Introduction
Strategy formulation is an important function of the executive and top management. Well thought of and executed strategies help a business to compete effectively in the product markets in which it operates. Tesla, Inc. is an electric vehicle manufacturer that has taken the automotive market by storm, thanks to the strategies at the business and the corporate-level. This paper explores Tesla, Inc. strategies at the corporate and business-level, identify the most significant competitor, and evaluate their strategies to determine the most significant in the long term, as well as examine the effectiveness of these strategies in fast and slow cycle markets.
Business level
Tesla, Inc. formerly known as Tesla motors, Inc. uses a combination of differentiation focus and broad differentiation as the main business-level strategy. The automaker has attracted praise and criticism on equal measures because of the excessive ambitions that are regarded as wild plans to make fully electric vehicles that are premium priced. Tesla has set itself as the vehicle manufacturer that is committed to sustainability by doing away with hydrocarbon fuel cars completely and making high-tech electric cars, which are sustainable and eco-friendly. Tesla ventured into an area where veteran car makers have dreaded to follow. For instance, vehicle manufacturers such as Toyota, general motors, Honda, ford motor company among others have been dreading to get into the electric vehicles fully, despite having the necessary resources. Instead, they have been making hybrid cars that are not partially electric and partially use hydro carbon. As such, Tesla differentiates itself as the leader in making fully electric vehicles.
Tesla Inc. also differentiates itself in terms of pricing whereby Tesla car models are premium prices for the products. Elon musk notes that Tesla, Inc. makes vehicles for the upper class segment of the market where buyers are willing to pay a premium, then drive down the market by lowering the prices with every consecutive model. For instance, the first model; roadster with a lithium-ion battery pack was priced at $109,000.
Tesla also employs broad differentiation whereby it offers a range of products and services such as the sale of electric sedan Model S, Model Y, SUV version of Model Y, and Model 3. the cars are made with state of the art technology such as customizable seats, storage and varying battery performance. Other products by Tesla are such as megapack batteries, solar roof solutions, solar panels powerpack among others.
The differentiation strategy is the most significant to the long-term success of the firm because it sets Tesla apart from the traditional car manufacturers. By treading in an area where giant makers like Nissan, Renault, Volkswagen, Tata motors among others have dreaded to fear, Tesla has demonstrated to the world that anything that one commits to is possible. Tesla holds the future of motor vehicle, given that other motor makers have until 2040 to make 0 emissions vehicles. Climate change experts have set year 2040 as the deadline for making emission vehicles. Cars registered after 2040 will have to be zero emissions vehicles. Tesla has already positioned itself as the maker of emission free cars, which holds the future of automobiles.
Corporate level strategies
Hitt, Ireland, & Hoskisson (1) outline corporate level strategies as the set of activities that a firm takes to help it compete effectively in various product markets. Tesla uses market penetration as the main strategy at the corporate-level. Market penetration entails looking for new customers in the markets in which the company operates. Currently, Tesla has its main market concentrated in the United States of America and china. Tesla engages in aggressive marketing to rollout and sell more of its electric vehicles in the United States. Tesla uses viral marketing whereby word of mouth marketing has helped Tesla to be known in the market. For instance, Model S for kids is essentially endorsed through viral videos on social networks. Tesla seeks to cement the sales in its home market before venturing into other markets such as the European, Asian and African markets.
Tesla also uses product development as the auxiliary corporate-level strategy. Product development entails developing new products to sell to existing markets. Tesla’s acquisition of SolarCity Company shows that Tesla is determined to increase the product line of its offering. Solarcity sold and installed solar energy generation systems and other solar related products like solar roofing systems to residential, commercial and industrial customers. Tesla wants to set itself as the environmentally minded corporate by venturing into areas that are sustainable such as dealing with solar energy and solar systems products. Tesla also spends heavily in research and development with the intention of making unique products. For instance, underneath the hood of Tesla’s vehicles is a different architecture in terms of software and hardware, although the outward look may look like other vehicles. The research and development for Tesla Increased from $0.7 billion in 2015 to $1.5 billion in 2018.
