In this edition of the business models of technology companies I’m talking about the Tesla business model using the business model canvas.
In the video, I use the Tesla business model canvas to show who it’s key customers are and the value proposition it offers them. I describe how Tesla communicates with its customers and its key marketing and distribution channels. Finally, I cover how Tesla monetises its business model.
How does Tesla deliver value to customers? I then look at the infrastructure side of the Tesla Business Model Canvas to show how it uses key resources to deliver the key activities that are required to manufacture its cars and the partnerships that it needs to do this. Finally, I look at how much this all costs.
The Tesla Business Model
Photo by Roberto Nickson (@g) on Unsplash
The way it works is that Tesla offers an electric high technology car to people who are concerned about the environment and the cost of petrol (or gas if you are from the US). This is the value proposition.
The high technology component of Tesla solves a number of problems. It provides status in a way that is quite different from traditional internal combustion cars.
It also provides a far more interesting mobility experience that is a step away from the petrol driver having to control his car every second of the drive. The Tesla driver can relax and let the autopilot do the heavy lifting.
To deliver this Tesla has several key resources.
A huge factory making the electric batteries and also a heavily automated factory that assembles the cars.
It also has a network of car chargers and it’s own fully owned sales centres.
These differ from the traditional car industry model which sells dealership franchises. You don’t buy a car from Ford. Your buy a car from a Ford dealership.
The Tesla business model breaks that. This difference allows Tesla to be far closer to its customers and control the whole value chain. Tesla is vertically integrated in a way that traditional car companies have not been for generations.
Tesla, the most valuable carmaker in the world, worth an excess of $800 billion, has disrupted the automotive industry in a number of ways.
First off, the company focused on producing low-price, high-volume electric vehicles in order to facilitate the mass purchase of its cars. This made the company produce several cheap luxury cars that are affordable, unlike other electric cars which are expensive.
This, in turn, has led to an increase in the rate of adoption of Tesla’s vehicles.
Unlike most other auto-makers, Tesla updates the hardware and software of its vehicles instead of having to release an entirely new model year.
The fact is that electric vehicles have a long-standing history but internal combustion engine cars were easier and cheaper to manufacture.
Tesla is now disruptive because it is ripping the heart out of the supply chain of internal combustion engines. No internal combustion engines means a huge chunk of the gears, transmission drive chains etcetera are no longer needed.
This massively simplifies everything and has the potential to slash costs ― while giving greater performance
The anomaly that Tesla solves ― is everyone knew that electric cars were possible for a long time ― but it was too risky to try, and trying to switch would cannibalize the internal combustion engine market… which is exactly what Tesla is doing now!
Customer segments
Tesla’s target customers include environmentalists who are advocates of a carbon-free environment.
The company strongly resonates with this group who want a pollution-free and green environment.
If you had the chance to make a contribution towards the reduction of global warming then maybe your first line of action would be to purchase a Tesla car that is fully electric. And that’s exactly what the company capitalizes on to reel in its huge customer base.
Just like its charismatic CEO, Elon Musk, Tesla’s customer base also consists of hardcore technology fans and enthusiasts.
This can be partly attributed to the fact that the company develops its cars as if it was software.
Another contributing factor is the fact that Tesla’s cars are run on software. Hence, it would be of benefit to this particular customer base as they can easily upgrade their cars to the latest model for free instead of having to buy a new car altogether just like traditional car owners do.
Value proposition
Tesla provides a good value for its customers by providing them with self-driving autonomous cars.
One of Tesla’s other main value propositions is its provision of sustainable transport, otherwise known as Green transport whereby its cars don’t utilize any dwindling environmental resources
Customer relationships
One of the most fascinating things about Tesla is that it put its customers in control by selling its cars directly to them.
The country owns a wide range of service and sales centers through which it sells and services its cars. These centers are fully operated by Tesla’s staff, thereby leading to more interactions with their customers.
This also helps them provide a better buying customer experience.
Tesla employs technicians called Tesla Rangers who make house calls. These technicians provide various services for Tesla car owners, which in most cases, the service being provided is done remotely.
This is mostly due to the fact that the Model S can upload data wirelessly, hence, the technicians can perform fixes and repairs on the car without ever touching the car physically.
Channels
One of the unique activities of Tesla involves its direct sales of cars to customers instead of through car dealerships.
The company sells its cars directly to its customers through its wide range of showrooms and galleries all around the world.
Alternatively, customers can go to the company’s website to purchase its cars online, specify customizations for the car and have it delivered to them.
This puts Tesla in total control of its sales process.
Revenue streams
Tesla makes money from a variety of offerings which includes sales of its cars and servicing, the company also provides financial services such as car leasing and car insurance.
Below is a breakdown of Tesla’s revenue streams in 2020;
- Automotive revenue – $27.24 billion
- Automotive leasing – $1.05 billion
- Energy generation and storage – $1.99 billion
- Services and other – $2.31 billion
Key resources
One of Tesla’s key resources includes its SuperCharger Network which is its own network of charging stations spread across the country. Here, Tesla car owners can charge their cars for free for 30 minutes.
Tesla introduced this SuperCharger Network into its business model in order to increase the rate of adoption of Tesla vehicles.
Due to the fact that Tesla vehicles also run on software, the company tends to collect data from its cars which is also a key resource in order for them to be able to improve the driving experience of their cars.
Funny as it may sound, Elon Musk is also a key resource of Tesla.
The outspoken CEO has been the brains behind the innovation and product development at Tesla.
In order to ensure his continued focus and attention towards Tesla, Tesla’s board entered a certain deal with him whereby he would be compensated handsomely should he help the company achieve certain milestones and targets which have been spread over 12 tranches.
Other key resources owned by Tesla includes its;
- Lease vehicles
- Solar energy systems
- Property, plant, and equipments.
Key activities
The key activities of Tesla include engine manufacturing.
Its cars’ engines, unlike most other companies’, lie at the bottom of the vehicle, in order to maximize the trunk and boot space.
Car manufacturing and design are also among the company’s scope of activities. Its various cars designed and manufactured so far includes model x, model 3, model y, and model s, of which over a million have been sold to date.
Worth mentioning is its upcoming Cybertruck which it unveiled in 2019. Production of the vehicle will begin in late 2021. The vehicle already has 600,000 pre-orders thus far.
The company also produces a wide range of solar panels and batteries.
Its range of products also includes solar roofs which are installed in homes as alternatives to traditional roofs.
Key partners
Tesla’s key partners include battery manufacturers which it either acquires or forms partnerships with in order to produce batteries.
Tesla, for instance, has a partnership with Panasonic, to produce 2170 batteries at Giga Nevada. Currently, Panasonic produces 39GWh per year of the 2170 battery cells at Giga Nevada.
Moreso, CATL, and Panasonic are responsible for supplying Tesla’s battery cells in China
Tesla also has partnerships with component suppliers. This is evidenced in the fact that the company outsources a major part of its components to manufacturers and focuses on engine manufacturing and final assembly.
Cost structure
Tesla’s expenses includes R&D, as well as manufacturing and assembly of its cars
R&D cost Tesla $1.4 billion in 2020, while it’s selling, general and administrative costs amounted to $3.5 billion according to their 2020 annual report
Conclusion
Tesla is really disrupting the entire automotive industry. This disruptive approach has led to the meteoric rise of Tesla’s stock.
In fact, Tesla’s growth rate has even led analysts to classify Tesla as a tech company due to the fact that it’s exhibiting similar growth as tech giants do.
Currently, Tesla is worth more than the 10 biggest car manufacturers combined!
Other automotive companies would have to adapt to this change, and pivot their strategy and business models, lest they get swept under the rug
