4/17/2015

Professor Brad Poulos | Karthikeyan Govindasamy - 500443276

BUS800 – Case analysis The Automotive Industry

Tesla Case Analysis

Introduction

Tesla's strategic business plan utilities patent rights. The strategy is currently non-relationship oriented and is focused on averting collaboration with competitors. Tesla has mad electric car adoption more attractive and easier to own, yet they contribute to the some of the problems associated with electric vehicle acceptance. The focus of Tesla is aimed at differentiate itself with technological advancements in electric charging infrastructure and vehicle efficiencies. A universal charging infrastructure would enable a wider available platform for a variety of automobile brands to expand their charging coverage geographically; expedite the adoption of electric vehicle. This places Tesla’s investments on research and development of their proprietary charging infrastructure at risk. If there was a universal charging infrastructure, Tesla would lose the opportunity to gain market share with strategies. This is due to the lack of building rapport-oriented patent strategy, and the lack of close collaboration with other auto manufacturers. In the current electric auto market, it is essentially a battle of who has greater coverage geographically, and which customers are using their intended charging stations. All the other auto manufacturers are trying to build their own networks; this slows down electric car adoption. Moreover, this inhibits mass production of Tesla vehicles (Financial and strategic objectives), along with driving revenues down from lack of adoption; decreasing Tesla’s market share in the electric car industry.

Analysis

The electric auto manufacturing industry is driven by investments in research and development in technology, and the product developments. Currently, the R&D of alternatives to carbon based fuel, and fuel-efficient vehicles are vital to competitive purposes. As observed in the key success factors, technology collaborations are needed for product innovation in niche market, and development of new products become more cost effective. As charging stations are expanded geographically, they become more convenient to access as a result; this increases the value of the network/ product of the auto brand.

At this time, collaboration within the auto industry is suggested to plan, fund and build the charging infrastructure that is needed to make electric car assumption more economical. Tesla’s wants to license their patents to competitors to create a common, and rapidly evolving technology platform, yet doesn’t prescribe the depth in which these patents would be collaborated on (Strategic issues). Tesla’s mission statement is to “accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible” (Musk, 2006) , this should be a stimulus to be more open for collaboration and working closer with other manufactures.

Tesla announced that auto manufactures would be able to use their patents in the hopes to increase electric car adoption. In order for automakers to use Tesla’s Supercharger

infrastructure, manufactures would have to utilize Tesla’s design and patents. Manufacturers need to use Tesla’s patented technology or develop vehicles that can accept 135kW output of Tesla’s Superchargers. This is one of fastest charging stations on the market, and Tesla wants other electric car manufactures to follow suit by following their charging standards. This would enable other manufactures to use Tesla’s charging stations, and seems the collaborations would not extend beyond that.

In turn, electric car manufacturers are not interested in collaborating with Tesla Motors. This is evident, as they are investing heavily in their own charging infrastructure, instead of using Tesla’s patents and designs, even though Tesla’s charging system is the fastest on the market. BMW and Nissan Motors both declined the offer to use Tesla charging stations; instead distributed their own charging stations. Manufacturers are selecting more economical geographical coverage and networks with higher population density. The variation in charging standards arise from manufacturers implementing different charging strategies: quick and cost effective. This ultimately affects the advancement of a collective charging standard and the objective of widespread electric car adoption.

The electric auto industry is amidst an ongoing battle to develop and build their own charging station network. Whoever builds the most utilized and widespread network will become the leader of the industry. The leader will have the largest market share; will result in other charging networks being utilized less or worst, obsolete. Providing value to consumers is one of the ways automakers are attracting customers, thus allowing for quicker expansion of their charging networks. Having a larger charging network provides a strong influence to electric car adoption; the ease of access to charging stations directly correlates with the firm’s market share. Relatively, Tesla’s Supercharger infrastructure is smaller than BMW and Nissan’s networks. This can place Tesla’s investments on R&D in the Supercharger network at potential risk.

