Strategic Management

Strategic Audit Tesla Motors, Inc

COMSATS University Islamabad Abbottabad campus

Shershah Jalalzai_Fa16-BBA-8H-099

Sir: Immad Khan Jadoon

19th April, 2020

 Strategic Audit Tesla Motors, Inc

1) Current Situation of Tesla Motors

Current Performance of the company:

High cost of production, Tesla has limited sales in a limited market, Better financial position, Earing ration
negative, low depts, good technological positions.

 High cost for production of electronic vehicles and lack of economies of scale
 The company is currently only operating in united states
 2006 first sport car that made $150 million revenue for the company
 2009 The company has public offering to raise capital and support its finance and Tesla
contracted with Daimler that give and receive services.
 2010 the company made a partnership with Toyota provide them power system that generate $60
million revenue.
 2010 first public offering that gain $226.1 million ($17 each share)
 2010 acquired the factory NUMMI
 First company that produce 100% electronic cars

Strategic Posture:

 Mission:

(2011) Increase transition of the world by Making a sustainable transport.

Change to ‘increase transition of the world by making a sustainable energy’ in 2016

 Objectives:

Two main objectives

  growth sales and profits, leadership in electric cars by introducing model S electronic car and
partnership with Toyota.
 to be sustainable and socially responsible by making electronic cars instead of petroleum vehicles.

Strategies:

 market penetration strategy is followed by the company to get more revenue by, focusing on
producing high-priced, high-performance electric vehicle.
 The top priority in the company is innovation and product development the company is trying to
develop new technology for its electric vehicles.
 innovation and substitute vehicle for petroleum cars.
 Partnership with other automation companies to produce most high technological vehicles.

2) Strategic managers:
 Top management

 CEO of the company is Elon Musk who worked in PayPal and SpaceX and has good experience
in the related field.
 executive team is expert in both technology and business from vehicles industry leaders as
Arnnon Geshuri is human resource director from google company.

3) External Environment
Natural environment

 Oil price:
Increasing oil price is an opportunity for success of electronic cars. (O)

 Kyoto protocol:
 is another force that want countries to use environment friendly products to change petroleum
cars to electronic cars. (O)
Societal Environment
 Technological:
 the company has better technology than its competitors its vehicles has safety system also
best technology used in battery that has charge balancing system, system of electronic
management, system of cooling vehicles. (O)
 The company work with Panasonic to develop new technology for the batteries. (O)
 Battery’s life is not continuing it loses its efficiency each year. (T)
 waiting for charging the battery of the car at least for 45 minutes. (T)

 Political–Legal:
from government side the company is in better position because government is supporting
sustainable energy which benefit the environment for that reason united states is giving loans for
Tasla.(O)

 Perception of customers about electronic cars:

people’s perception of about electronic cars as low in power hard to charge, infrastructure for
these cars are not ready people need to charge the cars in their houses or work which is an issue
for them to adopt to electronic cars. (T)

Competitive environment:
 Competitors
The company has several competitors in electronic vehicles such as General Motors, BMW,
Toyota Nissan these competitors are strong because they have years of experience in car
manufacturing and have global presence like Toyota and Nissan for the company like Tesla
which has less experience in the field it’s a difficult competition for the Tesla.(T)
4) Internal Environment
Corporate Culture:
Tasla company has an open culture the employees are free to go beyond norms and do innovation
the company’s department attached to each other with open environment and no walls between
them so that teams and department could communicate to each other openly.(S)

Corporate Resources
Marketing:
 marketing situation of the company has many limitations, only Roadstar is in company’s
market(W)
  the company will price its roadstar sport car $108,000 in 2012 which will be the highest price
than its competitors. (W)
 marketing is also limited by its distribution channel and infrastructure. (W)
 Company is avoiding event marketing and internet ads. (W)

Finance:
 Revenue of the company is generated from sales of two sources one from sailing roadster and
electronic train components. (S)
 25.96% of total capital is debt from five years. (W)
 company has weak cash position. (W)
 revenue do not match expenses that caused net loss of $51 million in 2010. (W)
 $465 million loaned from united states department of energy. (S)
 Enough liquid assets to meet its loans. (S)

Operations
 The strength of operation of the company is in intellectual property and patents of the company. (S)
 Other operation in the company is its software systems by which they manage efficiency, control and
safety. (S)
 Supply chain has problem that its venders are single source. (W)
 Servicing for its electronic vehicles is another operational problem for the company (W)

Human Resources: employees are motivated to innovate and team work. The company has 900 staff
of the company, hiring graduate engineers that has some experience, training is an important part of the
management. (S)

Cost of the vehicles

another issue for people to buy the car but the companies are purchasing new battery that will have high
performance in a low cost that will decrease cost of the cars and increase positive image of electronic
cars. (W)

5) Analysis of Strategic Factors

A) Situational Analysis (SWOT)

 Strengths:
 The company has high technology in producing batteries for electronic cars as the company has
an agreement with Toyota company for producing high quality barriers.
 High innovative company as the company is producing new version of high technological cars.
  Weaknesses:
 High cost of production for the company is resulting in high price and finally less sales
 Less market presence most of the sales of the company is in united states
 The market is very niche for Tasla that less people prefer electronic car over petroleum cars

 Opportunities:
 Expanding industry.
 Loan program by energy department for the company.
 Barriers to enter: high barriers for other electronic companies are high because current electronic
cars companies have their own developed technology and market share.
 Oil is becoming less and its price is going high its an opportunity for the company that people
will turn to electric cars.
 The idea of environmentally friendly product is supported by Kyoto protocol.

