How has Tesla’s digital business model paved its way to success?

Tesla, Inc. is an electric vehicle (EV) and clean energy company based in America, which it initially specialized in battery energy storage and manufacturing EVs, and successfully expanded its business into solar panel and roof tile production. In midst of stiff competition among automotive manufacturers, Tesla’s co-founder and CEO, Elon Musk has taken his company to a whole new level of innovativeness and digitality by wholly embracing digital transformation and adopting a disruptive business model.

In the era of technological breakthrough, crowdsourcing has become increasingly common among corporations to utilize data and leverage all resources to their own advantage. Its practice basically involves acquiring information and work through data collection via the Internet or social media, in order to accelerate the organization’s progress in innovation and problem-solving. In light of this, Kleeman et al. (2008) stated that crowdsourcing is a form of integration of users or consumers in internal processes of value creation, with the intention of animating individuals to make a contribution to the firms’ production process for free or significantly less than that contribution is worth to the firm.

Capitalizing on crowdsourcing, Tesla has been collecting data from its vehicles and drivers through the internal and external sensors, like the tracking system and steering wheel (Marr, 2018). All the data are utilized to refine its system by generating data-oriented maps and establishing an extensive network of Tesla vehicles; on top of that, this approach helps to gather drivers’ data of driving patterns for advancing its AI technology and machine learning model, where Tesla has developed innovative features of “Autopilot” and “Full Self-Driving Capability”, with the ultimate aim of creating fully self-driving autonomous cars in the near future.

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Different from the conventional marketing approach in automotive industry, Tesla has been orienting its promotion to social media platforms, such as Twitter, where customers can freely interact with the company and directly communicate with its CEO. This newfangled marketing model has been successful in retaining old customers and attracting new customer segments, as well as gaining overwhelming attention from the media. It is also noteworthy that Tesla’s advertising spend is less than $6 per vehicle, considerably lower than that of other manufacturers (Venters and Sorensen, 2020). Based on this approach, it is seen that Tesla has been actively utilizing digital platforms to publicize its new products with the minimal expenditure and maximal marketing effects.

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Apropos of Tesla’s distinct retailing strategy, Chen and Perez (2017) propounded that it has adopted a multi-channel model of both online stores and retail outlets, where customers can choose to directly purchase their vehicles online or at its own branded stores. On its official website, customers can freely select and customize their favored vehicle models by going through the following process:

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Through this online distribution model, Tesla does not have to spend extra money on car dealership with traders and all sales revenue is directly going into its account. In 2019, Tesla announced to be shifting most sales to online, with a reduction in number of physical showrooms and sales staff, leaving only few left as galleries and information centres. Meanwhile, customers can also complete their purchase on computers at company stores. As Lavietes (2019) asserted, consumer advocacy groups regarded this act as “consumer-friendly” by discarding the role of dealers and handing more control over to consumers. Likewise, technological experts also favored this model by considering it as strongly competitive long-term strength. In a nutshell, the online-oriented model does not only attain higher revenue and trim enormous amount of sales labor costs, it also brings an inclusive and disruptive experience of designing and creating their very own unique cars to customers.

As one of the innovative leaders in automotive industry, Tesla has been consistently digitizing its products through installing sophisticated device and setting network connection inside its vehicles. In specific, Tesla has been way ahead in the “infotainment” race of which it has provided a basket of in-car entertainment services for the users. For instance, the dashboards inside its cars provide access to Spotify, Netflix, Hulu and YouTube accounts, as well as various arcade games. Speaking of which, Butler (2019) distinguished Tesla’s infotainment system from other manufacturers’ in which Tesla develops and possess its own system, whereas others are in collaboration with third-party platforms, hinting at another possible source of income for Tesla.

In addition to the infotainment system, Tesla also developed its own mobile app for users to remotely control and monitor their cars, with features like keyless driving, range distance, climate control and GPS location, providing all-embracing services to its users.

In spite of its pioneering ideas and products that enlist devoted support from its users and draw media attention, Tesla has been having inauspicious performance in its finance for the past few years, as the company has not been generating net profit on yearly basis for the past few years. Although this has raised concerns among its users and investors, its ingenious and trendsetting model has undoubtedly expanded its base of loyal customers and become the exemplar within the automotive industry.

At the moment, the future of automobiles is still erratic, whether electric cars will be gradually replacing the conventional ones, or most production lines of vehicles will be automated by robotic technology. However, one thing is absolutely certain – Tesla is at the cutting edge of manufacturing electric vehicles and it has brought a new wave of digital disruption to the industry.

What is your thought on Tesla’s digital business model? Do you think that it is effective for sustainable development or is there any area that Tesla can do better in order to stay invincible as a leader in electric car industry?

Reference:

Boudette, N. E. (2018, Jun 30). Inside Tesla’s Audacious Push to Reinvent the Way Cars Are Made. The New York Times. Retrieved from https://www.nytimes.com/2018/06/30/business/tesla-factory-musk.html

Butler, C. (2019, Nov 23). Tesla’s plan to leave the auto industry behind on in-car infotainment. CNBC. Retrieved from https://www.cnbc.com/2019/11/23/teslas-plan-to-leave-auto-industry-behind-on-in-car-entertainment.html

Chen, Y., & Perez, Y. (2018). Business model design: lessons learned from Tesla Motors. In Towards a Sustainable Economy (pp. 53-69). Springer, Cham.

Design Your Model 3 Tesla. Retrieved from https://www.tesla.com/en_GB/model3/design#battery

Kleemann, F., Voß, G. G., & Rieder, K. (2008). Un (der) paid Innovators. The Commercial Utilization of Consumer Work through Crowdsourcing. In Science, Technology & Innovation Studies 4 (1), с. 5-26.

Lavietes, M. (2019, Apr 4). Tesla’s move to online sales gives customers what they want: No car salesman. CNBC. Retrieved from https://www.cnbc.com/2019/04/05/tesla-online-sales-gives-customers-what-they-want-no-car-salesman.html

Marr, B. (2018, Jan 8). The Amazing Ways Tesla Is Using Artificial Intelligence And Big Data. Forbes. Retrieved from https://www.forbes.com/sites/bernardmarr/2018/01/08/the-amazing-ways-tesla-is-using-artificial-intelligence-and-big-data/#2e2ae3824270

Venters, W., & Sorensen, C. Driving Digital Transformation at Tesla. Retrieved from https://www.thefuturefactory.com/blog/tesla