ELON MUSK RODE THE TESLA RALLY AT THE NASDAQ AND USURPED GATES TO BECOME THE WORLD'S SECOND RICHEST MAN. HERE'S HOW HIS COMPANY IS DIFFERENT FROM TRADITIONAL AUTOMAKERS.
Tesla is actually a unique company. It has not only popularised the niche of electric cars but has also made it plausible and actually efficient. The Palo Alto based company is known to innovate & constantly improve its products. At a time when electric cars were the folklore of sci-fi geeks, Musk dared to dream and put the money where his mouth his. Today, Tesla is the world's most valued automaker.
And there's a reason why it is the most valued. The fact is that Tesla is more than a car company! Let me explain why.
THE GAME OF INTEGRATION
A business jargon, integration essentially means combining forces with others in layman terms. Traditionally, Automakers have been horizontally integrated. One parent company has owned a plethora of various other automakers. The chart below (source BusinessInsider) encompasses the company structure & affiliate brands of various automotive giants.
This structure has several inherent advantages like:
Every parent company has good bargaining power with respect to suppliers. If Chevrolet alone would go on to buy components, it would not be able to impose the same conditions in comparison to the colossal bulk of GM Motors. Hence, in this structure, the cost of manufacturing is lower.
Different brands can target different types of consumers. For instance, take a look at the Volkswagen group. Volkswagen attracts a person with a middling income. Audi beckons to those who crave class and luxury. Lamborghini is for the elite. Thus, a single company can have the power to cater to a wide variety of customers.
The parent company can also increase its market share by such brand divisions. For instance, in the Indian smartphone market, BKK Electronics has captured considerable leadership through its brands like Oppo, Vivi, Realme & OnePlus. In such a manner, they have confused the consumers who are unaware of the parent company link between these Chinese brands.
By producing goods of all brands together, they can take advantage of the economics of scale.
On the other hand, Tesla has used Vertical Integration to its advantage. Tesla has complete control over its value chain. It makes the car batteries, assembles it in giga-factories around the globe, sells mostly through its own retail outlets directly to the consumer (D2C) and is even opening charging stations! Some other examples of Vertical Integration are illustrated below:
This resembles the strategy of companies like Apple, Google, Amazon & Reliance who are trying to build their own ecosystems with varying levels of success. This strategy too has some advantages:
Tesla has complete control over the user experience. This is because it uses minimal external assistance in delivering the product to the end-user.
Tesla can monetize its consumers long after the car is sold through the charge stations. This recurring revenue stream can be a major cash cow when Tesla achieves a considerable and loyal consumer base.
The company can adapt to innovation & changes in the business environment much faster as it has an established synergy in the whole value chain.
This section makes clear how Tesla is different from other automakers.
YOUR CAR IS UPDATED
Do you know why Tesla is ahead of the curve in terms of EVs & self-driving? It's because the company already has thousands of cars on the road testing BETA updates in the real world through the consumers. Tesla uses AI to maximize self-driving. And it has tons of data to perfect it in the near future. Tesla is also renowned for sending out software updates to its consumers which sometimes has a direct impact on the performance of the car itself.
This makes it clear that Tesla has used data, software & AI to outsmart its competitors making it more of a tech company.
I ACQUIRE THEE
A glance below to the chart below (source Techcrunch) will tell you how distinctive Tesla is from its rivals.
To gain some expertise in manufacturing, the company focused on pioneers in the field of automated manufacturing, tool & die manufacturing, automotive design & development and battery tech. To focus more on cutting edge tech in the eco-friendly domain, Solarcity (founded by Elon's cousins) was also merged. Even here, Tesla has shown sharp focus & a calculated approach.
THE FUTURE IS ELECTRIC
For now, it seems like Tesla's race to lose. It has a considerable advantage in a market primed for exponential growth. The number of EVs on U.S. roads is projected to reach 18.7 million in 2030, up from 1 million at the end of 2018. The company's headstart, snazzy brand image, mercurial founder, strategic planning & focus on tech bodes well for its future prospects. The world awaits a Tesla domination.
THANKS FOR READING.
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