How Tesla is Disrupting the Automotive Industry

The Secret of Tesla's Success

Have you ever seen a TV commercial for Tesla’s electric cars? Or a funny Snapchat filter promoting their newest model 3? Neither have we. But according to Ars Technica the car maker somehow still manages to stay on top in US electric vehicle sales compared to its competitors without having to air 30-seconds Super Bowl commercials. Car companies spend tons of money for spokesmodels, auto shows or sponsoring sports team. Tesla, however, seems absent from the automotive marketing sphere. What kind of business strategy is the electric car juggernaut following?

Their secret lies in its know-how for game-changing high quality products and out-of-the-box selling strategies. With the newest model 3 ranging in more affordable price categories Tesla is finally heading for the mass markets. It is time to take a closer look at what makes Tesla tick. Here are five reasons why Tesla has risen to success at such a fast pace.

1. The Right Market Entry Strategy

A company’s market entry strategy sets the course for future development. With a flawed entry a business will have a hard time trying to establish itself on the market. In Tesla’s case, the company entered the market with an expensive high-end product focusing on a financially more privileged target group instead of trying to build an affordable car which should be mass produced and marketed in order to compete on a large market.

A startup without experience in building cars and no economies of scale could not possibly develop an affordable product that could reach a competitive price level. So instead, the goal was to develop a ground-breaking sports car that had the best chance of being competitive with its gasoline alternatives. Once the company has established itself as successful high-quality brand Tesla would venture into a more competitive market with lower priced models. Starting in a small niche market of high-end electric sports cars also gave Tesla the possibility to dominate the submarket and establish itself as a monopoly.

Tesla Market Entry

2. Gaining Customer trust with High-End Products

Focusing on building a high-quality product also gave Tesla the freedom to experiment and gain know-how in developing a new standard for electric cars. In fact, Tesla’s technology became so good that even other car companies are using it such as Daimler relying on Tesla’s battery packs or Toyota using a Tesla motor. General Motors has even created a task force to track Tesla’s next moves. With great technology in its hands Tesla built the perfect foundation for gaining customers’ trust. After all, buying a car is a big and important decision and should be made wisely.

Winning customers’ trust in this industry is not always easy, but thanks to its high quality products Tesla took over the electric-vehicles market by storm. By focusing on a niche market, it became clear for the car maker that its cars did not only have to be the best ones on the market, but they also had to look attractive. When high-income consumers decide to go “green”, they want people to notice. Tesla’s sports cars were designed to make its drivers look cool and catch people’s attention. Even Leonardo DiCaprio ditched his old car for an expensive (and more importantly expensive-looking) Tesla Roadster.

3. Selling Products directly in own Showrooms

One of the most significant characteristic of Tesla’s business strategy, however, is that it abandons traditional sale strategies through franchised dealerships and instead sells its products directly to customers through self-owned showrooms, mostly in prominent urban centers around the world as well as online where customers can purchase customized products. Inventory management and after sales service depend strongly on dealerships in traditional sales strategies. Still being one of the smallest manufacturers in the world, dealerships would only decrease Tesla’s margins because of increased costs.  At the same time the company can’t benefit from the same economies of scale unlike its competitors. By collaborating with other automobile makers such as Daimler and Toyota, Tesla can keep supply costs for basic components low since it also has to work with suppliers that don’t usually deal with car manufacturers such as battery suppliers.

Through direct sales Tesla has much bigger control of customers’ shopping experience and can easily cultivate customer relationships. Since the company uses its own sales representatives and service staff Tesla can avoid conflict of interests that can occur with dealerships. At the same time direct sales give Tesla the opportunity to combine sales with services by creating its “Service Plus” centers, a combination of retail and service center. By combining direct sales with service centers the automaker hopes that it will have a positive effect on the customer demand.

4. The Future of Tesla Service

Thanks to the modern technology of the cars as well as the unique service centers or Service Plus locations Tesla is able to provide a unique customer service that will be setting new standards in the automotive industry. Since electric vehicles are less complex than those with internal combustion engines they do not need as much regular service. Tesla says that the service time will be four times faster and use three times less space than in traditional repair shops. For routine repairs customers don’t even have to bring their cars to a service center. The cars are always connected over a cell signal or WiFi which is why Tesla can diagnose 90 percent of issues and even fix certain problems online without even physically touching the car. If physical maintenance is necessary the needed parts will be ordered before customers bring their cars to a service center. You can schedule maintenance appoints easily from car. Tesla even offers mobile technicians, who can come to your home.

Tesla Supercharger

5. Tesla’s Network of Charging Stations

Right from the start Tesla was not only focusing on building electric cars but also implementing a network of charging stations along freeways in order to assure flexibility in long-distance travel. At the “Supercharger” stations, which are conveniently located near restaurants, shops and WiFi hot spots, customers can charge their cars for about 30 minutes. In the beginning, Tesla introduced a free charging policy at the Supercharger stations to win over consumers. Now, however, customers who ordered their cars after January 1st, 2017 have to pay a small fee for charging their cars at the Supercharger stations. Customers who purchased their care before this change still get to charge their cars for free for life. With the new revenue the company wants to expand its network building 10,000 more chargers globally and also making the stations bigger with more charging spots. The new charging stations will not only be placed along highways but will also be located in cities.

Another big problem for Tesla was that queues at the charging stations had gotten so long, that driver had to wait up to half an hour before even starting to charge. To solve this problem, Tesla introduced a $0.40 idle fee that occurs for every additional minute a car remains connected to the Supercharger after being fully charged. The Tesla app alerts customers when their charge is nearly completed and then again once fully charged.

Tesla is paving the way for Electric Cars going Mainstream

Tesla has most definitely pioneered the electric car industry and is now ready to go mainstream. Investing in great technology and a sufficient charging network has not only been an important requirement for convincing customers to purchase the futuristic cars. It has also opened doors for unique selling and service strategies. Deciding to ditch traditional dealerships and focusing on direct selling is a key factor in Tesla’s strategy and might even change the way people will buy cars in the future. With the release of the new Model 3 we are having a first glimpse into how the future of marketable electric vehicles can look like – but will it take over? Only time will tell. But one thing we know for sure: Tesla is not going to leave anything to chance to bring its cars to the masses.

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