Evaluation of Tesla Model S vehicle’s performance
The academic theories used in the evaluation of the Tesla Model S…………………….3
Product and innovation management theory……………………………………..3
An evaluation of the performance of the Model S and the reasons behind it……………6
The reasons behind the success of the Tesla Model S…………………………………..11
The Tesla Motors company has been pioneering the process of creating and offering alternatives to the problematic internal combustion engine method of vehicular propulsion (Sperling and Cannon, 2004). In addition, Tesla has had to develop these highly innovative products from scratch. Indeed, the process of coming up with feasible products that offer solutions to identified problems is a hard task (Mulder, Ferrer and Lente, 2011). However, Tesla Motors seem to have identified the niche market it currently occupies and developed products that not only serve the market well, but they also make money for the company and its entrepreneurs.
2.0 The academic theories used in the evaluation of the Tesla Model S
The process of identifying an opportunity and creating products that benefit the stakeholders through the exploitation of the opportunity is not an easy task (Egendorf, 2006). When Elon Musk recognized the opportunity to enter the electric car market, he had carried out much research. However, the process did not end at the identification stage. Musk and his team at Tesla Motors had to follow certain theories in order to create and sustain the company. According to its current position, Tesla Motors was one of the best electric car companies in the automotive industry (Larminie and Lowry, 2003). Some of the academic theories that Tesla owes the success of its products to are innovation management and marketing.
2.1 Product and innovation management theory
The academic theories that touch on product and innovation management clearly outline the process of product innovation. There are stages through which an idea, identified as a solution to an individual problem, grows into an actual product. These stages are:
opportunity identification and selection
Concept and project evaluation
Tesla Motors had to undertake these stages in the development of the Model S, which launched in June 2012 in order to make the solution work for the problem (Pardo Martínez, 2010). Tesla Motors identified the need for a full-sized sedan that performed like the rival German models, yet used a green source of energy in the form of electric power. While the electric car had been on the market, longer than Tesla Motors had been in existence, there was a serious issue with the range that these early electric cars offered. Most had a range of less than 100 miles and being small sedans, could not appeal to the American market. Therefore, Tesla went to the drawing board. The American market was not ideal for the small electric cars that were available. In addition, these small electric cars offered little in terms of range as an alternative to the gasoline-powered vehicles (Slack, 2006). In addition, these electric cars took a long time to charge meaning that though they offered an alternative to the problematic gasoline-powered car; they did not meet the market’s needs adequately.
Tesla already had an electric car in operation when the Model S concept went into development. The Tesla Roadster was the first vehicle the company had produced, and it runs great in terms of performance. However, the company’s heads led by Elon Musk came up with the concept for a full-sized sedan that performed better than the Roadster while satisfying the market demand for an alternative to the engine driven cars. Thus, the concept of the Model S came to life and development started. In project and innovation management circles, the generation of a concept entails the clarification of the opportunity identified (Trauffler and Tschirky, 2007). In addition, it involves the use of a variety of ideation tools to mold the opportunity and idea into a process that is checkable for feasibility.
The third process used in the development of a product through innovation is the evaluation of both concept and the project. Once the concept is firm enough to warrant a project, the concerned party has to evaluate it using different types of approaches to assessing the viability (Trott, 2008). Without this kind of analysis, investing resources and skills into the concept is a bad idea since the feasibility is yet unknown. The team chose to evaluate the concept and establish its feasibility can use the formal approach or the ‘quick-look’ approach. In fact, they can also use both in order to come up with a complete picture of the concept’s viability. The formal approach is more intense as it entails testing and full screening.
The development phase in the development of products is the actual start of actualizing the concept. The team or owner of the concept invests resources in the process of creating the actual product that the idea precedes. The team has to establish the amount and types of resources needed as well as the level of skills necessary for successful development (Yost, 2006). In addition, a full business analysis gets underway to establish the effects of this massive investment on the feasibility and project expected performance after development.
The last step in the process of developing products and managing innovation is the actual launch. This step entails introducing the new product to the public and educating them on the same. The new product is also tested and screened for problems such as design flaws and safety concerns (Zairi, 1999). After the dress rehearsal stage where the product of tested, it is announced to the public and launched into the market.
2.2 Marketing theory
Tesla Motors launched a new product successfully into an already saturate market surprising even them. The automotive industry is one of the most saturated markets meaning introducing new products into this market is problematic. However, through market differentiation, the company succeeded in entering the Tesla Roadster and Model S into the market. Market differentiation continues to be a strong selling point for Tesla’s innovative products since they offer an alternative form of green transport. The masses need a new form of propulsion for their vehicles. Tesla Motors has come up with a car that not only works well, but it also appeals and the consumer targeted (163 Beyond weight factors: new concepts for defining and analyzing dose optimization, 2004).
