2. Table of Contents
Introduction/History………………………………………………………..…………………...3
Industry Overview ……………………………………………………………………………...5
Industry Analysis……………………………………………………………………………….11
Macro Environmental Analysis………………………………………………………………...21
Organizational Measurement and Control………....…………………………………………...32
Analysis of the Organization (Corp. Strategies)……...…………………..…………………….43
Analysis of the Organization (Bus. Unit Strategies)....…………………………………….…...47
Analysis of the Organization (Functional Strategies)………...………………………………...55
Conclusion/Improvements/Changes………...………………………………………………….60
References.……………………………………………………………………………………...63
3. Introduction
Tesla is a young company, founded and incorporated in 2003 by Martin Eberhard and Marc
Tarpenning. Elon Musk joined the company a year later and led the board of directors as chairman
within that same year. The long term goal of the company was to provide affordable electric cars to the
general population. Over the course of the decade, the company secured investments from various
investors and secured loans and grants from the US Department of Energy.
Within that same time period, Tesla unveiled models of their cars and products starting with the
Tesla Roadster, a high price point and low sales volume car, the Model S, and Model X, with each
release bringing a cheaper product and a higher sales volume. The general strategy of the company
has been to fund each new model with the revenue and investments from previous models, learning,
adapting, and evolving with each model until an affordable electric car can be brought to market.
Company History and Overview
Like many start ups, Tesla began small in 2003 and faced growing pains throughout the first
decade of the 21st
century. Recognizing the need for alternative fuel sources and facing the high oil and
gas prices of the last half decade, the firm looked towards making electric cars a viable alternative to
traditional gas cars for economic and environmental reasons. Elon Musk, a known philanthropist and
investor, began his work with the company in 2004, personally overseeing the development of the Tesla
Roadster, Tesla's first commercially available electric car. Musk's involvement, as board chairman,
with the company led to greater investments from a wide array of investors. Company leaders from
Google and Ebay are noted investors in Tesla's earlier years.
During the late 2000's the company avoided bankruptcy but did so with the infusion of liquid
capital from Musk along with other investors. The brink of bankruptcy was caused by issues related to
personnel and burn rate issues (the amount of negative cash flow). In 2009, the firm delivered the first
set of Roadsters, which helped secure further investment in the company.
4. Roughly six months after delivering the first set of Roadsters, the company secured an
approximately $500 million interest bearing loan from the Department of Energy as a part of a larger
initiative. In 2010, the company went public and announced that Toyota would be purchasing $50
million in common stock (BBC, 2010). The arrangement included Tesla providing support to Toyota in
the development of electric powered cars. The company later sold 13.3 million shares at approximately
$17 per share.
As the success of Tesla's
products continues to grow, the
company has been able to move
towards the ultimate goal of
providing viable electric alternatives
to the automobile market. The firm
recently released it's Model 3 car,
which it is billing at the closest yet to
a mainstream electric alternative.
The company is currently taking
reservations for this vehicle and have set a price point of $35,000 for it. As with each model, the car
operates solely on electricity and has a range comparable to others in the company's lineup.
Growth in orders are also being noted for 2016 and 2017 with roughly 80,000-90,000 new
Model S and X cars anticipated for delivery. Further, for the first time in company history, the
company is posting positive cash flow from core operations (See Figure 1). In a letter provided to
stakeholders and investors in February 2016, the company notes a number of prominent
accomplishments for 2015, 2016, and onto 2017 (See Figure 2).
5. Industry Overview
The overall Electronic Vehicle (EV) market has been slow to development in various parts of
the world. This has been due to a number of factors including oil prices, material costs, infrastructure
requirements, and the need for research and development. However, some progress has been made in
the last decade which highlights how potentially promising the industry will be over the next few
decades.
Since 2013, market share growth in
various countries has grown for electric
vehicles (see Figure 3). This growth has led
to consumers becoming more comfortable
with the concept of electric vehicles and
highlights the advancement in the field in
terms of reducing costs and enhancing the
benefits of owning an electric vehicle. In
some countries, especially those that are
likely to experience strong support for electric
vehicles, the market share increases have been dramatic. Plug-In Electric Vehicles (PHEV) saw similar
growth to their Battery Electric Vehicle (BEV) alternatives in the United States. One should consider
6. that the trend of positive market share growth will continue even as downward pressure on cheaper fuel
costs increase. As electric vehicle manufacturers continue to develop products that compete and
outperform traditional fossil fuel based vehicles, the share of growth should continue to follow a
positive trend.
EV sales continue to rise globally as well (See Figure 4). In 2011, roughly 50,000 electric
vehicles were sold world wide in 16 different members of the Electric Vehicles Initiative. From 2011
to 2014 the sales numbers have risen drastically. In 2012, a 150% increase in sales, in 2013 a 70%
increase in sales, and in 2014 a 53% increase in sales. It also appears that the majority of the increase
in sales are for BEV units, with PHEV following close behind. Continued growth in the market is
expected, with companies like Tesla forecasting greater sales in most of its product lines.
Costs are coming down for some of the most expensive components of an electric vehicle. The
batteries in electric vehicles are expensive and can cost thousands of dollars to replace. Lithium is a
7. type of raw material and is the primary component of lithium batteries that holds the charge necessary
to run or supplement the energy needed to operate electric vehicles. Costs of batteries have come down
14% every year since 2007 (Hunt, T., 2015). Further, the energy density of batteries have increased,
indicating that consumers are getting more energy from cheaper batteries (See Figure 5).
Lithium itself, as a raw material, is in fairly high abundance with the U.S. Geological Survey
indicating that the world has enough supply of lithium to last 365 years, if global production remains
the same (Hunt, T., 2015). However, as the market share of electric vehicles grows, the pressure on
lithium prices will likely grow as well.
Prices have remained steady for the
last few years (Hunt, T., 2015). As
companies like Tesla continue to
expand the use of Lithium as a raw
material in production, the demand for
lithium will increase. It is important to
note, however, that research and
development is a very critical component to this market (see Figure 6) and it would be unwise to
8. assume that lithium usage would not be influenced by technological changes in the future.
Lastly, infrastructure requirements for serving electric vehicles has been a challenge for the
market. With ranges topping out at around 300 miles for some of the best electric vehicles, there have
been issues with creating an infrastructure where consumers can recharge batteries as they travel
extended distances. Consumers recognize that electric vehicles have a limited range and unlike their
fossil fuel counterparts have a non-traditional refueling situation. Electronic Vehicle Supply
Equipment (EVSE) are systems designed to refuel (recharge) car batteries in the home or on the road.
Tesla vehicles can currently charge via
two different types of plugs. The standard 120
volt plug, which can plug into any standard
electrical outlet to charge the battery, which
takes approximately 8 hours (an overnight
charge), or the installed home system
(Supercharger) which pushes out 130 kilowatts
and can recharge a 10% battery to 80% in
about 45 minutes. The battery can be fully
charged in as little as one hour, depending on
the battery and other environmental conditions (Bloomfield, N., 2016, April 12).
Infrastructure (recharging stations) needed to support fleets of electric cars will be needed in
order to ensure consumers can drive past the ranges of their electric vehicles. In 2014, there were
approximately 9800 charging stations nationwide (US rollout of electric charging stations slowing
down, 2014, April 30). However, as fuel prices and alternative fuels like natural gas drop in price, the
building of new charging stations have slowed . Overall, the worldwide supply of charging stations is
increasing per year (see Figure 7).
Tesla itself operates 616 charger stations around the world with over 3500 chargers
9. (Supercharger Stations, 2016, April 19). Hundreds of charging stations are situated in the United
States, mostly in high population urban areas and along the busiest highways and interstates (see Figure
8)
Tesla plans to expand its network as it begins to release more vehicles into the market. Tesla's
newest Model 3 car, which is scheduled for release in 2017, already has approximately 400,000 orders
worldwide (Fehrenbacher, K., 2016, April 15). These orders will likely be shipped in late 2017, with
the brunt of the orders being finished in 2019 and 2020 (Fehrenbacher, K., 2016, April 15). One can
see why Tesla plans to expand ESVE stock in the future (see Figure 9).
