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The Tesla Phenomena

A Business Strategy Report

Sonali Sharma

MBA University of Roehampton

May, 2016
CONTENT

A. STRATEGY RECOMMENDATIONS AND EVALUATION SUMMARY

B. BUSINESS STRATEGY REPORT

1. The Tesla Story

2. Defining Tesla Strategy

3. Analysis and Evaluation of Teslas Strategy

4. Analysis of Teslas Business and Revenue Model in accordance


with their innovation strategy

5. The CSR Score

6. Teslas Performance Frontier Analysis

7. Strategic Position analysis

8. General External Ecosystem Analysis

9. Stakeholder Analysis

10. Porters Competitive Force Analysis

11. Internal Environment VRIOS Analysis

12. SCOT Analysis

13. Implementation is Critical

14. Concluding Thoughts


PART A

STRATEGY RECOMMENDATIONS AND EVALUATION SUMMARY

The strategy of Tesla, as shared by Elon Musk, the CEO and founder of Tesla Motors is to enter at the
high end of the market, where customers are prepared to pay a premium, and then drive down market as
fast as possible to higher unit volume and lower price with each successive model (2006).

TESLA STRATEGY AND PRODUCT EVOLUTION

2008-12 2012 2014 2015 2017


1. Market entry with 1. Market penetration 1. Launch of Model X: 1. Market development
1. Expansion
high price low volume mid-price mid volume. Electric crossover vehicle. Low price High Volume.
through Giga
2. Launch of Roadster Factory and 2. Announcement of Model
2.Launch of Model S- 2. Model 3: affordable
first fully electric partnerships with 3 mass market model.
fully electric sedan fully electric Sedan
sports car Daimler, Toyota and
3. Base Price $69,900 Panasonic. 3. Launch of Powerwall 3. Base Price $35,000
3. Base Price $1,09000 rechargeable battery

Firms clearly defined strategy, aligned with their mission and vision has offered a competitive advantage
and has helped Tesla emerge as a potential leader in the Electric Vehicle Industry (Collis & Ruckstad,
2008). Teslas commitment towards design, engineering, software and technology innovation is evident in
its past offerings, especially in Model S, the vehicle that won the Motor Trend car of the year award.
Equally strong is companys commitment to service excellence through Super Charger networks and
battery swap facility. Tesla took their belief in open innovation to a new level by opening their patents to
the industry and by forming strategic alliances with industry leaders like Panasonic, Daimler, Toyota and
Solar Edge, to name a few. Such collaborations served as a strong strategic move to foster innovation and
growth (Lakhani et al, 2013).

Despite leadership and pioneering benefits, a blue ocean innovation driven disruptive organization like
Tesla is still unprofitable and would need a lot more time, money and patience to achieve financial success
and business sustainability (Kim & Mauborgne, 2004). Teslas current valuation of $25 billion market
capitalization is based on future predicted success and the company is again open for raising funds for the
production of Model 3. Elon Musks courageous expansion strategy that led to the investment of $3 billion
in robotics and $5 billion in Nevada Giga Factory is a risky approach. The company is also incurring losses
in the production of Model 3 cars as the offered price is based on the volume productions at Giga Factory
which is a few years away from reaching its full production capacity.

Tesla currently has a huge task of successfully completing the production of Model 3 orders and companys
future success and strategic goals would depend a lot upon this. As a part of conducting this Business
Strategy Study on Tesla, I conducted the General Ecosystem PESTEL, SCANSTEP and Porters
competitive force analysis followed by the VRIOS internal environment and SCOT analysis to analyze and
evaluate Teslas strategic goals, positioning and actions (Pitt & Koufopoulos, 2012; Porter, 2008; Shulz,
2013). Listed below (in order of priority) are the strategy recommendations for the company.

1. Focus all energies towards Model 3 production: With 3,73,000 existing orders (as reported by
The Week on 19th May 2016), it is imperative for Tesla to create a production strategy for successful
and timely completion of these orders. Raising funds, expansion of production place, Giga Factory
battery production plan, training in production line and assembly are few suggested actions towards
this goal. Hiring Audi veteran, Peter Hotchholdinger as head of production is a good move. I would
suggest Tesla to outsource battery production for Model 3, as Giga Factory being a new setup might
take more time to deliver. Since time is extremely crucial, Tesla must create an action plan to
accomplish above and achieve the annual target of completing the production of 2,00,000 Model 3
cars this year.

2. Revisit Business Model to generate higher revenue and profits: Teslas existing business model
is based on direct sales to the customers through company owned stores. The company needs to
revise their Business model and make it conducive to global expansion. Teslas direct selling to
customers strategy is based on their need to educate the customers about the product and to provide
them with exceptionally good service. However, to meet the expansion targets in emerging
economies, this strategy is expensive and challenging. Partnering with the right people combined
with training can ensure maintenance of existing culture in distant stores. A Global distribution and
franchise network would help them capture new markets. Moreover, Tesla is not yet profitable and
expansion plans have led to huge investments making profits more difficult. The new Business
Development model must be focused on generating immediate profits by aggressively selling all
existing and new offerings: Model S, Model 3, Powertrain technology and other EV tools.

3. Need for a comprehensive Marketing strategy: Tesla needs a comprehensive marketing strategy
for proper positioning and sales of different offerings. A global integrated marketing strategy for
creating a consistent brand image combined with culture and market based campaign for various
existing and new products would be needed. Needless to say that all campaigns must capitalize
upon the green and sustainable energy aspect of the product offerings. Considering Ansoffs matrix
(as shared below) to devise a holistic marketing strategy would be a good move (Jobber &
Chadwick, 2013).
ANSOFFS MATRIX FOR DEVISING A MARKETING STRATEGY FOR TESLA
MOTORS.

PRODUCTS

PRESENT NEW

Market Penetration Strategy Product Development Strategy

Plan for Business Development and Plan for BDM and market acceptability test
Marketing of existing products in the existing for new products in existing US and European
USA and European markets. markets.
PRESENT

Products: Model S, Powertrain technology, Products: Model 3 and Powerwall


EV tools Model 3 marketing plan focused on middle
Aggressive Marketing strategy focusing on class segment positioning it as the best
innovative promotional campaigns, different offering for middle class from the luxury
pricing strategies, increase in distribution brand Tesla. Capitalize on the aspirational
channels. value of the brand and Model S.
Powerwall sales plan in homes as well as
commercial spaces.
MARKETS

Market Development Strategy Market / Product Diversification Strategy

Plan for Business Development and Model 3 focused marketing and sales plan in
Marketing of existing products in new emerging economies. Culture based
markets India and China advertising campaign focused on creating
Products: Model S brand awareness, and competitive advantage
Marketing strategy focused on high end against similar priced sedans like BMW3,
NEW

luxury market segment and environment Audi A4, Mercedes C etc. Association with
conscious market segment. Advertising celebrities for ad campaign will help in Indian
campaign focused on education around markets.
product and positioning it as an aspirational Use Powerwall as a CSR tool in developing
product with great status value. economies to build a good brand image and
trust.
4. Focused effort on battery R&D to reduce cost and increase profit: Teslas profits and market
success depends upon the efficiency and cost of its batteries. They must have an undivided R&D
focus towards further improving the battery efficiency and decreasing the battery production cost.
Quick setup of Giga Factory and running it in its full capacity is important for cost reduction.
Therefore, an integrated business plan that generates business worth $5,00,000 car sales per annum,
complemented by battery production at Giga Factory will do the magic.

5. Capitalize on Powerwall: Teslas Powerwall home battery creation is an amazing product for
electricity backup. This product can be of immense use in homes of developing countries where
continuous electricity supply is an issue and also in various commercial sectors. Tesla must create
an exclusive business plan for marketing and sales of this product.

These strategy recommendations are aligned with the companys existing mission and would further enable
Tesla to achieve their long term and short term goals. Tesla being a smart Silicon Valley company and with
Elon Musk as its leader has immense potential to raise capital and so I dont see funding as an issue for the
organization. From implementation perspective, Teslas biggest challenge is to achieve production success.
Tesla so far has never attempted such huge production targets, and their past production issues with Model
S further wavers the market belief in their production capability. Electric vehicle being a niche market,
would not forgive any production and delivery failures. Therefore, Teslas future depends a lot on the
successful implementation and accomplishment of production goals.

I also believe that having a more integrated approach towards business growth and marketing along with
production and innovation would be a better strategy for success. Being a socially responsible green
initiative makes Tesla a CSR and ESG favorite, and a rigorous sales plan for selling all the existing offerings
vehicles, powertrain technology, as well as Powerwall will make Tesla a stakeholder favorite as well.

Teslas long term strategy projects it as an energy innovation company with a much larger scope than an
automobile company. Teslas innovation strategy resonates Innovative Persistence. Initiatives like Tesla
Energy, connecting electric cars with large scale renewable power and Tesla Solar City, providing the
renewable power are true examples of an all-encompassing strategy that will drive Tesla towards a culture
of innovation persistence (Clausen et al, 2012).

