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Tesla Motors 2016 Case Study

Author: Justin Boie

Course: BUS 217-100

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Table of Contents

Page 3. Executive Summary

Page 4. Introduction

Page 5. Company Overview

Page 6. Products

Page 8. Operations

Page 10. Financials

Page 11. SWOT Analysis

Page 12. Five Success Factors

Page 13. References

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Executive Summary

Tesla Motors is an energy company with a core objective to be the catalyst for renewable

energy products in today’s consumer marketplace. Tesla, mostly known for their Model S, an

electric sports car going zero to sixty in 2.5 seconds, sells much more than cars. Tesla offers

consumers roof tiles that capture solar energy, a “Powerwall” supplying energy for a two-

bedroom home for twenty-four hours, which can also charge Tesla’s Model 3 car starting at

$35,000, Model S at $78,200, and the Model X SUV at $89,800.

Tesla’s profits, almost nonexistent, have not slowed down the company’s aggressive

expansion. Tesla has expanded manufacturing capabilities by building two “gigafactories” that

will produce more lithium ion batteries than all other producers in the world. A $2.6 billion Solar

City acquisition by Tesla has made investors shaky in 2016, with Tesla’s stock ranging from

$143 per share to $265 per share. Tesla has given estimates of about 370,000 preorders for their

Model 3, making use of their manufacturing growth to increase deliveries.

Understanding the Tesla customer is key to understanding why this company is a good

investment. Tesla Motors is a company based on ethos and social responsibility; its mission: “to

accelerate the world’s transition to sustainable transport.” Tesla customers will wait more than a

year for their electric vehicle to be delivered because they share the same vision as Tesla for the

future. The data shows Tesla leading the American luxury vehicle sales in 2015 with 25% of the

market share.
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Introduction

Tesla’s refusal to produce anything less than perfection is represented by Elon Musk,

Tesla’s CEO since 2004. Elon keeps a sleeping bag in the company conference room to catch up

on sleep when he needs it. Musk has positioned his desk at the very end of the production line.

Starting in 2016, every Tesla off the production line will come with autopilot driving capabilities

that can drive down the interstate, drop you off at your workplace, then park itself nearby. Tesla

Motors is a company focusing on research and development to advance their products faster than

other car manufactures. In a 2016 report from Car and Driver, Tesla outperformed BMW, Infiniti,

and Mercedes comparable self-driving vehicles.

Tesla’s aggressive strategy makes it first to market on many products and services they

offer. Tesla’s aggression has been a strength for capturing the target customer willing to spend

$70,000 or more on a new vehicle. Tesla’s main competitors, such as BMW, Mercedes, Porsche,

Lexus, and Audi, have been slow to gain ground on Tesla’s dominance in the American electric

vehicle market. Tesla’s focus on electric vehicles leaves no direct competition for Tesla in the

United States. The electric vehicle competitors in the United States, none of which considered

luxury, would be a Nissan Leaf, a Toyota Prius, or a Chevrolet Volt. None of the stated models

have the innovative futuristic design that Tesla delivers at the same price point.

Tesla’s products, services, and company strategy will be investigated by this case study to

determine Tesla’s worth of investment.

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Company Overview

Founded in 2003 in Silicon Valley, with a will to prove electric cars could perform better

than the traditional combustion engine, a group of engineers set out to prove to the world that the

electric car is the future of the automobile industry. With a proof of concept, Tesla’s initial

investors were friends and family of the team responsible for the concept vehicle. 2004, Elon

Musk became chairman with a $7.5-million-dollar investment, then CEO in 2008, with a total of

$55 million invested. 2010, Tesla went public on the New York Stock Exchange.

At a launch event in 2006 Tesla motors premiered their Roadster model electric sports

car, with a price of $100,000. Tesla had 127 orders within two weeks of the launch. Two years

later the orders were delivered. 10 years later, Tesla’s production still struggles to keep up with

sales even after production speed has increased deliveries by 75%.

Tesla’s production strategy is focused on moving towards vertical integration for quality

control. Tesla’s factories are located in California, the Netherlands, Nevada, and plans for a

German facility are under way. Tesla’s main product line is electric vehicles. Tesla has quietly

integrated more products into their offerings that solidifies the company’s goal to accelerate the

world’s transition to renewable energy. Apple’s integration of the Macbook, to the Ipod, to the

Iphone, to the Ipad, resembles Tesla’s electric vehicle, with Tesla’s Powerwall, and Tesla’s solar

panel roof tiles. Tesla’s mission seems to parallel saving the world, a mission almost everyone

can get behind.