If Tesla and other industry players will not cooperate and collaborate with each other to enable a universal charging system, or adapt their products to work on other charging systems, they will lose access to the larger infrastructures presently available. BMW who has partnered with ChargePoint, along with Nissan’s own charging stations are bigger than Tesla’s Supercharger network. Tesla is losing the opportunity to capitalize on these large charging infrastructures, and limiting it to their Superchargers, which have less coverage geographically; makes using their vehicles less convenient to customers. Consumers may value a larger geographic coverage more, thus deter sales from Tesla due to their lack of charging stations. Decreasing sales would prevent Tesla from mass-production, further decreasing their profits and reducing their influence on the electric car marketplace.

Alternatives

Tesla’s vision is to accelerate the world’s transition from carbon fueled economy towards an electric economy; all three of the alternatives focus on increasing electric automobile adoption in a variety of ways. To gain greater market share and have greater influence in the automotive industry, Tesla must focus on the subject of creating a standard and expansive charging infrastructure for electric car.

Alternative 1: Tesla should strive to expand and build a stronger relationship in the auto manufacturing industry and be open to collaboration on developing charging systems/ systems by adapting their patent strategies to be more relationship-oriented. Industry members should cooperate and work closely with each other to find solutions and utilize economics of scale to make a cost-effective car charging system. They should invest in R&D in electric car systems, and strive to make it the best alternative standard to carbon emitting vehicles. Furthermore, industry players should invest in the electric charging infrastructure as a whole, and put greater efforts together. This will decrease the risks taken by Tesla to develop the Supercharger network, while building an evolving and standard platform that eases the adoption of electric automobiles. The issues of disagreement between manufactures make this alternative challenging to implement.

Alternative 2: Tesla should re-examine their Supercharger infrastructure designs and make it further cost-effective and attractive to other electric vehicle manufactures to use. It should examine the cost at each level of the supply chain. Manufactures could possibly be discouraged from utilizing Tesla’s patents due to licensing that are not cost-effective. This alternative is to make licensing of their patents to make it easier to adopt in industry. This will encourage industry players to use Tesla’s charging standards. A standard infrastructure will pivot around Tesla’s standards and expedite electric car adoption.

Alternative 3: Tesla should expand their geographic coverage of charging stations. They can do this rapidly by seeking partnership/ strategic alliance opportunities with larger transnational charging station networks like ChargePoint and incorporate their technologies to reap additional benefit from other networks. Tesla should review ‘combo charging’, which is a standardized charging station that provides industry leading charging standard. Tesla, who already uses SAE J1772 standard electric connectors, could effortlessly convert to using their standard to take advantage of their geographic coverage and high charging standard. They should seek to have their charge level alongside other manufactures in the combo-charger package. This will not only create a unified infrastructure, it will promote electric car adoption, and give Tesla the prospect to gain market share when compared directly on geographic coverage of stations. Effectively translating to reduced wait times for customers to charge the cars at each location; potential customers may switch to Tesla as a result.

Alternative Scoring Chart

The alternative score chart consists of the 3 alternatives analyzed above and they are rated 1-3 (1 = least effective, 3 = most effective). Alternative 3 scored the highest among the 3 alternatives, thus is the recommended solution. Alternative 1 is the least effective and most difficult to implement because each company in the industry has their own strategic plans. E.g. Tesla is concerned with quality/ expediting electric car adoption, while BMW is more concerned with cost/ effectiveness. Alternative 2 is a valid solution, however, dependence on other manufactures utilizing Tesla patents and systems could be a slow process. There is a possibility manufactures can adapt and implement systems quickly – it is very uncertain.

Recommendation

In conclusion, Tesla Motors should consider seeking partnerships/ strategic alliances with large transnational charging station providers. This will strengthen their positon and expand their charging infrastructure by moving towards a standardized charging system, ultimately fulfilling their mission to expedite the transition to adoption of electric Automobiles. Thus, reducing the risk of their investments – R&D; maximizing return on the Supercharger charging network.