3.0 An evaluation of the performance of the Model S and the reasons behind it
Tesla announced the Model S back in June 2008 and displayed a prototype in March 2009. However, the company officially launched the Tesla Model S in June 2012 with the sale of its first units a short while later. The new Tesla model performed well right from the moment it was launched both in the American and European markets. By December 2013, the electric sedan had surpassed the 25000 mark in terms of sales, making it a great start to the sales process for the new car. By the end of the following year, the company had sold over 56000 units and surpassed expectations by leading in sales in both California and Norway. These figures are impressive especially if you consider the fact that the car was retailing at prices in the range between US $ 70000 and US $ 100000(Kahn, 2005). The process by which Tesla Motors introduced the electric sedan that had established German manufacturers like BMW and Mercedes scratching their heads. Such processes undergo evaluation from both a product and innovation management perspective and marketing one (Schmid and Kretschmer, 2006). The bulk of this evaluation will concentrate on the product and innovation management aspects. However, the paper shall touch on the marketing aspects since they form an integral part of the company’s success story about the Tesla Model S.
An evaluation of the successful performance of Tesla Motors depends on the concepts of product and innovation management (Boxma and Koole, 1994). The Tesla Model S’s successful conceptualization, development, and launch are attributable to the concept elements of the development process, as well as the pricing considerations of the general product and innovation management process. In addition to pricing, the promotional examination as well as distribution worked in favor of Tesla Motor’s Model S.
3.1 The concept
Tesla Motors entered the congested automotive industry with a new concept in terms of vehicular propulsion in the early 2000’s. Although the company cannot lay claim inventing the electric car, their perspectives regarding this innovative product were revolutionary as was demonstrated by the company’s first electric car, the Tesla Roadster. This car defeated all other electric cars in terms of safety, range, and other performance parameters propelling Tesla to the forefront of the electric car manufacturing sector. However, the company was not content with the fame and repute the Tesla Roadster had brought (Annacchino, 2007). Therefore, the company heads came up with a new concept that proposed the development of a full-sized sedan. The car would compete with the established German models such as BMW, AUDI, and Mercedes (Petri, 2010). In addition, the concept dictated that the new sedan would have to have more range than the Roadster while maintaining performance at levels that would rival these European cars.
Under the leadership of CEO Elon Musk and a team of high experienced, highly skilled professionals, the Tesla Model S started development. Interestingly, the concept phase came after the performance, functional, and esthetic conceptualisation (Annacchino, 2007). The Model S owed its stellar market performance partly to the process of conceptualization in the company. Indeed, the results of the same concept, initially dubbed Project’ white star’, have materialized in the form of a full-sized sedan that can seat seven people. The car can cruise at over 120miles per hour for more than 260 miles. Interestingly, the public likes the new product if the current market figures come into consideration.
3.2 Pricing considerations
The concepts that pertain to product and innovation management dictate the new product should be priced appropriately in order to make both functional and financial sense (Marburger, 2012). The Tesla model uses a non-conventional pricing model that emulates the ‘top-down’ approach to pricing successful innovations. Tesla Motors priced Tesla Model S expensively not by error, but as part of a pricing strategy that benefited the stakeholders (Kahn, 2011). The customers would fund additional research into improving the product as proven by the release of later models including the all-wheel drive performance P85D version. The ‘top-down’ pricing strategy improved the company’s development efforts and boosted the Model S’s overall profitability.
In addition, the pricing considerations leveraged on the customers’ perceptions of new technology resulting in improved sales as reflected by the records (Viardot, 2004). Concepts related to managing innovation dictate that the innovator should price their product in a manner that leverages the social interest it generates while satisfying the client’s needs. The Tesla Model S’s pricing was very competitive upon launch due to the amount of interest it had generated among the public. Such pricing strategies that leverage the consumer’s interest in a new innovative product contributed to the stellar performance of the Tesla Model S in Europe. The Norwegian market surpassed targeted sales figured purely because of the innovation’s ability to satisfy the customer.
