You are on page 1of 19

Running head: TESLA CASE STUDY 1

Tesla Case Study

Name:

University:
2

Table of Contents page number

1.0 Introduction……………………………………………………………………3

1.1 History…………………………………………………………………3

1.2 Main competitors……………………………………………………...4

2.0 Current Events………………………………………………………………..5

2.1 Current successes in the Media……………………………………….5

2.2 Current Failures in Media…………………………………………….5

2.3 Analysis………………………………………………………………..6

3.0 Analysis of the core competencies……………………………………………6

3.1 Tangible Resources………………………………………..………….7

3.2 Intangible resources…………………………………………………..8

4.0 Competitive Advantage: Internal……………………………………………..9

4.1 Resource-based view………………………………………………….9

5.0 Competitive Advantage: External……………………………………………..11

5.1 Porters five forces…………………………………………………….11

5.2 SWOT analysis…………………………………………………….….12

5.3 Diversification………………………………………………………...13

6.0 Recommendations…………………………………………………………….14

7.0 Implementation……………………………………………………………….16

8.0 Summary of all the findings…………………………………………………..16

9.0 References……………………………………………………………………..18
3

1.0 Introduction

Tesla is a luxury motor vehicle manufacturing headquartered in the United States. The

company was founded in 2003 and builds electric vehicles that are better and quicker to drive

than the gasoline cars. The other company products include energy generation and storage

products. The company’s mission is geared at accelerating the transition to an energy-efficient

future since its inception in 2003 (Bloomberg, 2017). The current chairman, Elon Musk offered $

7.5 million financing in 2004 and another $ 13 million in 2005 during the development of the

Tesla Roadster. The first production of vehicle started in 2006 and was unveiled by the existing

CEO, Martin Eberhard (Tesla, 2017). The company experienced leadership changes in 2007

when Ze’ev Drori took over as the Chief Executive and about 10 percent of the staff was

retrenched. The company delivered 2,250 Roadster models between 2008 and 2012, but kept on

struggling in reassuring the customers about its capability of delivering high quality and luxury

models. In 2008, the company unveiled Model S which became to be known as a more

affordable family sedan due to the seating capacity of seven people and low price of $ 50,000

(Bloomberg, 2017). The paper will analyze Tesla’s external environment, the strategic

positioning and core capabilities, and offer recommendations on how the company to attain a

competitive edge in the market.

1.1 History

The company raised $ 40 million Series C financing in 2007 to expand the innovation

activities. The new product development led to unveiling of Model X SUV in 2012 and its

innovation led to the stunning gullwing-type doors associated with the model (Tesla, 2017). The

company formed a strategic partnership with Daimler AG by offering 10 percent of its stake for
4

an estimated $ 50 million. Another significant milestone in the history of the company is the

2010 initial public offer where the company raised $ 226 million for expansion purposes. The

company invested in electric car charging stations in 2012 that allow the drivers to move across

the US without encountering power problems. The company vehicles encountered nasty

accidents in 2013 and the public started questioning the safety thus leading to a 20 percent

decline in the stock price. The company delivered Model S in 2014 and stock prices soared by

more than 47 percent (Tesla, 2017). Elon asserts that Tesla is committed to delivering a ‘Dual

Motor’ that will be much faster than the earlier models. The company experienced slower market

penetration in China than previously anticipated, and the management decided to branch in to

solar energy by offering the ‘Powerwall home battery’ in 2014 (Tesla, 2017). The model 3 was

unveiled in 2016, and shipments are expected by the end of 2017. The company is planning to

acquire Elon Musk’s Solar City for an estimated value of $ 2.14 billion.

