Tesla StrategyTerm Paper

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Tesla Motors

Current Situation

The major strategic issue is where to take the Tesla Motors company at this point. The current point contains very little in the way of negative news, but there are some challenges. Tesla has been successful to this point, with two cars that both sell well, and it has turned a profit. The cars have rave reviews as well. The current strategy is to build capital with these first vehicles and then with that capital get into the mainstream market. This strategy recognizes two fundamental realities about the automobile business. The first is that it is a big business, a difficult one in which to operate profitably unless in a niche market. While electric cars may have started as a niche market, the best way for Musk and other investors to recoup their initial investment is to take the company to the mainstream and seek out a double-digit share in the U.S. car market. The second recognition of the strategy is that the company will perform better if it experiences incremental growth, where the brand name is gradually built and the early adopters pay premium prices, creating the sort of demand that will over the course of a few years build up to allow the company a launch into the mainstream market.

So on that level, Tesla has a sound basic strategy. At this point, competing to attract early adopters, Tesla has a differentiated strategy. They back this up with a highly-differentiated product, high price points and a lot of talking points that generate hype. The critical acclaim lends third party support, and early adopters have delivered strong consumer reports as well. All in all, Tesla has successfully created a completely differentiated automobile company.

In order to pursue the company's chosen strategy, all it really needs to do is much the same, only at a much greater scale. Advances in technology are reducing costs steadily, and economies of scale will only help that further. The vision of having a mainstream consumer car rolling off the assembly line by the thousand is realistic, not too far in the future, and a clear pathway for the company to take, as it moves through the market adoption process from the early adopters on to the mainstream audience.

Key Issues

For all the company's successes, there are still a number of challenges that it faces. First, it still faces legislative challenges. Tesla does not utilize dealers, citing the potential for conflict of interest. Dealer lobbies have in turn sought to protect their monopolies and in the more corrupt states they have succeeded in doing just that, writing absurd laws to limit competition for no particular reason. Since the U.S. does not recognize that corporate lobbying influence is a form of corruption, no better than baksheesh, the problem will continue to persist and challenge Tesla. The company has a few options to respond, in particular using its pent-up demand in those states to apply pressure to the corrupt governments to restore free market capitalism to their jurisdictions.

There are also some infrastructure issues. Musk has noted that sales in China were slower than expected because of concerns that many consumers had about being able to charge their vehicles. The infrastructure simply does not exist for many consumers. Tesla has indicated that they are working with authorities in many areas to improve access to charging stations.

Competition remains a key threat in the external environment. Tesla is presently a strong player in electric cars, but it is by no means the only one. While other startup companies have ultimately failed, most of the world's major automakers have at least one electric car in their lineups. These companies are well-capitalized, some of them have extensive experience in electric cars (Toyota, for example), and in many cases they are pursuing the mainstream market with these vehicles. While Tesla has a great brand name, and positive associations on account of the reputation that it has developed thus far, it cannot discount the fact that its competitors are well-capitalized, experienced automakers with established pathways to market.

Another major strategic issue for Tesla is the move to mainstream itself. This move will require substantial capital investment, and it will also challenge the current distribution model that… [END OF PREVIEW]

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