You are on page 1of 17

By: Sanida Saliovski Sxs129132@utdallas.

edu BPS 4305 June 17, 2013

Saliovski

1. Company Overview Tesla Motors, Inc. develops, manufactures, and sells fully electric high-performance vehicles (EVs) and electric powertrains1. Elon Musk and Martin Eberhard founded the company in 2003 with the idea of using the same lithium-ion technology used in laptops to create a fully electric vehicle. They envisioned an environmentally friendly vehicle that was not only attractive but also fun to drive. By spring 2004, the company raised enough of capital to design its first vehicle. The first Roadster was produced in 2008 and by fall of 2012, the company had sold more than 2,300 vehicles in more than 37 countries.2 Also in 2008, a strategic partnership was entered with Daimler AG and Toyota to develop battery packs and chargers for Daimlers Smart Forthwo EV program, and to develop a powertrain for Toyotas electric RAV4 prototype. In July 2010, the company had its initial public offering (IPO) and is currently being traded on the NASDAQ exchange under the name TSLA. During this timeframe the company also secured a long-term Department of Energy (DEO) Loan to finance their future developments of EVs and powertrains as well as the manufacturing facilities. In mid-2012, the company launched a second model called Model S. Unlike Roadster, which is primarily a luxury sports car; the Model S is a luxury sedan that caters to the car enthusiast that wants more space for a family. 2. Strategic Plan Mission/Vision Tesla strives to bring their customers a variety of electric vehicles without sacrificing the appeal and the luxury of the vehicle they desire. The ultimate mission is to increase the number

Tesla. (2013). Retrieved from http://www.teslamotors.com/about Tesla. (2013). Retrieved from http://www.teslamotors.com/about

Saliovski of affordable electric vehicles available to the consumer and at the same time move forward and constantly innovate. Corporate Goals Teslas goal is to accelerate the worlds transition to electric mobility with a full range of increasingly affordable electric cars. We're catalyzing change in the industry. Tesla vehicles and EVs powered by Tesla are fun to drive and environmentally responsible. (Tesla, 2013) 3. Situational Analysis SWOT- analysis Strength Being the first company in the world to successfully launch a fully electric car has strengthen the brand name. Being able to launch a new product into a market, that is not only eco-friendly, but also looks great and performs well, means that the company is on the right track. Since the successful release if Tesla Roadster 2008, the company has launched another model, called Model S, that is more affordable and designed as a everyday car that can seat up to seven people. This luxury sedan has gotten great reviews for its speed and performance, and has also won The Car of the Year award by Motor Trend. The strength in this case would be that Tesla Motors are not only catering to the hard-core car enthusiasts but also to the average consumer. They are building up the reputation of being one of the most innovative and trustworthy EV car manufacturers in the world that cares about the environment and the costumers driving experience. Weakness Since the launch in 2008 Tesla has created reliable brand awareness of the Roadster model. Every car enthusiast knows about the Roadster. But that is not the case with their newer model, Model S. This model launched in mid-2012 and is targeting a different target segment

Saliovski than the Roadster. So this means that the success of the company depend on these two models that are currently available for sale. With somewhat still a low brand name recognition in the median- income households, the company will have a hard time convincing customers to upgrade to their brand when other companies such as Toyota and Ford offer hybrid cars for much less. Opportunities While the Roadster was mainly aiming rich car devotees that valued performance and looks above anything else, the Model S focuses mainly on customers that are environmentally responsible but still care about the performance and the quality of their vehicle. The Model S supports three seats in the back with the option of adding two child seats facing the rear. With the economy still being somewhat unstable and the gas prices fluctuating day to day, consumers are looking into alternative ways to transportation and travel. With the plans of launching Model X, an SUV type model, and a more affordable unnamed model that will have the MSRP in the $30,000 range, Tesla is in an excellent position to gain a greater market share in the near future. Another factor that plays a big role in Teslas success is the availability to the charging stations available throughout the country. Right now there are only 8 supercharging stations available. It is estimated that by Winter 2013 there should be Coast-to-Coast availability, and by 2015, 98 percent of US and Canada should be covered.3 Threats Tesla believes they have an excellent service program. Because they dont operate from the traditional car dealerships they offer alternatives where the Tesla Rangers make house calls and perform routine service on the vehicles. As the company grows and more cars are being sold to the consumers, being able to offer the same service program might become very pricy in the

