Business model<\/strong><\/span><\/p>\n Analysts estimate that 94% of the world\u2019s transportation runs on oil [3] and that, at the current rate of consumption, the world\u2019s oil supply is expected to run out by the year 2066. [4] \u00a0To add to this, the transportation sector emits 27% of Greenhouse gases which are responsible for global warming. [5] Tesla plans to \u201caccelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible\u201d. [6] The biggest differentiator between Tesla\u2019s business model and that of other car manufacturers is the direct sales strategy. To further spur rapid adoption of its cars, and hence bring its bottom-line back into the positive, Tesla is also building a Supercharger network, which is discussed in greater detail below.<\/p>\n \u00a0<\/strong><\/p>\n Operating Model<\/strong><\/span><\/p>\n <\/p>\n Direct Sales:\u00a0<\/strong>The conventional car sales model is to have manufacturers sell to dealers, who then sell to the end customers. However, in this model, manufacturers cede a lot of control to the dealers, who can determine prices and affect customer experience, either positively or negatively. One of the biggest reasons for Tesla opting for a direct sales model is to maintain complete control over the prices and customer service. Being a new entrant in this industry, Tesla did not want to allow external parties, such as dealers, to control its fate. In another first-in-the-industry strategy, the only way for a buyer to order a Tesla vehicle is to place the order on the website. This not only reduces overhead costs for Tesla, but also appeals to the typical tech-savvy Tesla customer from the convenience standpoint.<\/p>\n <\/p>\n While the direct sales model is designed to ensure that customers have a good experience with the brand, it can be thought of as somewhat of an ancillary function. The primary driver of sales growth will certainly be the product itself. It is, thus, in Tesla\u2019s best interest to ensure that the skepticism surrounding electric cars is addressed. The two biggest factors which hinder rapid adoption of electric vehicles are range and price. Tesla\u2019s operating model addresses, or plans to address, both these concerns.<\/p>\n <\/p>\n Range:\u00a0<\/strong>This problem has been plaguing the development of the electric car for decades. Earlier attempts at building electric cars utilized nickel-based rechargeable batteries (re: BYD Company case!), which had low capacity per unit weight of battery. Providing a high range for a car powered by such batteries would have made it too heavy, leading to a drop in performance. Instead, Tesla uses thousands of Lithium-based batteries (re: BYD Company case, again!), similar to those used in our laptops and cell phones, to power its Model S. These batteries have a higher capacity, making the car lighter while giving it a good enough range. The Model S, in fact, accelerates just as fast as, or faster than, some Ferrari models! [7]<\/p>\n To further address this problem, Tesla is now in the process of creating a Supercharger network. Superchargers are high-powered charging stations\u00a0built to provide a rapid charging option in case the car runs out of battery power during a long drive. While regular charging provides approximately 14 miles of range for every half hour of charge, Superchargers provide 170 miles. There are currently 3203 Superchargers in the U.S., with the network expanding continuously. [8]<\/p>\n <\/p>\n Price:\u00a0<\/strong>The biggest component of a Tesla vehicle\u2019s cost is the battery. To lower the price of its (rather expensive) vehicles, Tesla is building its very own battery production plant. This plant, commonly referred to as the \u201cGigafactory\u201d, will single-handedly produce as many Lithium-ion batteries as the entire world produces today, thereby doubling the world production. Once this factory starts full-scale operations in 2017, the cost of batteries is expected to reduce to 50% of what it is today. [9]<\/p>\n <\/p>\n Conclusion<\/strong><\/span><\/p>\n Tesla\u2019s new crossover, the Model X, has just been launched and its mass market vehicle is due to be launched in 2017. With the Gigafactory and a more extensive Supercharger network expected to be in place by then, Tesla aims to resolve the price and range issues which have hindered the widespread adoption of electric cars. Porsche\u2019s recent announcement about its electric car getting the production go ahead is a definite indication of the ensuing battle in this space, and the strong alignment between Tesla\u2019s business model and operating model give it the upper hand.<\/p>\n <\/p>\n Sources<\/p>\n [1] http:\/\/www.bloomberg.com\/bw\/stories\/2007-07-29\/tesla-a-carmaker-with-silicon-valley-spark<\/a><\/p>\n [2] https:\/\/my.teslamotors.com\/de_DE\/forum\/forums\/tesla-model-s-outsold-mercedesbenz-sclass-bmw-7-series-audi-a8-lexus-ls-and-porsche-pan<\/a><\/p>\n [3] http:\/\/www.learntodrill.com\/oil-energy-source<\/a><\/p>\n [4] http:\/\/oilprice.com\/Energy\/Energy-General\/BPs-Latest-Estimate-Says-Worlds-Oil-Will-Last-53.3-Years.html<\/a><\/p>\n [5] http:\/\/www3.epa.gov\/climatechange\/ghgemissions\/sources\/transportation.html<\/a><\/p>\n [6] https:\/\/www.teslamotors.com\/blog\/mission-tesla<\/a><\/p>\n [7] http:\/\/gas2.org\/2014\/10\/10\/5-supercars-slower-than-the-tesla-model-s-p85d\/<\/a><\/p>\n![\"A](\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/Capture4.png\")
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