Running head: TESLA MOTORS INC.

A Case Study of Tesla Motors

Sundeep kumar.P (DB7415)

Course Tutor: Wilfred Kurukulasuriya
BG009: Strategic Decision Making_T4-2015
Running head: TESLA MOTORS INC. 2

Contents

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

6.0 References ………………………………………………...10

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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.
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2.0 Internal and External Environmental Analysis

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.
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2.2 VALUE CHAIN ANALYSIS OF TESLA MOTORS INC.

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

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

R
T
ACT Technology Leading edge in technology, reinvesting in R&D, cost reduction, P
development excellent product design, patents.
R
O
Procurement Partnerships and alliances with suppliers, short term agreements.
F
I
T
Inbound Operations Outbound Marketing Service
Logistics Logistics & Sales

*in house production *Innovated and *Own stores in *Celebrities *Service

automated 18 countries centres
*Numerous suppliers *Web based
*Multi *Online *Charge
*JIT *Short
functional reservations stations
movies
robots
*Showrooms *Warranty
*Campaigns
*Easily policy
reprogramming

PRIMARIE ACTIVITIES
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2.3 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.
Running head: TESLA MOTORS INC.
3.0 SWOT Analysis
STRENGTHS
 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.
OPPORTUNITIES
 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
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.
7
WEAKNESS
 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
consuming
 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.
THREATS
 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.
 Safety issues, how safe are the
batteries.
 With government funds and high
capital investments new companies can
surpass the Tesla technologies.
Running head: TESLA MOTORS INC. 8

4.0 Porter’s 5 Forces Analysis

Threat of New  Barriers to entry are very high.

Entrants – 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 -  Government incentives and green revolution created a
Low 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  Power of suppliers is high as Tesla motors mainly
Suppliers –High 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  There is no direct substitute for an electric high
substitution –Low 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  Automotive industry is always very competitive. Tesla is

rivalry – High 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.
Running head: TESLA MOTORS INC. 9

5.0 Conclusions

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.
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10

6.0 References

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

http://www.strategicmanagementinsight.com/swot-analyses/Tesla-swot-analysis.html

events,(n.d.).Events
http://my.teslamotors.com/en_AU/events

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?option=com_content&view=article&id=350:onli
ne-flash-sales-second-wave-of-e-commerce-or-next-bubble&catid=24&Itemid=134

Electric Vehicle Rental Application. (2015). Retrieved from

http://www.hitel.com/pdf/transport/Electric_Vehicle_Charging_Station_Infrastructure_041312_v4.
pdf

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

http://www.hsp.com/knowledge/case-studies/case-studytesla-motors

Tesla Motors. (n.d.). About Tesla. Retrieved 03 14, 2015, from Tesla:
http://www.teslamotors.com/en_CA/about