http://www.teslamotors.com/supercharger 4

Saliovski future and affect the companys revenues. Furthermore, there is always the threat of competition where companies such as General Motors (Volt), Toyota (Prius plug-in), and Audi (E-Tron) might steal a piece of the market share. 4. Industry Analysis- Porters Five Forces The Threat of New Entrants The threat of new competitors is relatively weak. To be able to enter the Electric Vehicle market a company is required to have a large capital, a strong distribution network and advanced technology in the industry in order to compete in the market. Competitors have to develop the technology first in order to effectively compete with an existing company. Tesla is so advanced in the EV technology that it would be really hard to break into the market and be successful immediately. That is why many automotive companies enter into a strategic partnership with companies such as Tesla. They want to be able to get a piece of the advanced technology without spending years on their own in research and development. The Bargaining Power of Buyers The bargaining power of the buyer is at a low-to-medium. In Teslas case, the buyers might have a low-to-medium bargaining power because the company offers limited information to their consumers. Very little is known about the actual costs of the materials and the batteries used in the production of Teslas vehicles. This gives the buyer a disadvantage in negotiations with the seller. Furthermore, when consumers are required to special order a product, they are less likely to switch to competitors who cannot meet their requests. This affects Tesla positively because they are all about buyer customization. On the other hand, other automotive brands are developing and launching EVs and hybrid vehicles that might give the buyers a larger selection to pick from.

Saliovski The Bargaining Power of Suppliers The high levels of competition make the bargaining power of suppliers low. Having multiple suppliers compete for Teslas business gives the company a competitive advantage and enables them to negotiate a best possible price for the supplier goods. Also, suppliers are reliant on high volume purchases, which give them less of a bargaining power. Tesla can always threaten to cut volumes or use a different supplier. The Threat of Substitute Products and Services In Teslas case there is a limited number of substitutes. Very few automotive companies have devoted their R&D to come up with a brand new vehicle concept. Even if there were a substitute product available it would mean that the substitute is most likely of lower quality and not as attractive to consumers as Teslas products. Tesla has the competitive advantage because they were the first to break through this new market and gain the market share of EVs. The Intensity of Rivalry Among Competitors in an Industry Medium; this is a large industry with high entry barrier. This market sector is relatively small and Tesla targets a niche of car lovers. But this is a fast-growing part of the industry where many competitors are working on a similar product. Because of the innovation and constant technological developments, the intensity of rivalry is guaranteed to change in the near future. 5. External Analysis Economic Factors The 2008-2010 recession affected almost every business in America. Many companies were forced to reevaluate their economical situation and cut back tremendously. Some businesses survived and came out stronger than ever; others filed for bankruptcy. One of the industries that were strongly affected was the automotive industry. The cost of manufacturing a vehicle increased due to many factors, largely because of the fuel and material costs. Today, in

Saliovski addition to higher vehicle prices, the consumers are paying higher fuel prices. Consumers are forced to look for alternatives. Teslas goal is to produce an affordable electric car to the mainstream buyers. Technological Factor The technological factors such as the speed of technological advances are affecting how companies operate and strategize for their future growth. It affects the operations and the overall success of a company because companies are spending more money on research and development. If a company is not up-to-date with the current technology and innovation they risk losing their business. To constantly evolve and become a leader in innovation, a company must dedicate a large amount of their resources to research and development. Tesla is using their technology as a step towards making affordable electric cars for everyone. A great example of Teslas innovative spirit is that they are adding power-charging stations throughout the country so that customers can actually drive their Roadster or Model S from coast-to-coast. The idea is that the Supercharger allows the Model S to travel free from city to city and provide super charging stations where customers can charge their car in less than 30 minutes. 6. Conclusion As markets are known to fluctuate and constantly change, businesses that want to remain profitable must change with them. A successful company always has to be a step ahead of their competitors. In Teslas case, the company is the leader in Electric Vehicle technology. Overall, the consumers are focusing on eco-friendly and money saving alternatives. Driving a Tesla the consumer will still be environmentally responsible, but without compromising on range, performance and design. 7. Internal Environment Analysis