1.2 Main competitors

The luxury car segment accounts for just 1 percent of all cars sold across the world and

Tesla faces significant competition for giant Ford motor company, Honda, Nissan, Jaguar, Audi,

Volvo, Porsche, Mercedes, General Motors, and Subaru (Bloomberg, 2017). According to the

2016 figures of electric cars sold in the US by model type, Tesla model S sold 29,421 units,

Tesla model X accounted for 17,129 while Nissan Leaf sold 14,006 units. BMW i3 sold 7,625

units while Fiat 500e sold 5,330 units with Chevrolet Spark selling 3,035 units. The other motor

vehicle companies that have ventured in the electric and luxury car industry include Toyota,

BMW, Mazda, and Lucid motors (Kaminska, 2017). The main director competitor to Tesla is the

Chevrolet Bolt, Honda Clarity EV, Jaguar Magna, and Audi. Volvo is expected to start mass

production in 2019 and Hyundai is working tirelessly to bring on board its longer range EV.
5

Porsche and Ford have already announced plans for the small SUVs (Kaminska, 2017).

According to the analysis, Tesla accounts for more than half of the US market for electric cars,

but competition is getting stiffer due to new entrants in the electric vehicle market segment.

2.0 Current events

2.1 Current successes in media

The CEO Elon Musk is quoted in several media outlets asserting that his vision for the

company is to ensure Tesla is an independent automaker and Technology Company that aims at

offering the average consumers with affordable electric cars. The company attained high media

coverage and good reputation after the release of Model S that became the best-selling plug-in

car in 2015 and 2016 (Kaminska, 2017). The company was in the media news again for topping

the 2016 consumer reports’ annual owner survey on satisfaction at 91 percent thus meaning that

more of the shareholders were satisfied with the managerial decision-making. In 2014, Tesla hit

all-time high record sales in the US after 2,500 units were sold and Model S, sleek and stylish

sedan received top ratings from the press as the best car ever tested. Good news is that Tesla

continues focusing on rolling new models and expanding the market base by targeting a wide

range of customers. The media outlets indicate that Tesla has expanded manufacturing capacity

in California and Netherlands and partnership with Panasonic has led to the gigafactory in

Nevada (Sunley, (2017). Tesla social media marketing model has attracted positive comments

since it has enhanced the brand recognition compared to bigger companies like Audi and BMW.

Tesla is third in the total number of mentions among the world’s largest car brands as Chairman

Musk gets personal while talking about the new business ventures (Sunley, para 7).

2.2 Current failures in media


6

The existing failures in the media include the several lawsuits and case with Fisker

Automotive where Tesla sued for substandard works on its Model S. The court ruled in favor of

Fisker leaving Tesla with a fine of $ 1.1 million payable to Fisker for legal fees. The Top Gear

British Automotive review still gave negative publicity to Tesla by outlining that test vehicles of

the company ran out of charge faster than the company was claiming in its sales campaigns. The

company was thus forced to recall about 600 Roadsters due to design flaw on the chassis that

was manufactured in collaboration with Lotus (Kaminska, 2017).

The model S caught fire in October 2013 and the company was forced to extend the

model warranty to include fire damage. The reports on crash rates, costs, and insurance costs

have pointed out that Tesla cars are expensive to repair and Model X is 41 percent likely to crash

than other SUVs. Although Tesla disputes the media reports, the Insurance Institute for Highway

Safety continue to hold the position that Tesla cars are more likely to get in to crashes. A third

media criticism is the delays in the delivery dates for new models occasioned by the frequent

changes in the model features like the battery module (Bloomberg, 2017).

The analysis demonstrates that Tesla should invest in public relations to restore the public

reputation and build brand loyalty by focusing on the company’s committed to deliver safer

models and improve the car features that enhance the driving experience.

2.3.Analysis of core competencies

The external company environment is subject to continuous changes and the internal

resources and competencies offer a basis for the formulation of the corporate strategy to

overcome the adverse effects of market changes (Luck, 2008). The resources are the primary

sources of profitability and thus business strategies should exploit the valuable resources and
7

competencies to attain a competitive advantage. The company can still build and generate

distinctive competencies that are rare in the market.

3.1 Tangible resources

Tesla’s tangible resources include the financial resources, human capital, physical

resources, and own distribution channel. The company has access to adequate financial resources

since it is listed in the stock exchange and has secured more than $ 70 million for expansion

purposes (Pahl and Richter, 2007). Tesla has excellent electric car technology as evidenced by

the success of Model S sedan that has won several awards for its attractive styling, functionality,

and performance. The superior technology has enabled the company to continue delivering new

and advanced models to the expanding customer base.

