TESLA’s

Disruptive strategies

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WORD COUNT: 2495
February 2020
Contents
Introduction.................................................................................................................................................2
Business overview.......................................................................................................................................2
Tesla’s High-end Disruptive business model...............................................................................................3
Product Life cycle of Tesla..........................................................................................................................4
SWOT ANALYSIS.....................................................................................................................................4
STRENGHT............................................................................................................................................4
Weakness.................................................................................................................................................5
Opportunities...........................................................................................................................................5
Threats.....................................................................................................................................................5
Value chain..................................................................................................................................................6
Primary Activities....................................................................................................................................6
Inbound Logistic......................................................................................................................................6
Tesla operation........................................................................................................................................6
Tesla outbound Logistics.........................................................................................................................6
Tesla Marketing and Sales.......................................................................................................................7
Services...................................................................................................................................................7
Porter Five Forces Analysis.........................................................................................................................7
Threats of new entrants............................................................................................................................7
Bargaining power of suppliers.................................................................................................................7
Bargaining power of buyers.....................................................................................................................8
Threat of substitute products or services..................................................................................................8
Rivalry among existing firms..................................................................................................................8
Comparative study :Tesla vs Other automobile company............................................................................8
Conclusion...................................................................................................................................................9
Introduction
Tesla Motors is an American car manufacturer established in 2003 by Martin Eberhand and Marc
Tarpenning later in 2004 Elon Musk invested $7.5 million into the company . Tesla wanted to
prove that electric vehicle is more than equal in performance and fun to drive compare to the
gasoline powered cars. Tesla motors is a fully vertically integrated sustainable automotive
company with the mission to accelerate the world’s transition to sustainable energy. (Tesla n.a).
Tesla designs, develop, manufacture, lease and sell high-performance fully electric vehicles and
also solar energy generation systems and energy storage products as well as install and maintain
cars and energy storage systems and sells solar electricity. (Tesla n.a). Tesla is a company that
only sell fully battery powered automobiles, the automobile product includes Model-S,3, and X
in production with and other vehicle like model Y, Cyber Truck, ATV, Roadster and Semi-
Truck will be released soon. Similarly, tesla has created an entire sustainable energy ecosystem
by producing energy solution system like Powerwall, powerpack and solar roof to manage, store
and consume renewable energies. Its headquarters is in palo Alto, California, US with its
factories in California, Vada, Netherlands and new factories being built in china and Germany.
With this Tesla will be building more affordable cars to make its product accessible to most of
the people (Tesla n.a).

Business overview
Tesla Inc is divided into two segment automotive and energy generation and storage (Tesla n.a).
The automotive sector comprises of the design, producing and sales of the vehicles as well as the
service and financing of its vehicle. Tesla sold 367,500 cars in 2019 which is 50% increase in the
number of cars sold in 2018. Similarly, tesla sells its Powerwall and powerpack through its
energy segment as well as is sells solar roofs and panels which convert solar energy into electric
energy which can be used by household or can be sold to the local grind. Tesla with its product is
creating an ecosystem in which the tesla vehicles runs from electricity produced from a tesla
solar plant or solar roof or a public tesla supercharger to charge its batteries which the vehicle
consumes than its charge from renewable energies produce from the tesla solar plants and the
cycle continues. Tesla like no other car manufactures provides on air car software update which
improves the cars performance, safety and reliability even more This software updates enables
tesla cars to learn to self-drive and in the near future all tesla model can have autonomous

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driving. Thus, tesla is car company of the future with a mission to achieve zero emission and
create sustainable automotive company.

Tesla’s High-end Disruptive business model

As stated by the CEO of Tesla Elon Musk, Tesla is a High-end disruption Innovation model. In a
classic disruptive innovation theory, the company focuses on low end, price sensitive customer
and inferior technology on other hand Tesla has did the opposite where Tesla made a product
that was head to the current technology thus making difficult for others to imitate. After that
instead of using technology to improve performance, Tesla use it to lower costs. In a twist High
end disruptive sells product that are years ahead of the current technology thus selling their
product at a premium targeting the most profitable customers later on they build product for the
price sensitive market. One of such examples is apple’s iPod against the Sony Walkman. In the
mass industry, Apple introduced iPod, Sony and Panasonic were the world leaders in portable
music players. iPod was a technological breakthrough –a digital fusion of software and computer
equipment –common to engineering companies but not to traditional music players. Same thing
is happened with Tesla and the other car manufactures. The incumbents didn’t react fast enough,
and the high-end disruptors successfully invaded their markets (Dyer, Nathan Furr and Jeff
2015).