Saliovski Tesla Motors competes in the car industry by selling high-performance electric vehicles and electric vehicle powertrain components (Tesla, 2013) Although the EV concept has not been around for very a very long time, Teslas EV technology is so advances that other automakers are paying Tesla to use their technology to manufacture their own electric vehicles. The company is divided into two separate segments, entailing automotive sales and development service. The automotive sales make up 90% of the companys main revenue and are divided into two subsections, Vehicle, Operations and Related Sales and Powertrain Component and Related Sales (Tesla, 2013). The first subsection consists of sales from their two products, Tesla Roadster and the Model S. The company no longer produces the Roadster, but the car is still sold in the market. The main revenue comes form the sales of their luxury sedan, the Model S. The second subsection designs and produces powertrain systems to other car manufacturers such as Toyota and Daimler. Value Chain Analysis Suppliers and Operations The company purchased a former GM and Toyota factory in Fremont in California. The state-ofthe art manufacturing facility was designed and built to resemble a mega factory like no other. Unlike the traditional car manufacturing plants that is dark with little natural light, Teslas facility is all white and bright, the machinery a striking red, and tons of natural light from skylights and windows. The factory is filled with the most advanced technology, creating an automated production line capable of building tens of thousands of cars. The company has set itself apart by designing and manufacturing their own parts and by producing their most important components in-house. Those components include body, motor, battery packs, onboard charger, universal connector, class A stampings and plastics (AutoNews, 2013). During the production of the Roadster model, Tesla partnered up with Lotus for the suspension and chassis

Saliovski design. Additionally, Teslas strategic partnership with Panasonic enabled the company to use Panasonics battery technology in-house, allowing Tesla to innovate and improve the existing designs. Other smaller components are acquired from supplier such as switchgear from Mercedes, breaks from Brembo, and tires from Continental or Michelin. (AutoNews, 2013). The production of the Model S starts with the motor and the flat battery pack and is then built upwards. With the motor next to the drive wheal, there is no need for the driveshaft so there is no rise under the rear seat. Additionally, there is no fuel tank or transmission so the immense amount of space makes the car feel much more spacious than a traditional sedan. (Appendix B) Marketing This strategic move to bring design and manufacturing in-house enabled the company to sets itself apart from the traditional automakers. Unlike traditional carmakers that outsourced or licensed the majority of their technology, Tesla decided to design and manufacture most of their components in their own facility. This move enabled the company to be more innovative and improve the existing designs as well as implement and oversee quality and cost controls. One of the most important components of Teslas value chain process is that the company has competitive advantage over their competitors because of their direct-to-consumer sales. This approach holds a strong strategic position and advantage over the traditional car manufacturers. By state law, the typical car manufacturer is required to sell their cars to their franchised car dealerships. In Teslas case, the company doesnt have any franchised dealers and is able to sell their products directly to the consumers. They typically sell their cars to customers through their stores and online. The stores are strategically positioned in highly visible, premium outlets in major metropolitan markets some of which combine retail sales and service (Tesla, 2013). This creates unique buying experience that differentiates Tesla from the traditional carmakers and

Saliovski allows the consumer to be fully engaged in the buying process. The customer can customize their car to their absolute liking by either ordering their vehicle online or in store. Sales Currently, Tesla has close to twenty stores and galleries in the United States. They are located all over the country and in states such as California, Canada, Colorado, Florida, Illinois, New York, Virginia and Washington. Additionally, Tesla has galleries in states such as Arizona, Massachusetts, and Texas. Some state laws dont allow the firm to sell cars directly to customers so Tesla set up these galleries for the consumers so that they can come in and view the product openly before they place their order online. Texas is one of these states that dont allow direct to-consumers car sales and Tesla is currently in a legal battle over this issue in Texas. Because of Teslas direct-to consumer car sales there is no need to carry any unnecessary inventory. Small on-site inventory is available in some stores but mostly Tesla purchase starts with a reservation(Tesla, 2013). The benefit with ordering online is that is it quick and easy without any unpleasantness whereas the traditional car buying takes negotiations, time and frustration. Also, with the Tesla experience, the customer knows they paid a fair price since everyone pays the same price. On the other hand, with the Tesla experience there is no instant gratification after purchasing the car. After the reservation, the customer has to wait for the car to be built and delivered. Some might regard this as undesirable in a car company, but this concept allows the Tesla to achieve operating efficiencies and make the car affordable to more consumers. Service (Repair service) Model S is designed to handle most issues on its own through routine software updates. It periodically monitors itself and alerts Tesla in case of an issue and many of these issues can be resolved remotely. In other cases where the car requires in-person attention, the car owner can