3.3 Promotional considerations
The process of creating awareness to the existence of a product is as important in an existing product as it is to a relatively new product (Ottman, 2011). The concepts of promotion, and the management of new products and innovation contributed immensely to the success ofTesla Motors. In addition, the company has enjoyed success with the introduction of the Model S. Indeed, the launch was a hyped affair executed in manners similar to the famed Steven Jobs presentations of new Apple cell phones (Lhuillery, 2014). The media play an important role in the promotional part of the launch of new products and influence the advertisement pace. In fact, the launch of new products is highly dependent on media attentions captured. The majority of large companies such as Tesla invest in press releases and press conferences to generate the required promotional momentum in the press and media (Scott and Scott, 2011). The Tesla Model S generated a stir among the society and especially the automotive industry players. Tesla Motor had introduced a completely new product into the market and the media as well as traditional press catapulted the same to great heights in terms of both sales and product awareness.
Part of the promotional processes that Tesla Motors employed on the new Model S was to collaborate with strategic players in their specific industry (Tachibana, 2012). Panasonic provides the batteries used in the company’s products. Therefore, Tesla needed to promote the profitability of the new models by collaborating with the maker of one crucial component of the new product. The partnership would ensure closer cooperation and boost the performance of the companies’ products.
3.4 Distribution considerations
The next aspect of product and innovation management that applies to the Tesla Model S evaluation is distribution. According to the process involved in the optimization of the new product, distribution strategies have to improve the overall performance by maintaining a low-cost implication (Hair, 2008). Tesla Motors benefited from the distribution strategies in the months following the launch of the Model S as reflected in the figures posted in the first year. Although attributing cost reduction cannot work to explain the high performance or to distribution strategies, these processes contribute significantly to the overall cost reduction exercise due to the magnitude of the outbound logistics. One good example of the distribution techniques used by Tesla Motors to boost the market performance of the Tesla Model S was the decision to abstain from traditional car dealership agreements that conventional car manufacturers relied on. Instead, Tesla Motors relies on the kiosk stores in malls where the sales personnel assist with initial orientation, but cannot sell the car to the willing customer (Kitcho, 1998). The car sale occurs online by the company after the customer makes a deposit. This distribution model ensures the company undercut expensive intermediaries such as brokers and dealers and remains profitable by selling the car directly to the client.
One aspect of the distribution chain that the makers of new products should consider is the comparative advantage of physical sales over online ones (Friedrichsen and Mühl-Benninghaus, 2013). Tesla Motors understands the need to leverage the society’s proclivity for online content hence the decision to base their sales model on an online platform. Apart from the obvious cost reductions, many of the after-sale services occur online where the cars communicate with the company personnel about glitches while receiving software updates. The model depends on the distribution processes and associates itself with new products and the best strategies to manage their development.
4.0 The reasons behind the success of the Tesla Model S
Tesla has eliminated the intermediaries in the sale of the products it develops. The dealers and brokers involved in the average supply chain raise the prices of the product. The objective is to try to maximize profits resulting in a rise in the price without adding value to the customer (Haines, 2009). However, Tesla charges a premium price for the high quality Tesla Model S and at the same time has succeeded in adding value to the product. Therefore, by reducing the impact of these high prices to the customers, the Tesla Model S continues to perform well in its niche market.
Tesla also continues to remain profitable by keeping its running cost at the lowest possible point while continuing to produce the cars. With the Model S, the client has to pay for the car online reducing the costs associated with expensive car dealerships(Corsi and Dulieu, 2013). In addition, there is no inventory of ready-made Tesla Model S cars. The company builds the electric cars on order therefore reducing the costs associated with the redundant stock. The reduction in the company running costs has resulted in increased profitability for Tesla Motors especially for the Model S.
Without a doubt, the Tesla Model S is an engineering and technology masterpiece. While the world grapples with limitations in the power storage solutions, Tesla Motors has managed to come up with a working electric sedan (Viardot, 2004). The car competes with established brands like BMW without the broad environmental implications and huge maintenance costs associated with gasoline-powered vehicles. The level of ingenuity invested in the Tesla Model S is staggering as reflected by the rating and customer feedback. With more high-tech gadgetry such as auto-pilot operation and height adjustable ride control, the Model S is slated to capture the hearts of more potential customers as it spreads into the Asian and Middle East Markets(Ettlie and Ettlie, 2006).
Tesla Motors continues to lead to the niche luxury electric car market propelled by a carefully regulated mix of technological innovation, product, and innovation management, as well as strategic marketing and project management (Bradley, 2003). However, the success of the company boils down to the performance and quality of the products it sells (Oleksak and Oleksak, 2010). Tesla’s Model S electric vehicle continues to defy the state of technology by extending the range and capabilities of electric-powered vehicles, even when the development of higher capacity batteries is expected to take a while longer. While the company reaps the fruits of innovation, good management practice, and high quality products, the Tesla Model S continues to shine as an example of the union of management, innovation, and project management.
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