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A Case Study of Tesla Motors


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A Case Study of Tesla Motors

Sundeep kumar.P (DB7415)

Course Tutor: Wilfred Kurukulasuriya

BG009: Strategic Decision Making_T4-2015



1.0 Introduction……… 3

2.0 Internal and external environmental analysis

2.1 Internal environmental analysis………4

2.2 Value chain analysis………..5

2.3 External environmental analysis………...6

3.0 SWOT analysis……….7

4.0 Porter’s 5 Analysis……….8

5.0 Conclusions……….9


1.0 Introduction

Tesla Motors is an all electric car producing company with the power to change automotive history forever. Tesla Motors Inc. is an American company that designs and manufactures electric cars. Tesla Motors was established in 2003 by Martin Eberhard and Elon Musk as an electric car manufacture on motto of electric car is better than traditional combustion engine car. (tesla.com, 2015)

Tesla Motors Inc. is a futuristic company, just like Apple Company Tesla has a vision of the future. Being a relatively young company Tesla motors has huge potential growth because of its unique and innovative products. It is the 1st company to produce electric car. Fluctuating gasoline prices and concern for environment has increased desire for electric cars. In recent years the demand for alternative fuel vehicle market has grown exponentially, electric vehicle is the future and the most feasible solution

In 2006 the company launched its 1st car, the Roadster, which eventually sold 2,250 vehicles (fuel-efficient-cars.org, 2008). Apart from electric cars Tesla Inc. also sells Drive train components and also Power train components to companies like Toyota and Daimler. Tesla decided to stop the production of Roadster car in 2008 (tesla.com, 2015). Now Tesla is offering only two cars, Model S (tesla.com, 2015), the world’s first premium zero carbon emission sedan that became the third best car selling in the world for 2015 (hybridcars.com, 2015). And Model X is the entry of sports utility electric vehicle. Very recently Tesla company CEO and Product architect Elon Musk (tesla.com, 2015) confirmed the 35,000$ Tesla Model 3 release in March 2016 (popularmechanics.com, 2015).

Tesla Motors Inc. has a very unique business strategy, it follows focused differentiation strategy. It’s differentiating itself from competition by incorporating public relation strategy, the brand name Tesla only propagates by mouth talk, internet and presentations from Elon Musk. This strategy worked for Tesla Motors has for now Tesla is the 10th major brand car company in US (Forbes, 2015).Tesla is focusing mainly on consumers who are not so price conscious and looking for luxurious and high performance cars. Elon Musk opted this generic business strategy with a reason, Elon Musk vision is to make the most promising car company of the 21st century by driving the world transition into electric vehicles, and to eventually achieves a more mass appeal affordable electric car. But this requires time and investment into technology. Tesla invests all the profit obtained by their high end cars into research and development of Tesla Model 3, which is expected to cost around 35,000$(Musk interview, 2015).another interesting business strategy from Tesla is that they have no dealers, They market their cars directly through their web site and selected stores, This way by cutting the middle person they are saving money for consumers.


2.1 Internal Environment Analysis

Vision of Tesla Motors is to adapt the world to electric motor vehicles and thus creating a more secured pollution free future. Its Mission is to design and sell high performance efficient cars. Tesla combines style and speed with technology to create one of a kind electric vehicle that is most energy efficient machine on road. Core values of company are

 Protect the environment and limit dependence on foreign oil.

 Provide the costumers with excellent service and satisfy the needs of stakeholders.

 Create a driving experience like no other electric car on the market through Tesla sport car design and acceleration power.

 Pursue growth and learning.

 Change the world one car at a time.(Musk interview,2015)

Tesla is headed by Elon Musk whose visionary is a great asset to the company. Elon Musk handpicked all crucial employees in the company. These self driven employees greatly promote company development. Tesla Motors have a strong and well qualified management system.

Over past few years, many car manufacturing companies have experienced the competitive pressure to produce eco friendly or energy efficient vehicles. Tesla is in cutting edge of the eco friendly very fuel efficient electric car and being 1st gives Tesla a huge advantage in market.

Value chain analysis helps a company to determine its strengths and weaknesses along the primary and secondary activities. Primary activities are directly concerned with production and support activities that assist primary activities.