10. Competitors
The major competitors to Tesla include big car companies such as Ford, General Motors,
Honda, and many others. Market share in the electric car market, domestically, has been driven mostly
by Nissan (Leaf), Toyota (Prius), and Chevy (Volt) (Loveday, E., 2014, June 24). Ford has seen much
less success in current electric vehicle stock on the road and Tesla ranks 4th
in the lineup (see Figure
10). It is important to note that the Nissan Leaf is the only fully electric vehicle in the top three
whereas the Chevy Volt and Toyota Prius are both hybrids utilizing both an electric and gasoline
engine. Tesla's Model S and X are the only fully electric car with range capabilities beyond 200 miles.
11. Industry Analysis
Strategic Group Analysis
The strategic group analysis identifies organizations with similar characteristics that likely
compete with one another in the market. In this case, the analysis focuses on the electric vehicle
market with the main competitors of Tesla being placed strategically relative to the market conditions
Tesla operates in (see Figure 11) .
Figure 11 highlights the various companies competing with Tesla and Tesla's position related to
those companies. As the chart indicates, the larger automobile companies like Ford, Nissan, Toyota,
and Chevy all compete closely with one another. They offer consumer based EV alternatives which are
generally considered affordable yet share similar weaknesses such as lack of range, limited
performance, and an insignificant disruption to the status quo.
On the other end of the chart, Tesla and BMW compete for the premium end of the EV market
with Tesla's Roadster and Model S and X leading the pack. The market and group analysis will change
12. however (represented with the red arrow), as Tesla fulfills its vision of creating a more consumer
friendly car, which it has done with its new Model 3. Tesla will begin to creep into the markets
dominated by the large automakers. With a starting price tag of $35,000 ($28,000 after tax incentives),
the Model 3 should compete well with the Chevy Volt ($33,000), Toyota Prius ($24,200), Nissan Leaf
($29,010), and Ford Fusion Hybrid ($25,600).
Critical Success Factors
Critical Success Factors (CSF) for the industry are wide ranging. Factors include but are likely
not limited to:
The Quality of the Products offered
Currently, there is a wide range of EV alternatives being brought to market. As suggested
by the Strategic Groupings Analysis, these products range from more traditional EV
options to higher priced premium options. Regardless of the options, the quality of product
offerings will need to be expansive enough to compete with more traditional forms of
travel, specifically gasoline based vehicles.
Costs and Cost Drivers
Similar to quality, success of this industry will require price points to be competitive with
gasoline alternatives. If cost drivers like batteries (lithium) and electronic systems are
unable to compete with gasoline alternatives, this will put downward pressure on the
industry. However, as demand for EV technology rises, it is likely the costs will go down,
as we have seen with both electric vehicles in general and batteries
Vehicle Range and Autonomy
Vehicle range will have to rise to the point where it is possible to travel without needing to
recharge on a consistent basis. Consumers will not tolerate a travel option which requires
substantially more time to travel than that of gasoline alternatives. Present EV options are
mostly hybrid, still requiring gasoline to run. True electric cars will be required to have
extended ranges. Today's cheapest all electric vehicle (Nissan Leaf) only has a range of
100 miles on a single charge, enough for most urban settings but not enough for regional
or national distances.
Target Markets
The market segments are going to have to broaden in order for the industry to be
successful. While diversity in the compact car and family vehicle market may be the
easiest to penetrate at the moment, given technology and infrastructure constraints, other
markets will need to be identified and exploited. Light duty trucks and SUV/Crossovers
have made up a large percentage of sales in 2016 (See Figure 12). The industry will need
to adapt and offer products to these markets.
13. Government Policy (Specifically Incentives and Investments)
The industry has benefited on numerous fronts regarding government incentives and
investments. On the consumer side, tax rebates of up to $7,500 are offered to lower the market
price on electric vehicles (Plumer, B., 2012, September 21). These rebates effectively increase
demand for EV alternatives by lowering entrance costs into the market. Investments from
federal and state grants and loans reduce the financial risk to investors. In 2012, the Department
of Energy committed $7.5 billion to electric vehicle research through interest bearing loans and
grants (Plumer, B., 2012, September 21). Incentives and investments will need to continue to
spur development and ensure the industry achieves success.
Battery Factors
Batteries are a critical component of any EV product and are a significant reason why electric
cars are cost prohibitive. However, measured in US dollars per kilowatt hour of storage capacity,
battery costs are coming down faster than projected (see Figure 13).
14. In 2005, it was estimated that battery costs were roughly $1700 per kilowatt hour of capacity
(Carbon Brief, 2015). Present battery costs per kilowatt hour have reduced drastically, with a
range of approximately $250-$500 per kilowatt hour. Considering projections were much
higher, based on previous estimates, it is likely the trend will continue.
Other factors need to be considered as well, regardless of initial expense. Those will be battery
life, battery versatility, and battery safety. Some research has indicated that current battery
technology is far overshooting expectations. When drivers needs are actually considered and
measured, batteries that lose 70% of their original capacity still accommodate user
requirements (Saxena, S., Le Floch, C., MacDonald, J., & Moura, S., 2015). However, studies
have focused on EV's with limited range, favoring urban consumer needs (fewer miles).
Refueling Payments or Pricing
Recharging batteries at home or on the road will require a different means of pricing and
payment. At home, the cost of recharging (minus any equipment costs) are tied directly to
electrical usage paid for through the consumers utility bill. At present, average prices have that
at roughly 12 cents per kilowatt hour or a cost of approximately $3.50 to go 100 miles
(Lochnitt, C., 2013, November 19). Based on an average 15,000 miles per year driven, it would
cost approximately $525 a year to recharge a Tesla. When compared to gas prices, a 30 mile
per gallon car (very generous) purchasing gas at $2.50 per gallon would cost $1,250 ($725
savings).
On the road, many EV charging stations offer free electrical power. Tesla indicates that
charging is free with their current model lineup. In the future, as demand increases pressure on
companies to charge for services, various payment options may be required, including pay for
service, pay for subscription, and other forms.
15. EV Infrastructure
Infrastructure will be a critical component in creating an environment suitable for fully electric
vehicles. While the building of new charging stations in the US have slowed, worldwide
growth continues. Companies will need to offer better and faster recharge services, if EV's are
to compete with gasoline alternatives. Parking lots, parking decks, gas stations, and other areas
where cars congregate will all be relevant and viable infrastructure platforms. Wireless EV
charging may be common in households and other suitable environments (See Figure 14)
Failed Companies
There are relatively few failures in this market primarily due to high start up costs, high
research and development requirements, and a very competitive market. However, there are a few
notable examples: Aptera
Aptera was a start up and began near the time
Tesla was beginning to come together in 2003.
Aptera was the first fully electric car to have an
impressive range of 300 miles and sported a
unique futuristic design. However, in 2008, the
companies funding began to run out, and in 2011
the company closed operations due to the lack of
funding. The design, considered by many to be
too radical, may have influenced investors
decisions not to more forward with the project.
16. The general malaise for the organizations listed was that they were simply out competed by
Tesla and while one of them may return or rise from ashes, Tesla, by that time, will not only have had
large investments by entities like Google and the US Government, Tesla will have an infrastructure, the
research, and an established product. The reality is that Tesla is the first electric car company with the
capabilities and resources to supply and maintain a product long term. The companies listed above
were unable to match Tesla in investment and will be late to the game should any of them be
reincarnated.
Fisker
About the same time as Tesla and Aptera,
Fisker made its way onto the scene. Sporting
a more traditional look, the company actually
never produced a fully electric car (just a
hybrid). Tesla claimed Fisker stole elements
of their design but lost a subsequent court
case against them. Fisker shut down in 2012
lacking funding necessary to move forward.
Two years after shutting down, a Chinese
investor reinvigorated the company and
hopes to start up operations in the near
future.
Coda
Coda, another firm started near the time of
the others (including Tesla), filed for
bankruptcy in 2013. The company decided
to focus on energy storage over car
production. Analysts indicated that
competition and investment funneled to
Tesla and that was the driving factor that
led to Coda's swift end.
17. Porters Five Forces
Porters five forces analyzes the level of competition within an industry which helps provide a
firm with information eventually leading to the possible development of a strategy leading a firm to
success. In this case, the analysis below highlights the industry and competition facing Tesla (see
Figure 15).
Industry Rivalry
As noted in the earlier sections of this analysis, there is a small list of failed start up companies
and a list of successful ones that compete within the market. Those that are competitors within the
market are the international car companies which do business world wide. They supply the market
with mostly hybrid based electric vehicles (with exception of the Nissan Leaf). Essentially the
competition that does exists is between the large car companies and Tesla.
The competition is intensified as there are only a few companies operating in the market.
