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TESLA, INC.
MGNT602 STRATEGY FRAMEWORKS AND EVALUATION
The landscape of the automotive industry has changed dramatically in the past few
years, with more brands entering the market, absorbing more market share. Tesla Inc. a well-
known automotive manufacturer, has taken on the challenge of designing electric vehicles,
which has led them to be one of the top EV manufacturers in the world. Tesla produces cars
with zero emissions, offering batteries that can be recycled and that are longer lasting. Given
the current state of global affairs in regards to transportation, economies, regulations,
environment and more importantly technology advancement, Teslas production of electric
vehicles is a great opportunity to penetrate the market permanently.
Tesla has its own strengths, which act as a competitive advantage towards other automotive
companies. Although it has a solid structure in its operations, its need of capital is one of its
most major threats. However, after all, it has been able to tackle EVs limitations, and
establish itself as a globally recognized brand for quality vehicles. Unlike the competitors, it
doesnt only focus on bringing compelling, trendy and fashionable vehicles to the market, but
also the technology that can help to improve customers quality of life. The discussion of the
report has incorporated analysis from different dimensions, including external analysis,
internal analysis, corporate strategy, international and blue ocean strategy, and competitive
strategies. All of the above are the key to the widespread expansion of this innovative
company, and are leading Tesla to the achievement of crucial competitive milestones.
Based on the above analysis, we recommend the following additional strategies for
Tesla to incorporate into its business.
Tesla should further capitalize on its innovative corporate culture and strong R&D
capabilities to reduce charging time for batteries and to increase the range that their EVs
can go in a single charge.
Tesla should try to minimize possible supplier problems to accommodate the future
expected significant increase in demand through complete backward integration.
Tesla can continue in its current path of acquiring companies in a related diversification
strategy to incorporate complete backward integration.
With the incorporation of the above recommendations along with its current
strategies, Tesla could reach number 1 status among its competitors in the automobile
industry, and also lead the world towards a better future.
INTRODUCTION ISHITA MATHUR
Tesla Inc. (formerly Tesla Motors) was founded by Martin Eberhard and Marc
Tarpenning in 2003 in Palo Alto, California. The organization started off with a primary goal
to commercialize electric vehicles. Elon Musk led the Series A round of funding for the
company in 2004, joining Teslas board of directors as its Chairman as well as in operational
roles and ultimately becoming the CEO of the company in 2008. Tesla gained widespread
attention after its production of the Tesla Roadster, an electric sports car built around an AC
induction motor, patented in 1888 by Nikola Tesla, the inventor who inspired the companys
name. Tesla subsequently launched Model S, its luxury sedan in 2012 followed by Model X,
a cross-over SUV in 2015. The company also recently unveiled its next vehicle the Model 3
which is slated for release in 2017.
Teslas internal resources and capabilities will be analysed and then assessed as to how
these are going to be exploited to generate returns to shareholders. Critical resources and
capabilities are recognized with the use of a VRIO. The VRIO model will be used to determine
potential competitive advantages and identify sustainable competitive advantages and a SWOT
analysis will be done to identify and analyse Teslas strengths and weaknesses, and the
opportunities and threats and will help to focus on the strengths, minimize threats, and take the
greatest possible advantage of opportunities available.
FINANCIAL PERFORMANCE
Tesla Motors financial performances is encouraging because over the last few years
they have shown a steady growth in revenues which in turns balances a negative net income.
Teslas performance is in line with the motor vehicle industry life cycle where, Tesla is
moving out of the birth phase and into the growth phase which requires large amounts of
investments to achieve substantial growth and profits. Tesla is therefore in transition and
needs more than ever to build a consistent and long-term strategy for its growth and maturity
phase.