External AnalysisAutomotive Manufacturing Industry

PESTEL AnalysisPolitical

Political notion to improve car specifications such as MPG standards expected by 2016 (Ruiz, 2014).

State level regulations in the USA prohibit direct-sale business model. These bylaws state companies are only allowed to sell cars to customers via dealerships, and not retail locations owned by the manufacturer. (Muller, 2014).

Government encouragement of electric car purchase. The City of Vancouver promotes condos to construct auto charging stations for residences (Electric Vehicles, 2014)

The Obama administration is promoting clean energy jobs and technologies; funds to green energy initiatives which attracts auto manufactures to develop green technology (Keane, 2013).

Economic Cost of gasoline is decreasing, they are below the 10 year average, and are at a 4 year

low. U.S. has exited the 2008/2009 recession, and is on an expansionary phase of the

economic growth. Socio-cultural

Consumers increasingly concerned about increasing carbon foot print and gasoline prices. Consumers are critical of price, safety, appearance, performance, and longevity. Consumers are crucial about a sustainable future and protecting the environment.

Technological Lots of technological advancements in auto manufacturing in recent years. Mostly in

sedans and coupes for being lighter and more fuel efficient (Ruiz, 2014). Modern cars are designed using computer assisted design (CAD) software, which can

expedite the design process from several months to a few days (Ruiz, 2014). Wide engagement of green technologies (Ruiz, 2014).

Environmental Petroleum is a non-renewable natural resource, and depleting at an alarming rate.

Shortage of oil in the future will be significant. Legal and Regulatory

Increasing safety regulation on pollution control and fuel consumption (Ruiz,2014) Patents on hybrid electric technology and all electric automobiles. When emission regulations change, manufactures have to capitalize on new technology,

which affects their costs (Ruiz, 2014) Federal law requires manufactures to recall any part that may be defective, and that may

pose an unreasonable risk to safety (Ruiz, 2014).Implications

Since the global economy is coming out of a recession, and back to the economic growth. Auto manufactures should take advantage of the growth phase and invest all their resources to developing green technology. Sustainable fuel source in the future will have more support and benefits than ever before. Consumers are gradually purchasing more fuel efficient cars, along with lower carbon footprint producing vehicles.

Industry Economic Traits

Market Size The industry earned US $102.3billion in revenues, and growth is expected to total at

4.5%. There is a plateau in auto sales globally. (Ruiz, 2014) Buyers

Generally auto dealers and a moderate portion of sales are from bulk purchases. Buyer’s requirements

Increasing price of gasoline, have made consumers more price conscious. Consumes demand for smaller, lighter, and more fuel efficient vehicles is growing (Ruiz, 2014)

Number of rivals The automotive industry is dominated by a very few large companies. The top four

automakers accounted for nearly 63% of the industry output in 2014 (Ruiz, 2014). There is a high barrier of entry for the auto manufacturing industry due to the high capital

requirements, rapidly changing technology, supply chain management, and the need for advance manufacturing facilities, vehicle design licenses, skilled workforce, and regulatory standards for environmental safety (Ruiz, 2014).

Scope of competitive rivalry To achieve long term success, automakers compete internationally. Due to globalization,

foreign markets generate a larger portion of the revenue (Ruiz, 2014) Degree of product differentiation

Competitor’s products are nearly identical. The consumers deciding factors are the cost of the vehicle and the effect it has on the environments (Ruiz, 2014)

Product innovation The advantage having a system of all electric automobile, with a hydrogen charging

system infrastructure. The initial capital is very costly, as more stations are employed, it will become more convenient for consumers. This is strongly correlated to electric car sales.

Production capacity Increasing electric car sales revenues will encourage more manufactures to expand

productions in the near future (Ruiz, 2014).Technological change

Automotive industry is rapidly advancing in implementing technology in their products. This requires sophisticated facilities to manufacture the vehicles (Ruiz, 2014).