The company has creative and skilled workforce that has pioneered innovations in the car

models thus improving features like safety and luxury elements of the new models.

The company has a well established own distribution network across Europe, North America,

and Asia and this allows it to offer compelling customer service and receive valuable feedback

from the customers (Dibb & Simkin, 1999). The company is thus positioned to have better

control of its inventory, warranty service, and brand development activities across the

distribution channel.

3.2 Intangible resources

Tesla intangible resources include the brand name and customer loyalty that is associated

with the popular Model S car model. In this case, Tesla has made more than 20,000 reservations

for the car model. The company is committed to delivering the all-wheel drive system dual motor

vehicle and improving the electric powertrain components (Tesla, 2017). A second intangible

resource that Tesla has is the successful partnerships with Daimler for the A-Class and B-Class
8

electric vehicles and ability to develop powertrains for other companies such as Toyota’s

RAV4EV. The company has several patents and trademarks for its creative design that include

the battery pack intellectual property rights, charge balancing systems, powertrain systems, and

cooling systems. In 2012, Tesla had 117 patents and 258 pending patent applications that protect

the proprietary technology. The company vehicles incorporate proprietary charging system that

allows the drivers to charge from any electrical outlet and faster charging in the company’s

Supercharger network across the United States (Tesla, 2017). The organizational culture offers

an intangible competence since Musk is committed to entrenching a culture that fosters

individual creativity, innovation, quality, and continuous improvement.

3.3 Organizational capabilities

The main capability of the firm is the ability to form strategic partnerships with other

vehicle manufacturers in the country. The company embraces collaboration with other

automakers as it pioneered the lithium-ion battery technology. It has collaborated with

Mercedes-Benz in the production of A-Class E-celll where Tesla produced electrical components

for the trial vehicles. Tesla has worked with Diamler AG in their Smartcard EV and Toyota in

the introduction of small Rav-4 EV SUV (Tesla, 2017). The company has a joint development of

its lithium-ion batteries with Panasonic Energy Company and it know attained the highest market

for the energy density cells.

The company cars are energy efficient and affordable when compared with other similar

hybrid electric vehicles and the use of single electric powertrain ensures that the finished car is

lighter. The Palo Alto facility ensures consistent research and development in cells and

powertrain prototypes thus improving the sales to third parties. The battery pack design is

capable of leveraging on technological advancements across several vehicles while the


9

electronics management systems offer good performance in real-life driving situations (Tesla,

2017). The company has expertise in lithium-ion cells and battery pack systems that allow for

flexibility and the testing labs continue to make improvements in efficiency.

4.0 Competitive Advantage: Internal

The analysis of the internal environment is essential in understanding the critical

resources, capabilities, and competencies that Tesla can utilize to attain a competitive advantage

in the luxury car industry.

4.1 Resource-Based View

The resource-based view of the firm outlines that firms with superior resources will attain

superior returns and competitive resources should be valuable, rare, inimitable, and organized.

The valuable resource should be scarce for competitors to acquire and difficult to imitate like the

brand loyalty, favorable economies of scale, and unique location of operations. The valuable

resources include the supercharger network, the gigafactory, the unique battery packs, own direct

marketing channel, and CEO Musk (Doole & Lowe, 2008). The Supercharger network is rare

and costly to imitate as the company allows its customers to charge their cars for free, although

other companies can still establish their own network. The battery pack and powertrain patents

are valuable and rare resource since the intellectual property laws prohibit the imitation of the

patents and can this can contribute to sustainable competitive advantage. The own distribution

network that avoid dealership enables the company to acquire valuable feedback and thus is

deemed a valuable resource although it is not difficult to imitate (Doole & Lowe, 2008).

