What do you do if your company continues to disappoint investors and consistently fails to deliver? If you are owned by an eccentric billionaire, you double-down. 

That is what Tesla, the popular car maker founded by Elon Musk (noted eccentric billionaire), wants to do. This week, the company announced a new offering for its struggling car company -- car insurance.

According to the company's insurance support site, the Tesla insurance is "competitively priced ... designed to provide Tesla vehicle owners with up to 20 percent lower rates, and in some cases as much as 30 percent." Although this insurance is only available for Tesla vehicle owners in California, the company plans on rolling it out nationwide. 

This is clearly a move to remove a barrier to potential Tesla owners, since according to USA Today, Tesla vehicles are the most expensive vehicles to insure.  

So how will Tesla offer lower rates? According to company blog posts and FAQs, Tesla can beat third-party insurance providers because "Tesla knows its vehicles best," and its pricing reflects "Tesla's active safety and advanced driver assistance features."

And while that may be true, what is more likely is that the company plans on pursuing a strategy it has been well known -- and infamous -- for pursuing: offering products at a loss in order to generate unit sales, then worrying about the consequences later.

This move by Tesla should not come as a surprise. For starters, while the company delivered a record number of cars in 2Q of 2019, their overall numbers are below expectations, and many analysts doubt they can make the 2019 production projections of 360,000 to 400,000. In fact, according to Bloomberg, Tesla is the most profitable shorted stock. By offering its own insurance for its cars, it can relieve at least one sticking point for potential buyers.

Also, Tesla has a history of bringing its operations in-house, from offering direct-sales online to managing collision repairs. Again, the purpose of managing vertical functions often outsourced by other companies is to control the entire customer experience for the buyer, much like Apple has always done for years. By doing so, Tesla can not only assure that the experience is consistent but also have a finger on the pulse of consumer sentiment.

What does this mean for entrepreneurs? For certain, most entrepreneurs and small businesses are not supported by the same -- or even remotely similar -- fortune of Elon Musk and can hardly consider a vertical-integration strategy for its operation.

The importance of controlling the customer experience these days, however, is a strategy that all businesses need to understand. Social media has transferred much of the decision-making influence and power to consumers, in the form of reviews and word-of-mouth marketing. And while businesses cannot afford to own all of the vertical functions of their business, they most certainly need to understand how to control them through operational vigilance and continuous improvement.

Published on: Aug 29, 2019
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