10

Saliovski bring the car to a Tesla Service Center, Schedule a Tesla Ranger visit, or have their car picked up in exchange for a loaner with no additional charge (Tesla, 2013) Tesla runs and operates its own service centers and hires and trains their own service technicians. This is part of their hands-on customer service and one of the key differentiations that makes Tesla who they are as a brand. The idea of on-site servicing has its appeal to many consumers but the service program might become too expensive to run if the company grows to fast. Another problem are the service fees the company charges for coming out on a house call. The company charges $1 per mile for every mile that is covered from the service center to the customers home. This service charge can become fairly expensive since the company only has approximately 35 service stations around the country. The plan is to expand and open more service centers within the next few years so that Tesla owners will have the chance to bring in their vehicles to the service center for repair and service. 8. Competitors and Performance Analysis Tesla has a unique business structure that is relatively new compared to its competitors that have been in the auto business for a long time. Main competitors in the high-end EV market are BMW, Audi (E-Tron), and Fiskar (Karma), along with the more affordable Toyota Prius and Nissans Leaf. In this case, Toyota Motors was chosen to be one of the comparable companies due to its similar product offerings and because of different growth risks. The company is a strong competitor to Tesla, controlling a large slice of the market share. Toyota was the first company to mass-produce a hybrid car, claiming a large portion of the environmentally conscious consumer. In Teslas defense, the company has not been around as long as the established competitors and have only recently seen a growth in the market share. The company announced its first-ever quarterly profit in the beginning of 2013. This confirms that Tesla is still in its growth stage and has become the leading innovator of electric vehicles. It is expected

11

Saliovski that the company will deliver 21,000 Model S cars worldwide, surpassing its earlier target of 20,000 vehicles (Seetharaman, 2013). Financial Ratios

(Appendix C ) Most recent comparison with related companies:

12

Saliovski Source: Google Finance 9. Strategic Positioning/ Issues Tesla is currently positioned as a high-performance automaker that develops, manufactures, and sells luxury vehicles and electronic powertrains. As a leading innovator of electric vehicles, Teslas competitive advantage is that the company differentiates itself by delivering the most advanced electric vehicle without compromising the design and performance. Because the initial launch of Tesla Roadster aimed mainly rich car devotees and early rich adopters the companys target market has been relatively small. If Tesla wants to exceed their goal of selling 20,000 vehicles per year, they needs to take this opportunity and focus on a larger market segment. With the plans of launching model X and the affordable Generation III, Tesla needs to capture a larger audience that is interested in energy efficient high-performance vehicle. Teslas ultimate mission is to increase the number of affordable electric vehicles to the average consumer. They are in excellent position to gain a greater market share in the car industry if they continue to move forward and continuously innovate. One way to increase their market share is to stay on schedule and deliver the product in promised time. Delays and technical issues convey a bad image of the brand name, making the consumer believe that the company is not doing their job right. This can potentially mean a loss of revenue because customers are afraid to order the delayed product. Another way to secure a piece of the market share is to continue developing and improving the EV battery. Advanced technology means lower over-all cost, and in Teslas case; lower over-all cost means opportunity to target several market segments simultaneously. A third factor influencing Teslas success is the availability to the charging stations. Being able to charge your Model S anywhere in the country, and not worry about where to charge the vehicle will encourage customers to purchase a Tesla vehicle. As of today, there are only 16 supercharging stations available, making it very difficult to travel the