Teslas path breaking products, policies and technologies driven by their transformative vision and
collaborative approach truly depicts a culture with strategic intent (Hamel and Prahalad, 2005). The
companys goals are inspired by a future that is sustainable and that makes this world a better place.
PART B

BUSINESS STRATEGY REPORT

Innovation and Sustainability are two crucial drivers that distinguish a good company from a great
company. A company whose strategy is well grounded in both these aspects is Tesla Motors Inc. Named
after the pioneer of Alternating Current, Nikola Tesla, Tesla Motors is a Silicon Valley company with a
mission to accelerate worlds transition to sustainable transport (teslamotors.com/about). The company
envisions to trigger an electric transport revolution by being a global leader in electric vehicle industry and
by making electric vehicles a lucrative automobile industry both commercially and technologically.

1. THE TESLA STORY

Tesla Motors was founded in 2003 by a group of engineers in Silicon Valley with a mission to accelerate
the development of sustainable transport industry by bringing compelling high performance green cars to
the market. With instant torque, incredible power and zero emissions, Teslas offerings are undoubtedly
some of the most innovative high performance cars in the world.

Tesla Motors use proprietary technology, exceptional designs and highly automated manufacturing process
to create high performance electric vehicles. The company launched its first car, Tesla Roadster in 2008.
Roadster set a new milestone for electric cars due to its sports car performance, acceleration from 0 to 60
mph in 3.7 sec and running 245 miles per charge of battery.

In 2012, Tesla launched Model S, worlds first premium electric Sedan. Model S with its exceptional
technology, breathtaking aesthetics and high performance standards was named Motor trends 2013 Car of
the Year. It also achieved a 5-star safety rating from the US National Traffic Safety Administration.
After successfully selling around 50,000 vehicles, Tesla is prepared to launch Model X the crossover
version by 2015 and Model 3 the cheaper model for mass markets by 2017. The companys out of the
box customer service model with innovative service plan, supercharger stations and battery swap features,
makes Tesla an all-rounder, i.e. innovative technology and service company.

The company is expanding its manufacturing and sales across the world. Their giant battery plant called
Giga Factory has an ambitious plan. The plant by 2020 aspires to produce more lithium ion cells than all
of the worlds combined output in 2013.

Tesla proudly ranks at No.1 in the Worlds Most Innovative Companies List by Forbes 2015 ranking.
The companys founder and CEO, Elon Musk believes that Tesla is not just an auto manufacturing firm.
He envisions Tesla as a technology and design company that aims at making sustainable energy available
to the world.

2. DEFINING TESLAS STRATEGY: The High end disruptive innovation model

A classic disruptive innovation theory focusses on low end, price sensitive customers and inferior
technology. Elon Musk, the cofounder and CEO of Tesla Motors calls Tesla a High end disruption
innovation model. This innovation model creates products that perform better than existing products, sell
at a premium price and initially focus on high end, least price sensitive customers before they target
mainstream markets (Dyer & Bryce, 2014). Products like Apples iPod and Starbucks expensive drinks
are few such examples. After entering the market with a high end product and waiting for acceptability,
Tesla intends to penetrate the cost conscious market. In 2006, when Elon Musk was asked about their
strategy, he stated: the starting point is a high performance sports car, but the long term vision is to build
cars of all kinds, including low cost family vehicles. Teslas expensive Model S & X will be followed by
a cheaper Model 3 for the mass market segment. Model 3 will be launched by 2017 and will focus on Asian
and other unexplored market segments as well. As per Elon Musk (2006), any new technology is launched
with high cost unit and is later optimized at a lower more effective pricing.

DISRUPTIVE INNOVATION

Tesla Model S 85 KWH battery


pack (265 miles, 2013)
Tesla Model S 60 KWH battery
pack (208 miles, 2012)

Performance demanded by the market

BMW i3 (100 miles; 2013)

Toyota RAV4EV (83 miles, 2012)

Mitsubishi i-MiEV (62 miles, 2010)

Teslas performance and positioning clearly displays strategic intent. Teslas aspirational yet consistent
strategy combined with leaderships commitment and out of the box approaches like collaboration and
open patents have truly fueled its success (Hamel and Prahalad, 2005). Teslas long term strategy focusses
on Global Expansion, Strategic Partnerships, Technological innovation and gradual shift from High Price
Low Volume to Low Price High Volume

3. ANALYSIS AND EVALUATION OF TESLAS STRATEGY

Blue Ocean in true sense!

The Blue Ocean Innovation strategy framework compels organizations to create a new demand in the
market and venture in a new market space by creating innovative products or services at comparable or
lower costs and higher efficiency, thus making competition irrelevant (Kim & Mauborgne, 2004).
Tesla Motors has been successfully innovating with a blue ocean strategy, aiming at solving the
environment and energy concerns caused by oil dependent internal combustion engines and creating a
sustainable and better technology for transport. The company not only aspires to achieve technological
excellence but also aims at creating an exceptional out of the box customer experience for their clients.

In traditional red ocean market space, green motors or electric cars have been relegated to the realm of
low speed reliable cars, hence catering to a very small market segment that truly values the green aspect of
the car. Tesla, with its blue ocean strategy, has combined the features of green motors with premium sports
car, i.e. a fast electric car with zero emissions. Tesla motors is far ahead of any competition with its
proprietary technology and high performance products. It has created a new market space - Green
Performance Automobiles. This is blue ocean innovation in true sense!

Elon Musk, the founder and CEO of Tesla Motors aimed at building the best car in the world. Teslas
Model S, the worlds first all-electric premium Sedan, offers a weeks worth of driving with a single
charge, boasts of fast speed, beautiful aesthetics and high safety standards. The car was named the Motor
trends 2013 Car of the Year in 2013 and also achieved a 5-star safety rating from the US National Traffic
Safety Administration. The cars proprietary Powertrain technology will be the basis of Teslas next two
cars Model X and Model 3.

The revolutionary Open Patent Move.

On 12th June 2014, Elon Musk announced that all our patents belong to you. He said that the companys
mission is to develop sustainable transport industry and reduce carbon footprint. To realize their mission,
they would adopt an open source philosophy with their intellectual property. Such a courageous and
revolutionary move makes Tesla a responsible global leader that is pioneering the much needed change for
a better and sustainable tomorrow.

Thousands of Super charging stations across the world.

Tesla has strategically placed Supercharger stations where car owners can plug in for free and ride for
another 270 km with just 30 min of charging.

The most useful and economical Battery Swap facility

A common concern that prevents people from purchasing an electric car is the probable investment in
changing the battery in coming years. Teslas robotically automated Battery Swap stations is an answer to
this problem. With open patents, battery swapping would not only offer solutions to competitors but also
become a new revenue source for service stations (Halla, 2015). This innovative facility is a win win for
customers, competitors, service stations and above all Tesla. Indeed, a marvelous growth for all approach!

Collaborations for better innovation and faster solutions

Technology companies have time and again proved the relevancy of crowd sourcing, collaborations and
alliances with external resources for better innovation (Paik & Chang, 2014; Lakhani et al, 2013). Tesla
truly imbibes Open Innovation philosophy and has always been open to collaborate with strategically
important companies. Tesla collaborate with Panasonic in 2010 to accelerate the development of next
generation EV cells. In 2015, Tesla collaborated with Solar edge to offer distributed PV storage solutions
to the global market. Such alliances with industry leaders is a wise strategic approach to create better
innovations at a faster pace and achieve industry dominance. Teslas previous partnership with Toyota
served a similar purpose.

Creating Competition

Tesla follows a sustainable innovation approach offering better performance, environmental friendly
vehicles at a higher cost. Currently, Teslas market is focused on niche customers who prefer green cars
over gas powered cars. Therefore, it does not have a lot of competition. All electric vehicles accounted for
just 119,710 of the 16.5 million automobiles sold in the U.S in 2014. Automobile manufacturers are not
investing in Electric Automobile industry considering there is no existing market for it. This Red Ocean
approach allows them to minimize risk and focus on the products they are selling. This approach is likely
to change once Teslas Model 3 hits the road. Model 3 is the companys cheaper version of electric car.
Priced at just $35,000 and with a performance of up to 62mph, Model 3 will compete with cars like Audi
A4, BMW3 series, Jaguar XE, Lexus IS and Mercedes C- Class.

Architectural innovation difficult to imitate

Even though competitors might be able to imitate Teslas battery since Musk has opened the patterns, still
the architectural innovation will make imitation very difficult. Teslas vertically integrated fully automated
robotic plants make their car assembly very different from a general car assembly. This imitation challenge
gives advantage to Tesla and helps it achieve dominance in industry.
4. ANALYSIS OF TESLAS BUSINESS AND REVENUE MODEL IN
ACCORDANCE WITH THEIR INNOVATION STRATEGY

The Electric Vehicle industry involves innovation in vehicle, battery as well as infrastructure to support
the vehicle functioning and service (Chen & Perez, 2015). The Tesla Motors business model involves value
creation through complete control over production, selling and servicing.

