Tesla Motors Ltd

free essayTesla Motors is an American automobile company based in Palo Alto, California. It focuses on manufacturing electric vehicles. The name of the company stems from the world-famous physicist and electrical engineer Nikola Tesla. At the roots of Tesla Motors are Martin Eberhard, Marc Tarpenning, Jeffrey B. Straubel and Ian, who founded the company in 2003.

One of the most important people at Tesla Motors Ltd is Elon Musk, who was a successful businessman even before founding Tesla Motors. Today his name is inextricably linked with the name of the company. He joined the co-founders in February 2004, and performed the first major step in sale of preferred shares as the chairman of the board. Elon Musk has invested most of his funds, which were approximately 70 million dollars that he had earned by selling stock (Buvat, KVJ, 2014). Elon has had a dream of making electric vehicles accessible to people of various means, and he cherished this dream since his university days. Musk never considered Tesla Motors as the best option for investment or as a company from which he could gain much profit. He just wanted to prove that powerful electric cars with high range are no longer a fantasy (Daum & Leibovitz, 2015).

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The major reason for the choice of this company is that it has been on the forefront of innovation. As a result, the company has overcome turbulent economic periods and adapted to a changing business environment. A fact that depicts Tesla Motors as a company that revolves around the concept of innovation is that Forbes recently named the company as the most innovative one (Forbes, n.d.). This aspect of the company has triggered my desire to know more about it and its operations. Tesla Motors is one of the most perspective companies in the world that has managed to evolve from a novice start-up to one of the most important automobile companies.

Electric cars market

Emergence of Tesla Motors and its functioning is inextricably connected with both American and worldwide electric cars markets. The well-known dilemma of a “vicious circle” accurately depicts the never-ending problem of the US electric vehicles market. High prices and limited range, which usually does not exceed 75 miles on a single charge, do not facilitate growth of electric vehicles sales (Buvat, KVJ, 2014). Due to low demand for electric vehicles, manufacturers are wary of investments that could have helped to reduce the prices and increase range of the cars.

Without help, electric vehicles were doomed to fail in a battle with ICE machines. They are simply unequal forces. Nevertheless, one has to add that electric vehicles enjoy a very solid support. In some countries, it comes from the government, where owners of electric vehicles receive tax benefits or have a permission to enter the no-car zone of city centers, have a right to free parking etc. In addition, governments carry out active promotion of the “ecofriendly” way of life. On the other hand, many countries firmly encourage automakers to reduce emissions.

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Therefore, Tesla Motors had a difficult starting position, but many opportunities for innovation in the American market. The secret of Tesla Motors is that this company approached the typical problems of electric vehicles from the other side. The problems for Tesla were not very obvious at the beginning. The founders did not have much experience in the automotive industry, and therefore looked at many aspects from their own points of view. They liked the idea of an electric vehicle, and they wanted to turn it into a profitable business (Buvat, KVJ, 2014). Tesla Motors co-founders’ advantage was that they had much experience in entrepreneurship.

The Ideation Stage

Tesla Motors had gone a long and complicated way from the start-up stage, through the survival stage and to the stage of growth. Experienced computer scientists from the “Silicon Valley” considered their cars rather as fashionable and advanced gadgets. Elon Musk likes to compare development of electric vehicles with emergence of cell phones, flat-panel TVs and laptops. Initially, these devices were prohibitively expensive, but they were very interesting and desirable for people, so over time these devices transitioned from the category of premium products to the mass market, which gave their creators even higher profits.

Marc Tarpenning, one of the Tesla Motors founders, has long been fond of sports cars. At one time, this engineer became seriously interested in the problem of global warming and overdependence of vehicles on oil reserves on the planet. In addition, fuel prices were continuously increasing at the time. Marcus saw no other choice, but to create a company in California to produce electric vehicles. Co-founders of Google, S.Brin and L.Page helped to solve the problem of initial capital and Elon Musk invested the largest sum in Tesla Ltd (Buvat, KVJ, 2014). From the very start, Musk took part in formation of a long-term development strategy for the new company, actively involved in designing of a new generation of cars. He also joined Tesla Motors’s board of directors.

In one of his recent interviews, the current CEO Tesla Motors announced that it is worth supporting the idea if people and the world need it, and cited an example of electric car General Motors EV1 (Morris, 2015). General Motors withdrew their product, and sent all of the released production models to destruction, in spite of the people who accompanied and supported them. According to Musk, if people support an idea, it is not necessary to stop the production (Daum & Leibovitz, 2015). That is the reason that spurred Musk to invest in the perspective company. The main goal of Musk was to make a car that runs exclusively on electricity and has a long range attractive for the customers.