With use of the VRIO-model, the competitive implication of each factor identified
(Refer Individual Component) has been analysed and the findings from the internal analysis
are summarized in the table below
Battery pack & Yes Yes Unlikely Yes Sustainable competitive advantage
powertrain technology
Cost of battery pack Yes Yes Only in the long-run Yes Temporary competitive advantage
Manufacturing Yes Yes Only in the long-run Yes Temporary competitive advantage
Company-owned Yes Yes Only in the long-run Yes Temporary competitive advantage
stores
Supercharger network Yes Yes Only in the long-run Yes Temporary competitive advantage
Brand Yes Yes Only in the long-run Yes Temporary competitive advantage
Leadership
SWOT ANALYSIS
Teslas business operations on their electric vehicles have a significant influence with
the external environment in particular the PESTEL framework. Firstly, the involvement of
government has impact to the business because it makes EV more attractive and invigorated
to use in consumers lives. Moreover, it imposes legislation on safety issues and trade laws,
protecting customers, and building relations worldwide. Secondly, Teslas business has been
expanding rapidly in the past few years and with more vehicles being manufactured, there
will be more demand of labour. As such, the economy plays an important role as these
determinants are interrelated. With a higher growth economies, it requires better mode of
transport and faster mobility, indicating more vehicles will be produced and purchased, this
then attracts more investment.
Tesla has his own competitive advantage however, there are predominantly two
forces under the Porters 5 forces that have a substantial effect to Tesla. Searching for the
right suppliers with right cost will benefit Tesla to managed their capital efficiently and
become more profitable.
While companies like Nissan and BMW have been in business for a long period,
having better financial, marketing and manufacturing capabilities, Tesla is able to maintain its
position and most importantly its competitive advantage as being a successful EV
manufacturer. Therefore, Tesla is not only a competitive player in the electric vehicle market,
but also able to provide value to consumers and gaining returns to their investors.
TESLA ALLIANCES:
Strategic alliances with specific successful companies allowed Tesla to rapidly extend its
strategic lead. These alliances could be categorized under two alliance umbrellas:
Scale alliances: Tesla formed an alliance with Panasonic in the production of lithium
ion battery cells. This combination benefited both companies by providing economies
of scale in terms of inputs and outputs.
Access alliances: Tesla developed access alliances with both Toyota and Daimler to
supply battery and powertrain components for the auto giants EVs. Toyota and
Daimler were able to access the superior battery technology that was provided by
Tesla.
TESLA ACQUISITIONS
Tesla acquired SolarCity and Grohmann engineering with strong strategic motives to
improve its competitive advantage. The motives can be categorised as:
Extension: Tesla extended its reach by acquiring SolarCity, a successful solar panel
manufacturer, and Grohmann engineering, which was successful in the automation of
manufacturing methods. Both these companies were strategically important to Tesla
to improve its manufacturing processes, and to vertically integrate.
Capabilities: Teslas acquisition of established companies in solar technology and
manufacturing technology allowed it to avoid R&D costs of developing the
technology by itself, which would also result in lost time. Tesla was able to
incorporate the technical abilities of both companies into its own portfolio and make
use of the technology interchangeably.
SOLARCITY
SolarCity was a great strategic fit for Tesla as it brought together solar panel
technology which Tesla was working with for home and institutions, and combined it with
Teslas superior battery technology, which offered larger storage capacity to store the solar
energy. SolarCity was also a fine organizational fit for Tesla as both companies had a similar
commitment to work towards a more sustainable energy source in the world.
GROHMANN ENGINEERING
Grohmann Engineering was a perfect strategic fit for Tesla as it complements Teslas
manufacturing technology with its expertise in automation. However, Grohmann Engineering
may not have been as good an organizational fit for Tesla due to clashes in management
already beginning to appear.
Tesla Motors wants to gain a global presence in the automobile market and expand their
business internationally. Since there are numerous reasons for Tesla to enter a foreign market,
the analysis focuses specifically on how Tesla can benefit from establishing a manufacturing
plant in India.
What really motivated our decision for Tesla to open an International headquarters in
Chennai, India was due to three factors. The foremost benefit, was the abundant availability of
low-cost technical and managerial talents that India produces on a constant basis. These low
labour costs will drive the production capabilities of these factories to a greater scale while also
cutting down drastically on the plants fixed operating costs.
Secondly, we found that both historical data for the return on foreign investments in India and
the freedom to trade throughout all regions in India to be a strong indication for this investment
to work well for Tesla. By opening a plant in Chennai, India, which is the Detroit of India,
Tesla will benefit immediately from the cluster effect by receiving related cost savings and
strive for innovation to remain competitive.
Lastly, the legal framework in India will offer protection for their investment, flexible financial
management, and fair process for any issues that may arise.