18. Further, demand for electric cars continues to grow year over year, worldwide (see Figure 16). With
such high demand and relatively low supply, the market is constricted by what it can produce and
supply to a strong demand function. Tesla does not even expect to finish fulfilling the 400,000 orders it
has on reserve until the end of year 2020 for the Model 3 (Fehrenbacher, K., 2016, April 15). Demand
will only be compounded as prices for electric vehicles and the infrastructure needed to maintain them
continues to expand and reduce in costs.
Threat of New Entrants
New entrants into the market will likely be limited as start up costs and research requirements
are very high relative to other industries. The magnitude of funding needed to compete requires
substantial investment, as seen with Tesla's entrance into the market. With the high barriers associated
with the industry, the threat from new entrants is low. The threat of new products from existing
competitors is relatively moderate, considering that there are viable hybrid options available to
19. consumers. Tesla has had some success with forming strategic alliances in the past with competitors in
the market, notably Toyota. This has allowed Tesla to keep an eye on the industry and share
information relevant to the industry.
Threat of Substitutes
The weakness of the industry is the higher price points of product offerings, lower gas prices,
and the limited diversity in current EV stock. As noted in Figure 3, less than 1.5% of the current US
automobile market is composed of EV related products. This essentially indicates that the threat of
substitutes for the industry is very high. Exacerbating the threat are other variants of fuels such natural
gas, which is projected to hit $3.5 million worldwide by 2025 (See figure 17) (Henry, K., 2016, January
4).
Further, the threat of substitutes can be sourced based on the environment. Urban dwellers may
be more likely to prefer public transportation or ride-sharing as an alternative means of travel. Rural
consumers may decry the lack of diversity in offerings available or find that EV options do not offer the
utility other substitutes may provide.
20. Bargaining Power of Suppliers
The automobile industry is known for having diversity among suppliers. However, when it
comes to EV power trains and engines, much of the product is made in house. The skill and expertise
needed is provided internally and thus reduces the array of potential suppliers and their leverage. At
this point, Lithium-Ion, the raw material needed for batteries is supplied by a handful of companies and
supply is ample at the moment. As EV technology becomes more widely available, as it is projected to
continue to do, suppliers may inevitably play a larger role in this industry.
Bargaining power of Buyers
Limited supply leaves buyers with very low bargaining power in this industry. Projections
indicate that electric cars will reach price parody with their gasoline cousins (See figure 18). Once that
happens, demand for them will increase, especially if the infrastructure and product dependability are
present. Buyers may find themselves with greater leverage as the number of options increases,
however, at present, that is still years away, most likely a decade or so. Lack of options now, means
suppliers hold the leverage for the time being.
21. Macro Environment Analysis
PEST Analysis (Political/Legal, Economic, Societal, Technological)
Political/Legal
The US government has supported the industry both by lowering the price points for consumers
to purchase electric vehicles, through a tax rebate, and by investing in companies, in the magnitude of
billions. Tesla, in 2009, was a recipient of a $465 million loan from the Department of Energy as a part
of a larger multi billion dollar program to research and bring to market electric vehicle components.
Both Republican and Democratic administrations have secured funding for such programs in the past.
The Department of Energy has spent the better part of the last decade funding both the product
development side of the market along with millions of dollars spent in charging stations and
infrastructure needed to support the EV industry.
Tesla has faced more challenges at the state level than at the federal level in selling their
products and making their supercharging stations available (See Figure 19).
22. The red indicates states where Tesla has been banned from selling their cars or prohibited from
installing their supercharging stations. The auto sales industry is very much against the model that
Tesla uses to sell its cars. Tesla's approach has been to open a showroom directly, ship the product to
the store once a consumer purchases a car, and essentially end the transaction at that point.
Many auto dealers are third party dealers and some state laws require third party dealers to be
the point of contact between the consumer and the manufacturer. Further, there are some suggestions
that those states with oil interests are concerned about the impact EV sales will have on the oil industry,
with good justification. Some analysts see the oil industry suffering significantly in a future where
electricity becomes the main source of energy for transportation. In fact, some are suggesting a tipping
point and potentially an oil market crash if EV sales compete drastically with fossil fuel alternatives
(see Figure 20).
23. Economic
Economic conditions in the United States have improved over the last 3 years. While wages
have remained steady (increasing a little over the last few months), the overall unemployment rate has
dropped to almost full employment, putting upward pressure on auto sales in the United States. Sales
data from December 2014 to December 2015 show the extent to which sales have increased (see Figure
21) . The data suggests that the economy, as a whole, is recovering and that spells good news for the
auto industry.
It's important to note that sales may taper some as the Federal Reserve begins to raise interest
rates impacting a wide array of loan parameters and cost drivers. However, some of the drive in sales
may be due to a delay in consumer behavior. The recession impacted both consumer confidence and
discretionary spending. It could be that some of the increase in sales is due to the general increase in
consumer confidence and the perceived ability to afford a car.
The healthier economy coupled with an increase in demand is good news for EV purchases as
well, as sales and demand continues to grow. However, lower gas prices might impact EV sales along
with higher fuel standard requirements set by the government. Already changes in sales of pickup
24. trucks have been seen since gas prices have lowered along with a sharp decline in EV sales (See Figure
22). The market has essentially flip-flopped from previous years showing an increase in sales of trucks
(in blue) and a decrease in EV sales (in orange) (Lynch, M., 2016, January 14). It is unclear if gasoline
prices are the primary driver for this change but it would not be an inconsistent concept. Cheap energy
in the long term, may increase the substitute threat to the electric car industry. However, electricity is
cheaper than oil. If electric car manufacturers can continue to lower prices and eventually reach price
parody with gasoline cars, the advantage of oil will erode.
Forecasting out for 2016, the US GDP is projected to grow at 2-3%, on track with what analysts
would expect (Amadeo, K., 2016, March 16). Further, unemployment is expected to slowly fall
through 2018 until it reaches 4.5%, or full employment. Even with government spending at its highest
during the recession, very little inflation or deflation is expected with any deviation monitored and
controlled by interest rates (Amadeo, K., 2016, March 16). The Federal Reserve will slowly and
carefully raise interest rates unless something occurs which disrupts the larger economy.
25. U.S. manufacturing will grow and is expected to grow faster than the overall economy, growing
2.6% in 2016, 3 % in 2017, and hovering around that point until 2020. Cheap energy (oil) is expected
to continue through 2020, with a barrel of oil hovering in the $34-$80 range (Amadeo, K., 2016, March
16). Cheap prices are also the result of a strong US dollar, which is expected to continue or maintain
parody with the Euro for the foreseeable future, however interest rate hikes may impact that variable.
The United States economy looks good in the majority of sectors and should provide a good future for
the auto market and maybe the EV market specifically, depending on gas prices and how soon prices
for EV alternatives compete on a larger scale.
In an attempt to understand how gas prices impact sales, a simple regression analysis was
performed. Utilizing data from Triple A and hybrid car sales, gas prices were utilized as the
independent variable (x) and hybrid car sales were used as the dependent variable (y). The data runs
back from 2007 until 2015. Hybrid sales were the only included car as other EV technologies did not
exist or were not found.
26. Regression Analysis (gas price) It appears from the data, that gas prices themselves do not play
a significant role in hybrid sales starting in 2007 until 2015. The r-squared suggests that gas prices may
impact sales at around 16% but the data is not statistically significant with a p-value at 0.27 and an f-
value of 1.4. Utilizing simple regression analysis on human behavior is traditionally a difficult
enterprise. One could look at this information and come to the conclusion that gas prices have been
and are a very small or insignificant factor when a consumer chooses to purchase a hybrid vehicle. The
small sample size may influence significance. Perhaps other variables like price and disposable income
interact with overall sales.
Regression Analysis: The r square indicates that disposable income may impact the dependent
variable by 30% however, the p and f values indicate a lack of significance. The sample size may limit
significance but hybrid sales are recent in automobile history and long term data does not exist on a
yearly basis. Monthly data may provide a better analysis of sensitivity due to lack of yearly data.
27. Societal
The awareness of global climate change and the impact that change could have on the future of
the planet is increasing (See Figure 23). The challenges
associated with greater degrees of climate instability are costs
that are beginning to awaken to the public. While the
awareness continues, the urgency to do something about it
seems to fluctuate (Funk, C., 2015, July 1). As climate
change issues force more consumers to change their
behaviors, a shift away from carbon may be the result.