Infrastructure Flat/Horizontal infrastructure, small management team, strong leadership







HRM Strong management team, Out sourced recruitment, company shares reward policy, close relationships between employees and management.

Technology development

Leading edge in technology, reinvesting in R&D, cost reduction, excellent product design, patents.

Procurement Partnerships and alliances with suppliers, short term agreements.

Inbound Logistics Operations Outbound Logistics Marketing & Sales Service *in house production *Numerous suppliers *JIT *Innovated and automated *Multi functional robots *Easily reprogramming *Own stores in 18 countries *Online reservations *Showrooms *Celebrities *Web based *Short movies *Campaigns *Service centres *Charge stations *Warranty policy




External Environment Analysis

Political: Tesla when started in 2003 was a US based company which sold cars only in US but now it is selling cars in 17 countries( Tesla, 2014) with more than 80 stores, and thus Tesla motors has to deal with distinctive Political patterns effecting its business. With increase in concern for environment government is encouraging low carbon emission vehicles and green technology in auto industry. Federal tax credits of 7500$ offered to buyers, In 2015 US government supported 1.3 billion in investments to hydrogen vehicles. Tesla Motors also received 465 million dollar loan towards their R&D of more fuel efficient vehicles from US government which is to be paid in 10 years.(prezi,2015) With all this advantages given by government will attract many other companies to enter in to electric cars. For now Tesla has no major competitors but in coming future there will be more emerging companies entering into market.

Economical: US Auto industry accounts for 5% of GDP but only 5% of the car market is Hybrids and electric vehicles. (Prezi, 2015). Since 1995 gasoline price has more than doubled and it is always fluctuating so people are more interested in alternative energy. Major economic factors include economic growth in alternating energy companies and increase in the rise of fuel prices (BBC news, 2015). Therefore we can observe that demand for electric cars is increased enormously.

Social: The Go Green movement has changed the people perspective towards environment; the need to decrease the carbon foot print in the society is much needed. We can see there is a increased popularity in eco friendly cars Various popular celebrities are endorsing this action to help the environment. We can observe a major social trend of consumers preferring smaller cars that are more sustainable rather than large cars that are not needed. This trends are great opportunity for Tesla motors, being the 1st complete electric motor company and worlds best R&D department Tesla motors future is very promising.

Technological: Technology has great impact on today’s auto motive industries. In my

opinion I believe that companies who have their capital investment in technology rather than machinery will only survive, and they are the future automotive successful companies. We can see that the pace of technology for alternative energy source is rapidly growing. Tesla Motors Inc. is the only company that has created a battery that can run 300 miles of a charge (Tesla S) (Tesla, 2015). Tesla is redirecting all its profits to Research and development, and thus Tesla is very advanced and way ahead of any other competitors in today’s automotive industries.


Tesla is not a car company it’s a technology company.


 

High demand for Tesla Cars.

 

Niche market where it is only firm.

 

Good Public Relations.

Excellent Futuristic vehicle design

Only all electric vehicles.

Luxurious and high performance cars.

Outsourcing of secondary components

helps them to focus more on technology (Welch, 2015).

Strong R&D department.

Successful Strategic partnerships with companies like Google, Daimler and Toyota.

No dealership commissions so increased sale efficiency.

Share value and Stock value are increasing every year.

Elon Musk CEO of Tesla Motors is a great strength to the company.

Unique and innovative products.

Brand Loyalty.

Tesla Model S has the highest distance range of 300 miles.


Lack of liquid assets is the major

problem of Tesla motors, Tesla Reported its 1st profit in 2013 that is 10 years from its date of launch.

Its vehicle offering ranges are not feasible for mass market.

Public have not yet adapted to Tesla idea.

Tesla motors are not serious contender for majority of market share.

High debt to equity ratio,4,9 (Wikipedia)

Limited manufacturing capacity.

Technology development is time


Low brand awareness.

Issues with resale value.

Very low number of Tesla supercharger stations.

A thin line of difference in hybrid and electric cars.

Elon Musk is also the CEO of SPACE X program, so his busy schedule may affect company.


 Should build-up Loyalty to dominate competitors.

 With continuous increase in price of petrol and concern about global warming Tesla should generate demand for its vehicles.

 Utilizing the funds from US government


Other auto companies have huge brand awareness like BMW, Mercedes and Ford.

