Tesla’s business model relies on a direct distributionstrategy, where the sales of its cars go through its online e-commerce or its physical stores. Tesla borrowed Apple’s playbook to distribute its cars, by creating a set of physical stores, where potential customers count enjoy in full the potential experience of driving a Tesla.
Strategy
Description
Example
Implications
Integration
Direct-to-Consumer Sales
Tesla primarily sells its vehicles directly to consumers through its company-owned stores and website. The direct-to-consumer model allows Tesla to maintain control over the customer experience, pricing, and branding. Customers can visit Tesla showrooms, configure and order vehicles online, or contact Tesla representatives for assistance.
– Customers can configure and order Tesla vehicles through the official Tesla website. – Tesla operates showrooms and galleries worldwide where customers can explore vehicles and receive information. – Tesla representatives provide guidance and support for the purchasing process.
– Provides a consistent and controlled customer experience. – Enables Tesla to set its pricing strategy and communicate directly with customers. – Reduces the need for intermediaries and dealerships.
Tesla’s direct-to-consumer sales approach is fully integrated into its overall business model. The company’s website serves as a central hub for vehicle customization, ordering, and communication with customers. Tesla’s company-owned stores and galleries play a critical role in showcasing its products and providing in-person support.
Online Ordering and Customization
Tesla’s website serves as a vital platform for online ordering and vehicle customization. Customers can easily configure their desired Tesla vehicle, select features, and place orders online. The website offers a user-friendly interface that simplifies the customization and ordering process.
– Customers can select vehicle models, battery options, colors, and additional features on the Tesla website. – Real-time price adjustments are displayed as customers customize their vehicles. – Customers can complete their orders and choose delivery options online.
– Provides a convenient and user-friendly online shopping experience. – Allows customers to tailor their vehicles to their preferences. – Enhances transparency by displaying pricing changes in real time.
Online ordering and customization are seamlessly integrated into Tesla’s distribution strategy, aligning with its direct-to-consumer approach. The online platform facilitates a streamlined and transparent purchasing process for customers.
Tesla Retail Stores and Galleries
Tesla operates retail stores and galleries in various locations worldwide. These physical locations serve as showrooms where customers can explore Tesla vehicles, ask questions, and receive information. Tesla’s stores are designed to provide an immersive and informative experience for visitors.
– Tesla has retail stores in major cities and shopping districts globally. – Stores feature Tesla vehicles on display, informative exhibits, and knowledgeable staff. – Visitors can schedule test drives and receive assistance with vehicle inquiries.
– Creates a physical presence for Tesla to showcase its products and brand. – Offers customers the opportunity to see, touch, and experience Tesla vehicles in person. – Allows for direct interaction with potential buyers and enthusiasts.
Tesla’s retail stores and galleries are integral to its distribution strategy. These physical locations are strategically positioned to attract foot traffic and engage with potential customers. The in-person experience aligns with Tesla’s mission to educate and promote electric mobility.
Service Centers and Superchargers
Tesla has a network of service centers and Superchargers to support vehicle maintenance and charging needs. Service centers provide maintenance, repairs, and support for Tesla owners. Superchargers are fast-charging stations for long-distance travel, strategically placed along highways and major routes.
– Tesla’s service centers offer maintenance and repair services for Tesla vehicles. – Supercharger stations are located along highways and key travel routes, providing rapid charging for Tesla vehicles on road trips. – Tesla provides mobile service units for some repairs and maintenance tasks.
– Ensures convenient access to service and support for Tesla owners. – Superchargers enable long-distance travel for Tesla drivers, reducing range anxiety. – Mobile service units offer on-site repairs and support for added convenience.
Service centers and Superchargers are vital components of Tesla’s distribution and customer support network. They provide essential services to Tesla owners, enhancing the overall ownership experience and fostering customer loyalty. The strategic placement of Superchargers enables long-distance travel and supports Tesla’s mission to promote electric mobility.
By controlling the distribution process, Tesla can maintain a direct relationship with its customers and provide a consistent brand experience.
Challenges and Benefits:
While this strategy allows Tesla to convey its brand identity effectively, it also requires substantial investments in establishing and maintaining physical store locations.
Innovative Distribution Approach:
Tesla’s direct distributionmodel disrupted the traditional automotive sales model, enabling the company to control the customer journey and provide a differentiated buying experience.
Tesla was profitable in 2022, and it generated $12.55 billion in net profits. Tesla has been profitable since 2020. Indeed, Tesla generated $862 million in net profits in 2020. And it further generated $5.6 billion in net profits in 2021.