Elon Musk leadership and emphasis on continuous innovation offers inimitable, value,

and rare resource. The corporate intangible resources that are inimitable and valuable include the

patents, accumulated learning, and brand recognition. The company enjoys efficiency in mass
10

manufacturing and innovations have contributed to better economies of scale thus allowing the

company to reduce it price margins (Doole & Lowe, 2008). The strategy should convert the

VRIO resources in to core competencies that lead to sustainable competitive advantage for Tesla.

The valuable capabilities can be utilized to exploit opportunities and ensure competitiveness

since other firms lack the rare capabilities that are costly to imitate and difficult to substitute. The

human talent and innovation history is rare and difficult to imitate.

Resource Valuable (V) Rare (I) Inimitable (I) Organized Competitive

(O) implications

Supercharger yes yes yes Yes Sustainable

Network competitive

advantage

Gigafactory yes yes yes yes Sustainable

competitive

advantage

Patents yes yes yes yes Sustainable

competitive

advantage

Own direct yes yes No Yes Temporal

distribution competitive

network advantage

Brand loyalty Yes yes Yes Yes Sustainable

of model S competitive

advantage
11

Elon Musk Yes Yes Yes Yes Sustainable

competitive

advantage

(Tesla VRIO framework)

5.0 Competitive Advantage: External

5.1 Porter’s five forces

Michael Porter’s five forces model is useful in evaluating the impact of the external

environment and the attractiveness of the luxury electric car industry. The model considers five

forces that include the threat of new entrants, the bargaining power of buyers, the bargaining

power of suppliers, the threat of substitutes, and the degree of rivalry in the industry (Doole &

Lowe, 2008).

According to the analysis, the automobile industry is attractive due to low threat of

entrants. The threat is low due to high capital outlay required to purchase manufacturing

equipments and establish operations, the cumbersome licensing and regulation by the

government, the high economies of scale attained by the existing auto companies, and the brand

loyalty attained by the industry players (Pride & Ferrell, 2016). Tesla should not worry about

new entrants in the electric car market apart from the traditional vehicle manufacturers that are

venturing in to that unique market segment.

The bargaining power of the buyers is moderately low due to lots of information

regarding the car safety and motoring features in the mass media and ability of the customers to

request for price cuts. The customers do not purchase in bulky and are not organized thus

controlling their demand for cheaper prices (Doole & Lowe, 2008). The buyers are loyal to
12

particular car brand and the different automobile companies offer differentiated car features thus

controlling the buyer power and creating high switching costs to other brands.

The bargaining power of suppliers is moderately high since Tesla and other companies

select the suppliers that provide high quality materials and components. There are few suppliers

for the high end luxury and electric car industry and the supply contracts are always exclusive

and long-term in nature (Pride & Ferrell, 2016). Tesla will face challenges in switching to new

suppliers such as the need to change the car design and components thus incurring additional

costs.

The analysis demonstrates that the threat of substitutes is high due since companies like

Volvo, Chevrolet, BMW, and Nissan offer similar stylish and luxury SUVs that can serve the

same purpose. The level of differentiation is low thus increasing the substitute threat as other

companies are pioneering research on how to improve the quality features of their models

(Wilson and Gilligan, 2012). The customer has low switching costs and other vehicle models are

competitively priced compared to Tesla offerings.

The last dimension is the degree of rivalry in the industry and analysis demonstrates that

rivalry is high due to low differentiation, high exit costs in the industry, the availability of many

competitors with relative strength in manufacturing capabilities, and the high growth in the

luxury electric car industry that has forced many firms to move towards electric car models

(Pride & Ferrell, 2016).

5.2 SWOT analysis

The strengths of Tesla include the continuous focus in innovation that has led to world’s

first fully electric sports car and introduction of new models within a short span of years. The

company has strong brand image due to its stylish designs and this improves the ability to ensure
13

customer loyalty (Wilson and Gilligan, 2012). The ability to manufacture energy-efficient that

are environmentally friendly and superior battery technology offer a critical strength for the

company. The company has strong partnerships with Panasonic, Toyota, and Daimler. The main

weakness is the inability to deliver its new model promises within the time since Model X was

delayed in 2015 (Wilson and Gilligan, 2012). The safety of the autopilot technology is still

another weakness faced by the company due to lack of enough manufacturing experience as the

company started in 2003.