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From the above diagram we can see how technology plays the key role in the disruptive
innovation.

Product Life cycle of Tesla

Tesla in general terms compete in a market which already matured with many well establish
automobile giants. However, it changed the market by being the first automobile company to
fully focus on electric vehicle. In the automobile industry 90 million vehicle are produce every
year with most of the product produce by giant company like Toyota, Ford and Volkswagen. The
industry has reached the peak economy of scale and spends billions of dollars to market its
product. But how has a company entered a mature market were the markets are in covered by
giant company can be interpreted into two ways. Tesla being the only automobile company
entered the market by creating on the niche market of electric vehicle in the matured automobile
market or we can say that the electric automobile industry is a whole market in itself. It is now
visible that Tesla created a new market by itself as it’s the beginning of tesla journey in 2003
there were electric vehicle but it lacked in performance and look against the gasoline vehicle but
buy release the tesla roadster in 2008 it stared the new product life cycle. In the introduction the
product is very expensive and are not mass produce, same was the case for tesla roadster but by
releasing more vehicle in 2012 which had premium prices. With Model 3 being produce in mass
scale in a relatively lower price , it can be said that the market for the electric vehicle has entered
the growth with giant automobile company also entering the market with their own electric
vehicle. Thus, Tesla is in its growth stage of product lifecycle were the competition get tougher
and innovation in product decide the market leader which Tesla already is.

SWOT ANALYSIS
Tesla is relatively a young company with only two decades of exitance whereas most of the
competitors like ford and general motors have a century of car manufacturing experiences. The
automotive industry in the US has not seen a new mass manufacturing company since decades so
Tesla has shown its strength and opportunities in the car manufacturing industry, but the old car
manufactures slowly transitioning from gasoline vehicle into the modern electric vehicles.

STRENGHT
Tesla biggest strength lies its supreme powertrain, vehicle engineering and innovative
manufacturing (Anon 2018). Tesla is also a leader in the electric batteries technologies as the

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company leverage its massive research and development expertise which has marked tesla with
having the best performance and range among electric vehicle. Tesla self-driving technology and
safety is also industry leading class which makes tesla car among the safest car in the world.
overall, the biggest strength against other car manufacturing is the performance and software
whereas all the leading car manufacturers in the world are playing catch up with Tesla(Moorhead
n.a.). Herbert Diess, CEO of Volkswagen said software is the next bug thing and tesla is really
strong in software(Campbell, Waters 2020).

Weakness
The two biggest weakness that Tesla as a company has its cost inefficiency and product recalls.
Tesla faces a cash crunch as the company has about $13 billions in debt whereas it has only $6.9
billion of cash. The debt is less than double the 2-time estimated earnings before tax and
depreciation(Root 2020). Tesla in 2020 had to recall about 14000 of its Model X SUVs due to
the power steering issue similar issue was also noted in marc 2018 in its Model S sedan (Barry
2020).

Opportunities
Tesla being a pioneer in solar renewable energy has a great opportunity as the demand of for
energy is expected to increase by around 30% to 2040 according to the International Energy
Agency (IEA). this surge is energy will be great benefit to Tesla as more countries are using
solar instead of fossil and non-renewable energy. Similarly, the automotive industry in the world
is growing and more people prefer to buy Electric vehicle rather than gas powered vehicle and
Tesla makes the best electric vehicle in the world. Tesla at present only manufacture vehicle in
US but it has plans to open new factory in China and Europe thus expanding and reaching more
customer.

Threats
The biggest threat to Tesla is the highly competitive market in different geographical region.
Tesla is having to face both domestic and international competitor in every field of its business.
the company is competitive with large market leaders in solar energy systems such as Vivint
Renewable Inc., Sunrun Inc., Trinity Solar, SunPower Corporation; AES Energy Storage,
Siemens, LG Chem and Samsung in energy storage; and Audi, BMW, Lexus and Mercedes in
the automotive market(Anon.2018). Another major threat is the ever-changing rapid
development in technology, the automobile and energy industry are always innovating. Unless

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the organization considers the needs of the consumers and adapts the emerging technologies on
the market and introduces new products and solutions, it may adversely affect its business

Value chain
Primary Activities
Tesla is an automotive manufacturing company; hence its primary activities has a major
application in the company. The primary activities are as follows:

Inbound Logistic
Tesla inbound logistic includes the raw material required to produce the electric vehicle, energy
storage system and solar panels. Tesla operates in build to order basis, as a result any bottlenecks
in parts and raw material supply can bring huge problem for Tesla (Hogg 2016 ). Thus, it is very
important for Tesla to maintain long term strategic relationships with its suppliers.

