TEAM J

Emily Hendrix
Justin Uzoije
Michael Guebert
Shalaka Patel
Sahithi Solipuram

TESLA CASE
STUDY

Team J: Case Analysis of Tesla Motors, Inc. by

9/5/16
Frank T. Rothaermel and David R. King

This report is a macro and micro-level analysis of Tesla Motors, Inc. and
CEO, Elon Musk. We evaluate their competitive advantage, potential for
sustainability, viability, and overall position in the rapidly changing U.S.
automotive industry. Using analytic tools such as a PESTEL analysis,
Porters five forces, and a VRIO analysis, we evaluate Teslas potential in
the industry and give recommendations for Elon Musks actions
henceforth.
Tesla Case Study

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Tesla Case Study

DRIVING FORCES IMPACTING CAR MANUFACTURERS | PESTEL ANALYSIS

Political: Regarding the governmental impacts on business and a macro-analysis, there are several
significant external factors affecting Tesla at this point. As the case mentions, The U.S. government
currently offers economic incentives to encourage electric vehicle ownership (page 13). With these
incentives in place, the transition from gas-powered vehicles to electric may come easier for consumers.
There have also been several major types of infrastructure under development to extend the range and
decrease charging times of electric vehicles. One of these being the U.S. National Institute of Standards
and Technology and the Federal Energy Regulatory Commission are investing heavily in the
implementation of smart-grid standards (would also fall in the technological aspect of this analysis).
Overall the political stability of the automotive market and other political external factors do present
opportunities for Tesla to grow as a business. Expanding free trade agreements also open opportunities
for Tesla to expand their operations internationally that may allow cheaper labor costs and higher
production volumes.
Economical: Teslas performance benefits from low battery costs - the battery remains the single-most
expensive component in the pure-electric vehicle (page 9). This factor would translate to the
affordability of the companys automobiles. There are other competitors on the horizon that threaten the
financial performance of Tesla. For example, Chinese car manufacturer, BYD Motors, is selling plug-in
electric hybrids at a significantly lower price in China and have managed to establish a U.S. presence
through the development of their 40-foot bus that can run 250 miles on a single three-hour charge.
Economic stability issues in Europe and Asia especially threaten the companys financial performance.
However, there remain major growth opportunities despite this threat.
Social: Low-carbon (Green) lifestyles are becoming more and more popular and the preference for
renewable energy increases over time. Simply due to this social structure, market demand for an electric
vehicle has risen. With money being distributed into developing markets, Tesla has an opportunity to
improve their financial position. A study by Nielsen found that 72 percent of people polled have
considered buying or would buy an electric vehicle. However, 65 percent would not pay more for one,
so Tesla must figure out a way to scale their production (page 15). There is much opportunity for Tesla
regarding the sociocultural analysis of the macro-environment.
Technological: Theres an increasing rate of technological change in our environment that would present
opportunity for Tesla to better their products technologies. There have been significant investments in
the research and development of various competing energy technologies and a classic standards battle

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seems to be emerging with the winner likely to create a new paradigm for personal transportation (page
8). By attempting to further automation of their business processes, growth opportunities will present
themselves.
Environmental: Throughout the years, concerns on climate change have penetrated the consumers
lifestyles. Tesla has opportunities to promote strictly due to these concerns. Interest in alternative
energy sources has remained strong due to growing environmental concerns and volatile crude-oil
prices (page 8). Teslas electric vehicles (referred to as BEVs) are usually very quiet and dont emit any
exhaust gases; therefore, these vehicles are considered suitable in addressing concerns linked to
sustainability and environmentally friendly products.
Legal: If Tesla were to consider expanding their international patent protection, they could open
opportunities to safely expand overseas. There are energy consumption regulations that client
organizations must follow so that would present opportunities for Tesla to promote their vehicles. Tesla
could also grow through direct sales, but these are only allowed in some U.S. states so it could pose a
threat. Some states do not allow direct sales and instead require dealerships to interact with customers
Tesla has opted to not create franchised dealers, but instead maintain all sales and service operations in-
house (page 15). This has caused quite a legal disruption in several states but overall based on the legal
conditions of the macro-environment, Tesla can foresee growth opportunities.
TESLAS POSITION FOR COMPETITIVE ADVANTAGE |PORTERS FIVE FORCES
For Tesla to position themselves in the market with a sustainabile competitive advantage, they must be
aware and respond to the five forces that impact functionality within a competitive environment.
Threat of Entry: There is a risk within any industry that competitors may enter the market with a
disruptive competitive advantage of their own and pose a threat to pre-existing businesses. In the
automobile industry, the major existing firms, referred to as The Big Three, are GM, Chrysler, and Ford.
These car manufacturers are producing electric-only automobiles into the market despite technological
constraints. The major foreign competitors are Toyota, Honda, and BYD Motors. If a new firm enters the
market (or a current begins to penetrate the current threshold of manufacturing, successfully sell at a
lower price, and drastically increase profit possibilities), there is a chance that prices for all electric
automobiles will have to be lowered. If this happens, the cost of manufacturing would be significantly
higher than the selling point and profit margins would become nonexistent for many companies in the
industry, including Tesla. Fortunately, threat of new entry in this industry is low; it would take incredible
investments in R&D to produce electric vehicles with competitive price points faster than Tesla could