13

Saliovski country. Many consumers feel restrained to careful plan out their driving route just in case they need to charge their vehicle. By providing more charging stations, environmentally conscious consumers looking into alternative ways to transportation and travel will be encouraged to purchase a Tesla vehicle. 11. Recommendations Based on the suggestions above, the best alternative for Tesla to focus on at present would be to expand the supercharging stations. Currently, there are only 16 supercharging stations available throughout the country, making traveling a bit of a challenge. Tesla strategy is to building a nationwide network of Supercharger stations that will allow Tesla owners to travel for free between cities (Tesla, 2013). The location of the charging stations would be near amenities such as roadside diners, cafes and shopping centers, making it convenient to stop for a quick charge. By end of 2013, customers should be able to travel from coast-to coast without any problems (Tesla, 2013). By adding more charging stations it will make it more convenient for the average consumer to drive and own a Tesla car. With complete coverage Tesla consumers can travel in style without compromising the environment or vehicle performance. Coverage:

Today 16 stations

End of 2013

By 2015 98% of the US population and parts of Canada4


4

Tesla. (2013). Retrieved from http://www.teslamotors.com/supercharger

14

Saliovski Work Cited:

Davies , A. (2013, May 30). Maps. Retrieved from http://www.businessinsider.com/maps-ofteslas-supercharger-network-2013-5 (Davies , 2013) About Tesla. (2013). Retrieved from http://www.teslamotors.com/about Seetharaman, D. (2013, June 05). Elon musk blasts car dealers for hurting industry read more: http://www.businessinsider.com/elon-musk-wants-tesla-to-sell-direct. Retrieved from http://www.businessinsider.com/elon-musk-wants-tesla-to-sell-direct-2013-6 FAQs. Tesla Motors. Retrieved from http://www.teslamotors.com/learn_more/faqs.php BusinessInsider (2013) Retrieved from http://www.businessinsider.com/blackboard/tesla#ixzz2WaZrEQ80 AutoNews (AutoNews, 2013) Retrieved from http://www.autonews.com/assets/PDF/CA843311210.PDF Financial Ratios & graphs (2013) http://ycharts.com/companies/TSLA/current_ratio http://ycharts.com/companies/TSLA/return_on_assets http://ycharts.com/companies/TSLA/price_to_book_value http://www.google.com/finance?cid=12607212 Seetharaman, D. (n.d.). Retrieved from http://finance.yahoo.com/news/tesla-first-quarter-profittops-000522232.html

15

Saliovski Appendix A

Appendix B

Appendix C Teslas Basic Financial Ratios

16

Saliovski

Tesla's Current Ratio


4 3 2 1 0

1-Jun-11

1-Nov-11

1-Aug-10

1-Mar-10

1-May-09

1-Apr-12

1-Dec-08

1-Feb-13

1-Sep-12

1-Oct-09

1-Jan-11

TSLA Current Ratio Range, Past 5 Years5

TSLA Current Ratio Benchmark Companies Toyota Motor Ford Motor General Motors TSLA Return on Assets Benchmarks Companies Toyota Motor Ford Motor General Motors 1.068 2.789 1.295

Minimum 0.3574 Maximum 3.478 Average 1.780

Dec 2008 Sep 2010

TSLA Return on Assets Range, Past 5 Years6

Minimum Maximum Average

-67.58% -32.04% -50.63%

Sep 2010 Mar 2013

3.03% 3.13% 3.61%

TSLA Price / Book Value Benchmarks 31-Mar-13 31-Dec-12 30-Sep-12 30-Jun-12 31-Mar-12 31-Dec-11 30-Sep-11 30-Jun-11 31-Mar-11 31-Dec-10 30-Sep-10 -32.04% -47.45% -51.55% -47.53% -45.74% -44.58% -44.83% -49.80% -59.98% -65.87% -67.58% Companies Toyota Motor 1.505 Ford Motor 3.816 General Motors 1.826 TSLA Price / Book Value Range, Past 5 Years7 Minimum Maximum Average 6.552 92.27 24.79 Aug 22 2011 Jul 29 2013

5 6

http://ycharts.com/companies/TSLA/current_ratio http://ycharts.com/companies/TSLA/return_on_assets 7 http://ycharts.com/companies/TSLA/price_to_book_value

17