Direct sales to the customers helps Tesla enhance customer sales experience and eliminates the
hassle of dealing with the distributors. This also minimizes the risk of bad sales or bad services by
distributors (Zucchi, 2015).
Service experience: Teslas service plus, Tesla ranger and Supercharger stations concept
provide free charging and home service options to the customers. The connectivity features also
offer online service options (Zucchi, 2015).

As per a recent report by International Business Times, Tesla generated $4 billion revenue in 2015 which
is an increase from $3.2 billion revenue in 2014 (Young, 2016). However, Tesla incurred a loss of $888.7
million or $6.93 per share in 2015 (Young, 2016). The company is losing around $4000 operationally in
the production of each car. The companys dependence on continuous innovation forces it to invest in
R&D. The infrastructure costs and free Super Charger and Battery Swap facility also negatively impacts
revenues. Moreover, the investment in robotics to achieve production excellence and Giga Factory to
maximize battery production and reduce cost has made it difficult for Tesla to earn immediate profits. If
the companys strategy of building 5,00,000 cars annually and running Giga Factory in full capacity by
2020 is achieved, then they will be in a position to turn the tables and earn respectable profits.

5. THE CSR SCORE

The age old gasoline-powered internal combustion engine has raised some serious concerns about
environment and human health. Moreover, dependence on oil which is a non-renewable source of energy
has exposed customers to volatile fuel prices. Tesla believes that their innovative Powertrain technology is
the real answer to these problems. Electric transportation vehicles are the future of automobile industry.
Tesla Motors mission to develop sustainable transport industry is a much needed green innovation. The
company creates environment friendly, no emission all electric vehicles and this makes Tesla a Socially
responsible initiative. The companys stable strategy that is consistent with its green mission displays a
socially responsible intent and approach. Teslas Open Patent move that makes all its patents available to
the world also displays the companys commitment towards overall development of the electric vehicle
industry.

Tesla does not rate very well on Gender equality and Diversity in workforce and must improve these
scores for a much balanced employee base and a better CSR score (CSR Hub, 2016). Despite this the
company offers a safe work environment and has a progressive culture that offers equal opportunities to
gay and lesbian couples. The company rated 51 overall for Community Involvement ratings according to
CSR Hub. Apart from the positive environmental effects of the Tesla offerings, the Model Ss
exceptionally good score in safety ratings makes it an ideal option for the community. Teslas CEO, Elon
Musk is the real force behind the companys vision, mission and innovative strategy. The companys
winning elements disruptive offerings, innovative strategy, stakeholder network, strategic
collaborations, government funding, stand with patents and competition etc. can be attributed to Elon
Musks vision and action. As a socially responsible initiative, Tesla Motors is pushing the automobile
industry towards a sustainable future, thus making this world a better place.

6. TESLAS PERFORMANCE FRONTIER ANALYSIS

ESG Programs in a company must improve the financial performance. Companies with a sustainable
innovation strategy can ensure improved performance in both areas ESG as well as Finance (Eccles &
Serafeim, 2013).

Tesla motors received the Global Green USA Product / Industrial design award in the year 2010. Tesla was
awarded for developing Tesla Roadster, the worlds first all-electric, Lithium ion battery powered sports
car. The Global Green award recognized innovations that positively impact our sustainability by making
this world a safer, healthier and secure place.

Presented below is the Performance Frontier Analysis for Tesla Motors Inc.

Identifying material ESG issues: Identifying important ESG issues that will have direct impact on the
companys financial performance and sustainability is crucial (Eccles & Sarafeim, 2013). A per the
Sustainability Accounting Standard (2014, SASB) for Automobiles, the material ESG issues for
automobile industry are:
Material efficiency and recycling
Product safety
Labor relations
Fuel economy and use-phase emissions
Material sourcing
Tesla motors mission is to accelerate the worlds transition to sustainable transport. Transportation
causes Global Green House gas emissions and air pollution that cause considerable damage to our
health and environment. With Fuel economy and use-phase emissions as a material ESG issue for
automobile industry, Teslas zero emission green products are a perfect innovation. Increasingly
stringent emission standards are pushing auto industry to innovate and design electric vehicles. Tesla
Motors with its Model S and upcoming model X and 3 is a pioneer in designing, developing,
manufacturing and selling the first all-electric sports car.

ESG and Financial Performance: Tesla Motors is currently producing and selling Model S Sedan.
Model S deliveries started in June 2012 and the company delivered 56,768 vehicles by Dec 31st, 2014.
Apart from Model S, the company continues to develop Model x crossover vehicle with deliveries
commencing in 2015 and Model 3 lower priced Sedan for mass market in 2017.
As per the companys annual report (2015), In 2014, Tesla did a total revenue of $3.20 billion and a
gross margin of 27.6% which was significantly more than the gross margin of 22.7% in 2013. The
company attributes higher vehicle production volume, supply chain efficiencies and component cost
reduction for higher gross margin. Tesla anticipates huge demand for Model S and X and are executing
a plan to produce over 2000 units per week. They are also focusing on continuously lowering the
manufacturing cost. They expect to deliver approximately 55,000 Model s & X vehicles worldwide by
2015. To support these vehicles, the company plans to expand the Supercharger and service
infrastructure worldwide. Teslas Model 3 which is intended to release in 2017 is a lower cost Sedan
for capturing the mass market segment. Teslas Giga factory for Lithium battery production is another
milestone in which the company invested over 5billion dollars. Although the Giga factory is an
important step towards achieving companys ambitious production goals with Tesla Motors as well as
Tesla Energy, but it is a long journey before it becomes financially profitable for the company.

Innovation in Product and Services: Tesla tops the list of the worlds most innovative company
ranking by Forbes in 2015. As a company it has demonstrated sustainable innovation in its mission,
technology, products, company policies as well as services.
Companys mission to make sustainable energy available to people is an innovative and ambitious
mission. Its proprietary battery and powertrain technology is a revolution in transport industry.
Designing and producing worlds first all-electric sports car that also wins the car of the year title is
one of the greatest innovations. Open Patents show innovation in company policies and the companys
customer focused service and charging facilities talk about innovation in service.

The table below summarizes Teslas innovations:

PRODUCT INNOVATIVE FEATURES


Tesla Roadster - First high performance electric sports car
- Can accelerate from 0 to 60 mph in 3.7 sec
- Speed: 120 miles per hour
- Range of 245 miles on a single battery charge

Model S - Fully electric, 4 doors, 5 adult Sedan with compelling range and
performance
- Zero tailpipe emission
- Range of 265 miles on a single charge
- Fast charge at supercharger facilities
- Modular battery pack that can be swapped at service center.
- Premium luxury features like 17-inch touch screen driver
interface, advance autopilot system with safety features like
collision warning, automatic braking and traffic aware cruise
control.
- Advanced wireless connectivity and climate control system
Model X - First vehicle developed by leveraging Model S technology
- Space and functionality of Sport utility vehicle with high
performance features
- Fully electric and all-wheel drive dual motor system

Model 3 - Third generation electric vehicle at lower price point for mass
market.

Stationary energy storage - The SES systems are used in homes and commercial sites for
applications power backup, peak demand reduction, demand response and
wholesale market services

Powertrain development and - Tesla designs, develops, manufactures and sells electric vehicle
sales power train components for other automobile manufacturers.

TECHNOLOGY INNOVATIVE FEATURES


Battery Pack Technology - Tesla designs high energy, safe and reliable lithium battery packs
at a lower cost.

Power electronics - Teslas power electronics technology manages the flow of


electrical current throughout the car.

Vehicle control and - Teslas in-house vehicle control and info software is used to
Infotainment Software optimize performance, customize vehicle behavior and control
infotainment functions.

Vehicle design and engineering - Teslas state of the art manufacturing unit is fully automated with
robotics.
- The complete in-house integration of vehicles through robots is
an architectural innovation making Tesla creations difficult to
imitate.
- The team has core competencies in computer aided design and
crash test simulations to reduce the development time for new
models.

SERVICE INNOVATIVE FEATURES


SUPERCHARGER NETWORK - Tesla has strategically built a network of Supercharger stations
throughout North America, Europe and Asia for fast charging of
Model S and future Tesla vehicles. This is a great strategic move
to break the perception of limited vehicle range and to make free
charging access available to Tesla users across the world.

Stakeholder Communication: Tesla Motors annually files a proxy statement with the U.S securities
and exchange commission. This proxy material is available to all stakeholders over internet. The
stakeholders are informed about the company events, proceedings, wins and losses through this Proxy
statement and this helps the stakeholders take informed company decisions. All the stakeholders are
invited for the annual meet and can also cast their vote over internet. As shared by Peters, an airline
pilot and a shareholder in Tesla, the shareholders spend a lot of time together to achieve resolution and
take the appropriate decisions (Young, 2015).

