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Global Marketing

TESLA’S INTERNATIONAL EXPANSION STRATEGY

Tesla, Inc., previously Tesla Motors, Inc., engineers, manufactures and sells fully electric vehicles and energy storage solutions. Incorporated in 2003, and founded by CEO, Elon Musk, and CTO, Jeffrey Straubel, amongst others, Tesla offers clean energy generation, storage and consumption technologies with a missio   n to accelerate the world’s transition to sustainable energy. The automotive segment comprises the design, production and sale of fully-electric vehicles, targeting the premium sedan and SUV markets through its Model S and Model X, and the mainstream vehicle market through its recently introduced Model 3. The energy generation and storage segment comprises the design, production and sale of solar energy generation systems and energy storage solutions to industrial and commercial consumers. The company benefits from core competencies in powertrain engineering, vehicle engineering, innovative manufacturing and energy storage.

While a majority of Tesla’s revenues are generated in the United States (up to 60% in 2016, according to Thomson Reuters), its domestic market, the company has renewed efforts to expand internationally, aiming to tap a rising transnational demand for electric vehicles (EVs). Tesla notably targets European and Asian markets, so as to diversify its revenue streams. This section purports to identify and evaluate Tesla’s international expansion strategy, and to offer an in-depth look at Tesla’s approach to the Norwegian market.

a. Global standardisation, Tesla’s strategic response to high pressures for cost reduction

Tesla targets three key transnational consumer segments (Mangram, 2012), which it seeks to penetrate through a standardised product offering. Firstly, the high-end sports car market is a relatively niche market initially targeted through the Tesla Roadster, the company’s first model, whose production was terminated in 2012. Secondly, the luxury vehicle sedan and SUV market is a more competitive segment offering higher sales potential, which Tesla intends to tap with the Model S and Model X. Finally, the mainstream vehicle consumer segment allows for mass vehicle production, identified as Tesla’s next step as Model 3 production beings in the second quarter of 2017.

The transnational homogeneity of these market segments means Tesla faces low pressures for local responsiveness and can offer a standardised product, with minimum differentiation across markets. Tesla’s market segmentation is revealing of its high-end disruption innovation model, per which the company penetrated the higher end of the automobile market, where consumers are willing to pay a premium, before lowering prices to create a mass market with high unit volume.

In its international expansion, Tesla faces several pressures for cost reduction. To begin, Tesla markets a commodity-type product, cars, which satisfies a universal need for private transportation. Furthermore, Tesla operates in a highly competitive industry where price is one of the key drivers of demand and consolidated industry players, such as Toyota, Volkswagen and BMW have raised barriers to entry. Additionally, consumers face low switching costs with regards to vehicles powered by internal combustion engines (ICEs), but higher switching costs when purchasing EVs, because of added efforts to cope with their limited range. Finally, there are technological constraints to Tesla’s expansion, particularly a high minimum efficient scale resulting from high R&D and operational fixed costs.

b. How Tesla has increased its products’ customer perceived value

The competitive nature of the car industry has placed high pressures on cost reduction, which has pushed Tesla to increase its products’ customer perceived value. By creating value-added services, through a global network of stores, service centres and Superchargers, the company supports customers in their purchasing decisions and reduces the switching costs of buying

EVs. On the other hand, developing unique core competencies in powertrain engineering and energy storage has enabled Tesla to price its product at a premium. Finally, over-the-air software updates allow Tesla to limit its products’ obsolescence, strengthening their value- for-money.

c. Reducing switching costs, Tesla’s priority when entering foreign markets

The low pressures for local responsiveness Tesla faces have allowed the company to standardise its products, and consequently to focus on reducing customer switching costs. For instance, providing customers with a Universal Mobile Connector allows these to use different charging services worldwide. Similarly, developing a network of Superchargers (790 as of 31st December 2016, per Tesla’s Annual Report) has made long-distance travelling convenient and, thus, undermined the conception that EVs’ low range diminish their usefulness. Tesla has also increased the number of charging options available to consumers, by offering destination charging, in partnership with 4,140 hospitality locations (Tesla Annual Report, 2016). The collateral advantage of Tesla’s network of customer service centres is the high volume of feedback it collects from customers, who inform R&D and facilitate a quick introduction of product improvements, thus prompting cost savings.

Additionally, Tesla reduces its channel length through direct-to-consumer distribution, made possible by its vast internet presence. The latter has created a customer-centric supply chain at a global scale, allowing for the mass customisation of Tesla vehicles. This presence is met with high customer engagement, as most purchases have been conducted online (Tesla Annual Report, 2016).