Regardless of climate change, there may also be a
recognition that even if fossil fuel prices remain low or
reduce due to a decrease in demand, the public may prefer
non-polluting forms of transportation in the future.
Generally, the American population believes that
policy should be focused on growing sustainable
energy sources (See Figure 24). Regardless, of
education level, the majority of Americans seem to
believe that, at the very least, sustainable energy
should be a large component of the broader
American energy portfolio (Funk, C., 2015, July 1).
While global climate change may be a concerning
topic for the public, the question about whether or
not spending habits will change is another one
entirely. As demand for EV rises, and prices fall, the
28. views of consumers and their preferences may shift as well.
Tesla and other competing companies in the market will benefit from a demographic profile that
increasingly concerns itself with climate issues. While price and utility may be the driving factor
behind purchasing an EV, a business climate that orients itself away from fossil fuels is a productive
market for alternative energy transportation. Couple climate change concerns, fuel costs, and
government policy together and the market appears strong for the EV industry.
Technological
Currently, the industry has two primary technological hurdles that have to be addressed
adequately. The first is the range of electric cars (See Figure 25). Without considering Tesla's new
Model 3, present EV stock averages approximately 84 miles per charge (Stobing, C., 2016, February
4). This number will need to improve drastically in order to ensure consumers are comfortable with the
range their cars have. Considering the vast majority of consumers commute within an 84 mile (back
and forth) range of their home, its ability, not practicality, that is likely a significant concern. Tesla's
new Model 3 will be the cheapest all electric vehicle with a range of 215 miles on a single charge,
however, range is not the end of the story.
29. Charging outside of the home may be more difficult and certainly will be more time consuming.
The ability to recharge a battery has not yet reached parody with filling a car with gasoline and it may
never be as fast to due safely. Currently, there are three speeds at which batteries recharge (See Figure
26). Alternating Current Level 1 (AC1), AC2, and Direct Current Charging. At the slowest charging
speeds, one could get 2-5 miles out of their car per hour of charge. At the fastest charging speeds, 50-
70 miles per 20 minutes of charging (Stobing, C., 2016, February 4). However, in all cases, charging is
managed so that overcharging does not occur (thus, taking more time for a full 100% charge).
Tesla's model for charging stations has been twofold. One, there must be an infrastructure in
place which can support electric vehicle transportation which can be accessed everywhere in the
country, in Figure 8 and 9, we see that structure forming. Two, the approach isn't to fully charge a
vehicle when it stops for recharging, it is to charge the vehicle enough to make it to the next charging
station. However, even at the fastest rate possible (Tesla Superchargers), the time it will take to
recharge a battery is significant. Even charging a battery to 80% or 85% in 20 minutes would still
mean significant travel delays when covering long distances. This barrier will remain difficult for the
industry as a balance between safety and convenience will be necessary.
The benefits of the technology must also be considered for consumers contemplating entry into
the market. Maintenance costs for electric cars are reduced as electric engines are significantly less
30. cumbersome and can last thousands of road hours longer than gasoline engines (Stobing, C., 2016,
February 4). Also, while battery life and capacity are truly the main concern with electric cars, some
companies may offer to replace a battery for free, certainly within a warranty period (typically 10
years). The costs and benefits may be best explained by the EPA and DOT, the US governments
regulating agencies on the matter (See Figure 27).
Opportunities and Threats Facing the Industry
At present, there are two opportunities the industry must continue to exploit. The first is
government state and federal policy that promotes EV technology. There is little doubt electric vehicles
will play a large role in the future of transportation in the United States and all over the world. The
simple fact that the oil supply will eventually constrict and costs of producing EV technology will
continue to lower means that it is simply a matter of time as to when EV technology takes a larger role
in the human populations ability to move around. Capitalizing on government incentives and programs
will extend the viability of the industry until the industry itself can stand firmly on its own.
Secondly, incorporate transparency into the industry. Electric vehicles may be the future
31. regardless of how people feel about them presently. However, in order to build trust with consumers
and help strengthen credibility with the technology, the industry must prove that their products are
reliable and versatile. There is a natural human tendency to resist change out of fear. The automobile
is a staple in the human experience. Models of cars like Mustang, Camero, and Porsche have not only
defined generations, they defined culture at the time they were released. EV companies strategies need
to focus on what a car means, not just how it works and gets around.
The primary threat to the industry are substitute products and the loss of interest and investment
in EV products due to cheap energy and higher up front costs. Combating cheap energy will be
impossible, but cheap energy won't last. By 2040, oil will be over $150 a barrel again (Amadeo, K.,
2016, March 16), if not sooner. Global demand will be the primary driver of those costs and supply
will continue to shrink. The answer to the problem will be electric vehicles and it will be necessary for
the industry to offer products that are diverse, have competitive price points, offer better quality, and
seem to be the natural alternative to the dying fossil fuel focused transportation industry.
Tesla Model 3
32. Organizational Measurement and Control
Tesla-Current Financial Position
Tesla is still a very young company and has relied significantly on government subsides, loans,
and investments to remain viable. Provided below are components of the companies financials with
analysis.
Year after year, total revenue has been increasing. This has been due to a year over year
increase in sales of both the Model S, X, and Roadster products. Tesla sold its 100,000th Model S in
December of 2015 (Cobb, J., 2015, December 15), is on track for sales of its Model X, and finished its
production of the Roadster in 2012 delivering more than 2400 units worldwide at a base price of
$109,000. Leasing has also kept on pace with expectations and is projected to continue growing in
2016. From Q4 2014 to Q4 2015, Tesla sold 76% more Model S vehicles (Tesla Fourth Quarter
Report, 2016) and expect a 60-80% sales increase in 2016, for both the Model X and Model S (Tesla
Fourth Quarter Report, 2016). The Model S was the only car in its class to grow in sales in 2015 (See
33. Figure 28).
Sales are expected to continue and the company plans on only relying on internal investors for capital
expenses, including the building of the Gigafactory which will expand production of all product lines.
Automotive gross margin, the value of incremental sales, is expected to grow as Model S costs
are reduced and manufacturing efficiencies are expected for Model X (Tesla Fourth Quarter Report,
2016). By the year end, Model S gross margin should be at 30% and Model X should be at 25%. This
compares favorably to BMWs
12-16% for its hybrid vehicles
and Fords 15-16% for its Fusion
hybrid (Finger, R. 2013,
September 23).
However, even as sales
have increased, net income has
decreased. Which likely means
there is very little liquidity the
company has on hand. This would also be evident in Tesla's quick ratio, the measure of liquid assets
34. available for each dollar of current liabilities, which currently stands at roughly 0.49, suggesting the
firm does not have an adequate supply of money to cover its short term needs (Tesla Motors Stock
Scanner NASDAQ., 2016, April 21)
Debt Analysis
Debt Breakdown Summary: The numbers are not very good for Tesla in this section. Interest
coverage indicates an inability to pay on outstanding debt, interest expense has increased significantly
over the last year, and the current ratio is on the negative end of the scale. Some of these issues make
sense for a start up, but Tesla is taking on serious debt loads likely to pay for its Gigafactory and new
product lines. Serious revenues should be expected from sales but company strategy seems to focus on
long term sales of Model 3 vehicles. Competitors in the market are in much better shape, by
comparison.
35. Income Analysis
Income Breakdown Summary: While overall sales have increased, there is little room for
comfort with other metrics. In both the EBITDA and EBIT metrics, the numbers are negative, very
negative. This implies that Tesla is not making any money, which is also evident in its net income
which also shows negative figures. One must consider that Tesla is entering a market where the start
up costs are exceptional and the consumer base, so far, has been limited to consumers able to afford
cars in the price range of $65-$110,000. While sales have increased and demand appears to be high,
Tesla is likely unable to fulfill orders fast enough to keep up with costs. The Gigafactory investment is
aimed at expanding production but investors will need to be confident in company leadership with
these debt and income numbers. Competition is obviously doing much better.
36. Balance Sheet Analysis
Balance Sheet Summary: One can tell from this analysis that Tesla is preparing for
investments in the future. Knowing that their product line is expanding and that they are building a
new factory to expand production can be read here. CCE fell significantly in 2015, indicating they've
cashed in on some investments or spent saved money. Total assets increased suggesting new
investments were made. Total debt increased, consistent with a growth strategy and overall equity
grew indicating some growth in investment. The challenge for Tesla is going to be how well they
handle their debt load and whether or not they will be able to meet consumer demands in time enough
to get control over their interest and debt repayments. While some competitors may have high debt
loads, they also have a much healthier stream of revenue and a much larger supply of cash on hand.