7. STRATEGIC POSITION ANALYSIS

Successful companies have a clearly defined strategy, supported with their unique value proposition (Collis
& Rukstad, 2008). The strategy of Tesla, as shared by Elon Musk is to enter at the high end of the
market, where customers are prepared to pay a premium, and then drive down market as fast as
possible to higher unit volume and lower prices with each successive model (2006). The above
mentioned strategy statement is comprehensive as it clearly defines the companys objective, scope and
means to accomplish the objective (Collis & Rukstad, 2008). Although Tesla is not yet profitable, the
companys jump in revenue, increase in gross profit margins and the predicted success of Model 3 (based
on existing pre orders), suggest that Teslas steady strategic approach has offered advantage. The
companys actions are aligned with their mission and long term strategy. Tesla understands that its value
proposition lies in its proprietary disruptive technology. Hence, to keep up the growth all free cash flow is
plowed back into R&D to drive down the costs and bring the follow on products to market as fast as
possible. When someone buys the Tesla Roadster sports car, they are actually helping pay for development
of the low cost family car with competitive innovative technology.

Teslas technological innovation based blue ocean strategy has potential but so far has been very expensive.
They remain unprofitable, are still losing money on each car and $5 billion investment in Giga factory has
not gone down well with all stakeholders. The company intends to tremendously bring down production
costs once the Giga-factory works in full capacity but that requires patience. The current valuations
supporting the $25 billion market capitalization ae based on future expectations. Therefore, despite being
the technological pioneer and global leader in the electric vehicle industry, Teslas remains a speculative
stock.

I personally think that the high end disruptive strategy of entering through premium customer base, creating
an aspirational brand and then targeting the mass market segment by launching an affordable yet elegant
product is a strong strategy. However, I think a $5 billion investment in a Giga factory at this stage when
the company is not yet profitable is a risky step. Outsourcing and collaborations for mass battery production
would have been a safer approach. Currently Tesla is selling only through its own stores and services
through its owned super charger and battery swapping stations. With global expansion and volume sales
strategy on cards, it is important for them to look at franchising and partnership options for sales and
service.
Tesla has a mammoth goal of achieving a considerable market share before any new imitation or
competition hits the market (Dyer & Bryce, 2014). Musks goal of creating and selling 500,000 cars in a
year needs to be realized and a lot rides on the Model 3 car. If Tesla cannot achieve its ambitious goals it
could still emerge as a successful niche player in the performance green motors industry without creating
much competition / interest from the big players like Toyota, GM or Ford. However, if its strategy and
business model is a success, then with considerable market share and lack of good imitation, Tesla could
create some real change in the automobile industry leaving the big sharks behind (Dyer & Bryce, 2014).

So far I have presented Teslas strategic positioning along with an analysis of strategic actions and
ESG. The rest of the paper is focused on conducting various external and internal environment
analysis to understand, evaluate and recommend strategic moves for the organization.
8. GENERAL EXTERNAL ECOSYSTEM ANALYSIS AND STRATEGIC
IMPLICATIONS FOR TESLA MOTORS, INC.

Competent enterprises rely upon Macro Environment analysis for effective strategizing (Pitt &
Koufopoulos, 2012). General Ecosystem analysis like PESTEL and SCANSTEP not only help the
organizations to understand the positive or negative influence of external stakeholders but also lays down
the path for prioritizing issues, assessing risks, evaluating goals and understanding markets as a whole (Pitt
& Koufopoulos, 2012).

Presented below is the Macro Environment analysis for Tesla Motors Inc. I have taken inputs from Tools
for Tracking Your Strategic Thoughts; companion to spreadsheet provided by the University (Schulz,
2013) along with the PESTEL and SCANSTEP analysis framework mentioned in the book Essentials for Strategic
Management (Pitt & Koufopoulos, 2012).

GENERAL FORCES POSSIBLE INDICATOR ASSESSMENT


DESCRIPTION

LEGISLATION AND REGULATIONS (GOVERNMENT): Electric Vehicles being


environment friendly invite a lot of Legislative and Political support across the world.

Environment Global concerns about pollution Tesla was awarded $465 million
Regulation and and climatic changes has led to the dollars in US energy department loans
Political support. creation of stringent federal and to develop and build Electric Cars
state level policies for improving (Eisenstein, 2013). The company has
air quality and lowering the also received Millions of Dollars of
emission of greenhouse gases. The direct funding from California and
Energy Independence and Security indirect revenue generation through
Act of 2007 and Corporate selling Cal zero emission vehicle
Average Fuel Economy (CAF) credits to other auto companies
have steered USA towards (Weinberg, 2013). The various
increase in production of clean incentive programs from US
renewable fuels, promote research government like Advanced Battery
and improvement in green Loan Guarantee Program, Advanced
performance, hence promoting Technology Vehicles Manufacturing
access of loans and grants to Auto (AVTM) Inc. program and Energy
manufacturers producing Electric Storage Competitiveness have
Transport technology (KPMG offered great deal of advantage to
International Cooperative, 2010). Tesla Motors for technology R&D
and production first high performance
electric sports car. These regulations
not only made financing easier for the
company but also exhibit a
unanimous support from the
government for the success and
development of the company.

Political support in the form of Tesla customers get Federal Income


Tax and rebates. tax credit as a rebate for the purchase
of each Tesla vehicle. These rebates
aim at incentivizing the purchase of
green vehicles.

Selling cars through Auto Tesla Motors sells cars directly to the
dealership vs directly to the customers as it believes that auto
customers dealership harms the customers and
direct selling helps them to educate
the customers of their product. IT is
facing challenges to follow this
business model. Whereas in some
states it is selling directly to the
customers, other states with strong
auto dealership hold are not allowing
Tesla to sell its cars. This is affecting
the company sales. The company
must revisit the merits / demerits of
this plan and consider franchising
options based on the global expansion
goals and overwhelming response for
their latest Model 3.
SAFETY OR OSHA OSHA safety regulations for the Citations were issued to Tesla Motors
REGULATIONS automobile industry demands Inc. by Cal/ OSJA for 6 serious and 1
factories to follow the safety general OSHA violation. The lack of
regulations for employee and periodic inspection of Die Casting
environment safety. machine resulted in injuries to 3
employees. Employees were not
trained in the hazards of using the
machine and the machine was not
serviced. There was a penalty of
$89000 on the company. The
company must abide by all OSHA
regulations. The hiring of Safety and
Regulations officer to handle all this
is a good step.

CUSTOMER Tesla collects data on driver usage


PRIVACY and sends over the air updates to
PROTECTION vehicles operating system. Although
LAW the company assures that the data is
protected and is used solely to
improve user experience and solve
tech issues, but it could face future
privacy laws related issues. Today
when user security is becoming a
primary concern with the online and
cloud industry, the company needs to
be at the top of their game in this
matter.

ECONOMIC CONDITIONS: Electric vehicles being a disruptive new technology, creates a


variety of economic development challenges and opportunities.

FUEL IMPACT According to U.S Energy Tesla has the future potential to
Information Administration, 80% provide a boost to national economy
of cost of gallon of oil income due to non-dependency on oil. Sales
leaves the local economy and the so far show that electric cars industry
inflation in gas prices further is at a very nascent stage and is
reduce the local profits (U.S nowhere close to mainstream
Energy Information industry. With a huge industry
Administration, 2012; National depending upon Fuel economy, the
Association of Convenience Store, fuel driven vehicles rule the market.
2011). Tesla is the first performance vehicle
offering speed and design features
better than gasoline based cars. But
the small market and disruptive
technology will take a long time to
reach an impactful level.

AUTO INDUSTRY Although stringent environment Tesla intends to decrease the cost of
IMPACT and emission laws have increased electric vehicles and its Giga factory
the popularity of electric cars, but is a step towards this aim. The
at the same time they have also led companys Model 3 which will hit the
to the revolution in Gasoline road in 2017 is the cheaper model for
vehicle technology resulting in the mass market segment This high
more fuel efficient and better performance, aesthetically built Sedan
performance vehicles at a lower is priced at just $35000 and the
cost. This inhibits Electric Cars company has already received a
from entering in the mainstream whopping advanced booking order of
market. 400,000 Model 3 cars. The numbers
point of that there is an increase in
demand of the electric auto industry
and will create good competition with
cars like Audi A4, BMW 3 series,
Jaguar XE, Lexus IS and Mercedes C
Class.

High cost of Electric battery makes Teslas strategic moves like battery
Electric Cars more expensive than swap and super charger stations
Gasoline cars. across the world are good moves to
boost sales. Company also intends to
collaborate with other auto makers to
offer their super charger and battery
swap technology.

Other limitations like Battery As per the annual report (2013)


limits and charging infrastructure Companys Model S leasing program
further favors gasoline based cars. with Companys resale value
guarantee may result in lower
revenues and profits. Moreover,
investment of $5-6 billion in Giga
factory in Nevada created tension
Aggressive expansion and sale amongst the stakeholders as the
program at the cost of existing profits are in distant future. Such
economic conditions aggressive expansion and sale
policies might be somewhat important
for disruptive tech business but it also
comes with its own risks. Risk
assessment at every step is important
to modify strategy and assure best
direction in the favor of company and
its stakeholders.