Tesla operation
Tesla operation mainly include manufacturing for its products in this factory in China,
Netherlands and the US. Tesla has two major segments

 Automotive: tesla in its automotive segment produces three models as of 2020 which
includes the Model S, 3 and X whereas model such as like model Y, Cyber Truck, ATV,
Roadster and Semi- Truck are planned to be produce in the future.
 Energy storage system and solar panel: in this segment tesla currently produces energy
storage system like Powerwall and powerpack. Similarly, it’s also produces megapack
which are used in grind system to store excess energy. Tesla also produce solar roof to
utilize solar energy to produce electricity.

Tesla has integrated highly sophisticated automatic production robots into its value creation
thus making the operation of tesla faster and reliable.

Tesla outbound Logistics

The outbound logistic mainly involves warehousing and distribution of its products. Tesla
differs from other automotive company as its directly deals with its end customer and does
not deal with dealer and resellers. Tesla mostly sells and market its product online and
galleries in more than 30 countries. This direct sale is a great sources of value creation as it

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 lowers the cost of the vehicle by not sharing the money with the dealers and it also makes the
delivery and handling of customer more efficient.

Tesla Marketing and Sales

Tesla has not spent any amount of money in advertisement and endorsement as word of
mouth being the greats source of marketing for tesla and the company having constant news
coverage by the media company creates create value addition to company whereas other
automotive company have to spend billions on advertisement. similarly, Tesla sells its
product directly online or its showroom to its end customers.

Services
Being an automotive company, service is crucial for the customer as car requires maintain
and repair. Though Tesla had lacked behind in providing customer service on time, it is
building 100 more service center with over 150 services centers already operating this bring
great value as automotive company. Tesla also provides its customer to charge their car
through Tesla networks of supercharge. Tesla is also the only automobile company in the
world to provide over the air software upgrade which improves the range, performance and
safety of the vehicle.

Porter Five Forces Analysis

Threats of new entrants
The threats of new entrant for Tesla is very high. All the gasoline car manufacture is either
investing huge amount of money in research and development or merging with other
manufacturers to compete against Tesla’s electric vehicle. Even more huge tech company
like apple and google are also investing in electric vehicle thus Tesla will face huge
competition as more electric vehicle hit the market.

Bargaining power of suppliers

Tesla relies on number of suppliers for the raw material it needs but the supplier has
negotiating power to extract higher prices and lower the profitability of the company. Tesla
depends on scares raw material like lithium and cobalt which is necessary to produce electric
battery for the vehicles. So, Tesla has to maintain great relationship with the suppliers to
maintain higher profitability.

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Bargaining power of buyers
In the electric vehicle industry, the bargaining power of buyers is still considerable. With the
absence of switching costs directly increases the customers bargaining power(Dudovskiy 2018).
As there is no cost for the customer to switch from Tesla’s vehicle with the likes of Audi,
Porsche ,Ford and Jaguar competing in the same segment thus buyers have the bargaining power
to make Tesla reevaluate its prices.

Threat of substitute products or services

With other brands entering in the electric market with more products, customer become price
sensitive. Other factors customer has against Tesla is to use other alternative to battery powered
electric vehicle as there are alternative like plugin hybrid and hydrogen fuel cell vehicle.

Rivalry among existing firms

The rivalry in the electric car market is increasing rapidly. According to a Reuters analysis,
global automakers are investing US$90 billion and still growing in batteries and electric cars
(Anon.2018) . while companies from China and Korea have made great progress in terms of
electric vehicle. As more company release their electric vehicle Tesla market dominance and
lead will diminish unless it keeps on innovating and reduce the price of its vehicle.

Comparative study :Tesla vs Other automobile company

Tesla has the advantage of being the first to bring electric car into the main market, but other car
manufacture is all planning to produce their own electric vehicle with most car manufacturer
merging or forming an alliance to compete against Tesla. But some people say it’s already too
late because when Nikkei Business Publication teardown the model 3 to compare with other car,
it found that Tesla is at least 3 years ahead of the competition and its software in incomparable.
Thus, Tesla has the competitive advantage by having the best battery and driving performance,
its own battery supply chains and supercharger network, superior software and huge brand
following with demand for their car exceeds the current supply.

Conclusion
Tesla is relatively young in the car manufacturing industry, so it has tough competition ahead.
There is no doubt that Tesla produce s the best electric vehicle in the market and is the leader in
this segment, but Tesla has some problem with product recall and cash crunch. If Tesla keeps on
improving and innovating sure it can become a giant in the industry. With innovative features

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like auto driving within reach for Tesla and great business expansion all over the world Tesla
surely has reaches its vision for sustainable grow

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