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Tesla Motors is a company with long-term goals. This was the case the first days of ideation and release of the company’s first cars. The main goal of Tesla Motors Ltd. was to establish mass production of electric cars. They started from Tesla Roadster, which is a sports two-door electric car. Sales of this car had to cover the expenditures for Tesla Motors creation and production of these cars. Elon Musk took part in the elaboration of every detail of the company’s first electric car, from the design of the power control module and up to the headlights design (Buvat, KVJ, 2014). However, Musk was not involved in the routine tasks. Over the next few years, the number of investors of Tesla Motors has increased, encompassing Valor Equity Partners, Google co-founders Sergey Brin and Larry Page, former eBay President Jeffrey Skoll, and others. By 2007, total investment in Tesla was more than 105 million dollars.

The Survival Stage. Technical success and achievements

The company has presented several products. There are four different models of Tesla electric cars: Tesla Roadster, Tesla Model S, and the company has announced Tesla Model X and Tesla Model III. Serial production of Tesla Roadster was supposed to start in September 2007, but there were some serious financial problems (Buvat, KVJ, 2014). It turned out that the planned market value is much lower than the cost of production for Tesla Roadster. This incident caused a series of layoffs in the company. One third of the employees and one of the company’s founders, Martin Eberhard, had been dismissed. The release of the first electric Tesla Motors car had been postponed due to difficulties in assembly. The company experienced a lack of financial resources and Musk had to raise the price of the already ordered vehicles. Customers who paid in advance were naturally dissatisfied, giving negative comments in social networks and surveys. The media have begun to talk about Tesla Roadster’s failure from the first days of its announcement.

Elon Musk had to create a new team, define a list of problems that hinder the release of Tesla Roadster, and to appoint a person responsible for resolving of all the problems. In early 2008, Tesla Motors released the first Tesla Roadsters to the market. In one of his blogs, Musk said that after Eberhard left, he had to look for new suppliers, and partially or fully change nearly every core component of an electric vehicle (Tesla Motors – electric cars that can change the world, 2013). As a result, it took 140 million dollars instead of the planned 25 million dollars to bring the Tesla Roadster on the market (Buvat, KVJ, 2014).

The design of the electric Tesla Roadster was based on a Lotus Elise. It was not the best possible solution for the company, as Tesla Motors could not modify the essential elements of the design of the British manufacturer (Tesla Motors – electric cars that can change the world, 2013). The cost of basic modification of Tesla Roadster was eventually decreased to 109,000 dollars, while the sports version of the electric car was priced at 128,500 dollars (Morris, 2015).

Tesla Roadster was the first electric car with a lithium-ion battery, but it had a size of a few thousand conventional notebook batteries. This model also became the first serially produced car running exclusively on electricity, and it had a range of 320 km on one charge (the record result was 501 km at an average speed of 40 km/h) (Morris, 2015).

After Tesla Roadster’s success, Elon Musk announced future plans for expanding to the European market, building a plant in California, and announced the sedan Model S (codenamed Whitestar). In order to carry out the planned tasks, the company required an additional 100 million dollars, but no one was willing to invest, and Musk appealed to the existing investors (MacKenzie, 2012). Musk has invested his last savings in the company in order to save it. The most difficult times came for Tesla Motors: they had to close the office, lay off 25% of the staff as well as postpone the release of Model S. The company faced bankruptcy.

How It Works


In March 2009, Tesla Motors showed a prototype of the premium-class sedan Model S, which immediately received negative comments from skeptics. However, in May of the same year there was a first positive turn of events for Tesla Motors. It was investment from Daimler AG of $50 million (MacKenzie, 2012). At last, in June, the company was able to obtain a loan from the US Department of Energy for 465 million dollars as a part of the “green” Advanced Technology Vehicles Manufacturing Loan Program (Tesla Motors – electric cars that can change the world, 2013).

In June 2010, Tesla Motors made an initial public offering on the NASDAQ stock exchange. In spite of all the unfavorable forecasts and estimates, during the first day, the price of a share has risen by more than 41%, and the company was able to raise 226 million dollars (Morris, 2015). Tesla Motors was the first car manufacturer in the US, released on the secondary securities market since the days of Ford (shares were last listed in 1956).

