Tesla: “We are Not a Car Company”

Americans have likely been as fascinated with cars as long as apple pie and baseball have defined the U.S. culture. “There are 908 motor vehicles per 1,000 people in the country, with the most cars per capita in the world. Ninety-two percent of American households own a vehicle, and the average American drove over 13,000 miles in 2022” (Rogers). Tesla entered the U.S. car market in 2010 with their Model S and Model X amid great anticipation and enthusiasm. Contrary to traditional approaches used by the Big 4 auto companies like Ford, Toyota, GM, and Chrysler, “Tesla took a unique approach to establish itself in the market. Instead of trying to build a relatively affordable car that it could mass-produce and market, it took the opposite approach, focusing instead on creating a compelling car that would create a demand for electric vehicles” (Zucchi). This approach was led by the inimitable, and at times controversial, entrepreneur Elon Musk. Today the market for electric cars continues to grow with Tesla introducing its Model 3, Model Y, Tesla Semi, and Cybertruck to its fleet. New regulations on safety and vehicle emissions, technological advances, and shifting customer expectations are fueling the growth of electric cars from Tesla, as well as other major automobile manufacturers. 

Strategy shifts are all in a day’s work at Tesla. It began with the pioneering automobile manufacturer heralding the production of electric vehicles with its Roadster. This was followed by the Model 3, a battery electric mid-size sedan with a fastback body style. The Model 3 was the world's top selling plug-in electric car for three years, from 2018 to 2020, before the Tesla Model Y, a crossover SUV based on the Model 3 chassis, took the top spot. In June 2021, the Model 3 became the first electric car to pass global sales of 1 million. Another strategy shift occurred to parallel Musk’s original strategy of unique vehicles, such as the Cybertruck, as Tesla incorporates artificial intelligence to disrupt the market. “The company appears to be grappling with an identity crisis. Is it primarily a luxury car manufacturer, a comprehensive transportation company, or perhaps a leader in battery technology?” (Wade) Without a clear strategy, Tesla may confuse its potential customers.  See Figure 1.

Figure 1: Tesla’s Shifts in Strategy

Then, just as surprising as Tesla’s launch to fame as the innovator in electric cars, Elon Musk announces that Tesla is not a car company. Instead, Tesla will be revising its business strategy to focus on artificial intelligence and robotics stating, “We should be thought of as an AI robotics company. If you value Tesla as just an auto company—it’s just the wrong framework. If you ask the wrong question, then the right answer is impossible” (Ochoa). This left investors and potential purchasers in a state of disbelief as this represents yet another significant shift in strategy. Musk continued to expand on this new strategy by capitalizing on Tesla’s excess computing power as a monetization source and equating ride sharing as a potential avenue of opportunity.

Tesla is not alone in its quest to continually reinvent itself to take advantage of new market opportunities. Ford, a brand name long revered for its over 100 years of automotive manufacturing, also strives to capture the electric and autonomous vehicle market. As a testament to CEO Jim Farley’s leadership, Ford debuted the “Mustang Mach-e SUV and Lightning F-150 pickup to compete in the EV market led by Tesla” (Sozzi). Ford’s Farley alludes to a mutual respect between himself and Elon Musk as they form a partnership to allow Ford EVs to charge at Tesla’s Superchargers using adapters. Mercedes-Benz also recognizes the importance of strategy shifts in the electric vehicle market to reflect its customer’s buying habits. Mercedes, once accelerated to the electric vehicle market only to see a decrease in anticipated sales. Instead, “a Mercedes retailer told Automotive News, ‘They are going to allow the market to dictate’ what the brand will deliver” (Ochua).

Changing business strategy is not new for Tesla. Although the company was originally focused on the high-end electric vehicle market, Tesla gradually transitioned into more affordable product offerings, as well as diversified into other markets such as energy and solar. Starting at the high end of a market encourages customers who are prepared to purchase at a premium price as future reiterations of products decrease with each successive model. It will be interesting to see how Elon Musk manages Tesla’s evolving business strategy as the demand for continued innovation, more affordable products, competition, and stock prices fluctuate among this challenging business environment. What will Ford, Toyota, GM, Chrysler, and Mercedes Benz do and will Elon Musk care?