Electric carmaker Tesla Motors has tripled its valuation to
$10B over the last two months. What do investors see in the company’s
Both Motor Trend and Automobile magazines recently named Tesla’s high end Model S car, with a base price $69,900, Car of the Year. And Consumer Reports
said it was “the best car they’d ever tested”; high praise from the
most influential publication for car buyers. But Tesla has more than a
great car going for it.
To the ire of the auto industry, Tesla CEO Elon Musk is also
disrupting the traditional car sales model. Instead of using dealers,
Tesla has set up its own showrooms in shopping malls and other high
traffic areas. And it’s selling its cars at full sticker price – no
negotiations or haggling allowed.
The formula is working. Tesla posted its first profit several weeks
ago. The question is, what is Tesla doing right that other electric-car
makers, like the nearly bankrupt Fisker Automotive, did wrong?
To me, the most interesting part of Tesla’s strategy is the way it is
planning ahead for changes in its business model, or S Curves (as I
written about before.).
Tesla decided on a high-end sports car for its first S Curve. This
allows its engineers time to perfect the design while also giving the
company the profits it needs to invest in the next S Curve: an
‘affordable’ electric car. In fact, Elon Musk hopes to build an even
lower cost family sedan a year or two after that as his third S Curve.
Says Musk, “With the Model S, you have a compelling car that’s too
expensive for most people…what the world really needs is a great,
affordable electric car.”
It’s interesting to see the analogy to Apple’s product
strategy: start with high end products, then reach a broader market with
lower cost products. A fan of Steve Jobs, Musk also chose to control
the customer experience with his own retail stores.
The Tesla product “master plan” is brilliant in its simplicity. Elon Musk even outlined it in his blog:
* Build sports car
* Use that money to build an affordable car
* Use that money to build an even more affordable car
* While doing above, also provide zero emission electric power generation options
Tesla Motors is an innovation role model for growth companies.
Interestingly, at the turn of the century another CEO ran an automotive
company that started producing high-end roadsters, and then transitioned
to producing a low cost vehicle that became the most popular car in the
United States. The CEO of that success story was Henry Ford and the low
cost car was the Model T. If they keep on their current trajectory,
Elon Musk and Telsa Motors may prove to be just as iconic to the
electric-car age as Henry Ford and the Model T were in their time.
Dave Power is the President of Power Strategy
in Cambridge. He was previously a Partner with Fidelity Ventures and
Charles River Ventures. You can find this post, as well as additional
content on his blog called Barriers to Growth. You can also follow Dave (@WDavidPower) on Twitter by clicking here.