In 2022, Tesla generated $81.46 billion in revenues. Tesla’s business model primarily relies on automotive sales, $71.46 billion (almost 88% of the total revenues); services/others followed with over $6 billion; energy generation and storage generated over $3 billion in revenues.
Telsa’s profit margins moved from negative 3.15% in 2019 to over 15% in 2022. As Tesla scaled up manufacturing and improved its economies of scale (with new facilities) and scope, the company became extremely profitable by 2022.
Tesla’s profit margin per car in 2022 was $9580, compared to over $6000 in 2021 and over $1700 in 2020.
As Tesla was working toward mass manufacturing in 2020, the company’s profitability per car has increased slightly.
Elon Musk, seen as one of the most visionary tech entrepreneurs from the Silicon Valley scene, started his “career” as an entrepreneur at an early age. After selling his first startup, Zip2, in 1999, he made $22 million, which he used to found X.com, which would later become PayPal, and sell for over a billion to eBay (Musk made $180 million from the deal). He founded other companies like Tesla (he didn’t start it but became a major investor in the early years) and SpaceX. Tesla started as an electric sports car niche player, eventually turned into a mass manufacturing electric car maker.
Elon Musk, an early investor and CEO of Tesla, is the major shareholder with 21.7% of the stocks. Other major shareholders comprise investment firms like Baillie Gifford & Co. (7.7%), FMR LLC (5.3%), Capital Ventures International (5.2%), T. Rowe Price Associates (5.2%), and Capital World Investors (5%). Another major individual shareholder is Larry Ellison (co-founder and CEO of Oracle), with a 1.7% stake.
Founded in 2003 by Eberhard and Tarpenning, eventually, the initial co-founders left the company, and by 2004, Musk first became the main investor. After that, by 2008, he took over as CEO of the company. Tesla would go through many near-death experiences until 2018. And yet, by 2021, Tesla will become a trillion-dollar company.
Tesla is vertically integrated. Therefore, the company runs and operates the Tesla’s plants where cars are manufactured and the Gigafactory, which produces the battery packs and stationary storage systems for its electric vehicles, which are sold via direct channels like the Tesla online store and the Tesla physical stores.
As an electric automaker and builder of sports cars and now trucks, Tesla’s competitors comprise companies like Ford, Mercedes-Benz, Porsche, Lamborghini, Audi, Rivian Lucid Motors, Toyota, and more. At the same time, Tesla is an electric energy production and storage company (SolarCity); it competes with Sunrun, SunPower, and Vivint Solar. And as an autonomous driving company, it competes with companies like Zoox, Waymo, and Baidu with self-driving software.
A real-time insurance business model enables Tesla to build its insurance arm by dynamically adjusting the premiums based on real-time driving behavior. Reduced insurance premiums hooked with the leasing arm enable Tesla to scale its demand side of the business.
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.
Account-based marketing (ABM) is a strategy where the marketing and sales departments come together to create personalized buying experiences for high-value accounts. Account-based marketing is a business-to-business (B2B) approach in which marketing and sales teams work together to target high-value accounts and turn them into customers.
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
We can classify e-commerce businesses in several ways. General classifications look at three primary categories: – B2B or business-to-business, where therefore a business sells to another company. – B2C or business-to-consumer, where a business sells to a final consumer. – C2C or consumer-to-consume, or more peer-to-peer where consumers sell to each other.
The more you move from consumers to enterprise clients, the more you’ll need a sales force able to manage complex sales. As a rule of thumb, a more expensive product, in B2B or Enterprise, will require an organizational structure around sales. An inexpensive product to be offered to consumers will leverage on marketing.
Distribution represents the set of tactics, deals, and strategies that enable a company to make a product and service easily reachable and reached by its potential customers. It also serves as the bridge between product and marketing to create a controlled journey of how potential customers perceive a product before buying it.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.
It’s possible to identify the key players that overlap with a company’s business model with a competitor analysis. This overlapping can be analyzed in terms of key customers, technologies, distribution, and financial models. When all those elements are analyzed, it is possible to map all the facets of competition for a tech business model to understand better where a business stands in the marketplace and its possible future developments.
Distribution is one of the key elements to build a viable business model. Indeed, Distribution enables a product to be available to a potential customer base; it can be direct or indirect, and it can leverage on several channels for growth. Finding the right distribution mix also means balancing between owned and non-owned channels.
Business development comprises a set of strategies and actions to grow a business via a mixture of sales, marketing, and distribution. While marketing usually relies on automation to reach a wider audience, sales typically leverage on a one-to-one approach. The business development’s role is that of generating distribution.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