TECHNOLOGICAL IMPACT

TECHNOLOGICAL The new automobile regulations Teslas innovative battery pack


ADVANCEMENT demand higher efficiency technology, power electronics, battery
standards and reduction of CO2 super charging technology and
emissions by 2025. This has led to architectural innovation has given it a
a drastic boost in research and substantial lead in making batteries
technology advancement in Auto cheaper and better. This is helping
industry. The standards also give Tesla to lower costs faster than its
auto makers special credit for competitors. Model S winning the car
making advancement in of the year award and Model 3 prized
technology like plug in electric so competitively are good example of
vehicles. More automakers are Teslas leadership in Electric Car
developing different exotic electric technology industry.
drive configurations and hybrid
models to comply with existing Whats not in favor of the company is
mandates like Cals zero emission the terrific advancement in gasoline
vehicle regulation. driven technology. Gasoline direct
injection turbocharging, transmission
with more gears and optimized
control, new dual clutch
transmissions, sleeker aero dynamics,
advanced light materials etc. are more
cost effective than the electric car
technology. This provides little scope
for the niche electric vehicle market
to grow and compete in mainstream
auto industry.

Teslas open patent move is a step


towards facilitating more
collaborations like the existing ones
with Daimler, Toyota and Panasonic
to encourage further development of
electrical auto industry. Its
collaborations to offer its Battery
pack and supercharger technology is
an interesting strategic move as it not
only boosts revenue but also positions
Tesla as a leader in electric auto
industry.

SOCIAL CULTURAL IMPACT

SOCIAL High cost of electric vehicles limit Tesla has a loyal and proud customer
CULTURAL buyer demographic. base with rich class that consider
IMPACT Tesla as a tool for improving their
Eco-friendly has become a social social status and make them appear an
status and affluent customers environment conscious human being.
exhibit pride in owning an electric The WOW factor associated with
car. this car makes it an aspirational
product for the upper middle class.
Performance issues and battery
charging constraints limit the Tesla models are high performance
market segment. electric models. Their state of the art
features positions them at par with the
Audis and Mercedes of the main
stream. What is needed is better
awareness for increasing its
acceptance in the markets.
Teslas strategic move to enter the
mass market through affordable
prized Model 3 is an excellent move
to make the Tesla phenomena a
worldwide success.

STRATEGIC IMPLICATIONS:

Tesla being an environment friendly company enjoys several benefits from the government and
regulation bodies. The exemption of taxes and grants have contributed greatly to companys innovation
and growth. Teslas Business Model is based on exercising full control over manufacturing, sale and
service. The direct selling to customers has its advantages but it also restricts the scope. Tesla is not
allowed to sell in few locations due to the strong dealership network. This is a disadvantage.

Teslas strategy allowed it to penetrate the high-end market by creating an aspirational premium product
and thereafter target the middle class and mass markets by launching the affordable Model 3 sedan.
With Model 3 advance booking reaching 400000 numbers, they need to rethink production planning for
effective and timely delivery of the car. Companys success and future depends on this.

Competition in Electronic industry is good for Tesla as it will enhance the development of the industry that
Tesla currently leads. But it wont take long for Auto giants like GM, Toyota to up their game and utilize
their resources to offer better competitive products. The increasing reservation numbers for Model 3 has
created some serious ripples in the market and the other auto makers are now taking Electric car industry
seriously. The recent, General Motors backed bill to remove Teslas retail license in Indiana and to force
the company to go through auto dealers like other auto makers, is a move that shows GM looks at Tesla as
a serious threat (Nelson, 2016). Teslas current strategy of Open patens, collaborations and collective
growth is an innovative and disruptive move. Teslas value proposition lies in their battery performance
and existing roadblock is the battery cost. They must continuously focus on reducing battery cost and
further improving performance to remain in the lead of the game. This alone however is not enough. In
todays competitive market, they need to seriously reconsider their position and growth plan in the global
industry. Whether they remain sole leaders of the electric auto industry, or they bring some real
transformation in the global automobile industry and greatly impact global economy as well as environment
is the question that will drive their strategy and path.

9. STAKEHOLDER ANALYSIS

The external environment analysis of Tesla Motors shows the various concerns and contingencies that the
organization faces from the external environment factors. To achieve improved competitiveness, it is
extremely important for Tesla Motors to analyze and monitor these factors and adapt their strategy around
it (Boyd & Fulk, 1996; Nandakumar et al, 2010). Another key factor that impacts organization strategy and
helps the organization prioritize its focus and engagement is Stakeholder analysis (Pitt & Koufopoulos,
2012; Schulz, 2013). Presented below is the Stakeholder Analysis for Tesla Motors.
- Competitors: Automakers making electric cars like - Shareholders / Investors
HIGH Nissan Leaf, BMW I3, Automakers making hybrid models - Customers
like Ford Fusion, Chevy Bolt, Automakers making - Senior leadership team
technologically advanced Gasoline based cars like Audi, - Collaborators for technology
Jaguar, Mercedes, Lexus. advancement like Panasonic for battery
technology and Daimler / Toyota for
Competition determine the profitability and viability Super charging technology.
of an industry and is key to strategy formulation
(Porter, 2008). These Stakeholders are critical to the - Innovation collaborators like Tesla
success of the Tesla idea. Teslas mission is to
Energy, Tesla Solar for continuous
develop the sustainable automobile industry. To
achieve that it is important to attract competition. The innovation.
new Model 3 is creating ripples in the market and
hopes to create good completion from the Auto
industry giants like GM, Toyota etc. Tesla must
understand their competitions strategy in event of Engage closely with these
rising popularity of electric cars. Understanding stakeholders. They are the
competition and basing your strategy around it will partners in success and largely
help the company succeed. influence companys
development. Effort should be
made to build life long
relationship by creating success
- Federal Law agencies that impact loans, grants and for them and by positively
influencing them.
policies (U.S Dept. of Energy, U.S Dpt. Of Transportation,
National Highway Traffic Safety Administration, U.S
Environmental Protection Agency, U.S Federal Energy
Regulation Commission, California Air Resource Board)
- International Trade Administration and other agencies
worldwide that define norms for global sales and trading.
- Suppliers for manufacturing materials and battery
POWER / IMPACT FOR CHANGE

products.

- External agencies for labor - Employees


- External advertising agencies & market research agency - Labor Full time and contract
- Media / Press
- OSHA and safety standards These stakeholders are important for
achieving companys goals but they
These stakeholders do not impact strategy setting as well dont impact overall strategy and
as execution. Hence, they take the lease amount of time decisions. It is important to keep them
and effort. They must be monitored regularly so that the aware about the strategy, goals and
required interests are positively met. targets. Proper training and
communication is needed to help
them and the company succeed.

LOW INTEREST / SUPPORT FOR CHANGE HIGH


The Stakeholder analysis shared above shows the key stakeholders that are of high importance to the
company. The key stakeholders,

Investors / Shareholders
Customers
Senior Leadership Team
Alliance partners like Daimler, Panasonic, Toyota, Solar Edge, Lotus Cars

not only determine the companys strategy but are directly responsible for the successful implementation
of the same. Currently, Teslas focus is customer-centric, which is conducive especially for new players.
Their exclusive service and other free charging, software and data connectivity features for the customers
allows the company to create a loyal and happy customer base. The alliance partners have equal vested
interest in the companys success. Their partnership is key to timely innovation, production as well as
service and hence very important for companys success. Tesla shares good relationship with most of its
collaborators. The area which really needs more focus is the investors and shareholders. Tesla has made
huge investments based on their long term growth strategy. Currently the company is not profitable and
losses are increasing every year. In this circumstance it is possible for investors to get impatient and lose
interest. It is important for the company to keep shareholders interest in mind and revisit their strategy to
incorporate returns and generate positive interest from investors.

10. COMPETITIVE FORCE ANALYSIS FOR TESLA MOTORS

Porters competitive force analysis provides a framework that identifies the structure of an industry, helps
understand the competition effectively and determines the root cause of profitability (Porter, 2008; Dobbs,
2014).

Automobile Industry Analysis

Automakers steer the U.S economy and are responsible for 3% of Americas GDP unlike any other
manufacturing sector (Hill et al, 2013; American automotive policy council, 2014). They are Americas
largest exporters over the past 5 years with over $563 billion worth expenditure in vehicles and auto parts
(United State Department of Commerce, 2014). Chrysler, Ford and General Motors are the key players
based on their investment, R&D costs, production, sales and export figures that are much higher than other
competitors in the market. They produce nearly one and a half times more of their vehicles in the U.S
market and employee 2 out of every 3 auto workers (American automotive policy council, 2014). U.S auto
sales have increased by more than 50% since 2009 and the auto production is expected to reach or exceed
11.5 million vehicles per year through 2016 (American automotive policy council, 2014). Auto industry is
so competitive, the profit margin on each vehicle is comparatively small. Being so capital intensive, scale
is also important.