Deliveries of electric Tesla Model S in the US began in June 2012, in Europe deliveries began later- in August 2013 with a limited batch of 1,000 electric cars Tesla Model S Signature and Signature Performance (Tesla Motors – electric cars that can change the world, 2013). They had a battery capacity of 85 kWh and a price of 95,400 dollars and 105,400 dollars, respectively (Morris, 2015). Later, Tesla Model S came in two versions: with a battery capacity of 60 kWh and 85 kWh, which translate into ranges of 300 km and 400 km on one charge respectively (Buvat, KVJ, 2014).

There are many innovations and much success linked to Tesla Model S. First of all, it is the electric car with highest range on one charge. Secondly, it has one of the best speed characteristics. The performance modification with a battery capacity of 85 kWh accelerates from 0 to 100 km/h in just 4.2 seconds, while its top speed is 210 km/h. Earlier this year, Tesla Model S managed to bypass a double gasoline sport car Dodge Viper SRT10 and get the title of the fastest electric car in the world (Morris, 2015). Thirdly, among all of the mentioned advantages of Model S, it is one of the safest cars in the world. The second serial electric Tesla Motors has surpassed all expectations. The company managed to increase the output of Model S cars, repay the government loan of 465 million dollars and make a profit (first quarter 2013) for the first time in 10 years of its history (Tesla Motors – electric cars that can change the world, 2013) (Tesla Motors – electric cars that can change the world, 2014).

The newest car released by Tesla Motors is Tesla Model X. Tesla Model X is a full-size electric crossover. The company demonstrated the prototype in Los Angeles, February 9, 2012. Commercial deliveries began on September 29, 2015. Tesla Model X is based on the Tesla Model S platform and is produced on the main factory of the company in Fremont, California. Prices range from 132 to 142 thousand dollars (Garrett, 2012). The prices of the more affordable basic package Model X 70D comes to US 81,200 dollars (including shipping costs) (Garrett, 2012). Thus, the base Model X is 5 thousand dollars more expensive than the base model of Tesla Model S. According to Elon Musk, in the future, the company will offer a less expensive version of the car with a smaller battery. Tesla Motors plans to expand its audience by positioning Model X as “the safest sport utility vehicle in history” and family car for travel (vehicle can pull a trailer weighing more than two tons). (Daum & Leibovitz, 2015) In general, the market segment of luxury sport utility vehicles in the United States increased by 17% in August 2015 (Garrett, 2012). In 2016, the European plant in Tilburg, Netherlands will also assemble Tesla Model X cars (Garrett, 2012).

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The short-term plan of Tesla Motors is to release a new car that would be more affordable. Tesla Model III will be a small car suitable for a wide range of customers. Its first name was Tesla BlueStar, and then it became Model E, which later changed to Model III. Approximate date of release for this model is 2017, and its estimated price is 35 thousand dollars. Vehicle dimensions are similar to sedans such as Audi A4, BMW 3. Some expectations suggest that Tesla’s third model will be able to go 320 km on one charge.

Additionally, Tesla Motors is actively cooperating with other companies. For example, the company organized production of electric components for other manufacturers, for example, Smart ForTwo and Toyota RAV4 EV.

Dealing with crisis

The alarm bell rang for Tesla on October 1, 2013, when Model S, had a light accident on one of USA roads, and caught fire. The owner claims that it happened spontaneously, and the company’s experts believe that the fire started due to an external influence, which seriously damaged the battery. Later, there was another similar case in Mexico. The investigation is ongoing, and the exact cause of fire is not officially set, but Tesla shares instantly dropped on the stock market. This relatively young company is too unstable for such events. However, the annual production of Tesla has not overcome 100,000 cars yet. Moreover, in the end, the company is likely to come to the same problems that automakers with centuries of history and huge production volumes have to deal with.

However, the reaction of Tesla Motors to the accident was immediate; in November, it released a software patch that increases the ground clearance a vehicle. In spring of 2014 it was announced that the design of the car changes. Now, under the car’s bottom, there is a hollow aluminum beam, specially shaped titanium plate and a shield made of extruded aluminum. Aluminum timber either discards object lying on the road, or if this is a very solid and stable object, softens the impact and sends it up in front of the battery compartment in the front area of the trunk, preventing serious damage and maintaining the car’s stability. Titanium plate protects sensitive components in front of the vehicle, helping to neutralize the risks from the underlying road debris. Shield aluminum installed in case the first two protection devices are not effective, it additionally absorbs and disperses the impact energy. The owners that have bought Tesla S before the modernization can upgrade their electric cars with enhanced security at service stations for no cost.