37. Profitability Analysis
Profitability Summary: The metrics used to analyze Tesla's overall profitability are not great
in the absence of context. Every metric has gotten worse from 2014 to 2015, however, the strategy
employed by Tesla is a growth model with high capital costs hoping for strong returns in the medium
term. There is no profitability with this company and investors should know that prior to making
investments. Those investors that are buying into Tesla are likely disregarding the metrics banking on
the demand and supply capabilities of Tesla's product, the Model 3. The opportunity for investors to
invest when Tesla is cheap, may prove to garner big gains in the future. Most investment firms would
likely advise one to avoid this stock as it clearly is under performing and in fact the firm is rated lower
than a 'D' by some analysis firms.
38. Stock Analysis
Share Analysis Summary: Much of the metrics used in this analysis show that Tesla is
ratcheting up its investment by issuing more stock. However, the performance of their stock is
consistent with other metrics; the stock is paying out no dividends, there is no institutional ownership
of their stock, and EPS is negative indicating loss not profit. Daily volume is high, however, which
means Tesla has stock which is priced fairly well but may also indicate an overvaluing of the stock,
especially considering the gap between the book value of the stock and the market value of the stock.
On the positive, Ford and Toyota are not running too much better than Tesla. Toyota has better
numbers than the other two. Considering Tesla is in such a different position than either Ford or Toyota,
its almost like comparing apples to oranges.
39. KPI Analysis
KPI Analysis Summary: Tesla is a start up company and is gambling on a growth model which
requires a significant amount of debt. They are performing relatively well on the sales end but still
have a long way to go to balance the scorecard. Most indications suggest that this is a company
40. financially unbalanced with a future that is difficult to project. It would be unwise to invest in Tesla
given the metrics offered. However, in context, an opportunity for investment might be making itself
known. While there is a unhealthy level of risk, the market analysis provided earlier and the
investments made by the government should inform the investor on the direction of the market. While
the financial data of the company appear turbulent, at best, the time to invest may be soon. As Model 3
cars and infrastructure roll out, the company may change its position drastically.
Analysis of the Organization
Mission/Vision
Tesla's mission, as stated by CEO Elon Musk is to “accelerate the advent of sustainable
transport by bringing compelling mass market electric cars to market as soon as possible,” (Musk, E.
2013, November 18). The vision statement is to “create the most compelling car company of the 21st
century by driving the worlds transition to electric vehicles.” From the near beginning of the
companies existence until now, those statements have not changed. Based on future growth plans, it
appears that the company intends to continue its march towards the completion of both its mission and
vision.
Core Competencies
The core competences of Tesla are both in resource management and their unique capabilities.
From the capability side, there is no doubt that Tesla has led the way in research and development for
the electric car. This can be seen in a number of different ways:
1. Range of battery life
2. Power train capabilities of vehicles
3. Charging innovations
4. Inclusion of adaptive technologies within each product.
Beyond, the research and development component, they have had to invent and create new
41. ways to manufacture their products. Building lighter and cheaper batteries and integrating systems into
the chassis of an electric car requires an elevated understanding of car manufacturing. Not only has
Tesla had to reinvent the car, they have had to reinvent the way in which the car is built, starting with
the power train.
Tesla's image and marketing capabilities are also at the heart of the core competencies. Much of
their marketing has been related to word of mouth or guerrilla style marketing tactics. They have not
relied heavily on traditional forms of marketing as their competitors do and certainly do not reach the
scale of their competitors. Elon Musk, the
CEO, has himself become a minor celebrity
with his other endeavors into investments
including Paypal, SpaceX, and investments
related to artificial intelligence and DNA
sequencing. Mr. Musk, himself, is as much of
a marketing piece as his investments and
companies are. The CEO and investor has seen
strong success in his career and likely helps build credibility when his involvement is integrated into a
business or organization.
Lastly, service and customer service are key competencies of the organization. With such a
limited number of customers, Tesla has the ability to focus on each customer and service their needs
particularly well. Once Tesla expands beyond the luxury car market into lower price range markets,
we'll see if the company can maintain the same level of service. Tesla also operates resource
management particularity well.
Tesla's research and development side has been given vast resources, especially for the financial
condition of the company (See Figure 29) to create some of the most advanced battery technology on
the planet. This investment has allowed their cars to have ranges beyond the traditional market
42. offerings of their competitors and is one of the strongest selling points for the vehicle itself. Also,
managing its own showrooms gives the company direct control over how cars are sold and creates a
link between the consumer and the company. This differs drastically from the third party dealer
environment present in many states throughout the country.
Goals
The goals of the company are both strategic and incremental. Strategic goals include:
1. Selling its own vehicles at designated showrooms throughout the US and expanding its
business model to states which currently do not allow for it.
2. Selling any of its patented technology to other auto suppliers to hasten the speed at which
electric cars are on the roadways.
3. Creating the focal point which allows EV to begin to dominate the market share of
automobiles.
4. Continue expansion of EV infrastructure (chargers) around the world.
Incremental and Action Step Goals for the immediate a new future include:
1. Building, staffing up, and preparing to open the Gigafactory, which will serve as the primary
space for manufacturing.
2. At the end of 2017, begin to release Model 3 vehicles to those who reserved the vehicle
3. Increase sales of other models and lower costs by achieving economies of scale and finding
cheaper alternatives for materials.
4. Manage finances appropriately to encourage investment.
Tesla is well on its way towards achieving the goals above. Threats to those goals exist and
include a preference for substitute products and a reduction in public investment into electric cars.
43. Analysis of the Organization
Organization Level and Business Unit Strategies
Organizational Level Strategies
Vertical Growth
Tesla's growth model would be classified as a vertical growth model in some respects. Vertical
growth is when a firm decides to pursue new functions outside of its core business functions. In Tesla's
case, one of the most obvious forms of vertical growth would be the companies ownership of all
showrooms and direct sales to consumers. In this case, Tesla can control the front line functions of their
sales operations and modify those operations as they see fit. Research suggest that products may have
higher sales and higher prices from vertical integration strategies (Gil, R., & Warzynski, F., 2015).
The benefits are derived from better product quality and better product release strategies (Gil,
R., & Warzynski, F., 2015). Additional research suggests that vertical integration impacts product
quality and price points positively (Lin, Y., Parlaktürk, A. K., & Swaminathan, J. M., 2014). Further,
related to integration, are Tesla's sales to other companies including Toyota, which struck a deal in 2014
to supply Toyota with Tesla made batteries in its RAV4 models (Voelker, J., 2014, May 12).
Low Diversification Growth Strategy
At this point, Tesla has mainly focused on providing luxury and sports style vehicles to the
market, which has been a critical element of their growth strategy (See Figure 30). The firm has used
each model as a way to launch into another more affordable model. This strategy essentially allows the
company to slowly penetrate the market, learn from previous models, and ideally create a mass
production model that consumers can generally afford. By maintaining focus and executing a limited
scope product, the firm is essentially learning to specialize and make the best possible product for the
cheapest possible price.
44. The low diversification strategy is helpful in dealing with one specific, high cost, product. In
the future however, to be more competitive, the company will need to diversify its product offerings to
enhance EV utility and demand. At this
point, maintaining the current strategy is
both efficient and tactically sound.
However, should another company catch
up to Tesla's product (the Model 3), it
could undercut the firms plans for the
future. Tesla is critically attached to this
strategy and if it is compromised in some meaningful way, it might damage the companies future
prospects.
World Wide Scope
At this point, Tesla sales have been mostly US driven, with approximately 80% of sales coming
from the United States (M, R., 2014, April 23) and the rest to other countries around the world (See
Figure 31). Tesla will likely focus primarily on the US market as investments in infrastructure and
policy are both favorable for the industry, however, European expansion and expansion in Asia is
happening. The challenge of Tesla's low diversification strategy is that consumers in other parts of the
world may not be able to afford the product offerings Tesla currently provides.
Even as the new Model 3 comes in much cheaper than Tesla's other product offerings,
government tax incentives subsidize the capital expense of purchasing a Tesla and thus make it
available to more middle and upper middle class consumers. Worldwide, tax incentives and special
accommodations are made for EV consumers, from tax credits in China (PRTM Management
Consultants, Inc April 2011) to exemption from certain taxes like fuel taxes on car registration or
monthly vehicle taxes.
