Strategy Analysis of Tesla

Quan Zhou

8 min readDec 2, 2017

Brief Company Overview

1) Founded in 2003

a) Group of Engineers in Silicon Valley

2) Sell Pure Electric Vehicles

3) Main objective is to accelerate the world’s transition to sustainable transportation

4) Tesla Motor’s CEO — Elon Musk

Key Products

6) Electric Vehicles (“EVs”)

a) Tesla Roadster — (sports car)

b) Model S — (luxury sedan)

c) Model X — (crossover)

d) Model 3 — (mass market vehicle)

7) Electric Powertrain Components

a) Sold to automakers such as Toyota and Daimler

b) Powerwall

c) Home battery that uses energy generated from solar panels1

Business Practices

1) Exceptional technological innovation

a) Tesla is perceived to be a high-end disruptor, which means they produce innovations that are difficult to quickly imitate2

2) Large supplier base

a) Tesla manufactures the basic electric components of their vehicles but acquires the other parts from over 20 suppliers3

3) Direct sales to customers

a) However, some states have passed laws prohibiting this business model

Major Milestones

1. Tesla Motors incorporated on July 1, 2003

2. Tesla Motors IPO launched at $17/share, raised $226 million in 2010

3. Company’s CEO Elon Musk won 2010 Automotive Executive of the Year

4. Model S earned Motor Trend Car of Year in 2013

Industry and Competition

1) Industry

a) Automotive

b) Home Energy Storage

2) Competition

a) The automobile industry is saturated with competitors and the competition is intense.

b) The electric vehicle industry, which is a sub-group of the automotive industry has less intense competition.

c) The electric vehicle industry is dominated by a few companies, such as GM, Nissan, Toyota, Ford and BMW4

Key Competitors

1) Automotive

a) Luxury: Porsche, BMW, Mercedes, and Audi

b) Hybrid/Electric: Nissan, GM, Toyota, Ford

Key Customers

1) Tesla’s Primary Customers

a) Individuals with high levels of disposable income and environmentally conscious

b) Tesla’s Model 3 is geared toward the mass — market

c) High degree of customer loyalty

d) Low Bargaining Power from Buyers

e) Tesla’s product is highly differentiated and consumers do not currently have any great alternatives for luxury electrical cars

Industry Overview

1) Major Products

a) Gasoline powered cars

b) Hybrid-Electric cars

c) Pure electric cars

d) Major Technology

e) Autonomous driving

f) Engine and battery innovation

g) Charging Infrastructure

2) Business Model

a) Selling vehicles via dealers

b) Selling vehicles directly to end customers5

c) Vertical integration

i) Gigafactory5

Geographic Nature of Competition

1) The automotive industry is characterized by intense global competition

a) Tesla is more selective regarding the markets they choose to compete in than most companies

b) This map indicates the locations of Tesla Superchargers

2) Tesla is competing globally in the automotive industry; it is more selective regarding the market not like other competitors since it is only producing full electronic cars.

3) The picture of a map that shows the Tesla Supercharges location, we can see that they located mainly in United States, Europe and east part of China. And these are the places where the competition happening

Key Stakeholders Expectations

1) Customers

a) Luxury vehicle with attractive design

b) Long battery life

c) State-of-the-art engineering

2) Shareholders

a) Sustainable growth and profit

b) Strong financial performance

3) The Press

a) Be transparent about company issues

4) There are three key stakeholders, Tesla’s customers, shareholders and the media

5) As an expectation, Tesla customers hopes it can improve the design cars interior and exterior looking and make it more attractive. And they are also concerned with the length of Tesla’s battery life and the development of our engineering issue.

6) Furthermore, shareholders like in most companies, they hope Tesla can have a sustainable growth and profit, and a strong financial performance as well.

7) Last, the media expect the information of Tesla’s company Tesla is transparent to the society.

Industry Life Cycle — Growth Stage

1) Strong increase in sales

a) 15,585 in 2013 to 18,480 in 2014 (Model S sales)

2) Growing Competition

a) More companies are entering the electric vehicle market

3) Developing Brand Recognition

a) Tesla is focusing on differentiation

4) Need for Complementary Value-Chain Activities

a) Focus on marketing, customer service, and R&D

5) Tesla is currently staying at growth stage since it matches the characteristics of this phase. It has a significant growth in its sales, according to the data we found, the sales of Tesla popular Model S increased from about fifteen thousand to about eighteen thousand from the year 2013 to 2014. Besides, the competition is more and more fierce, many cars companies are starting to take the market share of electric vehicles. Tesla is focusing on differentiation strategy and developing their brand awareness for customers. Last, it’s the need for complementary Value-chain activities, they focus on marketing, customer service and Research and design.

