Executive Summary After experiencing tremendous growth in the past few years, Tesla needs to contemplate on the idea of becoming an auto industry giant. In its current situation, Tesla cannot achieve that monumental goal because its cars are too expensive for the average consumer. According to USA Today the average price of new car is $31 ,252. The basic Model S costs $62,400, which puts it out of the reach of the average consumer. Tesla cannot become like their counterparts at Ford or 6M, unless they start producing lower priced vehicles.
In order to produce these vehicles, Tesla has to ut its production costs and step out of the luxury electric vehicle niche they have created for themselves. My proposal covers three methods that will help Tesla reduce production costs and make them a volume seller of automobiles. The methods are to reduce the production costs of the battery pack, eliminating the luxury features of the vehicle, and reintroducing the more affordable 40kwh model that was canceled. With the implementation of these three methods Tesla will be closer to achieving their goal and obtaining a larger market share.
Introduction Many people believed that the electric car was dead, that was until Elon Musk ounded Tesla Motors in 2003. Musk has catapulted Tesla into becoming the number one producer of electric vehicles (EVs) and also become the iconic automaker of EVs. The rise of the EV was caused by the public’s concern for the environment. They wanted eco-friendly cars, but the problem is that the technology to produce these vehicles is still very expensive. The basic Model S from Tesla will cost you $62,400, while the premium version will cost you $132,070 (teslamotors. com).
The majority of the public is looking to spend an average of $31,252 on a brand new vehicle usatoday. com). Tesla’s basic Model S will cost two times more than what the average consumer wants to spend, while the premium version is not intended for the average consumer. In order for Tesla to reach the mass market and sell in large volumes, they have to produce a vehicle that will cost around $30,000. My proposal is for Tesla to create an affordable vehicle for the mass market by reducing the costs of their battery pack, removing the luxury features of the vehicle and by reintroducing the 40kwh Model S.
The first and most important issue that Tesla has to resolve is educing the cost of the most expensive component of their vehicles, which is the If Tesla hopes to gain a larger market share they have to figure out a way to reduce the costs of producing their batteries. The current price of their battery pack is $30,000, which is what their entry level target price is. There is obviously a conflict here because the batteries alone take up their whole budget and it leaves them with no room to produce an affordable EV. Tesla has to work on producing larger volumes of batteries in order to reduce the cost of producing them.
They can achieve this by uilding a massive battery plant and focusing purely on battery production and research. By producing their own batteries Tesla can cut out the middleman, which is Panasonic, and pass on the savings to their customers. By increasing the output of batteries Tesla will reduce the costs to produce them. This is referred to as economies of scale by economist, and it is what Tesla has to accomplish in order to reach their goal. Another advantage of building the battery plant is innovation. Tesla can have full time scientist working on creating batteries that cost less to produce and are more efficient.
While producing lower cost batteries will help Tesla create a more affordable car, it will not be enough to bring it down to their desired range of $30,000. Second Cost Saving Method At the moment Tesla is focusing on producing luxury EVs with luxury features which raise the price of the vehicle significantly. This brings me to the second cost saving method of my proposal, which is to get rid of the luxury features of the vehicle. By ridding the vehicle of luxurious features and providing the customer with a basic model, Tesla can get closer to their goal of a creating a mass market vehicle.
Some of he features that the average customer does not need are panoramic sunroofs, leather seats and touch screen panels; all come standard on their cars. The panoramic sunroof alone will add an extra $2,000 (sunroofs. org) to the price of the car and similar touchscreens, as found in the Model S, retail for $2,500 (superlogics. com). By removing those two items alone we can cut costs by almost $4,500. Though we are not at our desired price range, by trimming down on useless features, Tesla will see the costs diminishing.
By using lower priced alternatives in the production of the vehicle, the price will drop, but it will not be enough to get us to he price point we want to reach. Third Cost Saving Method My third and final cost saving method is to make a 40kwh version of the Model S. This version of the car was set to be released, but it was canceled at the last minute because demand for it was not high enough. Only four percent of buyers opted for the 40kwh version of the Model S (Burns). The price difference between the 60kwh version of the basic Models S and the 40kwh version was only $10,000 dollars (Burns).
By producing the 40kwh version of the Model S Tesla can get closer to producing a $30,000 vehicle. By cutting cost through the methods that I mentioned, Tesla will get closer to producing an affordable EV and start selling in volumes. On the other hand, some might argue that Tesla should not make an EV for the masses because it will take away from the prestige of owning a Tesla. Counter Argument I agree that creating an economy vehicle will reduce the prestige that comes with the ownership of a Tesla, but the positives of creating the vehicle outweigh the negatives.
Tesla can opt to provide vehicles for a select few and miss out on large profits or they can sell to the mass market and reap the benefits. By opting to sell to the mass the auto industry. This will lead to increased market share and increased profits, which is what every company wants. Conclusion In conclusion, Tesla wants to sell their vehicles in volume and the only way they can achieve this is by reducing the price of their vehicles. They are currently in the process of creating a nationwide supercharger network, and it will be a waste if only a few people can benefit from it.
Tesla is working on the infrastructure to provide their customers with the fuel they need to recharge their vehicles; now they only ave to provide the mass market with cars that they can afford. Becoming an auto industry giant is not an easy task and if we have learned anything from Ford, it is that mass production is very profitable. My proposal is an outline in achieving the goals of the corporation, and if taken into consideration it will take Tesla to the next step of their growth and into the mass market. Works Cited Barclay, Steve. “Panasonic Enters Into Supply Agreement With Tesla Motors To Supply Automotive-Grade Battery Cells. Automotive Industries 191. 10 (201 1): 46. Business Source Complete. Web. 14 Nov. 2013. Guilford, Dave. “Price Is Next Hurdle For Tesla Growth. ” Automotive News 87. 6569 (2013): 50. Business Source Complete. Web. 14 Nov. 2013. http://www. sunroofs. org/openair. htm http://www. teslamotors. com/models/design http://’. nm. n. nl. usatoday. com/story/money/cars/2013/09/04/record- p rice- new-ca r-a ugust/ 2761341/ Howard, Bill. “Tesla readies mass-market Model E while other EV makers tread water. ” Extreme Tech. 27 August 2013. Web. 14 Nov. 2013. Sunnucks, Mike. “Tesla eyeing Arizona for massive new battery plant? ” San Jose Business Journal