45. Tesla's focus in the United States can easily be seen in its sales numbers to various states.
California, headquarters for Tesla, is by far the state with the highest sales total, while other states like
Maryland, Massachusetts, and North Carolina come in at a distant second (See Figure 32).
46. Investing in Growth
Tesla must continue to invest in growth if it wants to make electric cars more affordable and
battery technology more attainable. In the firms pursuit of accomplishing its mission, it and other
stakeholders (including Pansonic, a partner with Tesla) will be investing up to 5 billion into Tesla's new
Gigafactory (Ramsey, Mike, 7 Jan 2016). The factory itself became operational in the first quarter of
2016 and is the world largest building by physical area measuring in at approximately 10.9 million
square feet or the size of 190 football fields (Hidalgo, Jason, 23 July 2015).
The factory's purpose is to make batteries cheap by reducing production costs and achieving
scales of economy. It is estimated that the factory will reduce vehicle battery expenditures and other
product lines that utilize Tesla batteries by 30% (ZDNet. October 7, 2014). If the company can
achieve these cost savings, it is expected that the company could produce approximately 500,000 cars a
year and begin to achieve the firms vision of transforming the automobile landscape. Some estimates
suggests that the Gigafactory will bring the costs of EV products to the point of outright competition
with traditional vehicles (See Figure 33). The challenge for Tesla will continue to be technology
outpacing growth. If someone (some firm) can develop a better battery for cheaper and already has the
ability to mass produce it, Tesla could find itself in danger.
47. Corporate Level Competition
Tesla is really out on its own in terms of development. While Ford, BMW, Toyota, Nissan, and
others are competing with Tesla, their mission, vision, and business model is more traditional. In the
case of the larger automobile companies, hybrid and electric cars are product lines which rely on
current technology that performs marginally better year after year. Tesla's strategy is to change the
game, not just exist within an industry. Tesla is risking everything in order the achieve results, while
the other companies continue to benefit from cheaper energy costs and an increase in sales of
traditional vehicles.
At this point, involvement in the EV sector is attracting a niche group of consumers. The
primary benefit of EV products are their cheap fuel costs, yet consumers believe gas prices are low and
are buying products without regard to gas prices (hypothetically, as seen in Figure 22). With fuel
standards increasing and energy costs decreasing, competitors to Tesla see their model being more
fruitful in the near to medium term. Competitors of Tesla may be sitting on the sidelines, believing that
being “first” does not always mean being the most successful, long term (MySpace vs. Facebook).
Business Level Strategies
Best Electric Car
Tesla focuses on providing the best overall electric car on the market. Even the Model 3 will
have the longest range of any available electric car model. Other models have been bigger and faster
than any of their competitors, showing that EV alternatives can diversify to some degree. Further, with
access to proprietary supercharging stations, the Tesla Model 3 will outperform in recharge rates as
well. The difference in strategy is focus. Competitors are competing in the EV market but Tesla is the
only firm focusing on changing the parameters of car ownership. At this point, all other car companies
are seeing revenue from traditional combustion engine models rise, while EV sales stagnate. Tesla may
benefit from a delayed evolution of the market, if competitors continue to focus more on gasoline
48. vehicles rather than EV as they may set the ground rules for future deployment of EV alternatives.
Charging Stations
Just like offering the best electric car, the firm is offering the fastest recharge rate on the market.
Supercharging stations have been discussed with an analysis of charging speeds related to Figures 25
and 26 earlier in the report. As Tesla continues to expand the infrastructure related to recharging
stations (Figures 8 and 9), they will set the gold standard for charging an EV. There are two
components towards achieving such fast recharge speeds. The first is the battery itself and it's ability to
handle an electric current suitable for recharging a car quickly. The second is the charger, managing
the recharge of the battery and ensuring the charge safely executes in a timely manner. The cost of
these stations are free for Tesla users (the price is essentially included in the retail price of the car), but
future pricing models may be incorporated as demand for service increases.
Patent Sharing
In 2014, Tesla determined that it was going to share its patents with the market and not sue
companies that use its patents (Team, T.,2014, June 16). The move was brought on by Musk who
indicated that sharing technology would help promote the EV industry and help the market grow faster
(which is a critical component of Tesla's time line). Musk is balancing the integration of EV
technology with a market slow to pick it up. If the market does not pick the technology up in time,
Tesla may not be able to sustain itself before collapsing on its very large debt load. This sharing of
technology was an interesting move by the business as it is intended to provide competitors with more
insight into the technology driving Tesla.
Tesla is hoping that by releasing the patents the following may occur:
1. The market for EV alternatives will grow faster and Tesla will be seen as the “cutting edge”
competitor.
2. Other companies may be able to incorporate Tesla's recharging technology and utilize
supercharging stations, which could help grow the market and let Tesla set the ground rules for
recharging infrastructure in the US.
3. Consumers will become more comfortable with EV alternatives as the market provides better
overall quality for both products and infrastructure.
49. 4. As the market expands, revenues will grow regardless of competition at this point. This will
benefit Tesla as it currently stands as the leader in EV only vehicles.
Time will tell to determine whether or not Tesla's business decision impacts the overall market.
Certainly, investors were comfortable with the move and may have seen it as a necessary step to
moving the entire industry along.
Business Level Competition
Primary competitors of Tesla include BMW, Ford, Nissan and others. The majority of the
product offerings in the market are hybrid models which are not the same compared to fully electric
cars. The Nissan Leaf or the BMW I-series are likely the closest competitors in terms of the products
actually being fully electric vehicles. The Leaf competes in humbler terms and has a maximum range
of about 100 miles. The BMW I-series vehicles are higher, up-scale models and compete more directly
with Tesla in both price and quality of the product. Competition from most of these companies have
placed their fully EV options (and Hybrids) alongside a larger grouping of products, whereas Tesla
focuses squarely on their EV models (and other battery products).
Charging stations are more common than they were but as pointed out in Figure 26, the
usefulness of lower class stations are limited. Others simply cannot compete with Tesla's
supercharging stations nor can they compete with the energy management element that allows Tesla
batteries to charge so quickly and safely. As fuel costs remain relatively low, one should not expect this
dynamic to change. Tesla is in a strong position to set the rules of the EV market by creating a network
of charging stations larger and better than others in the market. Even if Tesla cars are out-competed,
their network will likely be far larger and more efficient than others who make it to the market later.
50. Tesla SWOT Analysis
The SWOT analysis provides an overview of the strengths, weaknesses, opportunities, and
threats faced by an organization, presently and into the future. It is divided by internal and external
positive and negative components which give an overview of the organization within its market. The
SWOT analysis can provide investors and managers with a good indication of where the organization is
relative to its market and competitors. Tesla's SWOT analysis is provided below:
Strengths Summary: Telsa benefits from having the best all electric vehicle on the market.
The company has a strong management team which includes Elon Musk, a well known investor who is
almost a celebrity in his own right, considering his successful investments and leadership with SpaceX.
Much of the investment for the company has been personal, split between Musk and other stakeholders,
but it is clear, with the new Gigafactory, that Musk plans to continue his involvement in both time,
management and money. His involvement gives investors confidence regardless of the exceptionally
51. negative financial data.
While overall recharge infrastructure is limited, Tesla operates the best chargers in the world
with the fastest recharge rate. As recharge infrastructure expands, Tesla may be setting the rules on how
EVs move around the country. The direct showroom model for sales is unique in the field and offers a
direct control measure for Tesla free from franchise style challenges that can arise with third party
vendors. The companies research investments have led to one of the best batteries in the world with
potential outside of the automobile industry.
Weakness Summary: Current EV stock is expensive, even with the new Model 3 coming to
market. With a government tax incentive, the cost of the car will still be in the upper 20,000 range and
with limited recharge options and lower energy prices, the five to ten year cost savings may not be
enough to push the regular consumer to take the risk on an EV. Tesla has been unable to meet demand
for its products, sometimes taking years fulfill orders.
The Model 3 is not expected to reach the last reserved buyer until 2020, which indicates an
inability of the company to produce. Lastley, while Tesla may still be able to be considered a start up,
to some degree, it has produced three (almost four) car models which have sold at market. The
financial condition of the company is difficult at best. With a high debt load, limited revenues, and
unfortunate KPI data, the financial end of Tesla looks challenging. Tesla needs the market to expand
fast in order to balance the books or keep digging into current investors pocketbooks.
