A Deep Dive into Tesla's Business Model

Tesla, is an American automaker, energy storage and solar manufacturer. The company is probably the dawn of the greatest revolution in the automotive industry that the world has witnessed since Karl Benz!

Only a few years old and Tesla has gained much attention and significant success. “It’s market value is about $48 billion surpassing Ford at $45 billion” (Dutta, 2017). The company deals in electric cars, lithium-ion battery energy storage and residential solar panels.

What makes Tesla, Inc. different from other automotive companies or rather companies in general? Tesla, Inc. doesn’t have its goals set in producing and manufacturing high-end electric cars for the affluent, to make money and move up on the charts. The mission of the company is this: to accelerate the world’s transition to sustainable energy.

One of Tesla’s business model’s is direct sales. For Tesla it is all about showing the customer the ultimate experience. Tesla doesn’t adopt the approach of franchise dealerships, unlike most manufacturers. They prefer selling their product directly to the customers through self-owned showrooms across many of the major urban centers in the world. They believe that this method of selling can speed up their product development. But more significant is the customer’s buying experience. Tesla has showrooms, Service Plus centers, a combination of retail and service centers, and service facilities. Tesla has also made use of the Internet sales—consumers can customize and purchase a Tesla online.

This business model has been super successful because Tesla does not have to go through retailers or dealers. Think about it, the worst-case scenario, a company could lose a customer due to poor experiences, and automakers have very little direct influence on these experiences beyond guides and service manuals, due to the inherently indirect nature of the customer relationship. Since dealers generally operate on a very local level, there's not a whole lot of consistency that customers can expect across the board.

On the other hand, since Tesla handles sales and service directly, it's able to better control the customer experience while quickly factoring in customer feedback for future improvements to products and services. Tesla's adaptability and ability to move quickly is often touted as an advantage that the company has over its larger rivals.

According to Niu writer and reporter of the Business Insider (2016), interviews the CIO Insight, Vijayan added:

“Elon's Tesla’s CEO has a vision is to build a vertically integrated organization where information flow happens seamlessly across departments and where we have a closed feedback loop to our customers. By doing this, we can provide the best possible product, service and overall experience to our customers in the fastest way possible, while also operating efficiently as a business”.

An alternative model that Tesla could incorporate to make more money is an Advertising Model, which delivers messages with content across Google, Facebook and LinkedIn. Most car companies spend billions on advertising and publicity. However, Tesla does little to no effort with advertising their products. If Tesla starts to invest more in social media and digital advertising they could make so much more money! Wanting to be at the forefront of the sale with the customer means they should show customer engagement throughout all different types of channels. It is super important for them to get on social and create social promoted posts and digital banner ads to gain a higher level of awareness, engagement and reach.

References:

Niu, E. (2016). This is a big benefit of Tesla's direct sales model. Business Insider. Retrieved from http://www.businessinsider.com/benefit-of-teslas-direct-sales-model-2016-3?r=UK&IR=T

Dutta, A. (2017, July 26). A Deep Dive Into Tesla Business Strategy. FeedDough. Retrieved from https://www.feedough.com/tesla-business-strategy-and-business-model/