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Tesla: The Business Strategy Revealed

“If we could have [mass marketed] our first product, we would have, but that was simply impossible to achieve for a startup company that had never built a car and that had one technology iteration and no economies of scale,” says Elon Musk, CEO of Tesla.

Tesla’s very first product was going to be expensive despite what it looked like. This is why Elon went with the idea of building a sports car – its first-ever high-performance electric luxury sports car called, the Tesla Roadster.

One of the company’s major mission is to quickly transform the world to start sustaining energy. We will further talk about every business strategy Tesla follows.

Research and development (R&D)

The expenses of Tesla’s R&D rose to USD 1.5 billion in 2018 from USD 0.7 billion way back in 2015. Tesla experienced strong growth of around 35 percent in 2019. This was due to better cost management and the growing revenue. However, the company’s spending drastically dropped down to 8 percent in 2019 i.e. around USD 1.34 billion.

Tesla’s R&D revenues now focus to improve the quality of batteries. The company’s development strategy this year encompasses two primary categories – Headline-grabbing moves such as launching a cyber truck of the Roadster 2.0 which is claimed to be faster than any of the production cars ever made.

In 2019, the company converted its warehouse in Fremont into an R&D lab “Future Energy Reliability Lab” along with a testing facility for new vehicles. At that time, nearly 250 employees were assigned to work in the new lab.

Mergers and acquisitions

Expressing interest in acquiring Tesla share is not something that is happening for the first time. Although, we will talk about the areas wherein the company made mergers and acquisitions in the past years. Acquisitions worth USD 96 million was confirmed by the company, however, they did not disclose any names of the company. The business strategy is curated in a manner wherein they ensure they first understand the customers’ journey.

Earlier Tesla acquired Hibar Systems, a small engineering company based out of Canada. This company is said to hold expertise is in artificial intelligence (AI) startup, DeepScale, and battery manufacturing. Therefore, with efforts from both the companies, the promise of capturing the whole acquirement cost that Tesla made way back in 2019 had to be achieved. People also know DeepScale as “acqui – hire.” It is quite likely that the people who had joined Tesla during this period were given some number of shares. Besides these companies, Tesla also acquired Maxwell technologies. Tesla could make around USD 218 million acquisition from the energy storage company. One of the major reasons of the purchase is because Tesla was looking for a company that made ultracapacitors. The dry electrode technology used for making these batteries helps boost the performance level better than the wet electrodes.

Geographically expanding

According to Thomson Reuters, most of the revenues generated by Tesla is from the United States itself, around 60 percent in 2016.

The domestic market of Tesla is not expanded internationally while focusing more on tapping the transnational demands for electric vehicles (EVs). What Tesla developed was a successful business strategy that follows a unique approach. They started by getting their first vehicle in the market rather than building an affordable car and mass produce. This took quite a turn since their focus was on creating a compelling car.

The company’s business is far stretched in countries like China and Elon looks forward to expanding his business in other countries like Africa, India, and South America.

Conclusion


Even during the COVID-19 pandemic, Tesla managed to survive. However, certain plans that were made in 2020 have been pushed to the future due to the pandemic. Though the company had its worse quarter for solar installations they did quite well in the battery business.


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