 Threats:
 Budget deficit of united states
 Strong competition: there are enough strong competitors for Tasla company that has global
presence and high experience in the field.
 Oil is a big business so governments do not support the idea of electronic cars.

B) Reviewing Current Mission and Objectives

Current mission and objectives are better.

6) Strategic Alternatives and Recommended Strategy

Strategic Alternatives:
Tesla needs to continue to refine and adapt its strategy if the company wants to be
successful in the long run of the ever-evolving electric vehicle industry. The first alternative is
that Tesla should focus in on is achieving economies of scale to become profitable. In order to do
this, the company needs to quicken their pace to building and opening factories in both the
Chinese and the European markets. While Tesla has plans for this, projects have been slow to
come to fruition.
The second alternative is that Tesla should branch into the hybrid vehicle market to reach
more consumers. Hybrid vehicles use a combination of power sources to run the vehicle such as
diesel engine that powers a battery which drives the car. Hybrid vehicles are becoming more and
more popular with consumers. With Tesla’s competitive advantage from advanced battery
technology and autopilot features, Tesla could probably make a move into the hybrid car market
and become a top selling car. Many of the Tesla’s existing models could be easily redone into
hybrid cars and be produced at mass scale.
The third alternative is that Tesla should replace Musk as

Recommended Strategy:
It is recommended that Tesla implement a combination of alternative strategies one, three,
and four. While alternative strategy number two is sensible, producing hybrid vehicles would go
against Tesla’s mission and would probably not benefit the company in the long run.
It is recommended that hires a new CEO who can focus in on directing the company
towards growth and can be 100% devoted to the company’s strategy. The new CEO would be
tasked with quickly finishing the Chinese factory facility and getting production going right
away. Additionally, a factory site should be selected in Europe and ground breaking should
happen quickly. Two new factories would help Tesla scale its mass production cars of the Model
3 and Model Y and take advantage of economies of scale. Two evaluation criteria that would be
used to measure the success of this recommendation is gross profit margin and the number of
cars that Tesla annually sells.
As for cutting research and development cost, the company for now should cut plans for
the Tesla Semi, Pickup, and Roadster. An only focus on Model 3 and Model Y, improving
battery technology, and achieving full self-driving car software. The evaluation criteria for this
would be decreased research and development cost.

7) Implementation:
To implement this new strategy Tesla’s board of directors should begin the search for a
new CEO immediately with the goal of finding a new CEO within two months. Once hired the
new CEO should set and focus in on goals for factories in both China and Europe. Ideally, the
China factory which is already being built would be fully producing cars by the end of 2010 or
earlier 2011 and achieve full production capacity by the end of 2011. In Europe a factory
location needs to be founded by the fall of 2010 with building starting in early 2011 and cars
rolling off the assembly line sometime by 2012.
Research and development projects should be accessed by the management for which are
the most viable and important to Tesla’s profits in the next few years. Assessments should be
completed by fall of 2010 with non-sensible projects cut immediately after the assessments have
been ended.

External Factors Analysis Summary (EFAS)

Numbers Factors Weight Rating Weight score
O1 Expanding 0.19 4 0.76
industry.

O2 Loan program by 0.06 1 0.06

energy department
for the company

O3 Barriers to enter 0.06 2 0.12

O4 Oil price is going 0.10 3 0.3

high
O5 better technology 0.06 2 0.12

O6 government is 0.08 3 0.21

supporting
sustainable energy
Total of 0.55 1.57
Opportunity
T1 Battery’s life 0.19 1 0.19

T2 waiting for 0.14 1 0.14

charging

T3 Perception 0.06 1 0.06

of
customers
about
electronic
cars:

T4 Competitors 0.12 2 0.24

Total of threats 0.51 0.63
Total external 1.0 2.03
factor

Internal Factors Analysis Summary (IFAS) Matrix

Numbers Factors Weight Rating Weight score
S1 0.19 2 0.38
Corporate
Culture
S2 two sources of 0.19 4 0.76
revvenue

S3 Enough liquid 0.06 2 0.12

assets

S4 strength of 0.10 3 0.3

operation
S5 high technology 0.06 3 018

Total of 0.60 1.74

Strength
W1 High cost of 0.06 2 0.12
production
W2 Less market 0.05 1 0.05
presence

W3 The market is very 0.06 4 0.24

niche

W4 Cost of the 0.19 3 0.57

vehicles

W5 Company is 0.06 3 0.18

avoiding event
marketing
W6 limited distribution 0.06 3 0.18
channel
Total of 0.46 1.94
weakness
Total internal 1.0 2.54
factor