Opportunity Summary: The rules of the EV market are not set at the moment. As EV sales
climb, so to will the leverage Tesla has to be a major contributor to how the market takes shape. The
firms research into battery technology reaches beyond cars and may be a more common product in
residential and commercial settings. The growing and current demand for EV is strong, as evident in
reservations for Model 3s (a $1000 reservation fee is charged to hold a reservation for a Model 3). The
Gigafactory, if successful, may bring electric cars to the mainstream by lowering costs significantly and
directly competing with internal combustion vehicles. Lastly, public beliefs and attitudes are changing
52. regarding fossil fuels and climate change. As weather related issues continue to rise, so will the
demand for products which limit damage to the environment. Let there be no doubt, oil will be
expensive again due to both supply and demand. Electric vehicles will likely be one option away from
gasoline alternatives.
Threat Summary: The most critical threat facing Tesla is time. If the market does not begin to
shift towards more EV options or Tesla fails to meet demand on either product or infrastructure
requirements, the company's finances will begin to be to difficult to bear. Tesla needs to supply current
demand faster and expand future demand. The race against time is on for the firm. The second largest
threat is the reliance on their own technology vs. a diversified strategy. If Ford, GM, BMW, or Toyota
finds a better battery, cheaper, with longer range, Tesla's narrow focus will be undermined. Branching
into other markets will be important to help sustain Tesla as those challenges inevitably arise.
From a policy perspective, Tesla must continue to promote state and federal policies which aid
in bringing down costs for both the consumer and producer. Erasing the $7500 tax rebate for first time
EV buyers would be devastating to the market which already has a hard time justifying up front
purchase costs with a lack of long term savings (due to cheap oil). Without pressure from high energy
prices, consumers will be looking for traditional vehicles to satisfy their needs, Tesla could use this
time to solidify their market position.
Gap Analysis
Gap analysis provides a framework for understanding what a company must do in order to
secure its position in the future. The analysis focuses on the current situation versus what a successful
future looks like. The gap is what needs to happen in order for the company to reach its goals and
achieve the successful position described in the analysis. Provided below is a gap analysis of Tesla
with an analysis of the factors related to the firms future success.
53. Lower Production Costs Strategy: As Tesla desires to expand and fulfill its mission and
vision, the firm will need to ultimately compete with traditional vehicle stock. In order to compete, the
firm will need to get their product price points, without government assistance perhaps, to a level where
consumers will not have to consider up front costs as much as they currently do. High barrier costs are
a significant concern for consumers. This can be achieved by lowering battery costs and creating
economies of scale by consolidating all aspects of production. These two goals may be achieved as the
Gigafactory becomes operational.
Fulfill Current Demand Strategy: With the reservations of the Model 3 beating expectations,
it is clear that there is demand for an all electric vehicle in the price range set by Tesla. However,
current projection into both demand and production capacities suggest Tesla cannot fulfill orders fast
enough to meet consumer demand. If Tesla wants to avoid longer financial challenges, the firm needs
to enhance production capacity to serve current demand levels. Further, market extraction may not be
fully utilized at this point as the market is both small and there are limited competitors. Tesla should
expand its marketing operations to tap potential sales within the current market environment. This
54. process will enhance overall market growth, as well.
Enhance Infrastructure Strategy: The ability to travel long distances away from a home
charging station will be a key consideration for consumers. Increasing the overall number of
superchargers across the United States will be a requirement if true market conversion to EV is to take
place. Tesla will need to ensure their product can meet consumer demands by not just being an urban
vehicle but a regional and cross country vehicle as well. Lowering charging times and increasing
charging efficiency will also play a role to ease consumers concerns about wasting time between
charges.
Diversification Strategy: While the vision and mission of Tesla is directly related to
transforming the way the world travels, it may need to find alternative product offerings in order to
ensure survival. Being the first to do something does not always mean market domination. As EV
becomes more common, competitors will ultimately pay more attention to the market. If Tesla can
develop other products that serve other markets, they may be able to supplement their revenue stream
and create new markets where their battery technology can change the way consumers operate in their
public and private lives.
Key Performance Indicators
Key performance indicators allow the firm to understand its position in relation to completion
of these strategies and goals. As the organization chooses a strategy, defines organizational goals, and
creates action steps to achieve the goals, the firm will have initiated a process to ensure the best
possible change for success. Key performance indicators allow for tracking of goals and the ability to
generate best practices from them (Konsta, Plomaritou, 2012). For the strategies above, KPI could be
the number of sales per year, cost indicators for raw material and battery production, battery efficiency
levels, and new product lines.
55. Analysis of the Organization: Functional Strategies
Marketing
Tesla recognizes that the firm faces a highly competitive market with competitors who have
significantly more resources and capabilities. Marketing will play a significant role in aligning
company goals, consumer demand, and impacting the industry (Tesla Annual Report, 2015). Further,
the firm recognizes that if that Tesla cannot bring in new customers, they will not be able to sustain the
amount of growth they have experienced in the past. Challenges to their marketing efforts have been
cited, as changes to the condition of Tesla's finances are unstable at times (Tesla Annual Report, 2015).
Currently, Tesla's Sales and Marketing team is stationed in Freemont California. The total
budget for sales and marketing was approximately $58 million in 2015, a $10 million increase from
2014, and an almost $50 million increase from 2013, which stood at just $9 million (Tesla Annual
Report, 2015). Tesla has four stated marketing goals within its annual report:
1. Generate demand for Tesla vehicles and drive leads to the sales teams
2. Build long term brand awareness and manage corporate reputation
3. Manage the existing customer base to create loyalty and referrals
4. Enable customer input into the development process.
Telsa recognizes that their brand has had to rely on media reports and word of mouth to generate sales.
The company has welcomed this and will continue to seek opportunities to develop the brand in such
ways.
One of the unique models integrated into the Tesla marketing model has been Tesla's direct sales
and showroom approach. The showrooms are uniquely designed and are created to highlight the image
and brand of Tesla. By controlling the showrooms directly, Tesla can manage its sales and marketing
approach more effectively and efficiently. Tesla plans to continue this model moving forward. The
challenge that Tesla must overcome, from a marketing perspective, is not just selling a vehicle. The
56. firm is selling an entirely new model of personal transportation. Tesla recognizes this but also
understands that one of the best ways to sell an idea is to make sure the product that operates within a
new framework works well.
Finance
Revenue- Revenue for Tesla has been increasing since 2013. Increases in revenue were mostly
from an increase in deliveries as production ticked up (Tesla Annual Report, 2015). Automotive
revenue totaled $3.74 billion in 2015, $3.00 billion in 2014, and $1.92 billion in 2013. These revenues
include leasing of Tesla vehicles. Service and maintenance were estimated at $300 million. The cost
of revenue ate into the majority of revenue at $2.82 billion in 2015, for automotive lease and sales and
$299 million for service and maintenance. Gross profit for 2015 was a little over $900 million (22.8%).
Expense- Expenses include Research and Development which stood at $717 million in 2015.
This cost is reflective of mostly personnel related expenditures and has risen most years to support the
development and production of both the Model X and S. Features liked the “autopilot” feature,
included with some packages of the vehicles, are a direct result of increased research and development
funding. Selling and general administrative costs totaled approximately $603 million in 2015. The
largest cost driver is the expanded showroom and staffing needs related to a growing sales presence and
a growing need for maintenance workers to keep supercharger stations operational.
Interest expenses for the company totaled almost $120 million. New debt has added to the
interest payments over the last three years. The company has a significant debt load standing at
approximately $3 billion. Interest payments on that debt load require substantial resources and increase
the companies exposure to both short term and long term risk. The firm recognizes the challenging debt
situation and express alternative solutions should future revenue projections not meet actual sales. In
this case the company indicates that assets may need to be liquidated and that payments may need to be
delayed.
57. The financial condition of the company is difficult. Tesla has an exceptional amount of debt
caused by investments in production, research, and infrastructure. The goals of the company will be at
risk, if the company does not meet sales expectations for its products. From a goal perspective, the
company is putting the appropriate amount of capital into developing their product and with the new
Gigafactory, clearly have an interest in increasing production and lowering costs. Investors are clearly
confident in the leadership of Tesla to allow the company to move forward with the Gigafactory. The
challenge is time; if Tesla cannot supply the current demand and create demand for future products, the
debt will consume the company. At this point, the interest payments are manageable, that may not be
the case should variables in either supply or demand change. Tesla is still very much a risky financial
investment.