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theoretically.
Power of Suppliers: For electric vehicles, the battery remains the most expensive part of the car and is
subject to deterioration over its lifetime. Many experts claim that problems that exist in the production
of batteries could be number one constraint for the electric-car industry. Unless U.S. put serious research
and resources into developing a cutting-edge battery very soon, the nation may achieve a Pyrrhic
victory, breaking an addition to imported oil through the use of electric cars but replacing it with a
dependence on imported batteries. This dependence would give phenomenal power to first-mover
suppliers. BYD Motors has developed lithium iron phosphate batteries which has accomplished several
electric car feats. Tesla has committed to building a facility in Nevada to build its own lithium-iron
battery intended to produce 500,000 battery packs a year but they are still currently at a disadvantage
(page 9).
Threat of Substitutes: Tesla vehicles are very specialized, customized, and have won numerous awards
for their quality throughout the years. As far as pure-electric vehicles are considered, there is no better
substitute and virtually no other options. (There is a high risk of complements on the other hand
according to the general consumer. Hybrid electric vehicles are selling at an increasing rate since 2011.)
Rivalry Among Existing Competitors: Tesla has worked very hard to position itself as a high quality
provider of top-of-the line electric vehicles. As aforementioned, other companies have entered the
market with hybrids, ethanol, and other forms of alternative fuel sourced vehicles, but as far as
maintaining pure-electric as their niche, Tesla has protected it well.
How should Tesla position itself ?
Taking into account all of these factors, Tesla should focus on strengthening their weak spot power of
suppliers. They should (as they plan to) work hard to ensure their 2017 plan to produce a lithium ion
production plant comes to fruition to lessen their vulnerability to disruptions and increased costs in
production. If they can successfully scale their business and ensure mass production of batteries, they
can roll out vehicles much faster and much cheaper allowing them to capture the entirety of the pure-
electric market. Tesla could also consider making vehicles for the average consumer to lessen the power
of buyers.
GAINING & SUSTAINING A COMPETITIVE ADVANTAGE | VRIO ANALYSIS SEE FIGURE 1.
Competitive Advantage: Yes or No?
After looking through the resources, capabilities, and competencies, Tesla can gain and sustain a
competitive advantage. Tesla is creating a valuable product and is a strong contender in the electric-

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vehicle industry. They have financial and public support from Toyota and Daimler, two giants in the
automotive industry as it stands. As the only U.S. electric car manufacturer producing cars that can drive
300 miles on a single battery charge, they currently possess rarity in the industry. No manufacturer to
date has been capable of matching the performance of Teslas vehicles, making them virtually inimitable
at this point (though this may change very soon as the market is still very young and rapidly changing).
With open-source patents, all future electric-car innovations would be based on Teslas initial work.
Teslas determination to improve on their own technology, create strategic partnerships, and remain
valuable in the industry speaks volumes of their excellent organization which captures value and hold
advantages over competitors.
TESLAS VIABILITY IN AUTOMOTIVE INDUSTRY
Tesla has the capability of becoming and remaining a strong leader in this sector of business. Their drive
for ingenuity and passion for creating technology consistent with our societal needs and desires gives
them substantial potential to become a viable, sustainable business. As mentioned in the PESTEL
analysis, our societal preferences are pushing towards a form of transportation leaving the environment
unharmed. Political regulations are limiting the manufacturing and selling of high-emission, low mileage
vehicles causing a push for newer and improved substitutes. Though currently struggling with their
manufacturing costs and quantities leaving them unable to bring the price down to a market-friendly
level, the vision Tesla brings to the forefront will only bring inspiration to future manufacturing
techniques. The company is investing substantial amounts of resources and research the technological
necessities of an electric-car which will allow them to one day mass manufacture these vehicles and sell
them at a very affordable price. Our society still has a long way to go to make the electric-car industry as
viable as gas-powered cars are currently, but Tesla is the most promising start we could have envisioned.
RECOMMENDATIONS FOR ELON MUSK, CEO

Musk has laid a strong foundation for the development and marketability of pure-electric vehicles in the
U.S. automotive industry. He has allowed for us to envision gas-free transportation as a viable option.
Obviously the cost of production is a large hindrance for Tesla and Musk made an educated choice to
invest into developing a lithium-ion battery in-house. They should plan to provide benefits different
from those of rivals and widely valued by customers at the same prices their market share will increase
as well as long-term profitability. Tesla should widen the range of models to allow them to compete with
other firms. Availability and affordability should remain Teslas most important goal. They should seek
more global presence and grow through international expansion by increasing their brand awareness.

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Figure 1. VRIO Analysis of Tesla Motors, Inc.

VRIO ANALYSIS
TESLA MOTORS, INC.

Leader in pure-electric cars and heavily

V (VALUABLE) invested in by other leading automotive
companies such as Toyota and Daimler.
Major value will come with the ability to
create a longer-lasting lithium ion battery
and mass manufacture.

Currently, the only U.S. car manufacturer

R (RARE) with pure-electric technology and a battery
capable of driving 300 miles per charge.

No other manufacturer has come close to

I (IMITABLE) the feats Tesla has currently achieved
though they have far to go. Their patents
are now open-sourced so imitability may
become more accessible but for now Tesla
remains at the forefront of manufacturing
pure-electric vehicles.

Tesla operates all in-house production,

O (ORGANIZED) maintenance, and future research and
developments. Though organized to capture
value as it stands, could be organized to
capture more. Recommendations: outsource
parts production and partner with lithium-
ion battery manufacturers and researchers.

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