Market development is the tertiary strategy that entails looking for new markets for a firm’s existing products. Tesla seeks to venture into new markets like the European, Africa, Latin America and Asian markets to generate more sales and grow the global business. Currently, Tesla is present in America and Chinese markets, but the mission highlights that Tesla seeks to fast-track the world’s changeover to sustainable energy. That demonstrates that the electric automaker is determined to enlarge its market across the globe.
Market development is the most significant strategy in the long term because it entails capturing a big market and grow the market share as much as possible. Once the market has been segmented, Tesla can then sell other products to the existing market, or the large market share can help enlarge the market share to others through the world of mouth as it currently is.
Competitive environment
Tesla operates in the automotive industry, which is characterized by intense and cut throat competition. The automotive industry is characterized by competitors like Renault, Nissan-Mitsubishi, Tata motors, Honda, Ford, Volkswagen, general motors, with new entrants from china being XPeng and NIO being the latest entrants. Competition is bloody meaning that there is intense rivalry between firms to compete for customers, given that car purchases are infrequent purchases. Among the many competitors, Toyota Corporation is the most significant competitor.
Toyota is a Japanese automaker that was founded in 1937, giving it 84 years of experience in the automobile industry. Toyota Corporation uses differentiation as its main business-level strategy by selling different types of vehicles for different market segments. For instance, Toyota sells Toyota 4Runner and the Toyota Land Cruiser in the SUV category, sedans cars like Toyota corolla, Camry, and Avalon, trucks like Toyota Hilux, and luxury cars like Toyota land Cruiser, Lexus, and highlander Hybrid. The broad category of vehicles make it possible for Toyota cars to appeal to customers of different socio-economic segments. For instance, Toyota Vitz is for low income earners that costs as low as $ 5,000 while models like Toyota GT-One Road Version that costs $1,300,000.
Toyota also uses a cost leadership strategy whereby it seeks to reduce its expenses and sells low priced vehicles, thanks to the just in time manufacturing method. In terms of the corporate-level strategy, Toyota uses market penetration just like Tesla whereby it seeks to reach to as many customers as possible by reaching and attracting more customers to the current markets in which the firm operates.
A closer look at the different strategies that Toyota Corporation and Tesla , Inc. uses reveals that unique differentiation by Tesla is likely to be successful in the long term. Tesla makes products that are in a league of its own; fully electric vehicles. Car makers like Toyota dreaded putting their feat in uncertain waters of making fully electric vehicles but instead resorted to making hybrid cars. As the world grapples with climate change and the desire to minimize pollution from motor vehicle emissions, Tesla, Inc. has strategically positioned itself as the car maker that makes products that are in line with environmental concerns and sustainability.
Market cycles
Hitt, Ireland, & Hoskisson (1) define two kinds of markets that businesses operate in. The fast cycle-markets and the slow cycle markets. The fast cycle market is characterized by little turnaround time for firms to innovate, intense competition, price wars and other competitive activities. In that case, the strategy of cost leadership, differentiation and market penetration would be most ideal in fast cycle markets and they would be significant in the long term.
Slow-cycle markets are characterized by adequate time to innovate and differentiate the product from competitors and shield the differentiated product through patents, solidified market share, among others to keep off competitors. In view of that, Tesla, Inc. unique and broad differentiation strategy at the business-level and market development would be most successful in the long term.
Tesla understands the kind of market in which it operates and adopts strategies that are ideal to operate in these kinds of cycles. Motor vehicles are infrequent purchases and deals with specialty goods. As such, the company takes time and invests in research and development to make products that are different from the market. Electric vehicles are unique in the market, and are ideal in the slow cycle markets in which Tesla operates in.
In conclusion, Tesla has defied the odds and has made its name in a special place in the market as being the first company to make fully electric vehicles. The vehicles are premium priced for customers who are prepared to pay a premium price for the car and then drive down the prices to appeal to other customers at lower prices.