Products
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Vehicles

Tesla’s popularity in the electric vehicle market is based on vehicle design and

performance, brand perception, and strategic alliances with multinational companies, such as its

partnering with Panasonic to build a “gigafactory.”

Research and development fuels the company’s reputation for cutting edge aesthetics,

new to market interior features, and most notably, “autopilot”; a feature that enables hands-free

driving without having to press the foot pedal on every Tesla model in production. With a luxury

SUV and two sedan models, the company has a vehicle design for most drivers.

Products
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Energy Storage

Tesla’s product strategy has integrated information technology, transportation, and energy

storage to serve the customer highly concerned with the environmental impact of global

warming. Harnessing the power of the sun, storing that power for later use, then using that

energy to power a home and vehicle has become the product line of Tesla Motors.

Tesla continues to spearhead innovation by introducing new technologies to the

construction industry, just as it did with the automotive industry. Solar panels have been

integrated into glass roof tiles that coordinate with architectural design, powering a home with

style, with Tesla’s “Solar Roof.” The Solar Roof product can supplement home energy use in two

ways. Solar Roof can link directly to Tesla’s Powerwall, a product that can supply energy to a

two-bedroom home for twenty-four hours. The energy transferred from the Solar Roof stores in

the Powerwall, then the Powerwall can be used for the house, or to charge your electric vehicle.

Without the Powerwall, the Solar Roof will still provide energy for immediate use, reducing the

electricity bill for the homeowners.

Operations
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Sales

Tesla sells directly to the consumer. Differentiating itself even further through its

operations plan, Tesla does not offer products to outside vendors, does not work with car

dealerships, and builds each model to the customer order. Taking trade-ins, and deposits on each

order, Tesla will also finance its customers by a third party credit union. The sale of a Tesla offers

roadside assistance if the vehicle were to shut down on the highway, a 50,000-mile warranty, and

Tesla’s own energy infrastructure of 584 “superchargers” throughout the United States, Europe

and Asia. Tesla has built service into the vehicle computer system. The vehicle will direct you to

the nearest supercharger when the battery becomes low, giving another 100 miles of travel in 15

seconds. Tesla is in the top ten selling electric car companies in Asia, best-selling in Western

Europe, and enjoys the Model S dominating the American luxury vehicle market with 25,202

sold, and Audi in second at 7,721 sold in 2015.

Operations
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Manufacturing

Tesla’s beginning showed incredibly slow deliverables from the new car company. As the

company has worked out the bugs, Tesla wisely invested in mass manufacturing in the United

States and Europe. Tesla manufactures their vehicles in Fremont, California, shipping in

hundreds of parts for the vehicle, while keeping assembly at the facility. Tesla’s refusal to let the

company’s deliverables be anything but stunning often delays production. The company

delivered just over 50,000 vehicles in 2015. Tesla’s production capabilities are set to increase ten

times in the next two years.

Expanding further on production, Tesla broke ground in 2013 on a “gigafactory” in

Nevada that will produce more lithium-ion batteries than all other producers worldwide.

Partnering with Panasonic on the factory, the facility will be powered 100% by solar energy.

Tesla also manufactures in the Netherlands and is starting work in Germany to build another

gigafactory after a recent acquisition of German company Gromann Engineering. Plans for the

German facility include building both batteries and vehicles. Tesla’s aggressive acquisitions are

directed at decreasing the costs of high quality batteries and vertical integration. Tesla’s

gigafactories will produce more high quality batteries than anyone in the world, giving the

company an incredible opportunity to lower costs, as well as share this technology with other

companies to develop strategic partnerships.

Financials
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Tesla’s struggle to make profits for the year has remained consistent during the

company’s life. Tesla’s first reports of quarterly profits since 2013 were given in the third quarter

of this year. Tesla investors remain optimistic as sales and production steadily increase. Tesla had

made great use of financial help from government subsidies for their electric vehicles. With

nearly $5 billion in financial subsidies, Tesla Motors has been able to continue expansion as a

multinational car manufacturer. The data shows Tesla’s growth acceleration. Tesla’s stock started

at $17.40, now at over $180 per share.

