Few would disagree that Tesla, which has generated a buzz throughout the entire United States business community, holds a bright future. Tesla Motors, founded in 2003, designs, develops, manufactures and sells electric vehicles and parts. The Palo Alto-based firm is the leading company in the production of electric cars and parts. The electronic auto manufacturer has managed to completely change the way society views both cars and the way we purchase them.
Elon Musk, the firm’s CEO and possibly one of the greatest entrepreneurs in history, has grown Tesla into a force that conventional automakers will have to reckon with in the future. Tesla seeks to create a culture around their products and presents them in a strategic manner to achieve this goal. The presentation of their business is done in a simple and clean style. Even though Tesla has had a negative income since its founding, this coming year could be the first time Tesla sees profits. Their impending success can be linked to their creation of a unique culture, releasing of additional products, and their patented lithium battery technology. However, skeptics still criticize Tesla for its future investment in infrastructure that will be necessary for its cars to be more widely used. However, this should not be a concern for investors.
Walking into a Tesla store, one could very easily mistake it for an Apple retail store. This is because Musk adopted a business strategy very similar to what Apple used to recover from the Dotcom bubble in the early 2000s. On May 19, 2001, former Apple CEO Steve Jobs announced that the company would be opening its first two retail stores in Glendale, CA, and MacLean, Virginia. Initial responses to this revolutionary business decision were very negative. One analyst was even quoted stating that the decision for Apple to open a retail store was foolish and that he predicted failure within two years. However, Apple’s decision had the opposite effect and has allowed the company to grow into the largest firm by market cap in the world. Musk has taken their business strategy and combined it with an equally revolutionary product. The Tesla retail stores have the same simple layout as an Apple store. They seek to change the car buying experience by eliminating the dealers. When customers purchase a Tesla, they go to a retail store that has just a few floor models for customers to view. This strategy allows Tesla to cut out the middleman dealer and thus retain greater profits while also creating a culture of simplicity that customers appreciate.
Tesla’s current battery technology has been proven for many years. The electric car manufacturer spent the first five years developing and testing its first car, the Tesla Roadster, before it was released in 2008. The Roadster, which had a starting price of $105,000, was an electric sports car that had a 245-mile range. This was the only car available until the creation of the Tesla Model S in 2013. With the Model S, Tesla hoped to expand its product from the luxury sports car market into the market for everyday driving cars. Tesla was able to improve upon its previous car by increasing the battery charge length and by expanding the car to a more practical size. Currently, the Model S is the only car available to purchase, but customers can also reserve the next model, known as the Model X. This car be a four-wheel drive sports utility vehicle that will also have sports car handling.
The Model X uses four separately controlled electric motors, one for each wheel, to achieve its four-wheel drive. This technology is revolutionary because it allows the car to make slight changes to each wheel’s speed while cornering to maximize its driving ability. Conventional four-wheel drive cars have one drive shaft that links power from the engine to four tires. This does not allow for the car to make slight changes to the wheel speed to achieve the handling that the Model X will have.
The final car that Tesla will be releasing in the foreseeable future, which could happen as early as the first quarter of 2015, is in the $30,000 range yet still retains some of the luxury amenities of the $60,000+ Model S. This will create a Tesla option that is affordable for the average person, a market currently overlooked by the company.
The final major contributor to Tesla’s future success is their patented lithium battery technology. When Tesla was first desigining a battery, a major concern with the batteries was affordability. At the time, the average lifespan of laptop computers was greatly improving and there was a large surplus of lithium batteries that were designed for laptop computers. Tesla saw this as an opportunity to build their batteries around the already available cheaper batteries. Tesla is currently the only manufacturer that has found a way to create an affordable yet powerful lithium battery for cars. Consequently, other automakers have been forced to purchase batteries from Tesla for their own electric cars in order to keep pace with demand. Even though this revenue is a very small portion of Tesla’s overall revenue, the barriers faced by other companies to produce a lithium battery prove that Tesla has created and patented something that is truly revolutionary.
Even with all the success that Tesla has seen, skeptics continue to question the firm’s ability to grow in the future, citing that Tesla will have to make great investments in infrastructure in order to compete with conventional gasoline-powered cars. A current problem facing many Tesla owners is that they cannot travel great distances with the Model S, which has a battery life of 300 miles. Tesla has attempted to solve this problem through the use of “super charger stations,” which can completely charge a Model S in about one hour and fifteen minutes. However, the stations are sporadic, which makes long distance traveling with the Model S inconvenient. Currently the only cross country trip that can be made is along the northwest to southeast diagonal. Fortunately, Tesla plans to have almost all regions of the US covered by the end of this year. This investment in charging stations should pay off in the long run and should have no effect on the profitability of Tesla.
Similar to how Steve Jobs grew Apple into the most succesful company in the world, Musk has not only developed a revolutionary product but has also developed the Tesla culture. Established on the principle of simplicity, Tesla’s culture can be seen in every aspect of its business. The retail stores are appealing to the eye but also provide enough information for customers to make informed decisions. The Model S, which has truly redesigned the way that people look at cars, has the performance of a sports car while still preserving the fuel efficiency of an electric car. The entire concept of the Model S was formed around the creative thinking to use cheap lithium batteries originally built for laptop computers. While cynics may criticize Tesla for a lack of infrastructure, this problem will be short-lived. Musk has created the car of the future.