Strategy formulation is an important function of the executive and top management. Well thought of and executed strategies help a business to compete effectively in the product markets in which it operates. Tesla, Inc. is an electric vehicle manufacturer that has taken the automotive market by storm, thanks to the strategies at the business and the corporate-level. This paper explores Tesla, Inc. strategies at the corporate and business-level, identify the most significant competitor, and evaluate their strategies to determine the most significant in the long term, as well as examine the effectiveness of these strategies in fast and slow cycle markets.
Business level
Tesla, Inc. formerly known as Tesla motors, Inc. uses a combination of differentiation focus and broad differentiation as the main business-level strategy. The automaker has attracted praise and criticism on equal measures because of the excessive ambitions that are regarded as wild plans to make fully electric vehicles that are premium priced. Tesla has set itself as the vehicle manufacturer that is committed to sustainability by doing away with hydrocarbon fuel cars completely and making high-tech electric cars, which are sustainable and eco-friendly. Tesla ventured into an area where veteran car makers have dreaded to follow. For instance, vehicle manufacturers such as Toyota, general motors, Honda, ford motor company among others have been dreading to get into the electric vehicles fully, despite having the necessary resources. Instead, they have been making hybrid cars that are not partially electric and partially use hydro carbon. As such, Tesla differentiates itself as the leader in making fully electric vehicles.
Tesla Inc. also differentiates itself in terms of pricing whereby Tesla car models are premium prices for the products. Elon musk notes that Tesla, Inc. makes vehicles for the upper class segment of the market where buyers are willing to pay a premium, then drive down the market by lowering the prices with every consecutive model. For instance, the first model; roadster with a lithium-ion battery pack was priced at $109,000.
Tesla also employs broad differentiation whereby it offers a range of products and services such as the sale of electric sedan Model S, Model Y, SUV version of Model Y, and Model 3. the cars are made with state of the art technology such as customizable seats, storage and varying battery performance. Other products by Tesla are such as megapack batteries, solar roof solutions, solar panels powerpack among others.
The differentiation strategy is the most significant to the long-term success of the firm because it sets Tesla apart from the traditional car manufacturers. By treading in an area where giant makers like Nissan, Renault, Volkswagen, Tata motors among others have dreaded to fear, Tesla has demonstrated to the world that anything that one commits to is possible. Tesla holds the future of motor vehicle, given that other motor makers have until 2040 to make 0 emissions vehicles. Climate change experts have set year 2040 as the deadline for making emission vehicles. Cars registered after 2040 will have to be zero emissions vehicles. Tesla has already positioned itself as the maker of emission free cars, which holds the future of automobiles.
Corporate level strategies
Hitt, Ireland, & Hoskisson (1) outline corporate level strategies as the set of activities that a firm takes to help it compete effectively in various product markets. Tesla uses market penetration as the main strategy at the corporate-level. Market penetration entails looking for new customers in the markets in which the company operates. Currently, Tesla has its main market concentrated in the United States of America and china. Tesla engages in aggressive marketing to rollout and sell more of its electric vehicles in the United States. Tesla uses viral marketing whereby word of mouth marketing has helped Tesla to be known in the market. For instance, Model S for kids is essentially endorsed through viral videos on social networks. Tesla seeks to cement the sales in its home market before venturing into other markets such as the European, Asian and African markets.
Tesla also uses product development as the auxiliary corporate-level strategy. Product development entails developing new products to sell to existing markets. Tesla’s acquisition of SolarCity Company shows that Tesla is determined to increase the product line of its offering. Solarcity sold and installed solar energy generation systems and other solar related products like solar roofing systems to residential, commercial and industrial customers. Tesla wants to set itself as the environmentally minded corporate by venturing into areas that are sustainable such as dealing with solar energy and solar systems products. Tesla also spends heavily in research and development with the intention of making unique products. For instance, underneath the hood of Tesla’s vehicles is a different architecture in terms of software and hardware, although the outward look may look like other vehicles. The research and development for Tesla Increased from $0.7 billion in 2015 to $1.5 billion in 2018.