SWOT Analysis
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As orders increase, the company further expands into Asia and Europe with strong sales.

Tesla’s mission has enabled the company to obtain billions in U.S. renewable energy subsidies.

As Tesla targets higher income consumers, it’s operations plan is making their cars more

affordable and accessible to a greater market share. When the government subsidies end, Tesla

must have a more affordable electric vehicle to compete with established manufacturers. Tesla’s

short time in the automotive industry leaves its distribution operations weak.

Five Success Factors

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Design
Tesla brings the future to car design with its body style, futuristic interior options, autopilot

capabilities, running completely on electricity

Manufacturing
Although Tesla’s manufacturing is dependent on international suppliers, their vertical integration

maintains the quality standards Teslas target customer expect. Teslas massive expansion of

manufacturing in America and Germany will accelerate Tesla production, lower costs, and create

opportunities for more international partnerships for Tesla.

Company Ethos
Social responsibility lends Tesla it’s committed customer base. All Tesla products are developed

around the idea that we must buy into renewable energy if we want to have a clean planet.
Sales
Orders have increased by over 2000% since Tesla went public. We often hear of the despised car

salesmen; Tesla does not share profits with distributors, they sell direct. Distribution has been a

major issue for Tesla, but they have differentiated themselves even further from their

competitors. Tesla’s lack of cash makes it attractive to sell direct and allow cash deposits for its

product orders.
Research and Development
Spending about 17% of total revenue on research and development in 2015, Tesla is known for

its R&D team delivering new product features like “ludicrous speed”, “bioweapon defense

mode”, and “autopilot.” While some features seem irrelevant in the U.S., Tesla is constantly

considering European and Asian markets.

References

Company history sources

Baer, Drake. "The Making Of Tesla: Invention, Betrayal, And The Birth Of The
Roadster". Business Insider. N. p., 2016. Web. 8 Nov. 2016.

"About Tesla | Tesla". Tesla.com. N. p., 2016. Web. 8 Nov. 2016.

"All Tesla Cars Being Produced Now Have Full Self-Driving Hardware". Tesla.com. N. p., 2016.
Web. 8 Nov. 2016.
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Company Operation sources

"Tesla Factory | Tesla". Tesla.com. N. p., 2013. Web. 8 Nov. 2016.

Gross, Daniel. "Tesla’S Real Innovation Isn’T The Electric Car". Slate Magazine. N. p., 2016.
Web. 8 Nov. 2016.

" Tsla-10K_20151231.Htm ". Sec.gov. N. p., 2016. Web. 8 Nov. 2016.

"SWOT ANALYSIS | Our Tesla Marketing Plan". Teslamarketingplan.com. N.p., 2016. Web. 17
Nov. 2016.

Company Services and Products sources

Fehrenbacher, Katie. "Tesla Will Start Charging For Its Fast Charging Network". Fortune. N. p.,
2016. Web. 8 Nov. 2016.

"What If You Completely Run Out Of Charge?". Teslapedia. N. p., 2015. Web. 8 Nov. 2016.

"Semi-Autonomous Cars Compared! Tesla Model S Vs. BMW 750I, Infiniti Q50S, And
Mercedes-Benz S65 AMG - Feature". Caranddriver.com. N.p., 2016. Web. 17 Nov. 2016.
Noland, David. "How Safe Is Tesla Autopilot? Parsing The Statistics (As Suggested By Elon
Musk)". Green Car Reports. N.p., 2016. Web. 17 Nov. 2016.
Tesla investment sources
"Tesla Motors Inc.". Marketwatch.com. N.p., 2016. Web. 17 Nov. 2016.
"Traders: Don't Believe Tesla's Model 3 Hype". CNBC. N.p., 2016. Web. 17 Nov. 2016.

Knight, Will. "Tesla Has Built Its Success On Moving Faster Than The Industry’S Incumbents,
And Taking More Risks". MIT Technology Review. N.p., 2016. Web. 17 Nov. 2016.

Welch, More. "Even Tesla's Banks Have Doubts About The Solar City Deal". Bloomberg.com.
N.p., 2016. Web. 17 Nov. 2016.
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Hirsch, Jerry. "Elon Musk Defends $4.9 Billion In Government Money For His Companies".
latimes.com. N.p., 2016. Web. 17 Nov. 2016.