Thursday, May 30, 2013

What We Could Learn From the Strategy of Tesla Motors



In the recent interview with TechCrunch, Tesla CEO Elon Musk Says He Got Into The Electric Car Business Because No One Else Would. “For many years, almost all people regarded it as either stupid or insane or both,” Musk said. “The reason for me to do it is not because I saw a huge market opportunity. It was clear that we were not going to see electric cars from major car manufacturers.”

Nobody tries to build the electric car. He built it and proved in certain level that it could be a profitable business (At least its stock price has quadrupled in six months recentlhy).

According to the article in the HBR "Your Strategy Needs a Strategy", which categorize the type of strategy by two factors predictability and malleability, we could categorize the strategy of electric car business into "VISIONARY" (Because the industry is similar with traditional car industry which makes it somehow predictable while we can greatly change the game of the rules because it is a brand new area with only 1 player now).

Elon Musk now received praises from people all over the world which are too much so I don't want to quote them here. Although personally I would critically look into the fancy stories of successful entrepreneurs because usually there are exaggerations to make them "greater & cooler" and some vital not-that-bright details would be deliberately omitted , we could still learn some valuable lessons from them.

1 Don't stick to certain strategy frameworks.
Elon Musk is the co-founder of paypal, it belongs to the Internet Software & Service industry which is the source of the most "shining" companies recently (Google Facebook Instagram etc..). Not following the bubbles and frenzies of the Internet Software & Service industry, he identified the business and focused on what he wants to do and what he is possibly good at: building electric cars. 

So when we are trying to open our own business, we don't have to find the most "popular" strategy or business model but should be adaptable and choose the most suitable strategy to realize our ideas. Just like in the war, sticking into only one kind of strategy would finally be destroyed.

2 In the "VISIONARY" style of strategy, build a flexible plan to execute through each step. 
There are numerous obstacles and uncertainties in a new industry, specifically saying in the electric car it might include the building of the electric station, the performance and driving experience of the car etc. So when the R&D investment is under a limited time & money, we should find the solution that customer would like under lowest cost and fastest time. 

So the strategy Tesla took is to build high-end edition on the first try, which could have relative abundant budget to tackle the technical difficulties and then after received enough feedback from costumer, they used the advantage of scale to produced the middle-end car around $60,000 to $70,000 and finally hope to manufacture the more affordable $30,000 to $40,000 car to satisfy the mass market.

This strategy seems worked pretty well because now they are in the phase of manufacturing middle-end car and gradually moving to the profit point which is a very important reason for their skyrocketing stock price this year.

At last, he pointed out his vision that he welcomes the traditional car manufacturer entering the electric car business because it will further prosper this industry and bring great products to customers. Salute!

References:



4 Your Strategy Needs a Strategy by Martin Reeves, Claire Love, and Philipp Tillmanns

5 The Real Value of Strategic Planning, Sarah Kaplan and Eric D. Beinhocker

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