Moreover, caring about customers’ safety, Tesla Motors did another safety measure. The car owner discovered the unreliability of the seat belt buckle on the front seat of Model S. After that, in November 2015, the company withdrew all 90 thousand cars to check and repair it in case of failure.

Tesla Motors management and marketing strategy. Innovations

The idea to give the world an opportunity to have safe and fast cars that do not pollute the environment and run  on very cheap fuel is revolutionary. The keys of Tesla Motors’s success are in specialties of advertising, technologies, innovations, such as free charging stations, using Tesla Motors technologies at home, expanding production and markets.

Advertising

Tesla managed to become, perhaps, the most frequently mentioned car manufacturer in the media (Morris, 2015). Its flagship product, Tesla Model S, that has become so popular and revolutionary, that the company does not even have to advertise it. Moreover, it does not hold expensive press shows, is not engaged in stimulating dealers’ activities, and does not have TV commercials. That is, it does nothing of the usual cars manufacturers’ style of operations. Nevertheless, this did not prevent the electric sedan to become the best-selling car in Norway (Model S has bypassed sales of even Volkswagen Golf) and the most fashionable car of the Silicon Valley (Morris, 2015).

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However, Tesla Motors has chosen an untraditional marketing strategy and decided to break the usual marketing paradigm. Unlike their competitors, Tesla Motors does not have a dealership network and the company is not engaged in traditional advertising. Tesla Motors is also missing SMO (Social media optimization) – they have a rather small marketing team instead.

Instead of the traditional approach to marketing, Tesla opened 35 showrooms in the United States and made an attractive website, which give a potential client an ability to buy its electric sedan directly in just a few clicks, without any dealers. Tesla’s showrooms exist not only for sales, but also for onlookers to see what they came for, take pictures against the backdrop of the most fashionable car and then upload these pictures to social networks.

Other interesting specifics of Tesla’s marketing strategy is the option to order and pay for the electric vehicle on the website. Also on the site, there is an electric delivery service in the place indicated by the buyer. Similarly to Apple Stores, advertising platforms of Tesla Motors are usually located in upscale shopping centers and on strategically important city highways. These shops have always attracted attention of curious passers-by who stop to take a photo and post it on social networks.

Free charging stations

One of the most interesting peculiarities of the company are free charging stations for electric vehicles, that get some of the energy from solar panels. Only owners of Tesla cars can use these stations. Tesla drivers can potentially explore the whole America without spending a dime on refueling. Another key factor for a high demand for electric vehicles is that they are environmentally friendly, which has already become a popular trend nowadays. The company puts an emphasis on ease of assembly and low maintenance of its electric vehicles that standard cars with an internal combustion engine cannot achieve. All this is a good incentive to buy Tesla cars. Despite the provision of free battery charges, Tesla does not lose the opportunity to capitalize on this project. Those who do not wish to wait 30 minutes to charge the battery of their car can take advantage of the quick-change battery in just 15 minutes.

A key argument of people against the electric cars is fear that they will not have the same sense of freedom that a conventional car provides them with. Together with production of their electric vehicles, Tesla Motors Company began active development of “gas stations” for their vehicles. Musk plans to remove such concerns through a solar-powered network called Supercharger (Daum & Leibovitz, 2015). The easiest way to show that electric vehicles are better than gasoline cars is to say that fuel is essentially free. Besides the fact that such a filling station is completely free for a Tesla car owner, one of the main advantages is speed of charging. Tesla Motors engineers have reduced the time of a full charge to an incredible 75 minutes. An 80% charge takes approximately 40 minutes. Moreover, most importantly is that the owner will need 20 minutes to charge half of the battery capacity of a Model S.

Superchargers network is constantly evolving, and at the end of 2015 there were 220 stations in North America, , and 180 in Europe. The company says that the refueling will be free indefinitely. Thus, they encourage people to buy electric vehicles worldwide. In addition, Superchargers work 24 hours a day. The charging process for a user at Superchargers station is no different from the usual charging at home. After inserting the connector into the socket of Supercharger in the car, the driver can observe the charge process on the control panel.

Tesla Superchargers are located along the most popular routes and allow the owners of Model S to travel free between cities in North America and Europe. The network of Superchargers charges half of the battery capacity in about 20 minutes and is arranged in such a way as to allow drivers to travel from station to station with a minimum amount of stops.

