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Tesla Motors: Preparing for the Next S Curve

May 26, 2013

Electric carmaker Tesla Motors has tripled its valuation to $10B over the last two months.  What do investors see in the company’s growth strategy?

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.”

Screen Shot 2013-05-26 at 1.01.44 PM

         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:

  1. Build sports car
  2. Use that money to build an affordable car
  3. Use that money to build an even more affordable car
  4. 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.

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Follow Dave on Twitter: @WDavidPower

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