August 15, 2016    4 minute read

Tesla’s Road To Success Is Not Car Manufacturing

The Path To Follow    August 15, 2016    4 minute read

Tesla’s Road To Success Is Not Car Manufacturing

After seeing 13 consecutive quarters of negative earnings, Tesla is now waiting for a new round of funding to raise capital and invest in the development of solar batteries. Yet, concerns are spreading among supporters that Tesla might not deliver on its promises and simply vanish, unable to recover from the significant losses from past years. There is more at stake than the future of the company: should Tesla file for bankruptcy, the entrepreneurial image of Elon Musk would be inexorably compromised.

Rage Against The Machine

Long dominated by a conservative business logic and exploitative models, the automotive industry saw a wave of fresh air when Elon Musk and other entrepreneurs entered the market with their fully electric vehicles. The imperative “innovate or die” is now as true as ever: automobile manufacturers have entered a race towards the development of sustainable cars, and shifts in customer demand will drive production in the future.

Unfortunately, having the best product will not suffice to achieve market dominance. Albeit Tesla is synonymous with innovation, the company lacks the minimum infrastructure needed to tap into a growing customer base interested in the product. Especially in the oil-intensive US automobile industry, learning barriers play a predominant role in blocking Tesla’s rise to success. Without proper power stations spread across the country, the penetration of electric cars will be hampered.

Further, the supply chain of electric vehicles encompasses a number of capital-intensive obstacles and learning barriers hard to overcome. First, to extend its customer base, Tesla needs access to capillary distribution and accredited resellers. Second, investments in after-product and maintenance are needed, so that a growing number of people may be able to look after problems of electric vehicles. Third, some arguable choices and the lack of productive capacity make Tesla unaffordable for most of the customers it is supposed to attract.

Reconsidering Tesla’s Position

Doubts about Elon Musk being the right man to lead Tesla through the troubled waters ahead have also emerged. Unlike the entrepreneur’s past projects, this time, visionary ideas and technical superiority will not suffice to disrupt the conservative automotive industry. As the small kid on the block, Musk will need to play smart and seek the support of established entities.

1998 is the year Elon Musk
co-founded PayPal

When comparing Tesla to PayPal, the online payment service co-founded by Musk in 1998, the differences are sizeable. The latter was a pioneering initiative in a fast-moving digital market that was seeing some daily cutting-edge new products. Conversely, Tesla is an innovative project trying to disrupt an established and technology-adverse industry. Leadership characteristics are therefore opposite for the two companies: one requires opportunity-seeking and fast decision-making, whereas the other needs negotiation skills and long-term commitment.

And in the long race of electric cars, Tesla is considerably disadvantaged. Now that every major incumbent has plans for producing electric vehicles, Tesla’s limitations are more constraining than ever. Against car manufacturers with decades of activity, an established distribution network and extensive production facilities, Tesla will have small chances of grabbing the largest “slice of the pie.”

Winning The Race

Elon Musk’s vision of a sustainable future without gas stations might be still far from realistic. Albeit the entrepreneur’s revolutionary views have shaken industry leaders and persuaded many to follow in his footsteps, Tesla cannot succeed alone in the over-competitive automotive market. Rather than a car manufacturer, the company should reposition itself as a battery producer, selling its technology to those interested in developing sustainable solutions. 

Moving ahead through partnerships and licensing might be the only way to scale the company and guarantee the broad penetration of electric vehicles. As of now, Tesla has a superior design and better performances but competes with a growing number of cheaper and mass-market products. Since current players can hardly be beaten on their own playground, Tesla can become a supplier of electric parts to gain the cooperation of car makers, exponentially grow its adoption rate and establish its standards as an industry benchmark.

If the company fails to do so, the future of electric vehicles is at stake.

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