Company

Analysis of
Tesla Motors
Written by: Jacob Lueck
4/14/2015
Organizational Policy and Decision-Making
Dr. Blackford
Northwest Missouri State University

Jacob Lueck

Table of contents
Background of Company..3
Company Research3
Value Added3
Customer Profile4
Competitive Situation6
External Analysis..7
Internal Analysis...9
Analysis of Current Financial Situation10
Situation Analysis11
Alternatives.12
Recommendations13
Implementation14
References.17

Executive Summary
Tesla Motors is a growing automobile maker, who develops electric only vehicles.
The market for alternative fuel vehicles has become more competitive as environmental
concerns rise. This research will overview Tesla as a company, and address the problem
of extremely high costs of repairs (Santos, 2014).

Jacob Lueck

Background of Tesla Motors

Tesla Motors was started in Silicon Valley in 2003 by engineers who were out to
prove that electric cars could be better than their gasoline-powered counterparts. Their
cars would have power, torque and most notably, zero emissions. In 2008, the Tesla
Roadster was released. Accelerating from 0-60 in 3.7 seconds and having a range of 245
miles per charge, Tesla set the standard for the new electric vehicle. The powertrain for
their sports car was built around an AC induction motor, patented by Nikola Tesla, who
inspired the company name. Tesla launched the worlds first electric sedan, the Model S
in 2012. It was created to be one hundred percent electric, and seats seven. The Model S
was named Motor Trends 2013 Car of the Year and received a 5-star safety rating from
the U.S. National Highway Traffic Safety Administration (Tesla Motors, 2015).

Company Research
Value Added/ Value Chain Analysis
Tesla has been a successful company as they have released new products and are
looking at their Model X, a crossover that will enter into production later this year. Tesla
Motors has also created more supercharging stations, where people can charge their
vehicles to keep them on the road. It is now possible for a person to drive from one coast
to the other in a Tesla vehicle. Using the superchargers are also very affordable: free.
Tesla owners are also able to charge at home, and not spend any more money on gasoline.
Tesla adds value as much as it can, in every phase of production that it can. Instead of
building their own building, they started in a factory in Fremont California, which was
home to a joint venture between Toyota and General Motors. Tesla Motors brought back

Jacob Lueck

thousands of jobs, and is capable of producing 1,000 cars a week. Tesla Motors has also
partnered strategically with Panasonic, and have begun building a plant in Nevada to
allow the creation of a mass-market affordable electric vehicle. Teslas vehicles bodies
are made with aluminum reinforced with high strength steel elements. The windshield
and glass are Ultraviolet and infrared blocking, along with being tempered (Tesla Motors,
2015).
Customer Profile
According to Forbes those drawn to the costlier and more technologically
advanced Tesla Model S electric vehicle tend to be less interested in environmentalism
but are more passionate about business, finance and family matters, and have an affinity
for some of the finer things in life, including Ferraris, motorcycles, Makers Mark
bourbon, erotic dance/strip clubs, Lululemon and cannabis (Gorzelany, 2013). The buyer
profile, according to Edmunds.com is as follows:
Buyer Profile

Male:

83.9%

Female:

16.1%

Income under $50,000:

5.7%

Income $50,000-$99,999:

17.2%

Income over $100,000:

77.3%

18-44 yrs. Old:

33.2%

45-64 yrs. old:

50.6%

65+ yrs. old:

16.2%

Source: Edmunds.com
What is being shown through the information above is that Tesla owners are most likely
males with income over $100,000 a year who are aged 45- 64 years old. They also are
more likely to spend money on their interests, compared to other customers of close to

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similar electric vehicles. The Tesla Model S is closely compared to the Chevrolet Volt and
the Nissan LEAF, as they are all electric, extended range cars. The profile of these buyers
are very different, as many people do not have the money to buy a vehicle that is as
expensive as the Tesla Model S is. The buyer profile of the 3 are as follows:
Model S

Chevy Volt

Nissan LEAF

Starting Price:

$71,070

$34,995

$28,800

Male Buyers:

83.9%

75.9%

71.2%

Buyers 18-44 yrs. old:

33.1%

37.9%

46.3%

Income Under $50,000:

Source: Edmunds.com

5.7%

12.9%

13%

The tables above show data from Edmunds.com, from registration and search data
from June of 2012 to June of 2013; looking only at the Tesla Model S and luxury vehicles
and electric vehicles; as reported by CNBC (LeBeau, 2013).
Another reason Tesla Motors has been so successful is that it has customers who
are extremely brand loyal. Tesla has things unlike traditional carmaker manufacturers, in
that it relies on word of mouth marketing and showrooms to sell; not using large budgets
that span over multiple nations; and this has created a cult-like following. Tesla has done
followed Apple closely, in the fact that Apple advertised to create an enemy of the
completion. Tesla has done this by placing itself in the minds of consumers as the answer
to the typical big business bad guy who drives combustion engines that run on fossil fuels
and pollute the Earth (Rutter, 2014). Tesla has differentiated itself as being just plain
different; from their vehicles, to the way that they sell said vehicles. Tesla uses company
owned retail outlets, which goes against typical auto dealer associations, whose
manufacturers do not sell directly. Tesla also has said that it would never want to make
servicing vehicles as a profit center, as it sees dealerships making the bulk of their money

Jacob Lueck

from service. This against the traditional approach has strengthened consumer support.
Customers are also able to openly communicate with Tesla, who is very transparent.
When media outlets were reporting that the Model S was prone to fire, the CEO Elon
Musk took to Twitter and Facebook to dispel the rumors; along with posting the emails
back and forth from the customer to the company (Rutter, 2014).
Competitive Situation
Tesla Motors main competitors are General Motors, the Honda Motor Company,
Toyota Motor Corporation and Ford Motor Company (Investopedia, 2015). The major
players are multinational automakers that have large budgets and have been around for
years. Tesla has the highest stock price of the companies listed, but has been falling,
while others have rose. General Motors has the Chevrolet Volt. Honda had the Fit Electric
Vehicle but searching through their website, it has been uncovered that it is not available
any longer. Honda has some of the most economical cars with great miles per gallon, and
if they were to come out with an electric vehicle to compete on the global market, people
should not be surprised. Toyota is in the process of creating a Fuel Cell Vehicle called the
Mirai. Even though this vehicle is not electric, it is a clean running vehicle that will
compete with Tesla. Ford enters this category with the iconic Focus electric vehicle. All
of these large companies have around one true offering to an electric vehicle, whereas
Tesla is an electric vehicle company.
External Analysis

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Tesla keeps its suppliers classified, but there are twenty-six known companies
that contribute the Model S Sedan.

Researching the companies involved, they are as close to environmentally friendly as can
be, which is why Tesla Motors has them as their suppliers. Of the twenty-six, five are
listed in the New York Stock Exchange (Anderson, 2014). The biggest factors that can
threaten Tesla Motors are laws about how they are able to sell their vehicles. At this point

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in time, Tesla sells its cars from company owned dealerships, which in some states and
due to certain auto dealership agreements; are illegal (Rogowsky, 2014). In years past,
automakers have had independent dealers sell their cars, keeping competition fair and
balanced. Unfortunately, many states that have legislation passed that prohibits and
makes illegal selling vehicles directly to consumers (Gilbert, 2014). However, some
states are going through debates that would eliminate some of these laws. Right now,
New Jersey, New York, Texas and Arizona are working on repealing laws that limit Tesla
from selling in their state. But, many car dealers and dealers associations are in
congressional districts, and they fear that if these bills pass, the companies they sell cars
for will open up their own showrooms and dealerships, and be able to sell cars at a lower
price directly to consumers; effectively putting them out of business (Rogowsky, 2014).
The five forces Tesla is currently facing is that there is very large threat of new
entry. With the competitors being multinational automakers, they will be able to come out
with their own electric vehicles. The supplier power is low, as the automakers have
massive deals on the table as they already are obtaining resources for their non-electric
cars. The threat of substitution is growing larger, as more products, and more affordable
products are being created. Tesla is creating their mass produced affordable electric
vehicle, but has been delayed, only giving more time for competitors to enter the
affordable all electric vehicle market. Buyer power is currently low, but growing as there
are more substitutes entering the market. Buyers may also be very price sensitive, and as
previously stated. Tesla does not yet have a reasonably priced electric vehicle.
Competitive rivalry is low, as there are many competitors, but high switching costs, and
those who own a Tesla are very brand loyal. Right now, Tesla is still in the growth stage

