Quoted from Elon musk, Tesla’s mission is to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.
Looking at this mission, the firm intends to create value by:
- Producing sustainable product that address issue of global warming and depletion of fuel resources
- Product and sell product that Is accessible to mass market (re: Cheap enough)
- Innovate as soon as possible and try to address sustainability issue “Now” vs. in the “Future”
Tesla also tries to capture value by:
- Becoming the “first-mover”
- Build competitiveness of product against fuel-based car through continuous innovation
Tesla’s key operating model is designed very strategically and well-executed.
First, Tesla overlaid clever & gradual business plan that determined allocation of capital, labor, and R&D, and equipment through a step-by-step process:
Source : Waitbutwhy.com
This master-plan is just brilliant. In its inception, Tesla is just like a start-up, and Tesla needed to quick-win to ensure buy in from people, and they did. Since the launch of high-end product (roadster) in 2008, Tesla has shifted to Model X (launched 2012), and Model X (launched in 2015) that have a more affordable price for consumer.
Second, Tesla focuses and deliver on innovation. Tesla is not about making big promise and dreams. Tesla delivers too. Just recently in 2015, Tesla announced auto-pilot features for current Model S and Model X (distributed in 2016).
This is example of innovation that Tesla strive for: Not only they made breakthrough in electric car, they go beyond extra miles on innovation by creating auto-pilot feature. The application of this auto-pilot is so great that it might just re-shape the taxi industry (read: Uber/traditional taxi without driver).
Third, to reduce cost, Tesla has strategically made vertical integration move by building Giga-factory lithium-ion batteries factory in Nevada that will help Tesla to  deal with production capacity and  reduce cost or production of battery packs by 30%. To portray the size of this new factory, it will increase Tesla headcount by 50% from current employee (~11k to 17k).
Lastly, Tesla also has great digital & direct sales and distribution model that made them able to  ensure customer has the highest convenience of getting its product and  gain customer that has high commitment to purchase. Tesla owned its own store and it also leveraged e-commerce channel using tesla website to get lead/inquiry, schedule test-drive, and order online. Ordering Tesla car & its accessories are only 3 steps away using the website (Select, enter details, pay).
In addition to all of this, Tesla asked customer to commit by paying upfront upon reservation that implies Tesla can save a huge amount of net working capital from this engagement. In example of Model X (produced 2015, distributed in 2016), Tesla even asked potential customer to put $5,000 deposit in 2012 without announcing prices.
Value creation and synergy from alignment of business and operating model
Car industry has experience long innovation draught before Tesla. Through up and down journey, Tesla proved that realization of big dream is possible. It has not yet achieved the dream yet, but it’s getting there with a blazing speed and the market knows it.
Let me show the value proof by looking at perception from marketplace:
|USA BIG 3 vs TESLA||Founded in||Market capitalization (in bn USD)||Years of existence|
|Fiat / chrysler||1925||18.4||90|
Market cap as of 11/27/2015
It’s very astonishing how market are really bullish on Tesla now. However, I would want to point out that the journey for Tesla has not been very smooth. In 2008, due to recession, the company almost went bankrupt but Tesla managed to thrive and stick to its business principle and operating model. Since then the number of electric passenger cars have been significantly increased and are still on the uptrend.
To conclude, from Tesla’s story, one possible pathway of value capture and creation can start from business model (step 1), putting in place the right operating model (step 2), and consistently executing with persistency (step 3). We learned that Step 3 is particularly important because in Tesla’s example, if Elon musk gave up in 2008, he would miss the 30 USD-bn market capitalization that is really favorable towards Tesla now.
Winner winner chicken dinner : Tesla has somehow managed to successfully shape the world, how about you?