Analysis of Tesla’s International Business Strategies and Their Success Factors

Keywords: Tesla, International strategies, Market factors, Company success, Electric vehicles, Sustainable energy, Innovation, Global expansion

The report will show that Tesla Company is a perfect example of a firm that succeeded in linking entrepreneurship with innovation. It is not only a company that has changed the paradigm of the car industry but also a company that has continuously reinvented itself through its innovative products. After Five years of its beginning by a team of creative Silicon-Valley engineers, Tesla, with its purpose to advance the world’s adaptation to sustainable energy, provided the world’s first zero-emission electric car model — the Tesla Roadster — in February 2008. Since then, it has generated two other all-electric car models, the Tesla Model S and Model X, and revealed a fourth model, the Tesla Model 3. Tesla’s first extension progresses into the foreign market were its launch of a showroom in London on 25 June 2009 and a store in Munich in September 2009. This paper scrutinizes schemes Tesla recruited in the foreign market, examine components that catalyzed its success and summarizes crucial administrative intimations.

Introduction

The report topic is Tesla’s international business strategies and success factors of these strategies. The goals of this research are to examine schemes Tesla used in the foreign market and to examine components that made its strategies victorious and to make important administerial intimations.

Reasons for Choosing Tesla

Tesla was selected as the case study because of its supremacy in the electric car industry and, most significantly, because of the important part it plays in converting the world to sustainable energy. As of December 2016, Tesla had sold over 185,000 electric cars worldwide (Tesla n.d.), According to the United States Environmental Protection Agency 2017, creating it the second biggest international genuine electric car maker after the Renault-Nissan Alliance. Also, with the transportation sector presenting to 14% of the worldwide greenhouse gas emissions in 2010 and 26% of the total US greenhouse gas emissions in 2014.

Tesla, which accounts for nearly half of the worldwide EV battery utilization and whose goal is to make zero-emission vehicles, will assist lessen greenhouse gas emissions and terminate change in climate —one of the biggest dangers to humanity in the 21st century. According to Chesbrough (2003), high-end technology enterprises from top firms from the top have on a very basic level changed the manner in which they innovate. Those organizations have changed their innovation strategies from a Closed Innovation model to an Open Innovation display. From that point onward, a ton of analysts has given careful consideration to this change in perspective from a shut to an open innovation model (Herzog, 2011).

Introducing Tesla

Tesla, Inc. (primarily known as Tesla Motors Inc.) is a Palo Alto, California, US-based automobile organization that sketches, produces, and sells electric cars and electric vehicle powertrain elements with a center point of energy invention(Tesla n.d.). Although Tesla was primarily co-founded by Martin Eberhard and Marc Tarpenning in 2003, it also contemplates JB Straubel, Ian Wright, and Elon Musk as its co-founders. Its present CEO is Elon Musk, who possess a 22.25% stake in the enterprise as of April 2017. Tesla’s purpose is to enhance the world’s adaptation to sustainable energy (Tesla n.d.).

Burns, Kumparak, and Escher (2015) states that, the main aim of Tesla is to produce and sell zero-emission electric sports cars and utilize the benefits to construct and sell more reasonable electric family vehicles; says Musk (2006). Tesla’s supreme pricing scheme, which is nearly associated to its master plan, is cost removing: It primarily invaded the automotive market with a costly, high-end product—the Tesla Roadster—aimed at well-off clients. With profits produced from the end of the Roadster, it could capitalize the manufacturing of a less costly car model, the Tesla Model S. Profits gained from the sales of the Model S, sequentially , assisted fund the production of an even less costly car model, the Tesla Model X, aimed at a larger and less well off-market.

Tesla’s next car model is the Tesla Model 3, which was revealed in March 2016 and whose manufacturing is scheduled for end 2017. The enterprise went public on June 29, 2010, when it showcased its Initial Public Offering (IPO) on the NASDAQ stock exchange under the symbol TSLA. (Burns, Kumparak, and Escher, 2015) According to (Tesla n.d.). Tesla’s first enlargement moves into the foreign market were its launching of an outlet in London on 25 June 2009 and a store in Munich in September 2009. As of December 2016, it had 17782 employees and had sold over 186 000 electric cars globally. It presently has about 272 showrooms globally, 164 of which are in 26 various countries outside the US, with Germany having the biggest number (27) of its overseas stores. Its main accomplishments are powertrain and vehicle engineering.

International Strategies Tesla employed in the market

Tesla’s international-level strategy is the transformational strategy. With this strategy, Tesla looks to concurrently attain low prices through economies of scale, location economies, and understanding outcomes; and transform its cars across the global industry to record for local differentiation. According to Mill operator and Olleros (2007), the rationale behind innovation Strategies Tesla employed in the market comprises of the accompanying key components:

• Patent-driven discovery;
• Cost-based competition;
• Systems incorporation;
• Systems designing and consulting;
• Platform organization;
• Customized large scale manufacturing;
• Innovation support and administrations.