The car has several market opportunities that can be exploited to improve the

competitiveness and reduce the impact of weaknesses and threats. The electric car market will

defy the larger vehicle market as analysis has predicted that the sales spiked by 40 percent in

2015 and the growth rate have averaged 32 percent per annum for the last five years. The

estimates indicate that 10 percent of all cars in US will be electric by 2025 due to demands for

cleaner environment. The company can benefit from US government subsidy programs since the

new models reduce emissions and US government policy is geared at offering tax credits to

greener energy companies (Wilson and Gilligan, 2012). The solar energy products offer another

opportunity with high growth potential due to the high demand for renewable energy in the

country.

Tesla faces market threats that include harsh competition has BMW is focused on

releasing two new electric models by 2020 and Mercedes is planning to launch the electric

vehicles by 2018. Chevrolet Bolt is already causing pressure on Tesla’s margins and Volvo is

determined to go all electric by 2019 (Tesla, 2017). The second threat facing the company is the

public perception that the company cars are highly priced as new models may cost as much as $
14

100,000 after launch. Although the cars are quality, the high prices are expensive for the

American middle class that form the mass market.

5.3 Diversification

Tesla’s diversification strategy follows the related model as the company has moved from

the Solar energy products and recently announced plans for acquisition of Solar City Corporation

that will enhance the company’s electric grid and offer back up supply of power. Tesla’s Solar

Roof technology and Powerwall improve operational economies of electric vehicle while lithium

battery technology sustains the electric cars (Tesla, 2017). The analysis thus indicates that Tesla

is committed to diversifying its operations in to related business segments that can utilize the

existing resources, distinctive capabilities, and competencies to improve the overall

organizational performance.

5.0 Recommendations

The analysis indicates that viable recommendations that are important in ensuring a

competitive advantage will include.

a) The improvement of product quality through continuous innovation

b) Future diversifications in to related markets

c) Solving the weaknesses and threats

d) New product development to delivery new car models

6.0 Implementation

The analysis demonstrates that Tesla controls valuable resources, capabilities, and

competencies that are critical in attaining sustainable competitive advantage. The analysis

demonstrates the market is attractive due to predicted growth in demand in electric cars. In this

case, Tesla is facing stiff competition from other vehicle manufacturers that have entered the
15

market segment for electric cars and thus the first recommendation will entail ensuring product

quality (Proctor, 2013). The analysis indicated that Tesla was forced to recall some cars due to

defects and the public is concerned about the safety standards. The luxury electric car industry is

rapidly evolving and thus Tesla should utilize its innovative technology to design new models

with stylish, quality, safe, and energy efficient features in order to attain differentiation and

minimize the threat of substitutes (Pride & Ferrell, 2016).

The company’s future diversification should explore related technologies and businesses

such as the solar and wind power sector, batteries, powertrain systems, and vehicle engine

systems. The backward vertical integration is recommended since it will enable the company to

attain control of all its raw materials, inputs, and key resources thus eliminating the high supplier

power (Hutt & Speh, 2013). The company should focus on additional strategic partnerships with

other manufacturers to improve the autopilot technology and enhance the safety features of the

new car models. The diversification will enable the company increase the revenues from the

alternative and related businesses and leverage on the core competencies to attain market share

(Pride & Ferrell, 2016).

The company should use its core capabilities and competencies to resolve the existing

weaknesses and threats. The company has a first-mover advantage in the electric car market and

brand loyalty and can eliminate the weakness of delays in delivering new models by ensuring the

company manufacturing projects stays on course. The company should ensure safety of the

automobile technology and engage in continuous learning to gain critical knowledge and skills in

vehicle manufacturing (Pride & Ferrell, 2016). This will require significant investment in

research and development activities that will facilitate the understanding of the market changes

and predict the customer needs. Accordingly, differentiation of the electric car features will
16

create customer switching costs and overcome the high competition in the market. Likewise, the

company should ensure mass production in the gigafactory to enable better economies of scale

that will transform to a reduction of the prices (Mercer, 1998).

