Tesla

Tesla identified an opportunity in a market that has remained largely unchanged since the middle of the 20th century. The founding team’s focus on innovation was vital in Tesla’s ability to seize this opportunity and revolutionize the modern automotive landscape. With growing concern over climate change and seemingly ever-increasing gasoline prices, American customers were primed and ready for this new entrant. That is not to say all has been seamless for Tesla thus far. Having just reported their first profitable quarter, it is clear that the initial investment to enter the automotive market is extremely high. Well established auto producers have long since set up show to mass produce cars. Nissan Leaf’s swift entrance into the market is a clear indicator that with established operations, it is more efficient to design, innovate and bring disruptive technology to the market.

Tesla established production operations in house for the Model S and the Model X. Entirely focusing on EV vehicle production, Tesla is not currently equipped for a shift into IC vehicles or hybrids vehicles. Depending on the global scope of the car, it is estimated to cost between 1 and 6 billion dollars over 5 years to design and develop a new vehicle, including plant modifications and retooling. For Tesla, the shift would be much greater. The vast differences between IC engines and EV engines require extremely different powertrain production. In addition, the quality assurance, maintenance, suppliers and costs would also be vastly different. As Tesla’s founders are automotive rookies, they would put themselves up against veteran giants in an already highly competitive market.

Tesla is in a delicate position. It occupies a niche market within a long standing industry. This is attributed to their highly innovative technology and high touch customer service. Nevertheless, they have only just begun to be profitable. Similar to Nissan’s Leaf, other mass automobile producers will soon begin to introduce a myriad of EV and Hybrid vehicles. Tesla should strive to maintain its position as an EV leader and should not, at this point, step into the IC and Hybrid markets.

What Tesla and its Silicon Valley roots should take advantage of is their disruptive technology. The software foundation of their vehicles has allowed ‘repairs’ to be done wirelessly, remotely and silently. The EV powertrain technology and design has attracted competing car manufacturers to look to Tesla as a supplier. Tesla’s impressive quality, speed and aesthetics are on par with and have humbled automotive superstars like Ferrari and Porsche. Tesla should continue to build on this reputation of luxury, quality and innovation. To this point, Elon Musk should venture toward a lower-end mass-produced Tesla with care. Tesla has quickly become a status symbol and since its infancy has compared itself to only the highest quality vehicles. In moving to a low-end, mass

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