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Principles of Management

Critical Thinking Case

Principles of ManagementCritical Thinking Case

Tesla Aims for the Mass Market

Elon Musk cofounded Tesla in 2003 with the vision of making electric cars that could rival, and even replace, traditional gas-engine cars in the consumer marketplace. At the start of the 21st century, the external environment was beginning to show favorable signs for the development of electric cars: people were becoming more concerned about the environment and their carbon footprints, and gas prices were beginning a steep climb that had already spurred the sales of hybrid gas-electric cars such as the Toyota Prius.

The automobile industry was not responding to these environmental trends, instead relying on the fact that trucks such as the Ford F-150 and Chevrolet Silverado were still the two top-selling vehicles in America in 2003. Musk saw a different future for vehicles, and Tesla introduced the all-electric Roadster in 2008. Four years later, the more practical Model S was introduced, and Tesla sales began to climb.

As a new entrant in the automobile industry, though, Tesla faced several challenges. Manufacturing and distribution in this industry are extremely expensive, and Tesla had to develop the capability of efficiently manufacturing large quantities of cars. Tesla also had to establish dealerships for its cars, although it also decided to sell cars online, taking advantage of tech-savvy consumers’ comfort with online shopping. Perhaps Tesla’s greatest challenge was convincing consumers to trust the new technology of all-electric cars. Range anxiety became an actual term, describing people’s fear that their car batteries would run out before they reached their destinations. To combat this, Tesla developed an extensive network of charging stations so consumers could be confident that they could charge their cars conveniently.

Elon Musk has been a master of raising money to fund Tesla’s efforts to successfully enter the mainstream automobile manufacturing industry; so far, Tesla’s entry has cost billions of dollars. Tesla has also taken advantage of tax incentives to develop its charging stations and to sell its cars, because Tesla customers receive tax credits for the purchase of their cars. Tesla cars are not inexpensive, however, and that has limited their marketability. Most Americans cannot afford the Model S or more recent Model X’s high prices (up to and exceeding $100,000).

In 2017, Tesla launched the Model 3, designed to transform the car industry by being its first mass-market, affordable model. The company started taking “reservations” for the model in 2016, promising that it would arrive with a $35,000 price tag. By mid-2017, the reservations list had reached half a million customers, creating a new problem for Tesla. How could it possibly manufacture that many cars when production levels for all of 2016 were less than 84,000 cars?

A photo shows a Tesla Model 3 electric car pictured at one of its supercharger stations.
Exhibit 8.13 Tesla 3 The Tesla Model 3. (Credit: Brian Doyle/ flickr/ Attribution 2.0 Generic (CC BY 2.0))
Critical Thinking Questions
  1. What PESTEL factors supported Tesla’s success? Which factors posed challenges?
  2. How has Tesla’s strategic position changed since it was founded in 2003?
  3. What kind of responses would you expect from Tesla’s rivals in the automobile manufacturing industry to the Model 3’s popularity?

Sources: Tesla company website: and investor relations site:; Edmunds, “Top 10 Best Selling Cars in 2003.” (updated May 12, 2009); Bill Vlasic, “In Pivotal Moment, Tesla Unveils its First Mass Market Sedan.” New York Times, July 29, 2017,

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