Market development is the tertiary strategy that entails looking for new markets for a firm’s existing products. Tesla seeks to venture into new markets like the European, Africa, Latin America and Asian markets to generate more sales and grow the global business. Currently, Tesla is present in America and Chinese markets, but the mission highlights that Tesla seeks to fast-track the world’s changeover to sustainable energy. That demonstrates that the electric automaker is determined to enlarge its market across the globe.
Market development is the most significant strategy in the long term because it entails capturing a big market and grow the market share as much as possible. Once the market has been segmented, Tesla can then sell other products to the existing market, or the large market share can help enlarge the market share to others through the world of mouth as it currently is.
Competitive environment
Tesla operates in the automotive industry, which is characterized by intense and cut throat competition. The automotive industry is characterized by competitors like Renault, Nissan-Mitsubishi, Tata motors, Honda, Ford, Volkswagen, general motors, with new entrants from china being XPeng and NIO being the latest entrants. Competition is bloody meaning that there is intense rivalry between firms to compete for customers, given that car purchases are infrequent purchases. Among the many competitors, Toyota Corporation is the most significant competitor.
Toyota is a Japanese automaker that was founded in 1937, giving it 84 years of experience in the automobile industry. Toyota Corporation uses differentiation as its main business-level strategy by selling different types of vehicles for different market segments. For instance, Toyota sells Toyota 4Runner and the Toyota Land Cruiser in the SUV category, sedans cars like Toyota corolla, Camry, and Avalon, trucks like Toyota Hilux, and luxury cars like Toyota land Cruiser, Lexus, and highlander Hybrid. The broad category of vehicles make it possible for Toyota cars to appeal to customers of different socio-economic segments. For instance, Toyota Vitz is for low income earners that costs as low as $ 5,000 while models like Toyota GT-One Road Version that costs $1,300,000.
Toyota also uses a cost leadership strategy whereby it seeks to reduce its expenses and sells low priced vehicles, thanks to the just in time manufacturing method. In terms of the corporate-level strategy, Toyota uses market penetration just like Tesla whereby it seeks to reach to as many customers as possible by reaching and attracting more customers to the current markets in which the firm operates.
A closer look at the different strategies that Toyota Corporation and Tesla , Inc. uses reveals that unique differentiation by Tesla is likely to be successful in the long term. Tesla makes products that are in a league of its own; fully electric vehicles. Car makers like Toyota dreaded putting their feat in uncertain waters of making fully electric vehicles but instead resorted to making hybrid cars. As the world grapples with climate change and the desire to minimize pollution from motor vehicle emissions, Tesla, Inc. has strategically positioned itself as the car maker that makes products that are in line with environmental concerns and sustainability.
Secondly, Tesla has unique differentiation by making cars that customers will come looking for, which is synonymous to the blue ocean strategy. The blue ocean strategy highlights that businesses should make products that customers look for, as opposed to red ocean strategy whereby businesses make products and look for customers to purchase those products. Toyota operates a red ocean strategy. Thus, Tesla, Inc. is likely to win and be successful in the long term.
Market cycles
Hitt, Ireland, & Hoskisson (1) define two kinds of markets that businesses operate in. The fast cycle-markets and the slow cycle markets. The fast cycle market is characterized by little turnaround time for firms to innovate, intense competition, price wars and other competitive activities. In that case, the strategy of cost leadership, differentiation and market penetration would be most ideal in fast cycle markets and they would be significant in the long term.
Slow-cycle markets are characterized by adequate time to innovate and differentiate the product from competitors and shield the differentiated product through patents, solidified market share, among others to keep off competitors. In view of that, Tesla, Inc. unique and broad differentiation strategy at the business-level and market development would be most successful in the long term.
Tesla understands the kind of market in which it operates and adopts strategies that are ideal to operate in these kinds of cycles. Motor vehicles are infrequent purchases and deals with specialty goods. As such, the company takes time and invests in research and development to make products that are different from the market. Electric vehicles are unique in the market, and are ideal in the slow cycle markets in which Tesla operates in.
In conclusion, Tesla has defied the odds and has made its name in a special place in the market as being the first company to make fully electric vehicles. The vehicles are premium priced for customers who are prepared to pay a premium price for the car and then drive down the prices to appeal to other customers at lower prices.
