The Impact of Tesla's Electrical Engineering on the Global Automotive Industry
In the span of a few short years, Tesla Inc. has turned more than a century old industry upside down and redefined what it means to be an automaker.
Software is eating the world, and data analytics has become central to maintaining a competitive edge in every industry. Yet, from Volkswagen to Toyota, incumbent heavyweight auto manufacturers were ill-prepared to compete in today's digital landscape. Unlike Tesla, with its innovative software-centric business model, they are bureaucratic, slow to embrace digital transformation, and respond to changing market conditions.
Today, there's a lot of excitement surrounding electric cars, much of which can be attributed to Tesla Motors and its disruptive innovative business model. Tesla's ascent has changed the paradigm forcing every other auto company to adapt in response.
The Rise and Rise of Tesla
How could the disruption have happened so quickly? Big data is the future in every industrial sector. Consequently, Tesla has a significant leg-up on its competitors, considering its business model is years ahead of the industry.
Traditionally, the car business used to be about distinctive styling, speed, and engine performance—leading a few capital-intensive titans with the means to mass manufacture such cars to assume they were unassailable. As a result, they were slow to change and are now reaping the consequences.
Not to mention, cars are no longer the status symbol they once were. The glamour deteriorated as people became more aware of the environmental impact of fossil fuels, going from an emblem of social status to costly carbon-spewing sources of pollution. Tesla has succeeded in making cars cool again.
Tesla has changed the game and elevated the public's perception of electric cars. It's now exciting and aspirational to own a car again. The company represents an innovative and radical change that is steering every industry to invest in digital technology. It’s a testament to the triumph of technology. Soon all major automakers will roll out beautifully styled, luxurious electric cars in an effort to latch on to the air of luxury and exclusivity Tesla has successfully created.
But, technology keeps getting smarter and smarter. And the window to play catch-up is getting smaller with each passing day. Meanwhile, Tesla is already over the next hill, unencumbered by tedious bureaucratic processes that have no place in a fast-paced digital environment.
Tesla’s Business Model: Innovate or Go
The Tesla business model is heavily focused on innovation. A car's software is now just as essential as its hardware – a concept many manufacturers found difficult to envision just a decade ago. A few key elements of Tesla’s business model differentiate it from its competitors:
1. Tesla develops cars as it would a software product
Tesla describes its Model S as "an app on four wheels." With this description, it's easy to see the company's technology-centric approach to engineering. Tesla develops software on unique hardware allowing the company to upgrade their cars’ functionality every few weeks pretty much the same way you update apps on your smartphone.
Tesla's technicians can also fix, service, and upgrade cars remotely, which is in sharp contrast to the traditional auto industry model where you had to buy a new model to get an upgrade. In addition, it’s far cheaper to maintain a Tesla. Without an internal combustion engine, there’s no need for expensive oil changes and the occasional service tune-ups.
2. Direct-to-consumer sales
Buying a Tesla is relatively simple: You go online, open an account, pick a model with the features you like and place your deposit. There are no middlemen in the Tesla game. No lengthy sales processes, no haggling, and you don’t have to deal with a car salesperson.
By cutting out the middleman, Tesla has created a unique buying experience centered on the customer. More importantly, this business model boosts profits since they don’t have to sell through franchised dealerships.
3. Superior battery technology and a nationwide “Supercharger” network
Perhaps the reason automakers were reluctant to produce electric cars was their need for constant charging. Tesla's superior battery technology is next to none, ensuring their vehicles can cover long distances before running out of power.
The company has also built a network of fast-charging stations across the country. Tesla opens a new supercharger station roughly every 24 hours taking all measures to fast-track this ambitious infrastructure.
4. Vertical Supply Chain
In yet another innovative business strategy, Tesla manufactures almost every car component in-house, where other manufacturers rely on modularized suppliers.
At Tesla, the goal is to create end-to-end value addition processes – from manufacture and infrastructure through to sales. Verticalization of every process means the company is in control of every aspect of the product experience.
However, the vertical supply chain is proving to be the company’s Achilles’ heel. The nimble manufacturer is notorious for missing deadlines as it encounters various production bottlenecks in the process.
All-in-all, Tesla is still a small company, especially when compared to the behemoths that have ruled the auto industry for so long. Therefore, production is much harder for Tesla, and this could improve with more capital injection.
The Wrap
Traditional automakers are now on a journey to become software companies. Given the climate crisis, electric cars are the future of transportation. The world has changed, and, unfortunately, the global auto industry is lagging far behind Tesla's unique business model.