Powerwall

Engaged in development of electric vehicles, Tesla Motors has created an efficient rechargeable lithium-ion battery. New technology seems to be useful in the households as well. It is called Powerwall. Its essence is to address the domestic electricity needs. Due to special accumulators, it can store energy in an amount that is sufficient for houshold electricity consumption at night. Powerwall is easily installed on a wall of a house. According Elon Musk, this new development will lead to a complete change in the global energy infrastructure (Daum & Leibovitz, 2015). Whatever it is, the new product will achieve some degree of autonomy in terms of power supply. Some estimated state that the price of electricity for consumers will be lower. In addition to the new design, the device has also an aesthetically pleasing design. The Powerwall batteries will be available in several colors and could be used for decorating the house.

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Powerwall will come in two modifications. The life expectancy of the battery is approximately ten years. Despite the initial high price, analysts appreciate this new Tesla product. According to some forecasts, Powerwall may be commercially more successful than the company’s car side of the business.

Expanding markets

In one of his interviews, Elon Musk told about plans to expand production of Tesla cars in Europe (Daum & Leibovitz, 2015). The company currently has an assembly line of Tesla Model S in the Netherlands. Expanding mass production scheduled to begin in Europe with the launch of a “budget” car – Tesla Model 3, which is planned to start in 2017 (Daum & Leibovitz, 2015).

Part of the income of Tesla Motors, approximately 11% , is associated with certain features of the California legislation (program ZEV), according to which car manufacturers are required to supply a certain percentage of the state machine that does not cause air pollution, such as electric vehicles. Since all of Tesla cars  have no emissions, the company can resell part of its quota («ZEV credit») to the manufacturers of vehicles with an ICE, such as Honda. Each of the produced electric machines Tesla «Model S» can raise income due to resale of quotas and this profit may reach 35 thousand dollars.

Battery plant

In 2014, Tesla company and Nevada stated have entered into an agreement to provide tax incentives for the planned construction of a world’s largest battery plant called Gigafactory  (Voelcker, 2015). The plant will come into full production in 2020 and will produce up to 500 thousand batteries for the needs of electric vehicles. Investment in this plant are estimated at around 5 billion dollars. In February 2015, the plant was in the stage of an active construction of the main body the plant (Voelcker, 2015). The Tesla Motors company will share technologies with other car manufacturers that produce electric vehicles. Tesla Motors plans to open access to its technologies to accelerate growth of the electric vehicles market. For now, the company shows an impressive income. The results were impressive for investors who have invested money in Tesla Motors. During the last year the company’s shares rose 47.5% (Morris, 2015).

Conclusion

In addition to releasing impressive electric vehicles, Tesla Motors also created its own infrastructure around the world, and a proprietary sales network without intermediaries. Tesla Motors has evolved from a novice start-up to one of the most prominent automobile manufacturers in the world. In addition, Tesla aspires to become one of the largest employers in the United States in the area of skilled labor.

During 12 years of existence, the company has already achieved many outstanding results. They successfully created vehicles that work solely on electricity, without any need to use any form of gasoline. Tesla Motors Ltd builds a factory that will produce batteries for electric cars. They managed to reach minimum range of 300 km on one charge for their vehicles. Tesla Motors also organized production of electric components for other manufacturers, for example, Smart ForTwo and Toyota RAV4 EV. The company built a network of charging stations in which drivers can charge half the capacity of the battery in half an hour for no charge. Alternatively, there is a paid service of replacing the low charge battery with a new one. Musk announced his intentions to open all of the Tesla’s technical secrets pertaining to electric vehicles. Thus, other manufacturers also would be able to use Tesla’s technologies for production of their own vehicles. Tesla Motors showed an example of survival under rigid economic circumstances, promoting “ecofriendly” lifestyle, showed innovations in marketing (such as absence of TV commercials). Since the emergence of the company, the key drawbacks of the electric cars were long charging and the absence of charging infrastructure. Ten years after founding the Tesla Motors company, Musk has effectively solved these two problems. In the nearest future, the company is waiting for multiple sources of growth: firstly, increasing car sells in China and all over the world, launching a new crossover Model X and presentation of the budget car Model 3, as well as many other innovations developed by Tesla Motors. Now the whole world is waiting for the budget version of the Tesla car, which will be affordable to the widest possible number of consumers.