The company should continue with the current strategy of offering new products and

meeting the changing customer demands. The new models should include differentiated and

advanced features that earlier models in order to ensure customer loyalty (Pride & Ferrell, 2016).

Accordingly, it is essential to ensure that future car models are affordable by the growing middle

class that offers a viable market for the luxury car brands. The continuous improvement efforts

and innovative culture will foster the new product development (Doole & Lowe, 2008).

8.0 Summary of all the findings

The above analysis has demonstrated that Tesla started operations in 2003 and has

attained considerable market share in the electric car industry by offering stylish and quality car

models to clients. The media analysis indicates that Model S has high customer demand and

loyalty, but still mass media criticism exists due to safety concerns and delays in production.

The company core capabilities and strengths include the innovative car manufacturing

technology, the supercharger network, and gigafactory located in Nevada. The findings indicate

that the patents, brand loyalty, and human talent will support growth by ensuring the production

of new models with superior features and safety standards. The external analysis indicated that

luxury and electric car industry is attractive due to low threat of new entrants and moderately low

power of the buyers. The external analysis will require Tesla to differentiate the car features to

create customer switching costs, vertically integrate through acquisitions and partnerships to

reduce the high threat of suppliers, and develop the core capabilities to ensure sustainable

competitive advantage. The SWOT analysis indicated that Tesla can utilize the access to
17

financial resources, positive brand recognition, and superior technology to produce advanced car

models, reduce the competition pressure, and diversify in to related industries. Accordingly, the

diversification should utilize existing capabilities and competencies to create additional revenue

streams and offer added benefits to the target consumers. The company will diversify in to the

wind and solar power, and battery pack systems.

The implementation process will require the company to focus on strategic partnerships

and acquisitions since the option allows the company to access additional markets, benefit from

new skills, and eliminate the risks associated with own innovation projects. The company should

acquire Solar City to expand its solar energy business and continue the partnership with Toyota

and Daimler.

The implications demonstrate that Tesla is better positioned to attain market leadership

and sustainable advantage in the electric car industry due to its core competencies and the

attractive nature of the industry. This implies that Tesla will have to engage in external

borrowing to invest in expanding the production capacity and diversification in to related

business units.
18

9.0 References:

Bloomberg. (2017). ‘Tesla is starting to face serious competition’, Bloomberg, June 5, 2017.

(web): https://www.bloomberg.com/view/articles/2017-07-05/tesla-is-starting-to-face-

serious-competition.

Dibb, S & Simkin, L. (1999). The marketing casebook: cases and concepts. London: Thomson

Press.

Doole, I & Lowe, R. (2008). International marketing strategy: analysis, development and

implementation. London: Cengage Learning.

Hutt, M & Speh, M. (2013). Business marketing management. Mason: Cengage Learning.

Kaminska, I. (2017). ‘Who are Tesla’s competitor’s really?, Financial Times, April 28, 2017,

(web): https://ftalphaville.ft.com/2017/04/28/2188020/who-are-teslas-competitors-really/.

Luck, D. (2008). Assessing the marketing environment. New York: Routledge.

Mercer, D.S. (1998). Marketing strategy: the challenge of the external environment. London:

Sage.

Pahl, N and Richter, A. (2007). SWOT analysis, idea, methodology, and practical approach.

Munchen: GRIN Verlag.

Pride, W & Ferrell, O.C. (2016). Foundations of marketing. New York: Cengage Learning.

Proctor, T. (2013). Strategic marketing: An introduction. London: Routledge.

Sunley, R. (2017). ‘Tesla’s successful marketing strategy shows it’s time for CEOs to get social’,

Social Media Today, September 28, 2017. (web):


19

https://www.socialmediatoday.com/technology-data/teslas-successful-marketing-

strategy-shows-its-time-ceos-get-social.

Tesla. (2017). ‘Premium electric sedans and SUVs’, (web): https://www.tesla.com/.

Wilson, R & Gilligan, C. (2012). Strategic marketing management. New York: Routledge.

You might also like