Additionally, Tidd and Bessant (2008) underline that, when discussing development and innovation, basically we are discussing the change. Francis and Bessant (2008) focus on four general classes (the 4P's of development):

• Product innovation – changes in the things (items/administrations) which an association offers;
• Process development – changes in the manners by which they make and convey;
• Position innovation – changes in the setting in which the items/administrations are presented;
• Open Innovation in EVs: A contextual analysis of Tesla Motors 9;
• Paradigm innovation – changes in the hidden models which outline what the association does.

According to Ebersberger, Tesla can investigate new opportunities, through the inter-organizational collaboration of their R&D departments, (Ebersberger et al., 2010). Mechanical community-oriented systems and R&D collusions, establish a huge factor for Tesla in their endeavor to accomplish better outcomes in product innovation (Nieto and Santamaria, 2007). Furthermore, Lecocq and Looy (2009) express that, the R&D collisions appear to be a more successful technique than mergers and acquisitions as far as enhancing the association's innovative performance.

Belderbos et al. (2010) express that as indicated by an investigation of 68 firms, the conceivable points of interest of collisions for mechanical results may not overweight the potential detriments, for example, the coordination costs' expansion. Dissimilar to in-bound procedures, in coupled procedures, Tesla needs to impart the results to their working together accomplices. Subsequently, the coordinated effort may assist Tesla with achieving better outcomes in innovation performance, however, it may diminish the aptitude of the firm to profit by such activities (Ring and Ven, 1994). Most of Tesla’s strategies in the foreign market are close to those it employs in the United States. These strategies are as follows:

Direct Selling

Tesla sells its cars straight to clients through its showrooms and galleries or through the Tesla website. Elon Musk (2012) describes that the major cause for this direct selling, and not vending through traders, is the basic dispute of engrossment confronted by traders between selling gasoline cars, which comprises the huge bulk of their business and selling the advanced technology of electric cars. Advantages of this direct selling comprise better client contentment since Tesla can vastly meet its manufacturing with buyer predilections and a lesser total price grateful to the absenteeism of trader prices such as inventory financing and insurance and advertising and sales commissions (Bodisch 2009).

Certified Pre-Owned (CPO) Program

Tesla utilizes a buyback agenda called Certified Pre- Owned (CPO) in countries such as Germany, France, Sweden, Norway, and Canada. Through this agenda, a Tesla Model S is sold with the guarantee to give it back to the organization after three years for a reimbursement of 43% to 50% of its original price. Tesla then examines, renovates, and verifies the pre-owned cars, after which it increases the guarantee and sells the cars for about 62% of a Tesla Model S the new car’s price. With this strategy, Tesla not only accumulates the resale profits (since it sells directly to clients) but also enhances more into the main market as it can appeal the not-so-wealthy clients by selling at a more reasonable price.

According to the CEO Alon Musk, Strategic Positioning of Stores and Galleries: Another strategy used by Tesla in the foreign market is purposely placing its showrooms and galleries in high foot traffic, prominent retail venues, like malls and shopping streets that people often go in a very pleasant buying mood. According to Musk go to the people before they decide on a new car.Local Responsiveness: As one of its schemes to appeal to clients in the foreign market, Tesla modifies its cars to match local requirements and to please the tastes and priorities of its clients. For instance, in answer to client responses, Tesla made some advancements to its Tesla Model S in China, comprising an ‘executive rear seat choice, which costs $2000 over the main design and points to make the rear seat experience more suitable(O’Hara 2015).

Related Diversification

A scheme made by Tesla to enhance internationally is associated expansion through strategic association with well-organized global auto and battery manufacturers. Tesla actively amalgamates with a foreign organization in the research, enhancement, and manufacture of electric powertrain elements (lithium-ion battery cells). This was the case with the Japanese automotive producer Toyota, for which Tesla make the lithium-metal-oxide battery and other powertrain elements for the Toyota RAV4 EV Second generation; the German automaker Daimler AG, for which Tesla produced electric powertrain elements for the Mercedes-Benz A-class E-cell and the Mercedes-Benz B-class ED; and the Japanese battery cell maker Panasonic, together with which Tesla develops nickel-based lithium-ion battery cells for electric vehicles and with which Tesla corporates on the production of photovoltaic (PV) cells and modules. With these collaborations, Tesla was ready to understand bigger price economies by profiting from the experience of these well-organized firms and, thus, construct a superior international place not only in the electric car sector but on the whole automotive market.Tesla has victoriously constructed about 164 stores and galleries in 26 foreign countries, Tesla has not been able to make stores in any developing countries, where it would have limited clients.

According to the Ahlstrom and Bruton 2010; Hill, Wee, and Udayasankar 2016, 484-87 lack of Acquisitions and Joint Ventures in the Foreign Market: With acquisitions, an organization can have a fast market entry, attain instant entrance to clients and the distribution system, and attain immediate identification in a new market Furthermore, with local accessions, a firm can lessen prices connected with initiating new infrastructure and with local joint ventures, it can be advantageous from the experience of a locally victorious organization(Hill, Wee, ad Udayasankar 2016, 476- 91). While Tesla is predicted to obtain Grohmann Engineering, a German manufacturing company that is famous in automated manufacturing, it presently has no main foreign accessions. Its most significant accessions are SolarCity and Riviera Tool, which are both US-based (Rexaline 2016).

