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Tesla’s Secret Strategy
IN 2017, TESLA INC.— an American manufacturer of
all-
electric cars—boasted a market capitalization1 of over
$60 billion, an appreciation of more than 1,400 percent
over its initial public offering price in 2010. How can a
California startup achieve a market valuation that exceeds
that of GM, the largest car manufacturer in the world,
making some 10 million vehicles a year? The answer:
Tesla’s Secret Strategy. In a blog entry on Tesla’s website
in the summer of 2006, Elon Musk, Tesla’s co-founder
and CEO, explained the startup’s master plan:2
1. Build sports car.
2. Use that money to build
an affordable car.
3. Use that money to
build an even more
affordable car.
4. While doing above,
also provide zero-emission
electric power
generation options.
5. Don’t tell anyone.
Let’s see if Tesla stuck
to its strategy. In 2008, Tesla
introduced its first car: the
Roadster, a $110,000 sports
coupe with faster acceleration
than a Porsche or a
Ferrari. Tesla’s first vehicle
served as a prototype to demonstrate that electric vehicles can
be more than mere golf carts. Tesla thus successfully completed
Step 1 of the master plan.
In Step 2, after selling some 2,500 Roadsters, Tesla
discontinued its production in 2012 to focus on its next
car: the Model S, a four-door family sedan, with a base
price of $73,500 before tax credits. The line appeals to
a somewhat larger market and thus allows for larger
production runs to drive down unit costs. The Model S
received an outstanding market reception. It was awarded
not only the 2013 Motor Trend Car of the Year, but also
received the highest score of any car ever tested by Consumer
Reports (99/100). Tesla manufactures the Model S
in the Fremont, California, factory that it purchased from
Toyota. By the end of 2016, it had sold some 125,000 of
the Model S worldwide.
Hoping for an even broader customer appeal, Tesla
also introduced the Model X, a crossover between an SUV
and a family van with futuristic falcon-wing doors for
convenient access to second- and third-row seating. The
$100,000 starting sticker price of the Model X is quite
steep, however; thus limiting mass-market appeal. Technical
difficulties with its innovative doors delayed its launch
until the fall of 2015.
Tesla has now reached Step 3 of its master plan. In
2017, Tesla delivered the company’s newest car: the
Model 3, an all-electric
compact luxury sedan,
with a starting price of
$35,000. Tesla received
some 375,000 preorders
within three months
of unveiling its model.
Many of the want-to-be
Tesla owners stood in
line overnight, eagerly
awaiting the opening
of the Tesla stores
deposit to secure a spot
on the waiting list for
the Model 3, a car they
had never even seen,
let alone taken for a
test drive. By the time Tesla delivered the first 30 cars
of its new Model 3 (to Tesla employees for quality testing
and appreciation of their hard work), the California
car maker had received over 500,000 preorders. This customer
enthusiasm amounted to $500 million in interestfree
loans for Tesla. The Model 3 was slated for delivery
by late 2017. Tesla hoped to sell 500,000 total vehicles
by the end of 2018. To accomplish this ambitious goal,
Musk also promised that Tesla would increase its annual
production from 50,000 in 2015 to 1 million vehicles a
year by 2020.
Step 4 of Musk’s master plan for Tesla aims to provide
zero-emission electric power generation options. To
achieve this goal, Tesla acquired SolarCity, a solar energy
company, for more than $2 billion in the fall of 2016. This
joining creates the world’s first fully integrated clean-tech
energy company by combining solar power, power storage,
and transportation. A successful integration of Tesla and
SolarCity, where Musk is also chairman and an early investor,
would allow completion of Step 4 of Tesla’s master plan.
Step 5: “Don’t tell anyone”—thus the ChapterCase title
“Tesla’s Secret Strategy.”3