Disruption in the industry:

Auto industry so far has been least disruptive with the similar key players in the top 15 automotive original
equipment manufacturers (OEM) list in last 15 years. With the interest of tech giants (Google, Apple) and
specialty OEMs (Tesla), the complexity and dynamism of the market is increasing. This unpredictable and
heterogeneous environment where manufacturers have to struggle with wide range of customers, service
providers & suppliers have a profound impact on the companys performance and strategy (Dess & Beard,
1984; Andrews & Johansen, 2012). Moreover, government regulations around increasing fuel efficiency,
reducing emissions is not only impacting the costs involved but is also shifting the market positions,
pushing automakers to form mutually beneficial alliances and partnerships. Cost competitiveness and
Product differentiation are key determinants for success and better performance in a dynamic competitive
environment (Nandakumar et al, 2010). The existing competition in the mainstream auto industry and the
newly formed electric car industry is driven by product diversification and cost effectiveness.

The shift in consumer demand towards better machines with more sophisticated software and infotainment
systems are forcing the industry to adopt product differentiation (Muller, 2015). Tighter Corporate Average
Fuel Economy regulations in U.S and the other parts of the world are increasing the overall manufacturing
cost and making markets more cost competitive. Increase demand of software and electronics have also
increased the R&D costs. Consumers demand more features at a competitive price and this is further
reducing the profit margins.

Emergence of electrical vehicle industry:

Stricter emission regulations, lower battery costs, launch of high performance electric cars, growing
network of battery charging infrastructure, increasing awareness amongst buyers about global warming
and increasing acceptance in the world for sustainable green vehicles is creating considerable interest in
Electric vehicles across the world (Gao et al, 2016). With the development of electric vehicle industry, it
is predicted that the share of electrified vehicles could range from 10% to 50% of new vehicle sales (Gao
et al, 2016). Populated cities with strict emission laws like California will be suitable markets with better
performance in this industry. It is also expected that electric vehicles achieve cost competitiveness and
compete directly with mainstream cars on performance, aesthetics as well as cost (Gao et al, 2016).

Tesla Motors: The innovator and disruptor!

The automobile industry has very high barriers for a new entry. High Capital investments, R&D costs,
Scale- economies, fuel impact, distribution and service networks etc. make new entry and innovation
difficult.
Tesla Motors has smartly overcome some of these barriers and have positioned themselves as the global
leaders in the electric car industry. With the mission to develop sustainable transport industry, Tesla has
shown tremendous innovation and growth. Today, Tesla produces a top selling luxury car Model S and
has received over 4,00,000 registration orders for their new mass segment car Model 3 which is scheduled
for deliveries in 2017. Teslas current market capitalization is about twice that of Fiat Chrysler and half of
General Motors (Stringham et al, 2015).

THREAT OF NEW ENTRANTS: LOW TO MEDIUM LEVEL THREAT

Currently Electric Vehicle industry is a niche market and has high barriers for new entry. The high cost for
R&D, power train technology and battery development makes it difficult for a new entrant to enter this
market. Having said that, there is a threat from already existing fuel based auto manufacturers to diversify
and enter this market. Increasing fuel efficiency and emission regulations are creating more interest in this
market. As shared by Porter (2008), if a new entrant diversifies from other market, they can leverage from
existing capital and resources and create competition quickly. Teslas open innovation and collaborative
development approach also inhibits new entry competition and promotes mutually beneficial modular
relationships.

THREAT OF SUBSTITUTE PRODUCTS OR SERVICES: LOW LEVEL THREAT

In the existing electric car industry, Tesla can be considered as the leader. There are a few competitors
offering high performance fully electric cars but the numbers are few. Teslas overall package with high
performance car, stunning aesthetics, latest technology with safety and infotainment features combined
with array of customer service initiatives like free charging at super charging stations, battery swap facility,
Tesla owned customer service centers, does not have a substitute in the market. The launch of mass segment
Model 3 at a competitive price of $35000, makes Tesla the no.1 choice in the electric vehicle industry and
also an attractive choice in the mainstream automobile market. The other electric cars in the market like
BMW i3 hatchback., Volkswagen e-up! Hatchback, Nissan Leaf hatchback, Ford Focus Electric hatchback
offer some competition to Tesla.
Increasing automobile costs and environment conscious behaviors have also increased consumers
dependency on group mode of transport like public transport trains, buses or private car pools. This might
also effect the overall automobile industry including Tesla motors.

RIVALRY AMONG EXISTING COMPETITORS: MEDIUM TO HIGH LEVEL

Although stringent environment and emission laws have increased the popularity of electric cars, but at the
same time they have also led to the revolution in Gasoline vehicle technology resulting in more fuel
efficient and better performance vehicles at a lower cost. This makes new technology and fuel efficient
cars a competitive threat for Tesla. The market for Gasoline vehicles is huge and cannot be compared to
Teslas market. Tesla is a new entrant that has disrupted the decades old, change- resistant automobile
market.

Tesla being an innovation driven company has succeeded so far due to its better technology and high value
for customer service like the supercharger stations and battery swap facility. Teslas CEO, Elon Musk
wants to create more competition in electrical car industry as he believes competition is significant for the
overall development of sustainable transport. The open patent move has also positioned it as a leader in
this industry. However, the substitute models in the market like the hybrid model, fuel efficient new models
by the Auto Giants like Ford and GM pose a real threat to the future success of the company. These big
players have the avenues to invest in better technology at a faster pace. Teslas collaborative approach like
with Daimler and Toyota can help the company create more partners than competitors. But the very
competitive mainstream market with its hybrid models like Ford fusion hybrid / Energi, Toyota Camry
hybrid, Toyota Highlander, Porsche Panamera E Hybrid are some popular hybrid models that are a threat
to Tesla Motors. Tesla must continue its approach of continued innovation both in products and services.
Its strength lies in its powertrain and battery technology combined with Elon Musks progressive and
futuristic vision. The company must stick to its mission of development of sustainable transport and
hopefully with the predicted success of Model 3, Tesla might pose threat to the existing leaders of
automobile industry.

BUYER POWER: LOW LEVEL THREAT IN ELECTRIC VEHICLE INDUSTRY


AND HIGH LEVEL THREAT IN MAINSTREAM AUTOMOBILE INDUSTRY

Since Tesla is the leader in Electric Vehicle industry and with Model S being the best high-performance
electric car in the market the buyers have very less power in is area. Further launch of affordable Model 3
makes car more accessible to the masses. Additional innovative customer service features like super
charger stations, battery swap, Tesla service centers and regular software updates for the cars further make
these cars as the best choice in the electric car industry.

Contrary to this is the mainstream auto industry that makes customers very powerful. Wide range of cars
with different features, better performances and competitive costs give consumers power to affect
profitability and hence strategy.

Tesla must focus towards creating more awareness amongst customers about the environmental benefits of
electric cars. If Tesla can position their cars as better performing, cost effective cars and keep the marketing
focus towards environment sustainability, then they stand a chance to impact buying decisions at a greater
level.
SUPPLIER POWER: LOW LEVEL THREAT

Tesla was dependent upon external suppliers for battery production. The collaboration with Panasonic and
setup of Giga factory for the in-house production of cost effective Lithium batteries have minimized the
supplier risk. The company aims at vertical integration with least dependency on external manufacturers.

STRATEGIC IMPLICATIONS OF THE COMPETITIVE FORCE ANALYSIS:

There is no doubt that innovation and design thinking culture has driven Teslas development, but a lot of
credit goes to the excellent strategy. Partnering with right organizations, leveraging other firms capital,
utilizing government grants and quickly launching new and better products are some of the steps that have
led to Teslas success (Stringham et al, 2015).

Partnering with Lotus for design, engineering and technology not only saved time and money but gave
them a reliable partner for production and assembly. Daimler partnered with Tesla in 2009 and gave them
an order for supplying the drive train technology along with investing $50 million in the company.
Panasonic also invested $30 million in Tesla for the co-development of battery and collectively they have
opened the Giga Factory at Nevada. The most beneficial collaboration was the one with Toyota who
invested $50 million for shares in Teslas IPO and sold its United Motors manufacturing plant to Tesla at
a subsidized cost of $42 million. Tesla benefitted immensely from the already existing manufacturing unit
and ended up producing 35000 Model S cars in 2014. Today they have an order for 4,00,000 model 3 cars
and they aim to commence delivery from 2017. Teslas holistic approach towards continued innovation in
both products and services combined with their global expansion plan and product differentiation approach
for different market segment seems to be the right strategy. Being proactively prepared for fulfilling the
Model 3 orders by increasing production capacity as well as battery development at existing and new
Nevada factory has also been a well thought strategic move.

Teslas strategy was closely aligned with external environment and their existing structure, making this an
important contributing factor towards companys success (Dess & Keats, 1987; Nandakumar et al, 2010).
Tesla has carefully positioned itself in the highly resistant auto industry by creating a space for itself in the
new and nascent Electric vehicle industry. As an innovator it intends to shape the industry structure by
making the competitors follow its lead (Porter, 2008).
11. INTERNAL ENVIRONMENT ANALYSIS

The VRIOS framework helps organizations determine the areas they have a competitive advantage.
Identifying their most valued skills or competencies helps them to formulate an effective strategy and
capitalize upon them (Pitt & Koufopoulos, 2012).

Presented below is the VRIOS analysis for Tesla Motors.

