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Essay 3 Fundamentals of ADE - General Strategy
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A business strategy is a defined plan of action outlining the direction a businesswants to take (Wright, 2022). The aim of this essay is to analyze a particular company’s, in
this case, Tesla, business and corporate strategy. Firstly, it will scrutinize a piece of news
relevant to the topic. Furthermore, it will identify the business and corporate strategies
adopted by Tesla, and cover the reasons why it adopted said strategies. Finally, it will explore
the positive and negative consequences of such strategic change.
Conventional business logic is, usually, that the first version of the product is very
simple and functional, consequently having low production costs, so it can be sold at a
reasonable and affordable starting price (Wright, 2022). Nonetheless, Tesla did the opposite
thing. As Elon Musk states in his personal blog: the strategy of Tesla was to enter at the high
end of the market, where customers were prepared to pay a premium, and then drive down
the market with more units at lower prices (Musk, 2006).
Therefore, it can be affirmed with absolute certainty that Tesla’s business strategy is
not cost leadership, but rather differentiation. Tesla created the most luxurious, expensive,
fully-featured sports car that they could afford, intending to get their customers to perceive
them as different, even with those premium prices, and with nonstandardized products
(Mérida, 2022). Although this was a risky strategy, they succeeded in their long-term goal:
being the most valuable car company in the world, surpassing other giants like Toyota or
Volkswagen.
Regarding corporate strategy, they adopted, within diversification, a strategy of
vertical integration, specifically backward. This is a type of diversification along the value
chain of the company (Mérida, 2022), and in Tesla’s case, it was backward because they
became their own suppliers. Because they were creating such a specific vehicle, which
needed of specific pieces that were not already on the market, like special batteries, they
could not rely on suppliers to gain mass-production benefits. Rather than letting this hinder
them, they took complete control of their supply chain by investing in their own battery
manufacturers (Wright, 2022).
However, what are the consequences, both positive and negative, that Tesla will
encounter for adopting these strategies? Concerning the strategy of differentiation, the main
advantage is that there is reduced price competition, which allows the company to compete
in the market with something other than lower prices. Moreover, there are no perceived
substitutes, as the company, if successful, is the only one that can offer that unique product,
as there is no similar replacement, often creating consumer brand loyalty as well (Indeed
Editorial, 2019). Nonetheless, there are also disadvantages, such as excessive pricing in this
case, which may mean that clients do not value the differential features enough to justify
paying a premium price. Additionally, these supposedly unique features can be easy to
imitate, making differentiation useless (Mérida, 2022).
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