The Generic and Grand Strategy of Tesla Motors

Generic Strategy

The company that I have chosen is Tesla, and they focus on a differentiation strategy. Michael Porter outlined the grand strategies that a company can follow in order to compete effectively in the marketplace, as being differentiation or cost leadership, and these can be either at the niche or broad-based size levels (QuickMBA, 2010).

The differentiation strategy is defined as a strategy where the company seeks to compete on the basis of having a unique brand, product or product attributes. In that sense, Tesla has sought to have the best cars, to build its brand from the ground up as a premium brand, and employ a skimming strategy by targeting the high end buyer who will pay a premium for the best (Musk, 2006). There is ample evidence to support that this is the strategy for Tesla, beyond the fact that Elon Musk specifically wrote that in 2006.

First, in terms of product, Tesla's vehicles tend to receive rave reviews from critics, something that points to a premium product (Levin, 2015). The reviews have spurred sales of Tesla vehicles, to the point where there is now a waiting list to buy one. These are in-demand vehicles to the point where the company is having difficulty producing enough of them to meet demand (Tesla Annual Report). Furthermore, the vehicles are appointed with the sort of features and options that are typical of cars in the luxury category, and Tesla compares itself in advertising to the cost of ownership of conventional gasoline or diesel-based luxury vehicles. This sets the market, as determined by the company, as a mainstream market whereby Tesla competes for the luxury car buyer. That, by definition, is the differentiated market. Tesla is more differentiated than most, because it has a luxury brand, many unique features, is electric, and competes in part on the basis of industry-leading technology. Overall, there are many product attributes of Tesla that are simply not found in mainstream cars and would not point to anything other than positioning as a luxury vehicle. The price point, as well, is in line with other luxury vehicles.

While Tesla is aiming to produce a mainstream family vehicle -- and has been doing so since its inception (Musk, 2006), the company is not yet doing this. Yet, this points to a strategy that is mainstream, rather than niche. Remember that Porter's generic strategies are also based on the size of the market that a company seeks. The luxury car market is divided into the mainstream luxury car market, which is the area where larger companies like Mercedes-Benz and BMW compete, or Lexus or Infiniti. But there are also many small production luxury automakers in the world as well. Some of these are brands for larger automakers, but ultimately, the production run size determines whether a car brand is niche or mainstream. Based on the number of vehicles it sells, and the relatively limited markets it serves, Tesla would normally be considered a niche player in the automobile market. It is one of the smaller producers of automobiles on the market today and its limited production means that it has a relatively small footprint of customers. Furthermore, Tesla is an electric car, which itself is a niche subset of the overall car market.

So why is Tesla not a niche automaker? Because we are talking about grand strategy. Grand strategy is how the company aims to compete over the long run, and the long run strategy for Tesla is not to pursue a niche market, but rather to be a mainstream player in the automobile business. The stated objective of the company is to transition transportation away from fossil fuel vehicles, not just for rich people, but for everybody (Musk, 2006). That points to a vision of a company much larger than the small production and niche market that Tesla current serves. If Tesla truly aims to sell its vehicles to the mass market, and is building towards that, then the company's grand strategy surely is not niche differentiation, but mainstream differentiated. Indeed, in 2017, Tesla aims to launch a car for the masses, to be produced in greater volume that its existing vehicles, and priced in the $30-40,000 range, where more average buyers can afford it. This product alone is an indication of the grand strategy that Tesla is pursuing. The company's long-range vision is not that electric cars are a niche market within automobiles, but that they will be the only type of automobile available. Tesla thus is seeking to establish its position as the differentiated market leader early in the game, so that when this shift occurs, that they will be the market leader. That is a mainstream strategy in its fullest.

Tesla is still, however, a differentiated player, and that will always be a part of what it does. But the company sees itself as differentiated in the sense that today's high end gasoline and diesel vehicles are. Where Japanese automakers took over the American auto market with superiority at every turn, Tesla sees this as the future of its business as well. There are other electric cars, usually made by mainstream producers, but Tesla enjoys technological superiority over all of them. In that sense, Tesla wants to remain a differentiated player, as the company with the superior technology, and that maybe charges more than the low-cost producers (be they Toyota, Nissan or whoever). Tesla will then always compete as a differentiated player, with a differentiated brand, superior technology, and a history as an innovator and a market leader. But the brand will only stand for these things, and will not stand as a niche luxury brand over the long run. That is a temporary positioning to help establish the strength of the Tesla brand for the time being, prior to the company being able to produce at the mainstream level.

This unique way of bringing the company up is specifically designed to account for the fact that this is a new company. Many companies that compete in the automobile industry are long-established. They have their brand identity and their production capacity. They can specifically launch or cut any brand, and align the branding with the product immediately. Tesla, as a startup, cannot do this, so its plan to build the brand identity is a much longer-term project, simply by necessity. So while Tesla's approach is different, that is only because it has to be. But the company has a vision of what it will look like in the next ten years, when it can produce by the millions and will be able to reach all Western consumers with its products.