla used a high level of electronic integration, allowing drivers to customize the car’s behavior (Van den Steen et al., 2021). One difference between Tesla and other car marketers is that Tesla develops its automobiles as software products, regularly updating software in its vehicles (Shipley, 2020). Second, while other industry players distribute their products through dealerships, Tesla has company-owned stores and sells its cars online (Kraft et al., 2021). Third, Tesla develops new batteries to reduce buyers’ total cost of ownership (Shipley, 2020). Tesla’s macro strategy for achieving a competitive advantage is customer excellence because it provides superb customer service. The four sources of Tesla’s competitive advantage are powertrain and battery pack technology, the supercharger network, company-owned stores, and Gigafactories (Han, 2021). These advantages are sustainable because they are difficult to copy: other companies will have to spend substantial time and resources to achieve them.
Tesla’s Market Entry Strategy
For its first market entry, Tesla’s product strategy was selling racing cars, and the pricing strategy was charging premium prices. It was successful, given Tesla’s place in the market, because, as a new entrant, Tesla needed money to launch products for the mass market. By selling expensive cars manufactured in low volumes, Tesla aimed to earn money by creating cars at lower prices and higher volumes (Kraft et al., 2021). This strategy was also successful regarding the environmental conditions because in the 2000s, when Tesla developed its first car, emission-control norms on cars became tighter, and technological improvements made EVs more commercially viable (Kraft et al., 2021). Thus, Tesla’s entry strategy responded to environmental changes and allowed the company to get funds for further growth.
“Points of Friction” for Adoption of Electric Vehicle Technology
A SWOT Analysis of Tesla
Strengths
- Innovation in EV technology, car design, and battery technology.
- Low marketing and distribution expenses because of reliance on word-of-mouth and company-owned stores.
- Charging network with 730 supercharging stations in 2019 (Kraft et al., 2021).
Weaknesses
- Low production volume because of attempts to rethink established production processes (Kraft et al., 2021).
- Failures in developing fully autonomous vehicles (Van den Steen et al., 2021).
- Heavy reliance on Elon Musk’s public image, making the company’s future with a different CEO unclear.
Opportunities
- Development of self-driving cars.
- Global expansion is facilitated by Tesla’s facilities located in the US, the UK, the Netherlands, and China (Kraft et al., 2021).
- The possibility of manufacturing Tesla’s own batteries, which can reduce the cost of production for Tesla (Van den Steen et al., 2021).
Threats
- An intense competition involving such large market players as Ford, Volkswagen, and General Motors.
- Slow adoption of new products by customers because of their complexity.
- Legal regulation of self-driving vehicles forces Tesla to invest much time and resources in developing safe self-driving cars.
The Macroeconomic Factors Influencing the Electric Vehicle Market
Three macroeconomic factors that will most influence the EV market are legal, economic, and technological. Political and legal factors will be important because the governments set national goals of ending the sales of petroleum-powered cars by 2030 in the case of the UK and by 2035 in the US (Ball, 2021). To remain competitive in this new legal environment, car manufacturers will have to shift from producing ICE vehicles to manufacturing EVs. Economic factors include rising fuel prices and decreasing cost of driving EVs (Kraft et al., 2021). It means that the EV demand is likely to increase, encouraging manufacturers to start their production. Finally, technological factors include recent developments in battery technology, self-driving technology, and other advances. Technological improvements will enable companies to meet governmental emission-control goals and will become a source of competitive advantage for companies. Other macroeconomic factors influencing this market are social trends toward environmental sustainability, Americans’ demographic tendency to own at least one car per household, and the modern cultural trend of supporting innovation.
The Electric Vehicle Market in 2030
The size of the EV market is expected to grow: according to McKerracher and Wagner (2021), EV sales will be about 30 million cars in 2030. The sales of hybrid cars will be about 15 million, and the sales of ICE cars will decrease to fewer than 50 million vehicles (McKerracher & Wagner (2021). Companies like Ford will be winners because they innovate and establish specific goals for producing EVs; for example, Ford intends to manufacture 2 million EVs by 2026 (Wayland, 2022). Firms like BMW are likely to be losers because of their unpreparedness for a market shift; for instance, BMW is still dedicated to ICE cars and did not specify when it plans to stop selling them (Van den Steen et al., 2021). The growth of the EV market will cause slight changes in the energy economy, decreasing global oil demand by about 1 million barrels a day in 2026, which is only 1% of the total oil demand (Ball, 2021). This is because the oil will still be required by industries, airplanes, trucks, and other uses, not affected by the introduction of EVs.
References
Ball, J. (2021). The electrification of the auto industry is speeding up—and shaking up the energy economy. Fortune. Web.
Han, J. (2021). How does Tesla Motors achieve competitive advantage in the global automobile industry? Journal of Next-Generation Convergence Information Service Technology, 10(5), 573-582.
Kraft, T., Alagesan, S., & Shah, J. (2021). The new war of the currents: The race to win the electric vehicle market. Darden Business Publishing.
McKerracher, C., & Wagner, S. (2021). At least two-thirds of global car sales will be electric by 2040. Bloomberg. Web.
Shipley, L. (2020). How Tesla sets itself apart. Harvard Business Review. Web.
Van den Steen, E., Casadesus-Masanell, R., & Elterman, K. (2021). Tesla Motors in 2021: Competition revs up. Harvard Business School.
Wayland, M. (2022). Ford will split EVs and legacy autos into separate units as it spends $50 billion on electric vehicles. CNBC. Web.