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of the market life cycle, as they are building more models of vehicles and entering
different pricing markets in the near future.
Opportunities are opening up for Tesla, as laws that forbade the sale of vehicles
directly to the consumer are starting to be repealed, and support for the company is
growing within governments. Tesla supports and supplies Mercedes Smart car, and can
offer a strategic partnership in passenger cars. Lastly, quality control processes are
improving lowering costs in this area and defective products. Some threats that Tesla is
facing is that it has recently open sourced their patents, meaning that competitors are able
to use their patents on their vehicles (Musk, 2014). Tesla has done this to advance the
electric vehicle movement, but some competitors may take advantage of this generosity.
Another threat is that Tesla is using price-skimming strategy, which is relatively new to
the automotive industry. Tesla is fighting technology that has been around since the
automobile was created. It is not just fighting other carmakers, but the oil industry as
well. Lastly, Tesla is creating technology that may take time to be to optimal standard use
for the mass market.
Internal Analysis
Internally, Tesla has more strengths than weaknesses, but their weaknesses are
daunting to overcome. Teslas strengths are that they are a strong supplier to rivals such
as Toyota. Tesla developed the first fully electric sports car, and have trickled down into
making products that are more readily available for the mass market. Tesla is able to
develop vehicles completely in-house, streamlining part manufacturing and assembly.
Some weaknesses of Tesla are that since all assembly is done in-house, it is the victim of
higher costs of production. Another weakness is that Tesla has higher prices than their

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competitors, and the raw materials used are more expensive than their competitions; as
Tesla uses lightweight aluminum, and the competition uses steel. A problem with
aluminum is that it is not as easily workable than steel, and repair prices are exorbitant.
For example, a ding to the front and rear bumper cost $23,000 to repair through an
authorized repair shop (Santos, 2014).
Analysis of Current Financial Situation
Shown below are Tesla Motors filings with the Securities and Exchange
Commission:

2013

Year Ended December 31,

2012

2010
2009
2011
(in thousands, except share and per share data)

Consolidated Statements of Operations Data:

Revenues:

Automotive sales
$1,997,786 $385,699 $148,568 $

97,078 $111,943

Development services
15,710

27,557

55,674

19,666

Total revenues
2,013,496

413,256

204,242

116,744

111,943

Cost of revenues (1):

Automotive sales

1,543,878

371,658

115,482

79,982

13,356

11,531

27,165

6,031

102,408

Development services

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Total cost of revenues

1,557,234

383,189

142,647

86,013

102,408

456,262

30,067

61,595

30,731

9,535

Gross profit

Operating expenses (1):

Research and development (net of

development compensation of $23,249
for the year ended December 31, 2009)

231,976

273,978

208,981

92,996

19,282

285,569

150,372

104,102

84,573

42,150

Selling, general and administrative

177,56

Total operating expenses

517,545

424,350

313,083

61,432

As it stands Tesla is making money, but really hurting on expenses including research and
development and their general expenses. In the Annual Report, Tesla names risk factors
that may affect the company (Tesla, 2014). It states We may be unable to sustain our
current level of production and deliveries of Model S or increase production and
deliveries in line with our plans, both of which could harm our business and prospects.
At the time of filing of its annual report, Tesla states that it may be unable to meet
demand, because it cannot produce enough vehicles (Tesla, 2014). This is from a variety
of factors, from suppliers not sending enough quality material timely, to their own
processes while keeping high standards. I think that Tesla has built something that will
take a long time to fail, but if it is able to act quickly enough to establish itself not just
domestically, but globally, it will be the new standard for vehicles. It will push the
combustion engines into obsoleteness, and usher a new era of personal transportation.

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The first step I see Tesla needing to complete needs to come out with an affordable, massproduced vehicle, to reach lower priced markets. Then, Tesla needs to increase the
Supercharger network so customers are able to take long trips without worrying about a
dead battery.
Situation Analysis
In the political sense, Tesla operates in 17 countries, and in these countries it is
dealing with political patterns that change business operations. Tesla deals with
environmental protection and emissions laws. Tesla also gets loans and credits from
researching new vehicle technologies.
Some economic factors are growth in the alternative energy industries would
increase the cost of using other cars due to rising oil prices developing from less people
driving combustion engine vehicles. This may affect GDP and inflation of certain
countries, along with customer purchasing power.
Socially, Tesla is at the forefront of factors drawing more attention to
environmental concerns and emphasis on green products. Peoples social standing will
also be changed, as people may view driving an environmentally friendly car.
Technological advancements are making cars safer to drive, with automated
parking, and soon, a driverless car.
Alternatives
A few of the alternatives that Tesla can use to lower costs of repairs is switching
the body of the vehicle from aluminum to a heavier, more resilient steel. This will drive
cost of the car down, as steel is generally cheaper (Hornbacher). Aluminum is more
malleable, but for a car that may get bumped and scraped, steel is able to keep its shape