Research and development is crucial in advancing hybrid, fuel efficient, and alternative energy vehicles (Ruiz, 2014).

Vertical integration Vehicles are manufactured from thousands of components, which are assembled together

in the manufacturing plant. It would be cost forbidden to manufacture all the parts themselves. They require long-term contracts with several suppliers for parts in the vehicles (Ruiz, 2014).

Experience and learning curve Efficiently managing the supply chain and lowing costs in the process. Negotiating with labour unions (Ruiz, 2014)

Implication There is a high barrier of entry to automotive manufacturing industry. It is capital

intensive, along strong rivalry, and product innovation. Firms will struggle to gain market share while the market cycle renews after the recent recession in 2008. The

increasing popularity of green and alternative energy technology is retracting the industry back to the growth phase.

Porter’s 5 ForcesThe Industry: Auto ManufacturingSector: Electric and hybrid vehicles

Rivalry – Moderate Increasing demand for green energy/ alternative to carbon-emitting energy. Competitor’s products are differentiated by travel range, price, features, and

compatibility with charging infrastructure. Buyer Power – Weak

Auto dealers make up a significant portion of the sales in the industry. Dealerships have large inventories, and the electric car industry is relatively new. It is

not very likely for dealerships to switch auto manufactures due to cost. There is no all electric automobile manufactures that sells to dealers.

Supplier Power – Weak Large network of suppliers/ availability of auto parts and batteries. Majority of suppliers rely of a few auto manufactures to buy their parts, if one

manufacture decided to switch suppliers. This could be economically detrimental to the supplier’s business.

Suppliers rely on the demands of the manufactures for revenue, they have little bargaining power.

Threat of New Entrants – Weak Auto manufacturing industry has a high barrier to entry, due to high capital requirements,

and rapidly changing technology, along with compliance with safety and environmental standards; the need for excellent supply chain, vehicle licences, and an experienced workforce (Ruiz, 2014).

Threat of Substitute – Strong There is a growing number of manufactures producing hybrid and all electric vehicles. Public transportation is also a convenient method of traveling. Relatively cheap, and no

required maintenance costs by end user. Implication

Taking advantage of direct sale to customers will have an edge over the conventional method of having dealerships selling to consumers via showrooms. Consumers need to congregate to have a greater buyer’s power to negotiate, versus the buyer power at a dealership.

Strongest force is the threat of substitute, manufactures must collaborate to promote green energy/ alternative energy, which will expand the charging infrastructure and make electric cars more convenient to use; produce a lower carbon footprint.

Driving ForcesChanges in Industry’s long term growth rate

Minimal changes to number of competitors in the industry due to high barrier of entry. Increasingly, more auto manufacturers are developing hybrid or all-electric cars (Only a

select few manufactures have all electric cars ready for market, discussed later in the report).

Expected economic growth in the next 5 years (Ruiz, 2014) Emergence of new markets such as the Asian market will continue to be the focus for

many major manufactures. As these economies grow, so will the wealth of its population; demand for automobiles will increase. Expect American auto exports to rise.

Emerging technology Rapid advancements in hydrogen fuel cell and battery technology change the

performance and capabilities of the vehicles. Product and market innovations

Tesla is creating an innovative method of marketing and selling to the consumers via retail locations rather than traditional dealerships.

New innovations in battery and power management technology will allow for larger driving ranges.

Increasing globalization Some auto manufactures generate greater portion of their revenue in foreign markets

(Ruiz, 2014)Change in cost and efficiency

Tesla’s Gigafactory will change the battery industry, by creating efficient production plants the cost of lithium batteries will decrease for all electric vehicles.

Auto manufactures have production plants to improve efficiency of the supply chain; in turn decreasing costs and increasing profitability.

Implications There is a decline in sale of gasoline vehicles due to environmental concerns and negative

stigma of carbon emissions; as a result the purchase of hybrid and all electric vehicles has risen. Furthermore, electric cars/ hybrids are becoming more popular as more charging stations become available, and the range on batteries increase.

