Corporate Strategy and Vertical Integration

Corporate Strategy and Vertical Integration

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In the year 2003, a serial entrepreneur, Martin Eberhard, was concerned about global warming and the dependent of the United States on the Middle east for crude oil. He then made a decision to build a sports car which was environmentally friendly. He came to the realization that the Northern California driveways were filled with mainly two cars which according to him did not seem to go well together; an expensive sports car and a Toyota Prius, which he referred to as “dork mobile”. He later explained this that people were not purchasing the Toyota Prius so as to save on fuel as gas at that time was low on price. They were however buying them in order to make a statement on the environment. After investigations on the alternative fuel options, Eberhard came to a conclusion that an electric car was the best option as it provided great performance and efficiency.

The conventional automotive industry and the electric powered automobile industry have some similarities and differences. Some of the similarities is that they both have the same outside look. The models however vary depending on brand. A person who is not very conversant with cars might not be able to spot the differences. Both of them also have the shape that allows them to resist wind (Goeke & Schneider, 2015). They as well share some features like indicators and mirrors, pedals, wheels and car seats. The two industries make cars which serve the same purpose, transportation of goods and passengers. The general interior features are as well similar.

There are however some differences between the two. On the vehicle range, the Electric Vehicle (EV) technology is still quite new and thus there are quite a handful of vehicles as compared to gas vehicles. Most of the electric cars cover about 30 miles per day thus viable for ownership. On the other hand, the Internal-combustion powered industries manufacture vehicles which cover a range between 250-300 miles before they can be refilled (Macharis et al 2013). This means that people can refill the car at least once a week hence becoming very convenient for ownership. The gas stations are quite accessible compared to the charging stations for the electrically powered auto motives hence a good option for road trips. Secondly, the electric cars are less expensive in terms of maintenance as compared to the internal combustion vehicles. This is because they have less components which require maintenance or replacing. For instance, fluid/oil changes, muffler work and transmission work among others are needed for the internal combustion vehicles. The Electric auto motives on the other hand need maintenance on the breaks and tires majorly. This is quite inexpensive in general.

Another way we can differentiate between the two auto motives is by assessing the concept of quick vs fast. Quick means the amount of time one gets between two different points while fast on the other hand is the maximum speed that can be attained. According to Goeke & Schneider, (2015), electric vehicles are quicker compared to Internal-combustion powered vehicles. EV’s on the other hand cannot go faster for a further distance. The electric vehicles generate much more torque; this helps to drive the care forward as compared to ICEs. The combustion engine however, lose some of the power that is generated to the drivetrain which offers a connection for the transmission to the vehicle’s wheels.

Tesla made a daring move to treat its patents as an open source. I believe that this was not a bad move as the management indicated that the car companies are not its competitors. It is basically not the companies that are its competition but the internal combustion engine (Wang & Peng, 2020). He feels that he is still far away from being like the gas-car companies. The management indicates that the sales are only a drop in the ocean compared to the fuel cars which are manufactured by the giant factories. It gave up its patents since they felt that having some competition would be healthy for them and would eventually help them grow their business. A drag on an innovative company like Tesla is trust and credibility. It would do no good for Tesla and other electric car companies if the car majors fail to get going in the sector. It is important to thus give them the knowhow.

At this point, Tesla has hinted that it has tasked itself with the goal of ensuring that the world has enough battery stations for them to fuel the electric cars in future. This is a very huge task for them. It is evident that if it can be able to get a huge number of competitors, there are high chances that these infrastructure issues will come to a halt as they will be able to partner up and create these structures. According to (Wang & Peng, 2020), handing out their patents was a smart idea especially when they get to understand how resource-sapping the process can be. Patents help in slowing down competition but at the same time they slow down innovation. In the era today where one can invent faster than they can patent, they would rather invest in inventions.

Tesla put in place several business strategies to ensure they were competitive in the market. Tesla got itself in the market by use of high end cars which were quite expensive. They targeted the financially privileged individuals in the society. Once their idea was widely known and established, they had the plan to get into the competitive market with models that were slightly lower in price (Bilbeisi & Kesse, 2017). Tesla targeted to make their concept widely accepted. After achieving this, they put in place their business model. It was made of three approaches, which were sales, service and charging the electric vehicles.

The company did not adopt franchise leadership like other manufacturers did. They preferred selling their merchandise directly to their customers through their owned show rooms in the major towns of the world. Secondly, Tesla combined service centers with direct sales. They believed that the launching of service centers will have a positive impact on the customer demand. As Bilbeisi & Kesse, (2017) indicate, the service plus retail centers were thus launched as it enabled customers to charge or service their cars at the service plus locations or the service centers. They also ensured the presence of mobile technicians who serviced cars at their client’s homes. The final strategy is the charger’s network. These are networks where Tesla’s customers can charge their cars anytime for about 30 minutes for free. They believe that this will help them increase customer adoption.

Innovation has played a great role in this strategy. It has enabled the creation of model S which makes it possible for the clients to upload data so that the technicians be able to view and fix particular problems remotely. Innovation has also been used in charger’s network where they came up with power wall and home batteries, which store energy for use in case of an emergency.

The company’s competitive advantage is tied to the company’s strategy. The organization’s competitive advantage is very sustainable in that it ensures the customers are supplied with batteries so as not to be stranded. The batteries are considered to be of a better quality than its competitors. The supercharger network as well enables fast charging for Tesla’s cars for power range between 72Kw to 250Kw (Khan & Ahmed, 2019). The final reason for strong sustainability in Tesla’s competitive advantage is their strong branding. They transformed the image of electric cars from slow and small vehicles to the fast and efficient vehicles. No other company had a car that has a performance that is anywhere close to Tesla’s vehicles.

As much as Tesla has created a very good strategy, there is a sector that if changed, can help them have a better competitive advantage. Tesla has marketed itself only by renting their floor spaces to display their cars in malls. It has relied on their fans to draft homemade advertisements and wonderful videos which enabled them to tell the public of the features that will make Tesla different in electric car manufacturing. This however cannot last forever. They can advance in their marketing strategies by going further to get the best marketing sites so that they can capture a wider range of potential clients.

In conclusion, it is with no doubt that there is a shift from gas vehicles to electric cars. Globally, more countries are trying to shift towards electric car production and ownership. It is quite thrilling to see this unfold right in front of our eyes as we are heading towards the next industrial revolution. It is clear that the electric cars will be here to stay. They are expected to be more cost effective compared to their combustible counterparts. Tesla has done a lot to ensure that they stay competitive in the market including giving its patent for them to gain competition. The strategies set can be a very good ground for them to gain relevance in the market but they need to work on their marketing strategies as it’s the best way to reach out to their clients.

References

Bilbeisi, K. M., & Kesse, M. (2017). Tesla: A successful entrepreneurship strategy. Morrow, GA: Clayton State University.

Goeke, D., & Schneider, M. (2015). Routing a mixed fleet of electric and conventional vehicles. European Journal of Operational Research, 245(1), 81-99.

Khan, M. A., & Ahmed, S. (2019). Can Innovation in Sustainability be a Sustainable Competitive Advantage?

Macharis, C., Lebeau, P., Van Mierlo, J., & Lebeau, K. (2013, November). Electric versus conventional vehicles for logistics: A total cost of ownership. In 2013 World Electric Vehicle Symposium and Exhibition (EVS27) (pp. 1-10). IEEE.

Wang, J., & Peng, X. (2020). A Study of Patent Open Source Strategies Based on Open Innovation: The Case of Tesla. Open Journal of Social Sciences, 8(07), 386.