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Tesla Motors

Question 1

1. Introduction

1.1. Background

Tesla Motors (‘Tesla’) is a global enterprise that designs, produces and markets

electricpowered vehicles and components. Presently, it is the only vehicle manufacturer

sellingzero-emission sports cars in serial production (as opposed to concept vehicles or

prototypes). It is now expanding this technological advantage to the luxury vehicle sedan

market. Tesla’s strategy of selling sleek, eco-friendly designs at high margins echoes Apple

Computer’s business model, and differs greatly from its industry peers Chrysler, Ford and

General Motors in Detroit, which have been struggling to evolve their aging lines to meet

theincreasing demands for electric and hybrid vehicles. In spite of the global strides made by

Tesla in terms of technological developments, global branding and market adoption, it

remains a relatively young company within anascent industry – compared to the 150-year-old

internal combustion vehicle industry. Further exacer bating current research gaps, existing

research and analysis of Tesla has focused almost exclusively on the technological strides

made by the company. As such, an even more serious research gap exists related to the

marketing and business aspects of the company and its products. The field of marketing has

shifted from a feel-good field of branding and awareness where success was measured by

vague measurements like how favorably someone thought of your brand, to a scientific field

based on precise metrics and optimizations where measurements and insight are now

mandatory tactics.

New Electric Truck

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 The CyberTruck have finally been unveiled and fans seems to be having mixed

reactions about it. Mainly because of the design that Tesla have chosen for the much-

anticipated truck. There have been several renders of how people perceived the CyberTruck

would look like but unfortunately, Elon blew everyone’s mind by giving them something

unexpected. And so much more features which the best-selling truck in the market right now

The Ford F-150can’t come close. Considering these features, the expected price by most

reviewers was at least $60,000. Yet Elon is offering the car to the market at a starting price of

$39,900.

A new generation of vehicles – powered by electric drivetrains with energy from

electricstorage batteries – has emerged over the past several years. These vehicles

includeadvanced gas electric hybrids, plug-in hybrids and battery electric vehicles (BEVs).

Gas electric hybrids, such as the pre-2004 Toyota Prius, are powered bygasoline and batteries

but are not considered true ‘electric’ vehicles since they do not havea ‘plug-in’ charging

feature. Plug-in hybrids (e.g. the Chevrolet Volt), rely in part onconventional fuels but are

still designed to be recharged via the power grid. Identifying and developing critical

functions is one of the key priorities of top management. Bridging the enterprise

strategy and operational efficiency and effectiveness has been found important. The top

management and functional experts require a common language and valuable two-way

communication.

One way to measure the capability of industrial processes is to utilise various types of

maturity models. Processes cannot be improved before they are well understood. The

term maturity can be seen as an indication of how well employees or organisations ‘cope’

with a given process. The maturity approach to determine organisational abilities has its roots

in quality management.

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 1.2. Three Metrics

It’s always fun to talk about Elon Musk’s tweets and tokes, but when it comes to

predicting Tesla’s long-term financial prospects, savvy observers understand that the two

metrics that matter are the demand for the company’s products and the margin of profit it

earns on each unit. So, if Tesla stock slips in response to an unguarded comment by the Iron

Man, consider it a buying opportunity. Metrics is a quantifiable measure that allow

businesses to define and track the success of a product or a business activity. Metrics are used

by stakeholders, marketers, and the product management team to detect problems, set goals,

and make informed decisions. Below are three matrics that could be used to demonstrate the

current performance of the CyberTruck when considering its attractiveness for investment.

Customer Lifetime Value

The modern enterprise has thousands upon thousands of data points on customers.

This new category was born out of a need to smartly and “scalably” use that data to create

marketing campaigns that are personalized and optimized for each consumer. Digital

marketing’s ascension in the last decade has come squarely on the back of acquisition

efficiency. Marketers found that they could be more efficient, dollar-for-dollar, acquiring new

customers on channels like Facebook and Google. Sophistication here has increased

dramatically in the last three to five years, with most companies now employing “growth

marketers” who are highly adept at optimizing campaigns in these channels[ CITATION

Jos18 \l 1033 ].

The result is an oversaturated acquisition landscape characterized by diminishing

returns. Consequently, driving incremental customer lifetime value (CLV) now represents a

far more efficient growth path for the modern marketing operation. Increasing CLV also has

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the added bonus of letting acquisition marketers justify higher cost of acquisition (CAC),

while still maintaining a favorable CAC:LTV ratio (usually 1:3 or better).