VRIOS ANALYSIS GRADING KEY


V: Value creating potential A: Outstanding generator of value, genuine
R: Rarity strategic importance.
I: Imitability B: Valuable, but not crucial source of
O: Organization Appropriability advantage.
S: Substitutability C: Useful but declining significance.
D: Already declining significance, unlikely to
be sustainable.
V R I O S STRATEGIC IMPLICATIONS
SKILLS (People strengths)
Elon Musk A A A A A Teslas most significant resource is its
award winning CEO, Elon Musk. His
vision, skills and networking capabilities
has helped Tesla emerge as a global leader
in Electric vehicle industry in such a short
span of time. Elon, who is also leading
SpaceX and Solar City has helped Tesla
earn worldwide recognition, good funding,
government grants and a series of awards.
Management A A A A A Teslas cofounder and CTO, JB Straubel is
and an expert in vehicle engineering and design
Leadership with degree from Stanford. Tesla also has
industry veterans at various VP positions
like VP I.T, VP Powertrain Operations, VP
Supply Chain etc. Recently, Tesla hired
Audi veteran, Peter Hochholdinger as VP-
Vehicle Production to lead the mass
production of Model 3. The combination of
experts and industry experience offers a
great competitive advantage to the
company.
Networking A A A A A Elon Musks networking skills has helped
skills Tesla form an effective network of
stakeholders. His involvement in SpaceX,
Tesla Energy and Tesla Solar offer
immense technological and resource
advantage to the company.
Fund and A A A A A Tesla due to its socially responsible mission
Grants raising and promising leadership has attracted good
skills investments and government grants. Having
access to these funds and grants have
played a key role in companys timely
launch of high performance pioneer electric
vehicles.
Design and A A A A A Tesla cars, especially Model S is an
engineering architectural excellence. Tesla cars excel in
excellence design as well as H/ware and S/ware
engineering capability. Teslas state of the
art manufacturing unit is fully automated
with robotics. The complete in-house
integration of vehicles through robots is an
architectural innovation making Tesla
creations difficult to imitate. The team has
core competencies in computer aided design
and crash test simulations to reduce the
development time for new models.
Pioneer in long A A A A A Tesla, today is the global leader in designing
range high and producing long range, high performance
performance electric vehicles. Their Model S won the car
electric of the year award in 2013. Although their
vehicles design success is generating tough competition in
and this developing industry, but the being the
production pioneers in electric vehicle technology offers
them a lot of advantage.
CAPABILITIES (Tangible assets)
Powertrain A A A A A Teslas proprietary Powertrain and Lithium
technology ion battery for powering the Electric
vehicles is an innovative technology and
gives its cars a technological and
performance edge over other electric cars.
Tesla has over 140 patents awarded and
over 240 patents pending for the
revolutionary Powertrain technology. Tesla
also sells this technology to other auto
manufacturers.
State of the A A A A A The Tesla Factory in Vermont, California is
Art one of the worlds most advanced
Manufacturing automotive factories, containing 5.3 million
Plant square feet of manufacturing and office
space.
Giga factory A A A A A Tesla has invested $5 billion to set up a
battery production plant in Nevada. The
Giga factory will handle the worldwide
production of Lithium ion batteries and
would bring down the overall production
costs by 50% by 2020. The factory would
be a net zero energy footprint and will run
by renewable sources of energy (wind and
solar). The factory will play a key role in
the production of 400000 Model 3 cars.
Company own A A A A A Teslas sales strategy involves selling the
network of sale cars directly to customers. This gives them
stores immense advantage towards rightly
educating the customers about their cars
and provide hassle free service.
Network of A A A A A Tesla has and is continuously building an
Super Charger extensive network of Super Charger stations
stations across the world to help their customers fast
charge their cars and even swap their
batteries during travel. This service offers
Tesla a huge competitive advantage against
any other competitor in the EV industry.
Safety and A A A A A Teslas Model S won the car of the year
Efficiency award in 2013 by Motor Trend. Apart from
features its design and engineering excellence, the
car won accolades for its efficiency and
safety features. The car also received the 5-
star safety rating by U.S National Traffic
Safety Administration.
Strategic A A A A A Collaborative alliances offer great
Alliances competitive advantage in todays
competition and innovation driven
environment (Holmberg, 2011). Tesla has
intelligently capitalized upon this by
forming various strategic alliances:
1. Supplier alliance: Lotus Cars,
Panasonic
2. R&D alliance: Panasonic
3. OEM alliance: Toyota, Daimler
STRATEGIC ASSETS

Innovative and A A A A A Teslas work culture is driven by innovation


Design and design thinking. As per Elon Musk, the
thinking revenue generated by sales is directly put in
culture the R&D. Firms technological innovations
offer it a key competitive advantage and it
is extremely important for them to have a
persistent innovation culture to stay ahead
of their competitors.
Long term A A A A A Teslas long term diversification strategy to
diversification grow Tesla into an energy innovation
strategy company creating sustainable products for
the power generation industry like
Powerwall is an excellent strategy to solve
the future energy crisis.
Business B B B B B Teslas business and sales strategy is not
Model well aligned with their global expansion
goals. The company owned sales and
service centers are expensive and not
conducive for achieving sales target.
Marketing B B B B B Company does not have a well-crafted
Strategy marketing and advertising campaign. The
lack of awareness and education about the
Electric Vehicle industry along with high
performance features of Tesla cars is a great
disadvantage in the existing competitive
market.

The evaluation of above analysis clearly shows that Teslas strength lies in its dynamic leadership,
innovative culture and technological excellence. Firms mission is derived from solving one of the most
important energy crisis problem and envisions the development of a socially responsible Electric Vehicle
and Sustainable energy industry. Teslas core- technological competencies like the Powertrain technology,
Lithium ion batteries, Robotics driven manufacturing innovation along with strategic alliances with
industry leaders are real source of competitive advantage.

If we do a risk-benefit analysis on the Giga Factory, currently I would call it a risky investment keeping in
mind the mammoth investment and time needed for it to be fully functional. Keeping this in mind,
outsourcing of battery production for existing Model 3 orders would be a good strategic move. Tesla also
needs to strike a balance between R&D costs and other operational costs. Despite R&Ds advantages being
at the core of the company strategy, the existing industry and stakeholder demands advise them to focus
more on business growth and revenue generation. Tesla needs to revisit their business model and be more
open to franchise and co-owned sales and service stores across the world. Currently Tesla has company
owned stores and super charger stations and their business model allows selling directly to the customers
for educational and better service experience. However, global expansion and volume sales would make
this model very expensive and challenging to follow. Partnering with like-minded ventures and properly
training them would make the sales and service infrastructure viable. Any disruptive technology product
needs good investment in marketing and advertising strategy as its success lies in the awareness,
accessibility and education around the product. Tesla has not given much importance to this area so far. An
integrated and culture based marketing campaign is extremely critical for companys growth and
acceptability.
12. SCOT ANALYSIS

After completing the external and internal environment analysis, the below presented SCOT analysis offers
a summary of skills, capabilities opportunities and threats. This analysis plays an important role in
formulating an effective future strategy (Schulz, 2013).

SKILLS CAPABILITIES

1.Elon Musks bold and thoughtful leadership 1.Teslas state of the art manufacturing plant at
skills. Vermont is one of the most advanced
2. Pioneers in designing and production of long automobile manufacturing unit in the world.
range high performance electric vehicles. 2. Complete In-house production capability
3. Creators of revolutionary Powertrain battery with advanced robotics, computer aided design
technology. and test simulations.
4. Persistence innovation culture leading to 3. Giga Factory for the production of Lithium
over 300 patents. ion battery with a capacity to produce more
5. The car of the year for Model S shows that batteries by 2020 than the entire worlds output
Tesla is skilled to design the best Long Range in 2013. The factory will also make Tesla
High Performance Electric Car in the world. capable of accomplishing their goal of
6. Highly skilled production team to handle producing 5,00,000 annually.
complete in-house computer aided simulations 4. Super Charger Network for charging and
and production. battery swapping.
6. Networking Skills to form strategic alliances 5. Company owned sale stores for direct sales
and partnerships. and exclusive service to Tesla customers.
7. The companys technological innovation 6. Advanced safety, efficiency, infotainment
skills get an advantage from the innovations in and software enabled features to offer improved
Elon Musks other ventures like SpaceX, Tesla experience to customers.
Energy and Tesla Solar. 7. Strategic alliances to further improve the
production and R&D capability with other
industry leaders like Toyota, Daimler,
Panasonic and Lotus Cars.
OPPORTUNITIES THREATS

1. Capitalization on the growing support by 1. Competition for large Auto companies like
government to the global EV industry through General Motors, Toyota, Ford etc. in electric
duty exemptions and research grants. vehicle, hybrids, alternate fuels as well as
2. Predicted growth in Electric Vehicle higher efficiency gasoline based vehicles.
industry due to stronger emission rules and 2. Increasing efficiency of Gasoline engines.
gaining popularity of sustainable green 3. Sales through existing Business Models.
products. 4. Lack of awareness of EV products in the new
3. Model 3 can be the real game changer! especially emerging markets.
Amazing interest in Model 3 evident through 5. Dependence on continuous innovation to be
pre-orders show an immense opportunity for a leader in EV industry is very expensive.
this car to rule the market. 6. The prize skimming strategy for Model 3 is
4. Increase in Oil and Gas prices make EV not a tested strategy in Automobile industry.
market more lucrative. The challenge is to make Model 3 profitable at
5. Large potential of emerging markets: China, the existing $35,000 price.
India 7. Limited production capability.
6. Opportunity for the sale of Electric Vehicle 8. Vertical integration and complete in-house
components and Battery. production is expensive.
7. Investment opportunities for the promising 9. Giga Factory is a huge investment and will
stock of Tesla need substantial time to reach full potential.
8. Huge potential in the Power Generation 8. Supplier problems can emerge when the
industry and sale of Powerwall battery. demand increases.
9. Opportunity to tremendously reduce battery 9. Industry critics and competitors have little
costs through the use of Giga Factory trust in the production capabilities of Tesla and
production facility. do not see Tesla as a big threat currently.
10. Opportunity for more strategic alliances to 10. Tesla is not yet profitable and so far has
further strengthen the R&D, supplier network, made huge investments to accomplish future
production capability as well as sales network. goals. Lack of profitability can threaten
stakeholders interest and trust in the
organization.

