Tesla’s vision is to “create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles,” while its mission is “to accelerate the advent of sustainable transport by bringing compelling mass-market electric cars to market as soon as possible.” Tesla used a transitional business model as its ecosystem grew.
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Breaking down the Tesla mission and vision
In an official presentation in 2011, Tesla highlighted its vision as:
Create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles
While as highlighted by Elon Musk on Tesla’s blog its mission was:
To accelerate the advent of sustainable transport by bringing compelling mass-market electric cars to market as soon as possible.
To understand what it means, we need to look at Tesla’s history and how it developed.
Tesla was founded in 2003 by a group of engineers. The central idea was to prove that electric cars could be as good, if not better, than gasoline alternatives.
As Elon Musk took over as a CEO, he started to roll out a strategy where Tesla could have an entry price competitive with other cars in the market.
That is why the first car Tesla launched was a sports car, as its pricing was in line with the market.
If Tesla were to launch a premium car, it would not have made it because the costs of producing the first prototypes turned out so much higher, and Tesla would have seen all its orders canceled.
Instead, by narrowing down the market, at the point of figuring out a microniche, Tesla could sell a high-priced sports car in a market segment that was much less elastic to price changes, as those were innovators interested in the technology.
Tesla could envision its next step in this evolution only after launching a successful sports car.
Indeed, once it had figured out the prototyping of the car, it could start to manufacture a premium car model at proper pricing for the market, which could be a bit wider.
This targeted a market segment that could be labeled, according to the tech adoption curve, as early adopters.
Those were people interested in the technology but much more in its value proposition, which was about an alternative to gas-powered cars with zero emissions.
Where are we today? Tesla, with its Model 3, is ready to tackle mass manufacturing.
Of course, as Tesla has scaled and launched the new Model 3, its value proposition and scope also changed.
Tesla is now working on achieving economies of scale, and the people buying a Tesla now are doing it for different reasons.
It’s about status, looking good with peers, saving on gas, and of course, for some, it’s still about the environment.
Indeed, it’s critical to notice that when a company scales, the value proposition for consumers also changes dramatically.
From a more tech-based and practical pay-off, the value proposition morphs into demand generation when it adds into the mix social status and how the consumer feels about her/himself while driving a Tesla!|
To remember the early days, as highlighted by Elon Musk back in 2013:
Our first product was going to be expensive no matter what it looked like, so we decided to build a sports car, as that seemed like it had the best chance of being competitive with its gasoline alternatives.
Therefore, as a go-to-market and entry strategy, Tesla used a higher-priced segment of the market, in seemingly sharp contrast with its mission.
Yet this was a transitional business model that enabled Tesla to be viable in the short term and yet achieve its mission in the long run.
That’s because, in order to become fully viable as a business model, Tesla needed to create an entire ecosystem, also made of energy solutions that could enable electric cars to become competitive in terms of convenience (meant the ability to charge anywhere) in respect to gasoline vehicles.
Therefore, as Tesla rolls out its business model, by enabling this ecosystem to grow year over year, the company can enter larger and larger segments of the markets by offering lower-priced options that might make it possible for Tesla’s vehicles to achieve mass adoption.
Where is Tesla today?
It took years for Tesla to roll out its business strategy, at the point of going through various near-death experiences.
And yet, by 2022, this is where Tesla stands.
In fact, after many years of rolling outs its strategy, finally, the car segment of Tesla has become highly profitable as result of scale.
Thus, today Tesla is a completely different company, with a changed cost and margin structure.
And profitability.
Of course, things might slightly change as the EV market gets more competitive, and Tesla might have to leverage short-term price wars to win market shares.
However, the company, overall, has become way more efficient over the years.
History of Tesla
The history of Tesla is one of the most interesting corporate histories of the last century.
Starting as an attempt to show the viability of EVs, by starting from a sub-segment of the sports car performance market, Tesla produced its first viable EV in 2008.
From there, the company scaled up its operations in a story with plenty of twists and turns and many near-death experiences.
Elon Musk explained how, in 2018, Tesla was a few days away from bankruptcy and how the company managed to survive and thrive.
Yet, while Tesla’s story might make sense in hindsight, it was a very unpredictable turn of events that transformed Telsa into one of the most interesting companies of the last century!
Starting from a microniche to kick off the business
At the introduction of the Tesla Roadster, Elon Musk, in 2006, as the prototype was introduced, highlighted:
The opportunity is now and the need is now to have a car company of this nature and you know one thing I’d say to anyone who’s
considering buying this car is you know you’re not just buying a sports car
you’re actually helping pay for the development of the mass-market vehicles.
The tesla collectives are not paid high salaries we don’t issue dividends all
money all free cash flow goes completely into driving the technology to lower and lower costs and make it more more available and also we’re going to be working with solar panel companies to offer solar options along with the vehicles so that if you buy the solar option and you buy the vehicle you’ll actually be energy positive.
You’ll generate more miles in electricity than you use in your daily commute and so I really I think we should all aspire to be the energy positive in that way.
After a very complex history, made of many near-death experiences, Tesla’s pieces came together in a company that goes way beyond cars!
And while the path seems easy and linear in hindsight, in reality, it was very messy and hard to predict.
I like to say over and over that it takes a decade or more to roll out a business strategy fully.
And when you look at it in hindsight, it looks like a linear journey, when instead, it was a very messy endeavor.
Indeed, when Musk set the master plan for Tesla, it was a very simple plan, which took fifteen years to execute!
Indeed, by 2006, Musk would lay out the foundation for Tesla’s plan for the next decade. It was a four points master plan structured as below:
- Build sports car
- Use that money to build an affordable car
- Use that money to build an even more affordable car
- While doing above, also provide zero emission electric power generation options
Breaking down the Tesla business model
To understand Tesla’s business model, it’s critical to look at a few key ingredients:
- In-house manufacturing: when Tesla started to execute its business model back in the early 2000s, it thought it could mainly outsource parts of the car, and create an electric vehicle out of those. Yet, they soon realized this assumption was completely off. Not only did they not manage to secure proper parts for the vehicles, but none wanted to risk having electric vehicles that could have caught fire. Instead, if Tesla wanted to make its business plan viable it had to build its own manufacturing centers. It took years for the company to do that, and it’s starting to pay off today. Now Tesla has various manufacturing facilities, called gigafactories.
- Energy storage and generation: another key element to make the Tesla business model scalable is the ability of drivers to find electric stations around the country, and to quickly charge the cars. That is why, over the years, Tesla has been ramping up its electric generation and storage arm.
- Direct distribution: another key element of the Tesla business model which the company started to build early on, is direct distribution or the ability to sell Tesla vehicles either through its online stores, or via its Tesla stores.
- And financing models: as explained in real-time insurance, a combination of lower insurance premiums and better leasing rates can ramp up Tesla’s demand side, making it possible for many millions of Americans to own a Tesla.
Manufacturing, together with energy storage and generation, and direct distribution are some of the key ingredients of Tesla’s business model.
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