Future of Industry and Environment

1) Industry Factors

a) Increasing competition

i) Industry executives believe that automotive premium and mass market brands will dominate over the next decade, followed by pure e-car manufacturer brands6

b) More affordable electric vehicles

2) External Factors

a) Economic

i) Increasing fuel price and consumption rate

b) Customers

i) Increasing population

ii) Demand for EVs will increase

c) Environment

i) Climate change

3) As a new market, Tesla has great opportunities, government support of clean energy, more expensive gas price, their innovative technology.

4) In the meanwhile, Tesla is facing some threats as well. Tesla does not have the ability to produce a large amount of EVs base on their current business model. And more competitors are coming and more the competitors are becoming stronger. The taste and preference of customers are always changing. And the technology is still challenging them.

Threats and Opportunities

1) Opportunities

a) Government regulation supporting clean energy

b) Increases in gas prices

c) Innovative technology

d) New pure electric cars market segment

2) Threats

a) Current business model only allows Tesla to produce a limited amount of vehicles

b) Strong competition

c) Change in taste

d) Technology incidents

Vision and Mission Statement

1) Vision Statement

a) To accelerate the world’s transition towards an electric economy7

b) Mission Statement

c) Tesla is accelerating the shift toward sustainable transport and energy consumption by producing the world’s best electric cars and energy storage systems7

Strategy

1) Business Level

a) Differentiation and focus strategy

b) Corporate Level

c) Horizontal relationships

d) Vertical integration

e) International Level

f) Entering developed countries that are taking steps toward cleaner energy

Business Model and Structure

Business Model

2.Structure

a) Divisional structure

Key resources and capabilities

1) Tangible

a) Headquarters located in Silicon Valley known for its innovation and technology

b) Innovative production process

c) Ability to raise capital

2) Intangible

a) Experienced management team

b) High customer loyalty and brand value

c) Reputation for innovation

d) Capabilities

e) Excellent customer service

f) Outstanding product development capabilities

Financial Performance

Strengths and Weaknesses

1) Strengths

a) Strong R&D department

b) Management team

c) Excellent designs

d) Weaknesses

e) Expensive products compared to competition

f) Lack of supporting infrastructure for products

g) Dependent on suppliers for batteries

Performance Against Competition

1) Revenue growth

a) High growth compared to competition

2) Profit Margin

a) Tesla is becoming more profitable each year

3) Stock Price

a) Tesla’s stock has dramatically outperformed its competition8

Performance cont.

1) Tesla targeting luxury vehicle market9

a) Roadster, Model S, Model X

b) No direct competition

c) Luxury EV market in its infancy

Competitive Advantage

1) Differentiation Strategy

a) Luxurious EV

b) Competes with luxury vehicles as well as economy EVs and Hybrid-electric vehicles

c) Battery Supply Chain10

d) Economies of scale

e) Reducing cost of batteries

Competitive Advantage — cont.

1) Supercharger Network

a) Enables customers to drive their vehicles over long distances

b) Quickly charges to 80% in only 20 minutes11

c) Advanced Software

d) Most advanced user-control software ever implemented in a vehicle

Strategic Issues

1) Low oil prices

a) Reduces demand for electric automobiles

2) Production problems with suppliers

a) Suppliers have experienced difficulty in keeping up with Tesla’s demand

b) Legislation banning Tesla from direct sales

c) Some states have banned Tesla from selling directly to customer (New Jersey, Texas, Colorado, and Arizona)

d) Ongoing battles in New York, Massachusetts, Virginia, North Carolina, Minnesota, Georgia, and Ohio

Strategic Issues cont.

1) Tesla no longer possesses patents on their technology

a) Reduction in intellectual property could lead to decreases in sources of competitive advantage

2) Creating infrastructure to allow their EVs to compete with normal cars

a) Normal gas-powered cars can be filled and “recharged” very quickly at any gas station of which there are over 168,000

Tesla Supercharger Locations

Recommendations

1) Low oil prices

a) Tesla should continue to develop diversifying technologies, such as their Powerwall battery technology.

b) Diversify into markets independent of oil price fluctuations to create alternative revenue streams.

d) Supplier issues

e) Begin to vertically integrate those items which have been an issue to purchase.

f) Develop own batteries (already in the works Gigafactory)

2) Legislation banning direct sales

a) Tesla should begin working on franchising plans

b) Creating dealerships to get into these states

c) Tesla does not want to do this due to conflict of interest, reaching people before they make a decision, and service coverage12

3) No longer possesses patents to inventions

a) Patents can help achieve competitive advantage

b) Actually a strategic move by the company to accelerate speed of EV innovation13

4) Need for nationwide superchargers

a) Tesla touts the long range capability of its vehicles compared to other EVs

b) They should continue to develop their network of Superchargers

Strategy Analysis of Tesla

Source:

Written by Quan Zhou