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<\/a>Direct to Consumer<\/strong> – Tesla has turned the traditional car dealer network on its head with a direct-to- consumer model. The company refrains from using middlemen and dealerships like traditional automakers, and takes all of its sales orders online. For customers wanting to view and interact with the car prior to purchase, the company has several \u201cgalleries\u201d showcasing its vehicles and educating its potential customers on their innovative technology. (See Figure 1) The online, direct to consumer model allows Tesla to build cars on demand, to the exact specification that the customer wants.\u00a0 Not only does this significantly reduce the amount of inventory the company needs to carry, but it also ensures each car is perfectly tailored to the buyer\u2019s taste.\u00a0 As a result, Tesla recieved a score of 99 out of 100 in Consumer Reports\u2019 annual owner satisfaction survey. [2]<\/p>\n Singular Focus <\/strong>\u2013 A huge component of Tesla\u2019s success is related to its razor sharp focus of selling one car at a time.\u00a0 Unlike many auto makers, who launch several new vehicle models each year, Tesla choses to launch one model at a time.\u00a0 Historically, model launches are 4-5 years apart from one another.\u00a0 By doing so, the company is able to narrowly focus it resources and innovation efforts.\u00a0 As a result, Tesla packs an impressive amount of technology within the car, which is operated on its own operating system (see Figure 2).\u00a0 The interface shown not only controls the basic functionalities of the car, but is also used to add future functionally through software updates. Effectively, this innovation changes the cycle time for feature enhancement from days (involving trips to the service station) to minutes (done anywhere). [3]<\/p>\n Knocking Down Barriers <\/strong>– Two huge barriers holding back the adoption of electric vehicles are the lack of adequate charging infrastructure and the concern around the vehicles driving range per charge.\u00a0 Tesla has made it a priority to knock down these barriers by installing hundreds of SuperCharger stations in key market areas. (see Figure 3) These stations are designed to provide 170 miles of range, enough to get to the next charging station, in as little as 30 minutes. [4] In addition, use of supercharger stations are free.\u00a0 Developing and expanding this infrastructure has been key to Tesla\u2019s sales as it reduces customer concern.<\/p>\n Operating Model<\/u><\/p>\n To support their business model, Tesla operates it business in a way that creates and competitive advantage when compared to other auto makers.\u00a0 The core pieces of their operating model are explained below.<\/p>\n Leveraging Technology <\/strong>– Tesla\u2019s cars are connected wirelessly to a remotely managed central corporate office. Each car generates huge amounts of data. [5] Data that Tesla uses to improve the its product, as well as to improve the end users experience.\u00a0 Upgrades range from adding safety parameters to adding new software and hardware changes. For example, in 2013, when three Tesla Model S cars caught fire due to punctured battery packs, the company released an update to change its vehicle\u2019s suspension settings. This gave the car more clearance at high speeds, thus averting similar problems in all future models. [6]<\/p>\n Vertical Integration <\/strong>\u2013 Another key piece of their operating model lies with their degree of vertical integration.\u00a0 Unlike most car makers who source their parts form third party suppliers, Tesla produces the bulk of the parts used to assemble its vehicles.\u00a0 For example, Tesla recently announced that it would build a \u201cgigafactory\u201d to build the batteries for all its vehicle lines.\u00a0 The company hopes that by extending its reach into the battery end of the business, it can reduce the per kWh cost of its drivetrain by more than 30 percent. [7]\u00a0 In addition, the integration should help Tesla further advance battery technology as it relates to electric cars as well as ensure a constant product supply into the future.<\/p>\n Generating feedback <\/strong>\u2013 Receiving and implementing feedback in something that CEO Elon Musk strongly believes in, stating \u201cI think it\u2019s very important to have a feedback loop, one where you\u2019re constantly thinking about what you\u2019ve done and how you could be doing it better.\u201d [3] To embody this belief, Tesla has made user forums a big part of the car buying\u00a0experience.\u00a0 The forums, which are housed on the company website, allow existing customers a place to voice their opinions about the company and it products.\u00a0 This immediate feedback loop coupled with its ability to make software and hardware changes on the fly, allows Tesla to execute worthwhile changes rapidly.\u00a0 In addition, the transparency of the forums allows potential customers to see the passion of existing Tesla customers.<\/p>\n Conclusion<\/u><\/p>\n Tesla is a great example of a company that has aligned its business and operating models. By doing so, the business has created a competitive advantage that enables it to quickly respond to product issues (both hardware and software related) that it collects via it\u2019s vehicle data collection technology and its open website forums. In addition, Tesla has been able to leverage it\u2019s direct to consumer business model to reduce inventory carrying costs and manufacturing waste.\u00a0 In response, investors have rewarded the company with superior stock performance compared to it\u2019s peers. (see Figure 4)<\/p>\n <\/p>\n <\/p>\n Sources <\/u><\/p>\n [1]\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 http:\/\/www.reuters.com\/finance\/stocks\/companyProfile?symbol=TSLA.O#0mM8D4591FwoMMJy.97<\/a><\/p>\n [2]\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 http:\/\/www.businessinsider.com\/teslas-model-s-receives-the-highest-owner-satisfaction-score-consumer-reports-has-seen-in-years-2013-11<\/a><\/p>\n [3]\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 https:\/\/www.capgemini-consulting.com\/resource-file-access\/resource\/pdf\/tesla_motors.pdf<\/a><\/p>\n [4]\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 https:\/\/www.teslamotors.com\/supercharger<\/a><\/p>\n [5]\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 http:\/\/www.valuewalk.com\/2014\/08\/tesla-vs-jaguar-its-about-analytics\/<\/a><\/p>\n [6]\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 http:\/\/longtailpipe.com\/ebooks\/green-transportation-guide-buying-owning-charging-plug-in-vehicles-of-all-kinds\/electric-cars-are-safer-than-gasoline-cars\/tesla-model-s-car-fires-in-2013-and-2014\/<\/a><\/p>\n<\/a><\/a><\/a>