Major threat for Tesla Motors is Hybrid cars like Toyota Prius, Prius is the most sold car in 2014 (academia,2015).

Hydrogen powered vehicles may dominate Tesla technology.


in to R&D.

 Should expand the company, this is great opportunity to transform in to

technology company.

 Tesla Motors can be the platform for next generation cars. This is like what apple did to mobile phones.

Safety issues, how safe are the batteries.

With government funds and high capital investments new companies can surpass the Tesla technologies.



WOT Analysis


Porter’s 5 Forces Analysis



Threat of New Entrants – High

 Barriers to entry are very high.

 Entering into electric auto motive industry requires very high capital investments, however already established companies can enter into this technological innovation.

 Government support for green energy substitute is very high. Government support for developing electric vehicle is positive.

Power of Buyers -Low

 Government incentives and green revolution created a high demand for electric cars that makes bargaining power of buyers very low.

 Tesla Motors are luxury items; there is no basis to bargain with.

 Demand is almost inelastic.

 Emerging of green market.

 Also because of lack of competition buyers power is limited.

 There is a huge demand for electric vehicles but Tesla needs to increase it visibility.

Power of

Suppliers –High

 Power of suppliers is high as Tesla motors mainly outsources its secondary accessories in that way it can concentrate more on R&D of technology.

 Tesla Motors is highly dependent on suppliers.

 Out sourcing creates flexibility to adopt new technologies.

 Lotus, Panasonic are exclusive partners of Tesla motors.(Tesla Motors,2015)

Threat of

substitution –Low

 There is no direct substitute for an electric high performance car, but there are other options like Hybrids, Flex fuel, Hydrogen and CNG.

 Mass transportation is also a considerable substitute to cars. But many prefer to have their own vehicles.

Competitive rivalry – High

 Automotive industry is always very competitive. Tesla is a unique company that only sells electric vehicles. In electrical vehicle market Tesla position is number one.

 This market is now attracting lot of multinational companies’ and expanding very fast.

 Companies, including Audi, Volkswagen and BMW has already entered this competition with models like VOLT and Perius (insideeves.com) (greenmotors.com, 2015)

 Main reasons why other companies are now interested in alternative energy source is because these vehicles have low emissions and very fuel efficient.


Born in innovation and raised on quality, concerns for earth, chargeability and

accessibility the Tesla Motors Inc,. Tesla motors works today with a future vision. From my analysis what I observed is Tesla Motors is not just car manufacturing industry it’s a Technology company, in my opinion future lies in companies that invested their capital into technology rather than machinery. Technology is now becoming a bigger part of automobile industries and fast becoming a differentiating factor as companies like Apple and Panasonic entering the field.

Tesla Motors unique marketing strategies like Focus differentiating and public relation marketing has helped Tesla Motors to grow in to a vast company. Tesla approach to its dream project that is Model III a 35,ooo$ family sedan car (Tesla, 2015) (mergent, 2015) from working its way down from Premium price cars is well appreciated. The present models which are luxury models will yield enough profits to invest in research and development of more effective and efficient batteries and will give enough time for the company to create the futuristic car the Tesla Model III.

The need and demand for electric cars is very high and Tesla needs to be more visible. I recommend Tesla Motors to shift the company strategy from Focus Differentiation to Differentiation. One good idea is to release a small sophisticated car for busy cities like Las Angels, Auckland and some cities of China and India. At more affordable price, this way Tesla can capture the mass market and increase revenue. Advertising is also very important, Tesla is a young company relatively, and Tesla can still build more powerful brand identity and become the lead electric vehicle manufacturer in the world.



strategic management. (n.d.). Retrieved from Tesla Motors analysis:




BBC News,(2015).petrol prise reaches record high.[online] Available at:

http://www.bbc.co.uk/news/business-178956799 [accessed 22 October.2015].

iimbaa. (n.d.). Retrieved from iimbaa: http://www.iimbaa.org/IIMBAA/index.php?


Electric Vehicle Rental Application. (2015). Retrieved from

http://www.hitel.com/pdf/transport/Electric_Vehicle_Charging_Station_Infrastructu re_041312_v4.pdf

Case study: Tesla motors. (n.d.). Retrieved from


Tesla Motors. (n.d.). About Tesla. Retrieved 03 14, 2015, from Tesla:


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