Auto manufacturers are beginning to capitalize on this market segment by developing their own hybrid/ electric cars. This means more competition entering the market in the long term due to growing societal, political, and economic pressures that will be favourable.

The Asian market, specifically China is rapidly growing. The demand for cars is increasing in foreign markets; automakers should allocate resources to supply this demand. Large portion of auto sales from U.S manufactures already come from abroad.

Strategic Group MapImplications

Chrysler does not currently have any electric vehicles; society views the brand as having non-environmentally conscious vehicles. They are situated in the worst position in the industry to sell electric vehicles.

Majority of the automakers are situated in the mid-right of the map, if they lower their perceived carbon footprint they will be in the best position in the industry.

Meanwhile, if Tesla expands their retail locations globally, they will achieve a greater geographic coverage which will shift them to the bottom right region of the map. This will be the best position for companies in the electric vehicle market.

Strategic Moves Current Strategy and objectives

Ford is in development for 6 new electric auto models by 2016, also with expanding their geographic coverage.

Tesla offered to share the charging infrastructure to all auto manufactures. BMW rejects the offer, and provides its own charging stations for its all electric car i3. Likewise, Nissan provides its own charging stations; manufacturers’ stations charge their own models and no other brand models (Ruiz, 2014).

GM is beginning to develop all electric vehicles to compete with Tesla. Capabilities

Nissan is the industry leader for low priced all-electric automobile: the Nissan Leaf. Nissan currently has 500 charging stations, that provide free charges to users (Nissan website)

Tesla has the longest range of any electric car available on the market (Ruiz, 2014). Have 200 charging stations. Constructed a Gigafactory to mass produce lithium-ion batteries, this would provide higher capacity batteries for lower cost.

BWM‘s partnership with ChargeNow provides 18400+ charging stations and expanding 500 stations additionally each month (BMW website); provides free charges to i3 users.

Assumptions A larger network of charging stations is very valuable for customers; automakers are

taking advantage of this and expanding their stations to increase coverage. Offering free charging to users provides an incentive for consumers to purchase those

brands vehicles. The manufacturer with the most charging stations will likely gain market share.

Implications Currently Tesla has the best overall all-electric car. They have best battery production

capability and charging system infrastructure, which are two of the key factors to success in the electric car business. Tesla doesn’t have to phase out gasoline vehicles like the other manufacturers, which means less cost.

There’s a strong correlation between size of charging station network and the number of cars sold. Since manufacturers do not want to collaborate on a universal charging outlet, consumers just have to choose the brand with the most convenient locations to charge their vehicles.

Key Success Factors Technology collaborations are needed for product innovation in niche market, becoming

more cost effective. Excellent supply chain and distribution network to get the product to the customer in a

timely manner. Developing networks for exporting to foreign markets (Ruiz, 2014). Economies of scale, maximizing work flow and resources to take advantage of cost. Competitive advantage of alternative fuel/ all-electric car with technology developments.

Industry outlook

The U.S economy is coming out of the 2008 recession and is transitioning to a growth phrase. Auto Manufacturers must take advantage the growth and invest fully in the development of electric/ hydrogen fuel cell vehicles.

The product life cycle is restarting the maturity cycle for electric cars; there is an opportunity for new competitors to surpass the top four manufactures in the industry.

Current objectives include: phasing out gasoline vehicles, and having a large coverage of charging stations.

Overall, the industry is attractive and profitable for emerging firms.

Tesla – Internal Analysis

Tesla’s Present StrategyVision, mission, and objectives

Vision: To accelerate the transition from carbon fueled economy towards an electric economy (Musk, 2006).

Mission: To provide the world with a full range of affordable electric vehicles. To accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.  (Musk, 2013).

Objectives: mass produce electric cars for the public. Enter the premium market, where customers are willing to pay higher prices, and then expand to the lower income consumers: higher volume, lower price succession model (Musk, 2006).