Bounce Rate

In the beginning of February, tesla.com averaged 172K visitors, behind kbb.com at

637K, cars.com at 705K, and autotrader.com at 824K. While their traffic was the lowest of

the four, their nearly 4X increase on announcement day had them sitting only 100K behind

the rest. On March 1, their traffic surpassed the other three sites to sit at 941K, with the rest

sitting below 799K. Tesla.com also saw the best engagement at 8.5 pages per visit and 31.2%

bounce rate, compared to the other three sites that sat below 8.0 pages per visit and above a

42% bounce rate. In fact, that is what is the most interesting and unique about this story.

Tesla, unlike car manufacturers such as Ford, Toyota, and BMW, is the only one that is truly

competing digitally with car buying sites. The other manufacturers only offer the ability to

build a model, get pricing options, and locate the nearest dealer to execute the sale. There is

no transactional activity on their sites, which is an important reason why people should not

only be looking at Tesla relative to other car manufacturers, but relative to other car buying

sites as well.

Churn Rate

The annual turnover rate for Tesla Inc. executives directly reporting to Elon Musk hit

44%, which could be a sign of "instability" and "more significant concerns among senior

leaders about the company's direction or workplace practices," according to Bernstein analyst

Toni Sacconaghi. The annual turnover rate at Tesla is 27%, higher than Silicon Valley tech

companies like Snap, Netflix, Lyft Inc. and Uber Technologies Inc. Tesla's stock was trading

at $219.62, down 6.54%, at market close Aug. 14 after reports of slowing EV sales in

China[ CITATION Mae19 \l 1033 ].

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 1.3. Risk Factors

Tesla Motors recently launched the CyberTruck and has begun delivering the vehicles

to customers. The classy sedan has received very positive reviews, and has racked up over

12,200 reservations to date. The company has high hopes for the truck, but has a lot of work

to do before it can achieve its goal of establishing itself as a large scale electric vehicle

manufacturer. Tesla said it can comfortably meet its next major debt repayment of about

$900 million due in 2019 and has no plans to raise more money, but the S&P analysis warns

that a typical private equity-style acquisition that would increase debt load could prove

detrimental to Tesla now.

Production Ramp Up Process May Not Be a Smooth Ride

The company has set a target of producing 5,000 units of the Cybertruck this year and

at least 20,000 units annually from 2013 onwards. This seems like a formidable task,

considering that they were producing only around 10 units a week in the previous quarter.

Management recently outlined its plan to ramp up production in the Q2 earnings conference

call. The ramp up would trace an S-shaped curve, with a gradual increase initially. There are

a number of potential impediments to the execution of the ramp up plan, such as supplier

delays and quality control issues. Demand this year is not a concern, considering the number

of reservations for the vehicle, even after allowance for cancellations[ CITATION Tre12 \l

1033 ]. Tesla has been able to sustain its more than $10 billion of debt thanks to supportive

macroeconomic factors, the S&P analysis says, but the company is highly vulnerable to any

external shocks or a downturn without the cushion of high cash flow and positive net income.

Long Term Threat from Incumbent Auto Manufacturers

Even if Tesla does manage to achieve its stated targets, demand could pose a long

term threat. Management believes that vehicle sales would be limited by production

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constraints, and not by demand. CEO Elon Musk stated during the Cybertruck unveiling that

he expects half of all cars to be manufactured in 20 years would be electric. These

assumptions are highly optimistic to say the least. Demand for Tesla cars is dependent on two

factors, namely the demand for battery electric vehicles (BEVs) as a whole, and whether

customers would choose Tesla cars over other competing BEVs in the future. Regarding the

second factor, Tesla believes that customers would choose its vehicles because of its cutting

edge technology and brand name. It is currently a pioneer in the electric vehicle industry, and

the technology in the Model S is on par with any other premium sedan.

However, other auto companies are catching up, with luxury manufacturers BMW

and Audi having launched electric cars recently. Ford, GM, Nissan, Honda and Toyota have

all either launched an electric vehicle already, or are in the process of doing so. While Tesla

can boast of its cutting edge technology, many of its competitors have been around for

generations, and have manufacturing facilities capable of achieving production rates which

Tesla can only dream of at this point. Furthermore, they have well established service

networks and have developed strong customer loyalty over the years.

