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 grows.
Create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles
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.
Indeed, 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.
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.
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 which was 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, which 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 fully roll out a business strategy.
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
To understand Tesla 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 mostly outsource parts of the car, and create an electric vehicle, out of those. Yet, they soon realized this assumption was completely off. Not only they didn’t manage to secure proper parts for the vehicles, but none wanted to risk to have 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 has the potential to ramp up Tesla’s demand side, making it possible to many millions of Americans to own a Tesla.
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