Teslas SCOT analysis shows immense growth opportunities for the organization in the newly formed
Electric Vehicle industry. With the successful production of Model 3, Tesla has the opportunity to be the
global leader in Electric Vehicle industry. Tapping emerging Asian markets and forming strategic
partnerships with other suppliers, manufacturers and distributors should be the primary strategic goal for
Tesla. Promising stocks would attract investors and funds offer opportunities to invest in R&D and further
improve the offerings. With adaptability being the key to success in todays unpredictable markets, it is
important for organizations to be good at learning, experimenting and changing (Reeves & Deimler, 2011).
Tesla being a new entrant in transport technology industry, needs to be open to experiments and change.
Big Auto makers like General Motors, Toyota, Ford etc. are ready to offer some tough competition to Tesla
in near future. In order to maintain its market position, it is imperative that Tesla keeps improving their
battery technology making it more efficient and less expensive. Further unpredictability of markets also
demands Tesla to continue their efforts towards creating products in the Power Generation industry like
the Powerwall.

After completing the analysis for firms strategy and suggesting future strategy goals, the next very
important aspect is creating a structure for proper implementation of suggested strategy. The last
section of this paper stresses on the importance of adopting a well-integrated implementation tool
and shares an example for the same.
13. IMPLEMENTATION MANAGEMENT IS CRITICAL

Research shows that organizations struggle in properly implementing their strategy and this execution gap
negatively impacts future strategic goals (Crittenden & Crittenden, 2008; Bonoma & Crittenden, 1988;
Johnson, 2004; Mankins & Steele, 2005).

I would recommend Tesla to use strategy and performance management tools like Balanced Score Card for
effective goal setting and action planning (Kaplan and Norton, 2007). I also think that incorporating
Druckers eight focus areas for strategic goal setting into the Balance Score Card tool would further enable
the organization to form a comprehensive strategic Implementation plan (Schulz & Hofer, 1999). Presented
below is a sample of suggested strategic goals implementation plan integrating Balanced Score Card with
Druckers focus areas.

FOCUS OBJECTIVE MEASURE TARGET INITIATIVES /


AREA (KPI) (KPI ACTIONS
TARGET)
Market To capture mass Achieve sales Achieve 5,00,000 - Create a global
Standing market segment targets for units per annum integrated marketing
in existing and Model 3 and sales target by plan for building a
emerging Model S. 2020. strong and consistent
economies with brand image.
Model 3. Achieve - Create a culture based
exponential marketing and
To continue increase in sales advertising campaign for
expanding market in environment the Model 3 sales
presence in conscious especially in Asian
luxury high end market markets.
markets with segments. - Organize worldwide
Model S. education campaign
80% and above around benefits of using
To create and customer electric vehicles.
maintain Customer satisfaction score
delighted and feedback score 100% customer
loyal customers. Customer retention score
retention score
To continuously Quality index
improve the score
overall quality of
products.
Productivity To successfully Achieve Produce 3,73,000 - Expand production
produce and production Model 3 cars by capacity.
deliver Model 3 targets for 2017 end. Streamline production
cars. Model. processes.
To increase Produce 5,00,000 - Continue R&D for
productivity by % reduction in cars per annum reduction in battery
reducing production cost by 2020. production cost.
production costs - Giga Factory setup and
and making each % reduction in Reduce battery execution plan.
unit profitable. labor, production cost Investment drives for
administrative by 50% by 2020. fulfilling the production
cost costs, expansion costs
and R&D costs.
Increase in - Partner with other
production organizations to further
efficiency and improve production
capacity. capacity and capability.
Innovation To continuously Improvement in 30% increase in Investment in R&D.
improve battery battery battery efficiency
technology efficiency. by 2020. Hiring experts in various
focusing on Reduction in technological initiatives.
increasing battery cost. 50% decrease in
efficiency and Power battery costs by Partner with key
reducing cost. Generation 2020. technology players like
To continuously products. Apple, Google, Auto
add innovative makers. Battery makers
software, safety Launch of etc.
and infotainment Improved
features in the varieties of
cars further Powerwall
enhancing technology
consumer
experience.
To continuously
innovate and
create products in
the Power
Generation
industry.

Physical and To completely Giga Factory Giga Factory Create a global


Financial setup Giga fully functional. must reach full expansion plan.

Resources Factory. Manufacturing production Giga factory setup plan


To open new plant setup in potential by Annual plan for setting
manufacturing emerging 2020. up global Tesla stores.
plants across the economies. Tesla must setup Investment drives for
world. Regular increase targets for accomplishing short
To open company in sales and opening company term and long term
owned as well as service stores owned and targets.
franchise / across the world franchise sale as
partnered stores well as
and Super supercharger
Charger stations service centers
across the world. across the world.
Profitability To achieve net % reduction in Sell 5,00,000 cars Create a Business
profitability. production cost per annum by Development plan
To make Model 3 Achieve sale 2020. Create a Financial
/ unit sale targets for 50% reduction in Management Plan.
profitable Model 3, model battery
S, Powertrain production cost
technology, by 2020.
Other EV tools Tesla must setup
and Powerwall. annual sale and
net profitability
targets for all the
offerings.
Management To create a strong All leadership Zero vacancy in Learning and
Capability leadership team and strategic key strategic Development plan for
that is fully positions are positions. leadership and teams.
committed to held by efficient Leadership team Integrated strategy
organizations talent collaborates and development by all
mission and resonates leaders for entire
objectives. companys organization.
mission, values Well- crafted team
and strategy. development, goal
setting, communication
and performance
management processes.
Employee To achieve Employee 70% above 1. Launch employee
Satisfaction employee satisfaction employee connect motivation and

and satisfaction and feedback feedback score. reward programs.


improved Employee 2. Attractive incentive
Performance
performance. performance programs.
To improve graph 3. Fully equipped
gender ratios and Internal training team
diversity counts promotions 4. Training initiatives for
in the employees. Attrition rate skill, language and
Hire more attitude building.
women in 5. Performance
various Measurement Metrics
leadership
positions.
Hire people from
various cultures,
races and age
groups to
improve
diversity.

CSR To actively Powerwall use in Identify remote Create CSR policy.


Initiatives contribute in remote areas areas in CSR plan for
community with no access to developing involvement in various
development and power. countries like community
other social Africa, India and development, employee
initiatives with offer community development programs.
sustainable development
energy offerings services by the
like Powerwall use of Powerwall
technology.
14. CONCLUDING THOUGHTS

Tesla Motors with its mission to transform the existing transportation industry into a sustainable Electric
Vehicle industry boasts of a shaping strategy. A shaping strategy depicts bold leadership that believes
in the organizations power to cause change and conquer (Reeves, Love & Tillmanns, 2012).

Teslas existing strategy has gained popularity due to its disruptive innovation and distinct positioning. The
firms strategy to consecutively launch offerings that are better than competitors and are creating a need in
different market segments is extraordinary. Today, with leading Powertrain technology, the award winning
luxury Model S sedan and the latest affordable Model 3 sedan, Tesla has the momentum and opportunity
to emerge as a global leader in the growing Electric Vehicle industry. Elon Musks courageous strategic
moves like investment in Giga Factory and opening Patents show a very optimistic and bold strategic
position.

Despite gaining popularity due to its innovative practices, Tesla has also attracted critic from the industry
and media. The company is not yet profitable and has yet to prove its production prowess. Having said that,
its ambitious strategic goals has invited competition and has led the spark in the very nascent Electric
Vehicle industry.

Amidst all the excitement and speculation, the question is that are we on the verge of a new era in the
transportation industry or will Tesla change its Shaping strategy to an Adaptive strategy due to the
immutable environment of automobile industry (Reeves, Love & Tillmanns, 2012)?

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