Tesla Motors Inc (NASDAQ: TSLA) biggest enigma is how to scale the business having already faced some strings of hurdles in the sale of already manufactured cars. The fact that its products are not as disruptive as they ought to be, further raises concerns whether the company will be successful in scaling the business, going forward. More and more electric cars are coming up, all targeting the mass market in terms of pricing, sure to derail the electric giant’s ambition of dominating the EV space both on the high end and the low end.
Starting from the top in terms of selling high-end vehicles may be Tesla Motors biggest undoing as it may come to have a huge bearing on its push to scale the business. Most successful businesses especially in the auto industry start from the bottom, and gradually scale up with the development of products that cater for both markets.
Tesla scales to challenges
A company’s starting point will always determine its overhead structure and since Tesla is struggling on the high end, scaling downwards to focus on the mass market may be inevitable but sure to come with a string of challenges. Having started on the top, Tesla Motors developed an overhead structure that ultimately require it to sell cars at high prices to support the high costs of the business.
Downgrading the business to focus more on low-end markets may not be the best of moves as each unit that will be sold will generate fewer dollars at the expense of high overhead costs; a move that will also affect margins. Tesla Motors currently has one model that goes for $75,000, but plans are underway to launch a more economical and affordable model going for $35,000 that it hopes will cater for the mass market.
Tesla sales issues
When it comes to the aspects of selling both cars, salespeople may lean towards selling the more expensive model as it is always sure to fetch better returns in terms of commissions compared to the less expensive model. To overcome this standoff, Tesla may have to employ an incentive program to encourage the sales of the less expensive model. Tesla Motors’ problem of downgrading to the mass market is sure to be compounded by the entry of more players in the space all looking to address the mass market.
Tesla Motors’ attempts to scale either on the upward or towards the downward market is sure to face a stream of impediments all compounded by persistent competition in the EV space.