Implications Produce the best all-electric car, and charging station infrastructure. Tesla wants other

manufactures to use their charging infrastructure; in the end there will be more users that will adopt electric cars.

Company’s competitive business and functional strategies Business Strategies

Building a superior product. Expanding geographic coverage Creating a charging station infrastructure – The Supercharger system to charge electric

cars. Cover 98% of USA and parts of Canada by 2015 (Musk, 2013). Allow other manufacturers to use Tesla Patents to promote electric energy technology,

which encourages growth in the industry. In turn, increasing Tesla’s revenues, and investments in the infrastructures.

$5 Billion Gigafactory to produce lithium-ion batteries encourages manufacturers to use Tesla batteries for their low cost and energy storing capabilities.

Functional Strategies Marketing

Build a high quality care, expand to cheaper models later. Online presence, online forums and communities provide users with purchase experience,

and ownership experience which influence future users. Retail locations mean more foot traffic than a road side dealership. Also, allows potential

customers to customize their car in store, which attracts people to owning one in the future.

Media exposure and status positions Tesla products as one of the best vehicles ever built. Tesla overall cover all major market segments, Model S is targeted for mid-upper class

customers. While the Gen 3 releasing in 2016 is aimed for the mass market.

Sales and distribution Retail locations rather than car dealerships. The sales representative informs and

educates the consumers, rather than just try closing the sales deal. Tesla avoids sales commissions, and big inventories.

Situated in malls and high traffic areas to make presence well-known. These places are highly visible and customers regularly visit the shopping centre, and retail locations; creates a no-pressure environment for the consumers.

Supply chain Tesla’s Gigafactory manufactures their own lithium-ion batteries to lower the cost of the

batteries. Tesla is the only major auto manufacturer that designs, builds, and tests their own

vehicles. Developing a critical supply chain, they are creating a competitive supplier base. Along

with an agile supply chain to keep up with the rapidly changing technology. Tesla develops their own circuit boards, which allows them to have more control over

their cost. Production

Tesla’s manufacturing plant in North California has an output of nearly 500,000 cars per annum (Tesla, 2015).

Outsources non critical parts. Designs and tests own parts. Produces a high quality electric car.

Product design and technology Elon Musk is a part of Tesla, SpaceX and SolarCity. This synergy has manifested the

engineering into Tesla’s innovations. Excess cash flow is reinvested back to research and development to produce lower

costing components and brings product to market faster.Performance indicators

Tesla’s objective is to expand geographic coverage and expand its charging infrastructure.

Currently they have approximately 40 retail locations around the world (Tesla, 2015). Has made long distance electric car travel possible in the USA. 80% of the American

population was covered in 2014. Sales have grown 37% between 2013 and 2014 (2,013,496 to 3,198,356). Tesla stocks have increased 32.36% from 2013 to 2014 (150.43 to 222.41).

Implications Tesla is on track for the long term plan. Their business and functional strategies work

support the vertical integration model seen in the industry analysis. They are excelling at promoting electric car adoption by informing customers; making it more convenient for customers to drive the car.

SWOTImplications

Technologically, Tesla is years in advance of other manufacturers in the industry. Tesla has been in development for over a decade, while other manufactures are only beginning to develop electric cars. Tesla has the fastest charging system, however their lack of

geographic coverage and insufficient production capability are two of the major concerns to address; they have long term strategic plans to address that already.

Strengths Weaknesses High quality all-electric cars. Offers the fastest charging stations on

the market. Very keen on innovation. Only car in the industry to have 17”

touch screen information display inside the car, with the same power as a large smart phone.

Quality first mentality. Has the longest range of any all-

electric car in the industry.

Production level not able to meet market demands.

Lower inventory turnover than Tesla’s competitors. Even though it sells its cars online.

Business to consumer direct sale is not legal in all states in the U.S.

Lack of service centres and dealerships can deter customers from buying a Tesla.

