What is Tesla Business Model?

How Tesla Makes Money

Tesla, although it is not the pioneer of the EV industry, has got the capabilities to operate in the industry related to integrating different consumers’ needs in one vehicle, and around the vehicle.

Also, the company has been able to have a clear corporate strategy, understanding which markets to enter, operating in different sectors, not only car, but also battery, environment and green energy.

Tesla has been able to understand its capabilities and resources to deliver a successful business model as well, taking advantage of analogies (as mentioned, not being a pioneer of the industries where it operates), in order to deliver an innovative product. 

The competitive advantage of Tesla is clear, it is product differentiation instead of cost: this is why the company was able to succeed after years of loss, although it entered the market after other well-known companies.

Tesla is more than just an EV company. It has a better Corporate Social Responsibility understanding than competition through a detailed business and mission plan that follows up on that. 

This is helping the company to increase shareholders’ wealth, and to keep the share value and the market cap higher than companies related to the automotive industry.

The strong and visionary personality of Elon Musk daily enhances the value proposition of Tesla, impacting willingness to pay (WTP), and consumers’ brand perception which e.g. contributes to accepting delays in product deliveries.

Tesla and Musk are one thing together. Elon was able to turn Tesla into something more than just a company operating in the EV market, into a corporate and tech company instead.

Threat of Disruption of Tesla

Being an executive from a traditional auto company, I would act as a “red queen”, trying to catch up with the technology in order to get market shares. A 5 forces Porter analysis would be necessary to better understand the barrier to entry-level.

I would try to compete on prices, cutting costs if possible. Cost advantage might be the only way to create a competitive advantage, since years of data learning from Tesla with technical knowledge, which represents a competitive advantage, can be something difficult to challenge.

I would try to understand whether this market is profitable for my company or not, evaluating the economic landscape, such as understanding if there is a possibility to make a normal profit.

To conclude, my choice would be estimating the growth and evaluating the business and corporate strategy, whether it is profitable or not to enter the EV market, where strong players are leading the game, creating barriers to entering through their know-how.

Threat of Disruption for Facebook-Apple-Microsoft-Alphabet/Google

In this case, a corporate strategy analysis would be necessary to better understand how and in which industry the company related wants to operate (e.g. Google and Apple have clear goals to enter the EV market through self-driving cars).

Google has a competitive advantage related to data learning which might be relevant to challenge the current competitive landscape.

Looking for analogies in the business model can be a strategy to provide better data integration than Tesla, reducing costs eventually.

Facebook as such, might consider staying out of the industry instead, since it is operating with a different business model than Tesla, focusing more on connecting people through the platform, and generating revenues from advertisement.

Basis of the Different Perspectives in Terms of the Business Model

Although tech companies might have a competitive advantage in terms of data and technology, it is crucial to understand which company has the capabilities to apply this knowledge to the EV market.

Entering the market and pushing a new corporate strategy might be risky in the long term if the company that wants to succeed doesn’t have a clear understanding of the competencies necessary.

Required Competencies to Operate Those Business Models

It is important to be able to integrate different capabilities in the same business model, such as skills related to battery, car, environment, people, and data learning. If even one of these is missing it would be difficult to challenge Tesla with the same business model.

Again, in this case, the 5 forces Porter model can highlight some barriers to entry and provide some insights about the competencies necessary to operate. Marketing and Musk (unique personality, difficult to replicate in order to enhance the value proposition and WTP) are also keys. 

These elements all together protect Tesla from any challenge, as long as other companies are not capable to work out new business models (or analogies in the Tesla business model) enabled by new technologies. 

Investing in R&D costs might disrupt the existing landscape, but they might represent costs that will be never capitalised in the short run, impacting revenues and share price accordingly.

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