Tesla, with its blue ocean strategy, has combined the concept of green vehicles with
premium sports car i.e. fast EV with zero per cent emissions. Tesla motors is ahead of the
competition with its exclusive technology and highly innovative products. It has created a
new market space - Green Performance Automobiles. This is blue ocean innovation in true
sense!
Elon Musk wanted to build the best car in the world and thats when he launched the Model
S, the first green premium Sedan which offered a 7 days drive with a single charge, boasted
of its fast speed, looks and high safety standards.
The car was named the Motor trends Car of the Year in 2013 and also achieved a 5-star safety
rating from the US National Traffic Safety Administration. The cars proprietary Powertrain
technology will be the basis of Teslas next two cars Model X and Model 3.
FUTURE OF TRUCKING
Elon Musk tweeted recently regarding the launch of semi-truck later this year which
means that they are entering a blue ocean again. Tesla is not the only company to electrify
trucks, some of the other companies working on this technology are Nikola, Via, BYD and
Bollinger Motors.
One possibility is to focus on the short-haul market where trucks generally travel within the
range of 200-300 miles as a Teslas biggest vehicle batteries are 100kWh which will suffice
the trucks to do a days work, return to its depot and recharge overnight.
For long-hauls trucks which travel interstate, the trucks can be recharged at super charger
stations which need to be a well-knit network across the US. Some proponents say that
stopping every time to re-charge the truck wouldnt be a problem as the drivers are required
to take breaks in between their journeys. It can be an issue, as truckers in the US are limited
to 70 hours of work per week and 14 hours per day out of which driving amounts to 11 hours
per day, the only requirement is a 30-minute rest period. So, if the trucker wants to pull a bit
further, he will still have to take a break and recharge his truck for 60 minutes even though he
is 4-5 hours into the trip.
Tesla already has the battery technology and should venture into the semi-autonomous
driving technology for which long-haul truck market are the perfect candidates as the truck
will manoeuvre based on the traffic around it and stay in the lane centred thus taking a lot of
stress off the driver. Tesla should join hands with other companies as soon as possible and
make a product that will target niche customers & market before the ocean gets any bloodier.
Low
Factors
Current Trucks
Tesla Trucks
Tesla has always been steps ahead of the competition by evolving at a faster rate than
any other technology or automobile company by getting the car of the future in the market
just when the competitors were displaying concept models with the launching of Model S.
The company grabbed the attention of the whole world with its state of the art autopilot
feature and zero emission model while being as efficient as the conventional internal
combustion engine cars. Tesla vehicles are lighter, have more space, zero engine noise and
the perfect center-of-gravity due to its advanced drivetrain technology and battery pack
placed strategically under the car. By getting rid of most of the main parts used in an Internal
Combustion Engine model it gave a big blow to the automobile manufacturers because their
products were not included in the cars of the future anymore.
The strategic partnership with Panasonic was the biggest competitive advantage to
Tesla as Panasonic is the oldest battery manufacturing company in the world and the battery
pack is the core part of the value chain in a tesla car. Therefore, with the construction of
Gigafactory in place in partnership with Panasonic would help the company to reduce the
price of the vehicle with economies of scale to capture a higher market share while increasing
the profit for the company. Its unique direct to customer selling model helped it to provide a
high-quality experience for its customers while getting to educate them about the latest
technology and create brand awareness. The expanding network of supercharger networks
with free charging for all of its customers just takes 40 minutes for a full charge instead of 12
hours as compared to the traditional electric plug which no other competitor has ever done
before, giving Tesla a real competitive edge with the supercharger infrastructure in place. The
opening up of its patents set a standard for the competitors to follow on and is expected to
make Tesla the new leader of the electric vehicle market.
In the near future, Teslas growth is expected to increase aggressively, and its current
corporate strategy matches the very lucrative future of renewable energy sourced vehicles and
homes/institutions.
Tesla should further expand its production capacity in order to cater to the future
expected high demand by increasing its financial base both through sale of equities, and debt
financing. Tesla should focus more on the speed of its manufacturing process as the
customers would not like to wait for months for the product to be delivered to them after
making the payment of the vehicle.
With the incorporation of the above recommendations along with its current
strategies, Tesla could reach number 1 status among its competitors in the automobile
industry, and also lead the world towards a better future.
REFERENCES