BMW has 18400 charging stations, Nissan has 500 charging stations, and Tesla only has 278 charging stations. This means low geographic coverage on their charging infrastructure.

Opportunities Threats Growing concern for the environment

and carbon emissions. Consumers are buying hybrids and alternative fuel cars such as hydrogen cell or all electric.

Supercharger system could be the gold standard if Tesla expands rapidly. It is the fastest charging system in the industry.

U.S. regulations preventing auto manufacturers from selling directly to customers.

Inefficient utilization of Tesla’s superchargers. Long waits for users to charge their cars.

Value ChainPrimary ActivitiesSupply Chain

Tesla’s Gigafactory Parts design and manufacturing, and secondary outsourcing of parts. Tesla’s supercharger charging station infrastructure

Operations Tesla produces all of its vehicles on-site in northern California. The Fremont Factory

produces nearly 500,000 cars annually. Distribution

Approximately 40 stores worldwide, where customers can customize the car to their preference before the purchase.

Service Retail stores provide an open environment buying experience. Service centres are near their retail stores. Tesla provides a loaner tesla car, while the user’s car is being serviced.

Sales and Marketing

Key Success Factor / Strength Measure

Importance weight

Strength Rating

Weighted Score

Strength Rating

Weighted Score

Strength Rating

Weighted Score

Quality/product performance 0.25 10 2.50 7 1.75 9 2.25Aesthetic/product design 0.10 8 2.00 4 1.00 8 2.00Reputation/brand image 0.10 6 1.50 6 1.50 10 2.50Manufacturing capability 0.10 7 1.75 10 2.50 10 2.50

Dealer network/distribution capability 0.10 7 1.75 10 2.50 10 2.50New product innovation capability 0.15 10 2.50 5 1.25 5 1.25Financial resources 0.05 6 1.50 8 2.00 8 2.00Relative cost position 0.05 7 1.75 10 2.50 10 2.50Customer service capability 0.10 9 2.25 8 2.00 8 2.00Sum of importance weights 1.00Overall weighted competitive strength rating 17.50 17.00 19.50

Tesla Nissian BMW

Competitive Strength Assessment(Rating scale: 1 = very weak; 10 = very strong)

Innovative way to sell cars, retail stores instead of car dealerships. Sales representatives inform and educate the consumers rather than pressure sale the customers to buying the cars.

Retail stores located in high foot traffic shopping centres. Cars are made from order, customizable online, ecommerce and forum community.

Support ActivitiesProduct research and development

Elon Musk is a part of Tesla, SpaceX and SolarCity. This synergy has manifested the engineering into Tesla’s innovations.

Upgrading facilities at Fermont factory is expected to increase output to 2500 cars per week. Along with the newly constructed Gigafactory will increase production and make the supply chain more efficient (Ruiz, 2014)

Human resources Headquarters situated in Silicon Valley, the human capital is immense with veteran

software developers and engineers. General administration

Tesla partnered with Panasonic to fund the construction of the Gigafactory to manufacture lithium batteries.

The car’s retail price includes the electric charging fees so customers don’t have to pay from their pockets to charge their cars.

Implications Differentiated from all the competitors in the industry, by navigating a different sales

channel. Selling directly to consumers via retail stores; utilizing the made-to-order approach.

Most of the cost is associated with their retail locations, which lowers their overall supply chain costs by avoiding costly dealerships and inventory to turnover.

Large amount of their cost structure is supplementary to R&D.

Competitive Strength AssessmentImplications

Relatively, Tesla is a fairly new auto manufacturer. They are not acting to their maximum potential; there could be improvements to their financial resources, distribution and manufacturing capabilities. These weaknesses are customary for new automakers.

Tesla excels at product quality/ performance, and new product innovation. These strengths are more crucial than the weaknesses stated above.

