Tesla Motors is actively pursuing a low-cost strategy to make their cars more affordable for the mass-market consumer. They’ve set themselves apart by employing high capacity utilization and technological advantages. Yes, Tesla offers a preferred product at a higher price, but they’ve used the money made on that to build an even more affordable car while providing zero emission electric powered cars for future generations.
High Capacity Utilization
Tesla plans on developing their product at a higher cost initially where customers have to pay a premium and then drive down market as fast as possible in order to produce a higher volume of product at a lower price. At a whopping $100 grand, Tesla’s base model for the Roadster is nothing to sneeze at.
The primary breadwinner, the Tesla Roadster was designed to beat any high-end sports car including Ferrari and Porsche in side-by-side performance testing. In fact, the Roadster has twice the energy efficiency of a Prius, further moving the hydrocarbon automotive industry to a global solar economy.
Risks of a Low-Cost Strategy
Tesla’s has technology on its side, but they aren’t the only automotive company using ICE technology (internal combustion engine). This immediately obscures Tesla’s strategic advantage where electric cars are concerned. Their preoccupation with lowering the cost of their product could cost them their brand image, another important reason for their success.
What makes the quality of Tesla Motors unique is the way their cars are built. They’ve taken out major cost points for themselves and the end-user including the transmission. So between their models and any competitors, theirs are going to be much easier to maintain because of how they’re built. But, there’s not just one unique selling proposition in Tesla’s business model. They’ve staked a lot of good faith in their image—and for good reason. Customers are also willing to pay more for the brand’s image. A Tesla car appears to be a clean car in a dirty car industry. It’s new, high-end and environmentally responsible.
The major risk to Tesla’s differential advantages is their price point. Currently their cars are not affordable for a mass-market consumer to purchase. Their competitors can easily swoop right in, build a similar car, use their gigantic marketing and manufacturing resources, yet lower the price from $100,000 to $40,000. This sets Tesla’s cars at a disadvantage because it’s no longer a commodity that people want to pay for.
Tesla is able to provide a car that caters to the higher end, world conscious consumer. The key risk of their focus strategy is that narrow market segment may become like the average consumer and jump ship to a more affordable alternative like Prius or Ferrari.
It’s no secret after this point that Tesla’s cars are more expensive. Their strategy is clear, to build luxury cars of the highest quality and lower the price points with each model. This in turn does make them the best cost in their market because their profits are generated from one element of their strategy allowing them to invest in others in the future. Being upfront about their purpose is ingenious because it eliminates any suspicion in the consumer’s mind, creating a level of trust and keeping Tesla on the ‘back burner’ for the consumer’s auto-purchasing future.