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13

much easier and has memory of what it was before the dent or abrasion. Unfortunately, a
drawback of steel is that it is much heavier than aluminum, about 2.5 times heavier
(Hornbacher). This would make the models that Tesla manufactures much heavier, and
drive down the range the vehicles will be able to travel. Changing all models to steel
would drive down the cost of production and raw materials, but, Tesla would lose the
lightweight flash of aluminum.
The second strategic recommendation is creating company owned service
stations, where people could have their vehicles worked on by trained Tesla repair people,
and the cost of parts would be lower than having vehicles worked on by other service
shops, as the parts would be direct. Needing to repair your vehicle is something that is
necessary, and sometimes accidents do happen, being able to drive down repair costs will
keep people happy. The con of this is that Tesla has come out against service departments
in dealerships, as they want to make money just by selling vehicles. Unfortunately, if the
customers say it must be so, Tesla may relent in their opinion on this subject.
The last alternative is that Tesla creates an unrivalled, self-driving system in their
vehicles that work to eliminate collisions and accidents. This technology is advancing
quickly, and the world may soon see self-driving vehicles. Tesla will need to push the
envelope to develop these systems in order to get them in cars as fast as possible. The
cons of this situation is that it would cost an incredible amount to develop this
technology, and this only helps the driver the Tesla vehicle, it does nothing for other
drivers, driving cars without these safety features. The other con is that this is incredibly
expensive and time sensitive, and would not likely be done in time to make a difference.
Recommendations

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The recommendation I suggest that Tesla follow is by using company owned

service stations and repair centers. I believe that switching from aluminum to steel would
drastically reduce the distance that the vehicles could travel, and to counter this, Tesla
would have to make smaller cars that were not as sporty, and destroy the premium feeling
that one would get when driving. I also think that creating self-driving technology is too
far out of reach, and it does not stop other drivers from driving poorly, or running into
your car while it is parked. This is why Tesla needs to directly repair their vehicles, as
parts would come cheaper, and if Tesla still felt bad about the money being made from
service, they could deeply discount the cost of the work being done. Doing this is
beneficial to the customers that they work so hard to gain, why would they deny them
service to their vehicles?
Implementation
The key to implementing this plan is by building onto existing Tesla dealerships,
where space is reserved for vehicles anyway. Tesla would have to do this soon, as people
do not want to drive around with dented, scratched cars, because the cost of body work is
too expensive to justify the repair. Tesla is working on a tipping point, as it needs to do a
lot. It needs to sell more cars, it needs to build production facilities and Supercharging
stations, develop and release a lower priced vehicle and build service centers. Some
obstacles are funding this project. A solution is going to the government for help. They
are already partially funding development of new electric vehicle parts, and if Tesla can
convince officials that it needs financial assistance to build production facilities and
Supercharging stations. Any money that is freed up can then be used to build the service
centers. Another obstacle is the time to build the service center and fill it with the

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appropriate tools and training the service people. Something that can be done is while the
service centers are being built, Tesla can train in-house from their production facilities, so
when the centers are ready for clients, the service workers will be ready too. The last
potential obstacle is delivery of parts to the service centers. To overcome this, parts can
be shipped to the centers with the cars that need delivered. Tesla can also have customers
schedule their vehicles in advance, so that they are able to bring their car in, have it
worked on as the technicians know what needs to be done and the part can be waiting, so
wait time is low and keeps customers happy.
A change in the organization is needed, as there needs to be an entire division
created solely to the service and repair of vehicles. This needs to span from top
management, like the creation of a Vice President of Service and Repair, who can oversee
all repair processes, including training and quality. There may also be the need for extra
production lines to make parts, and their own shipping and distribution channels, which
for the most part would follow the same lines as car deliveries. If the part is small
enough, there may even be a way to mail it, but I would push away from that, as you do
not know how shipping companies may take care of the packages they receive. The main
resource needed is money to make all of this a reality. After everything is built, raw
materials are needed to make the parts. People and machinery are needed to change raw
material into product parts. Allocation to this new section of business needs to be seen as
important as building products. Maintenance and service should be seen as a high
priority.
Success and failure should be measured on whether or not service costs are
brought down for customers, while keeping the business out of the red. Tesla may have to

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eat some cost, but if they produce a car that is ridiculously expensive to repair, people
will flat out not buy vehicles made by them. In order to keep the high quality that this
brand has, small sacrifices need to be made in order to keep customers happy. I know that
if people had a major problem with something I made, and would stop them and others
from buying, I would do everything in my power to fix the problem.
Tesla Motors is revolutionary. It is brand new, and something that the world
desperately needs. It is getting help and support, but it needs more. It can help itself by
building more reasonably priced products for the mass consumer market. I personally
hope that Tesla will be able to weather the storm, and come out the other side a dominant
company in a redefined automotive industry. Tesla can help usher in the new world where
there is limited use of combustion engines damaging our only Earth.

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