How Tesla Became A Giant

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Tesla transformed the way the automotive industry functions, disrupting several common practices within the sector. As the fourth quarter of 2021 begins, Tesla is showing no signs of stopping. Elon Musk’s pet company has shocked market gurus and investors alike. The Silicon Valley company brought a fresh outlook to an industry running on old manufacturing methodology.

Let’s peek into how a small-time company made it big and is currently the most valuable carmaker of the era.

Daimler shows interest

Daimler, the parent company of Mercedes-Benz, bought approximately 10% stakes in Tesla in May 2009. The move offered a breath of fresh air in the shape of $50 million for the struggling company. The investment also provided Mercedes a peek into how Tesla worked. Musk wasn’t worried about the early profits but aimed at launching imperfect technology and then upgrade them on the way.

Tesla’s Model S luxury sedan was a huge success, and Mercedes engineers had a huge role to play in it. In exchange for Mercedes’ support, Tesla provided access to their half-hand-assembled battery packs. Yet, the partnership did not last long, and Daimler sold its share in 2014 after doubts over industrial scalability issues of Tesla’s approach.

Tesla takes the innovative way.

After the breakup, Tesla went on to churn out new technologies, introduce innovative manufacturing, designs in electronic architecture and software. Later interviews of Mercedes employees involved in the collaboration discussed the difference between new and old engineering philosophies. The Germans believed in extended safety and control, which resulted in significant evolutions, while Tesla showed an experimental attitude that meant they could innovate fast.

A past Mercedes engineer involved during the partnership said, “Elon Musk has been walking on the edge of a razorblade in terms of the aggression with which he pushes some technologies.”

Yet, investors have shown interest in Tesla’s fast-paced, innovative techniques as the industry ponders upon its future. Countries are pushing towards total electrification of vehicles, but that means car manufacturers have stiff competition among themselves in the coming years.

Until July 2020, Tesla’s net worth was $304.6 billion compared to Diamler’s $47.7 billion. The numbers will stagger you even more, when you realize Mercedes-Benz sold 9,35,089 cars in the first half of 2020, compared to Tesla’s 1,79,050 delivery.

While that looks impressive, Tesla’s share prices have remained shaky during the last few years. Industry experts and analysts have long questioned Tesla’s ability to draw long-term success. Tesla is yet to achieve a full year of profits, and its debt load is growing while there is a push to expand with new factories in Germany and China.

Daimler and Tesla’s tiff

Daimler and Tesla entered a partnership after a Mercedes engineer working on their second-gen electric Smart car purchased a Tesla Roadster. To their surprise, Tesla had done a fantastic job packing their batteries, and thus, Mercedes arranged a meeting with Musk. They even placed an order of 1,000 battery packs.

During a joint press conference in Stuttgart in May 2009, Tesla was quite optimistic about the partnership. It said the joint venture will “accelerate bringing our Tesla Model S to production and ensure that it is a superlative vehicle.”

In return, Mercedes wanted to employ Tesla’s batteries in their electric version of the Mercedes-Benz B-Class. Tesla released the Model S in 2012, while the all-electric B-Class rolled out in 2014.

All was going well until Mercedes realized the short operating range of their B-Class. How did that happen? Mercedes Engineers were skeptical about the long-period battery degradation and overheating risks. They discovered how Tesla engineers had skipped performing long-term stress tests on their battery packs. Another Mercedes engineer in the project said, “We had to devise our own program of stress tests.”

Mercedes engineers even suggested reinforcing the underbody of the Model S so the debris from debris would not puncture the battery pack. After some incidents of battery fires, Tesla decided to raise the ride heights of all its vehicles through an over-the-air update. Later in March 2014, the company announced adding a triple underbody shield to the latest Model S cars and retrofitting the existing cars.

Their ability to offer such retrofits and adjustments proved beneficial for Tesla as Model S outsold Mercedes-Benz S-Class in the US in May 2013. The Model S even overtook S-Class in terms of deliveries worldwide by 2017.

Musk’s brand strategy

Tesla opened its first store in Los Angeles, California, on May 1, 2008. Before this, the company sold its cars through the internet, phone, or at headquarters. By 2012, Tesla had 20 stores with workshops in North America, Asia, and Europe. Tesla made sure to open these stores in posh areas in major cities.

Tesla is focusing on giving the customers a tremendous experience while gaining sales and service benefits. Such benefits are something that conventional carmakers do not achieve in the shop and franchise model. With Tesla, customers engage directly with the company staff instead of franchisees. The aim is to garner efficient inventory cost control, service, warranty management, and customer review.

The Tesla commercial network ownership means the company prevents the conflict of interest that happens in conventional dealerships. It involves selling parts under warranty and repairs through the dealers providing advantages to the dealer and costing the manufacturer.

George Blankenship, former VP: Worldwide Retail, said, “We don’t want to sell a car to people, we want people to buy our car because they want to. I believe that anyone who comes to a Tesla store today will want to buy a car in the next ten years. That is the important thing, not the next three days, but the next ten years.”

Tesla maintains one price for each of their models across the US with a listing on their website. This removes the burden of the unnecessary price negotiation between the customer and dealer. The customer can simply go to Tesla’s website and configure a car with their preferred options after going through their identity check.

Concluding note

Tesla has been at the cutting edge of the electric vehicle revolution, and with new models announced last year, it is going strong. Cars like the new Roadster, Cybertruck, and Semi truck have stirred the pot for design, innovation, and future technology. While its stock market value says otherwise, Tesla is undoubtedly leading the electric car industry.