Question 2

2. Marketing KPIs.

A growing business needs to be closely and carefully managed to ensure the success of

new investment decisions and expansion plans. However, many owner-managers find that as

their business grows they feel more remote from its operations. Putting performance

measurement systems in place can be an important way of keeping track on the progress of

your business. It gives you vital information about what's happening now and it also provides

the starting point for a system of target-setting that will help you implement your strategies

for growth.

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 This guide sets out the business benefits of performance measurement and target-setting.

It shows you how to choose which key performance indicators (KPIs) to measure and

suggests examples in a number of key business areas. It also highlights the main points to

bear in mind when setting targets for your business. Performance measurement and target-

setting are important to the growth process. While many small businesses can run themselves

quite comfortably without much formal measurement or target-setting, for growing

businesses the control these processes offer can be indispensable. The purpose of

performance measurement is ultimately to drive future improvements in performance. There

are two main ways you can use KPIs to achieve this kind of management power.

The first is to use the KPIs to spot potential problems or opportunities. Remember, your

KPIs tell you what's going on in the areas that determine your business performance. If the

trends are moving in the wrong direction, you know you have problems to solve. Similarly, if

the trends move consistently in your favour, you may have greater scope for growth than you

had previously forecast.

The second is to use your KPIs to set targets for departments and employees throughout

your business that will deliver your strategic goals. For more information about using target-

setting to implement your strategic plans, see the page in this guide on how to set useful

targets for your business. As with most areas of your business operations, the more detailed

and well structured the information you keep about your KPIs is, the easier it will be to use as

a management tool. Computer-based management information systems are available for this

purpose. As your business grows the number of people you employ is likely to increase. To

keep on top of how your staff are doing, you may need to find slightly more formal ways of

measuring their performance.

Measuring through Meetings and Appraisals

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 Informal meetings and more formal appraisals provide a very practical and direct way

of monitoring and encouraging the progress of individual employees. They allow frank

exchanges of views by both sides and they can also be used to drive up productivity and

performance through setting employee targets and measuring progress towards achieving

them.

Regular staff meetings can also be a very useful way of keeping tabs on wider

developments across your business. These meetings often give an early indicator of important

concerns or developments that might otherwise take some time to come to the attention of

your management team.

2.1. Tesla Motors’ Key Performance Attribute - Acceleration

In the automotive sector, a key performance attribute perceived by consumers is

vehicle acceleration. All luxury vehicles advertise the number of seconds it takes their new

model to accelerate from 0 to 60 miles per hour. Faster acceleration is strongly associated

with higher performance and is perceived to represent higher quality. Sport cars, such as

Ferraris and Lamborghinis, epitomize this performance attribute.

As a key performance attribute, acceleration serves to segment mainstream customers

of automobiles into three main markets: Low-end, mainstream, and high-end. Evidence on

the evolution of Tesla’s commercialization strategy can be gleaned from the acceleration of

their vehicle model releases over time. Tesla moved from performance attributes of

acceleration aimed at the high-end market with their 2008 release of the Roadster (0-60 mph

acceleration = under 5 seconds) and proceeded downmarket with the 2012 release of the

Tesla Model S (0-60 mph acceleration = under 6 seconds), and then the release of the Tesla

Model 3 in 2017 (0-60 mph acceleration = under 6 seconds)

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 2.2. Tesla Motors’ Key Performance Attributes – Range

Beyond rapid acceleration, Tesla Motors is also known for its long range battery

electric vehicles. Range – defined as the distance a vehicle can travel without needing

refueling or recharging – is a performance attribute that some have argued shows electric

vehicles could follow a disruptive path. This is because range has generally been a limiting

factor for electric vehicles, and of great concern to customers particularly while rapid

recharging stations are still not widely available. Even though customer reaction was positive,

GM as an incumbent determined that the success of this battery electric vehicle would erode

gasoline car sales and also the highly profitable spare parts business, as electric vehicles had

fewer moving parts and thus lower maintenance costs. Similar pressures were felt by other

automotive incumbents.

Other incumbents, such as Ford, Nissan and Mitsubishi were late to the market on EV

technologies. The rapid growth of Tesla spurred these incumbents to start launching their

own electric vehicles, though the range figures (almost all below 100 miles) show that they

are well behind Tesla vehicles (which are over 200 miles with some Tesla models nearly

reaching 300 miles of range). Through this focus on superior performance attributes Tesla has

continued to grow in the highly competitive automotive market with well-entrenched

incumbents[ CITATION Tho19 \l 1033 ].

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