Income Statement Tesla Motors, Inc.($ thousands) 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

Sales 116,744 204,242 413,256 2,013,496 3,198,356 100% 100% 100% 100% 100%Cost of Goods Sold 86,013 142,647 383,189 1,557,234 2,316,685 74% 70% 93% 77% 72%Gross Profit 30,731 61,595 30,067 456,262 881,671 26% 30% 7% 23% 28%

Research and development 92,996 208,981 273,978 231,976 464,700 80% 102% 66% 12% 15%Selling, general and administrative 84,573 104,102 150,372 285,569 603,660 72% 51% 36% 14% 19%

Total Operating Expenses 177,569 313,083 424,350 517,545 1,068,360 152% 153% 103% 26% 33%Net Loss (154,328)$ (254,411)$ (396,213)$ (74,014)$ (294,040)$ -132% -125% -96% -4% -9%

Liquidity 2010 2011 2012 2013 2014Current Ratio 2.8 1.9 1.0 1.9 2.2Quick Ratio 2.2 1.7 0.5 1.4 1.9Working Capital 150321 181499 -14340 590779 1742577

Financial Analysis Revenue Trend

Sales have rapidly been growing. In the last 3years, it has grown by 673.94%. From 2013 to 2014, sales have grown 59%.

Gross Revenue vs. Net Income Tesla’s net income was increasing till 2013. 2014

experienced an increase in expenses, with caused a bigger loss. However their gross sales were increasing which indicates they are becoming more profitable each year.

The net income vs gross profit chart shows after the first 3years, as a result of heavy reinvestments they were at a big loss. In 2014 they began turning some profits.

Leverage High T/A and Equity ratio informs that Tesla is

heavily financing their assets with debt. Tesla also signals they are heavily relying on long

term borrowing to finance their Assets, which decreases credit worthiness/ weak BS.

In 2012 leverage ratios were at its peak, this was due to their launch of the Model S and the supercharger systems.

Share Price Stock prices are rapidly increasing; these

increases correspond to the new vehicles released during that time. Tesla Model S and the supercharger charging system.

P/E ratio indicates investors had little confidence in the firm till 2013, and is beginning to decrease in 2014 due to the increase in net loss.

Liquidity Tesla has a very high liquidity, with a current ratio higher

than 1. This is good because they can meet short term obligations.

Efficiency Tesla has very low inventory turnover, this is due to

selling directly to consumers via retail locations and online, but it is steadily improving annually.

Leverage 2010 2011 2012 2013 2014LT Debt/Equity 0.9 2.2 7.9 2.6 3.9TD/TA 0.5 0.7 0.9 0.7 0.8TA/Equity 1.9 3.2 8.9 3.6 4.9D/E 0.4 0.9 4.3 1.0 1.5

Market Ratios 2010 2011 2012 2013 2014P/E -16.4 -11.7 -9.8 -250.2 -93.8P/Book 12.2 13.3 31.0 27.8 30.2

Efficiency 2010 2011 2012 2013 2014Avg Collection Days 21 17 24 9 8Inventory Days 192 128 256 80 71Inventory Turnover 2 3 1 5 5

Issue Identification Is Tesla aiding the problem of electric car adoption, as a result placing itself in a higher

risk position? Should tesla consider switching from its direct sale to consumer model to a more

traditional model of selling via dealerships? Conclusion

Tesla is promoting an alternative fueled auto mobile. Encouraging electric car use by providing infrastructure and innovation to make it more convenient for the consumers.

Tesla is unable to meet customer demand, and this could be a threat to itself. The new investments in the Gigafactory and upgrading of the Fermont factor in California should address these issues.

Differentiating itself form other auto manufacturers by selling directly to consumers via retail stores. Along with new sales tactics by educating the customers rather than force a sale.

Expanding product lines to lower market segments, along with sharing patents to other manufactures should promote the electric car industry.

References

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Musk, E. (2006, August 2). The Secret Tesla Motors Master Plan (just between you and me). Retrieved February 22, 2015, from http://www.teslamotors.com/blog/secret-tesla-motors-master-plan-just-between-you-and-me

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