To make a cost-competitive mass-market vehicle, Tesla must do which of the following?

• A. Focus exclusively on luxury features regardless of cost
• B. Increase the price of its vehicles to maximize profit margins
• C. Reduce production costs through economies of scale
• D. Limit technological innovation to avoid additional expenses

Answer: (C)

Verified step by step guidance

1. Understand the concept of economies of scale, which refers to the cost advantages that a firm obtains due to expansion, leading to a reduction in average cost per unit as production increases.
2. Recognize that to make a cost-competitive mass-market vehicle, Tesla needs to lower the cost per vehicle to appeal to a broader customer base, which is achieved by increasing production volume.
3. Evaluate the options: focusing exclusively on luxury features or increasing prices would raise costs or prices, making the vehicle less competitive in the mass market.
4. Limiting technological innovation might reduce some costs but could also reduce the product's appeal and competitive advantage, which is not ideal for Tesla's strategy.
5. Conclude that the best approach is to reduce production costs through economies of scale, which involves producing more vehicles efficiently to lower the average cost and offer competitive prices.