Factors of Tesla’s Success in the Foreign Market

The following components contributed to Tesla’s victorious worldwide enlargement:First-Mover Advantage and Weak Competition: As the first company to offer a fully electric sports car (the Tesla Roadster), Tesla built a reputation as a green-technology giant and acquired loyal customers. Also, due to the few numbers of electric carmakers, Tesla sells at high prices and still maintains its share of the electric car market.

Support by Governments for Environmentally Friendly Vehicles

Due to the increasing concern about climate change (and specifically global warming), Tesla, as a manufacturer of zero-emission cars, benefited from subsidies and tax breaks established by various governments through plug-in-electric-vehicle incentive programs designed to encourage the production of environmentally friendly vehicles. For example, in countries like Malaysia and Hong Kong, zero-emission electric cars like those offered by Tesla are fully tax exempted. According to the Radu (2011)Without these subsidies and tax exemptions granted by foreign governments, Tesla would probably not have achieved the success level it has. The Singaporean failure case best shows the importance of these tax breaks to Tesla’s success in the foreign market: Without tax exemptions, the Tesla Roadster would have retailed between $400,000 and $500,000 in Singapore, almost twice the price of $250,000 it had projected to sell at with tax breaks, causing Tesla to cease its operations in the country just six months after moving in.

Focused Differentiation, Low Bargaining Power of Buyers, and Inelastic Demand: Tesla’s generic business strategy is focused differentiation. It offers uniquely designed high-performance electric cars and targets customers with high incomes. Because of this uniqueness of Tesla’s car models, its customers have low bargaining power. Furthermore, due to Tesla customers’ high revenues and the fact that Tesla cars are a luxury good, its customers are willing to pay high prices and, therefore, have an inelastic demand. The above arguments explain very well why Tesla can meet and even surpass its sales objectives.

Direct Selling

Another catalyst for Tesla’s success in the foreign market is its direct-selling strategy. Through direct selling, Tesla is closer to its customers, quickly gets their feedback, and adapts its car offerings to their tastes and preferences on time before it ever loses any of them. It also eliminates additional costs associated with dealerships.

Conclusion

Summary of the Case Analysis:Tesla is a US-based car organization that was established by a group of imaginative Silicon-Valley engineers in 2003. Its central goal is to accelerate the world's progress to sustainable energy. Its goal is to make moderate zero-emanation electric autos. Its central capabilities are powertrain and vehicle building. It conveyed the world's first completely electric auto show, the Tesla Roadster, in February 2008. Notwithstanding the Roadster, it has created two other all-electric auto models, the Tesla Model S and Model X, and divulged a fourth model, the Tesla Model 3. Tesla's first development moves into the remote market were its opening of a showroom in London on 25 June 2009 and a store in Munich in September 2009. It utilizes comparable techniques both in the US and abroad. Its corporate-level methodology is a connected expansion, its business-level technique is engaged separation, and its global business strategy is the transnational strategy. Factors of Tesla's accomplishment in the outside market incorporate the presence of powerless rivalry in the electric auto segment and its first mover advantage, its one of a kind procedures of centered separation and direct offering, and the help it gets from governments as gifts and tax cuts through projects empowering green innovation. With the greater part of its stores and displays outside the US, Tesla is very effective abroad yet at the same time has a few issues to comprehend in the remote market. These issues incorporate its absence of acquisitions and joint endeavors in the remote market, the high costs of its auto models, its predetermined number of stores contrasted with that of its rivals, and its inadequate number of superchargers.

Managerial Implications:Current patterns, for example, the developing help by governments for ecologically inviting vehicles and expanding worry about environmental change, the rising number of electric vehicle makers and charging stations, the taking off oil costs and declining lithium-particle battery costs, and the expanding electric vehicle deals to fuel-utilizing vehicle deals proportion, all recommend that electric autos are the eventual fate of the car business. Tesla is the correct way, and to keep up its prevailing position in the electric vehicle segment, it should proceed with its immediate offering methodology. Then again, it must build up more manufacturing plants, stores, and exhibitions around the world, go into more unions and joint endeavors with and get nearby firms in the remote market.

According to Ahlstrom, David, and Garry Bruton. (2010), Tesla must utilize an alternate business system to venture into immature countries: Although it should proceed with the engaged separation technique in created countries, it should utilize an engaged cost-initiative procedure to enter creating nations since potential clients in underdeveloped countries have generally low wages contrasted with clients in created nations. It is fundamental for Tesla to venture into immature countries in light of the fact that to accomplish its main goal of quickening the world's change to feasible vitality, it must work in all parts of the world, not just in select created nations. (Ahlstrom, David, and Garry, 2010).

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