Operations-As stated above, the revenue generated by auto sales and leases cover the costs of
Tesla operations. There are four primary areas where Tesla's operations strategy is on track. With the
release of the Model 3, Tesla is poised to offer a product that can compete in the EV market with
unique product characteristics not offered by other companies. By getting the price to a lower point,
the company will likely sell more cars (far more than their other models). In order to get to this point,
however, the company has had to rely on previous models to serve as a base for each subsequent
model. This approach has allowed Tesla to enhance brand recognition and focus on making the product
the best it can be.
Second, Tesla's product diversification into energy storage is a welcome approach to secure
other revenue streams. The Tesla Powerwall, a 7kWh and 10kWh battery, attached to the side of homes
for energy storage is a functional way for Tesla to create or break into a new market and diversify their
product offerings. Diversification will help Tesla support its primary mission and vision by creating
new sources of revenue to reduce the financial risks present in Tesla's portfolio.
58. Lastly, Tesla's investment into the Gigafactory is an achievement in and of itself. The critical
component of Tesla's overall strategy is to compete with gasoline vehicles at competitive prices. Tesla
is getting close with its current Model 3 but the price point is still higher than traditional gas
alternatives. In order to compete more thoroughly, the Gigafactory is projected to reduce battery and
production costs. The cost reduction may allow Tesla to lower the price point on its vehicles and truly
compete against gas based vehicles (See Figure 33, above). If a cost reduction can be achieved and the
infrastructure is available, consumers will have an easier time choosing Tesla. These three operational
strategies align with Tesla's overall goals and will help bridge the gap between present and future
success.
Purchasing- In some ways, Tesla has created its own market and has had to create its own
supply chain to accommodate the needs of production. Being one of the smallest car manufacturers in
the world with a brand that draws significance in quality can be difficult. Tesla seeks to ascertain high
quality materials for every aspect of the organization. Sometimes this can bring an increase in costs for
the firm. Other times, the firm benefits from being in a well established industry (automotive). In
some sense, however, procurement is always procurement, regardless of the size of the organization.
Previous relationships with Toyota and other car manufactures likely aid Tesla in finding the
best suppliers for basic car part needs. Much of the components of the vehicles themselves are made in
house, and thus require only raw material in order to develop them. Tesla has also forged relationships
with electronic companies like Panasonic and Johnson Controls, which has helped create supply
avenues. Purchasing for Tesla supports the goals of the company by keeping costs under control and
ensuring the right materials are in enough supply to maximize production.
Human Resources- Since 2015, Tesla has approximately 13,000 employees. The goal of the
human resources department is to manage the current employee stock and ensure future stock is both
technical and capable. From a salary perspecitve, Tesla is not known to pay its employees better
overall (Danahy, V., 2015, October 16) nor does the company offer unique benefits that entice
59. employees to join. Employees who work at Tesla indicate that they are there to “change the world,”
and derive value from the social change that Tesla is working towards.
Tesla is expected to increase its workforce by 6,500, once the new Gigafactory is fully
operational. Staff will be working towards meeting production demands and diversifying the product
offerings from the firm. Tesla splits staff into teams which work collaboratively throughout the
company. The firm hires mostly in Fremont, Los Angeles, and other high tech markets throughout the
world including Amsterdam, Paris, and Berlin. The Human Resources Department aligns with
organizational goals by managing the most important component to Tesla's success, its people. By
ensuring a properly trained and capable workforce, all other goals can be achieved. This function may
be the most important function for the company.
Information Systems- As Tesla continues to expand, so to must the electronic resources they
use to manage all aspects of the operations (Tesla Annual Report, 2015). The company is constantly
reevaluating and expanding management software to meet needs. Currently the company is
reevaluating to following programs:
1. Product Data Management Software
2. Procurement Software
3. Inventory Management
4. Production Planning
5. Sales/Service and Logistics
6. Dealer Management
7. Tax and Regulation Reliance Software
Each one of these programs brings along two risk for the company. The first is disruption of
normal operations, which can impact production and efficiency. The second is that almost every one of
the software packages described requires security to ensure the process retains integrity. There are
costs to each of those risks which must be assessed when determining how to move forward.
60. Analysis of the Organization
Improvement/Change Initiatives
Conclusion and Future CSF
Reduce Costs (CSF)
The challenge for Tesla is that electric vehicles remain out of reach for the vast majority of
consumers. The cost of owning a Tesla may be cheaper when considering the cost of gas over a ten
year period, but the up front costs will likely be considered first before ongoing maintenance and
service costs. If Tesla is to meet the goals it has laid out, it will need to reduce up front costs of their
product to compete in the broader automobile market.
The company is opening the Gigafactory in Nevada which aims to reduce battery costs by 30%
and reduce production costs significantly. This goal aligns with organizational goals and help bridge
the gap between the present environment and future success. Tesla has also used its own form of Lean
Manufacturing to create efficiency, but Elon Musk has been on record indicating that often, programs
like Six Sigma stifle the creative process. Whereas competitors like Ford have successfully used Six
Sigma in the past.
Sell an Idea (CSF)
Tesla is not just selling electric cars, they are selling a new approach to personal transportation.
Tesla must understand that selling an idea and selling a product are two different things but can be
combined into one product. Incumbents are always difficult to defeat and Tesla has many of them in
the form of their competitors offering well know products in a system that is familiar and comfortable.
What Tesla is asking consumers to do is not just buy a car. They are asking them to buy a new way of
life, charging instead of filling, humming instead of chugging, and creating a new reality for the way in
which people move. Tesla has to remember that the idea is more important than one product. At this
point, Tesla does understand this concept. As the company expands, however, they would do well to
61. keep it on their mind.
Create the Network (CSF)
Tesla may provide the best electric cars on the market but without an extensive network of
charging stations that charge a battery at faster speeds, the product will remain an urban centered mode
of transportation. Tesla will need to not only improve their superchargers to gain appeal, they will need
to make their super charger available everywhere. At this point, supercharger scarcity is not
exceptionally damaging to the brand, however, that will need to change to encourage people to view
this product (and the idea) as a viable alternative to gasoline.
Furthermore, Tesla needs to consider that extended recharge times means consumers need
something to keep them occupied. Perhaps adding wifi capabilities that allow consumers to work or
watch television might aid in making a 20 minute recharge more amenable. Another challenge to
consider is that consumers do not just stop to refuel their vehicles. Consumers refuel, use the rest room,
buy lunch, and generally look for convenience to fulfill their needs when traveling. Tesla will need to
discover how to integrate their charging technology adequately to ensure consumers view the idea and
product as a viable alternative.
Manage Production, Debt, and Demand (CSF)
Right now, Tesla does not have the production capabilities to meet demand. Since the firm
cannot meet demand, it is not generating maximum revenue offered by the market. Since the firm is
not generating maximum revenue, it is struggling financially with debt obligations. If the company
continues to struggle with these vitals, long term challenges will continue. The financial condition of
Tesla is difficult. However, if Tesla can manage to better meet demand, revenue will increase. It
appears, just through Model 3 reservations, that demand is there and is burning to be fulfilled. As Tesla
ramps up production of the Model 3, the entire financial formula could change for the company.
There is a challenge to this however. Tesla is banking on no one being able to compete as
adequately with them in the EV market. If Ford, Toyota, or BMW create a better, faster, and cheaper
62. product, Tesla's model may fail. Again, sometimes it pays not to be the first to do something well but
the last to do something the best. Other EV competitors will rise into the market, it is inevitable.
Diversification (CSF)
Lastly, if Tesla wants to mitigate exposure, the company should focus on building or
incorporating their technology into other products that serve other purposes. Tesla batteries have come
to be known as some of the best in the world. There may be opportunities to use them beyond vehicles.
The Powerwall product is an interesting product, but so few homes have solar capabilities. The
company needs to find ways to integrate or sell new products which command demand in the current
market. Investments in spin off uses for their technology may open new markets for the company.
Diversification will help the company sustain itself and provide a larger base to spread its message.
Conclusion
Tesla is still a young company with a vision that is likely to come true. It truly is only a matter
of time until electric cars are the dominant approach to over ground personal transportation. Limited
fossil fuel supply and growing climate change concerns will be building pressure towards that future.
Tesla, at this point, is the only company investing in both a worldwide network (superchargers) and a
premium product to secure a future where electric vehicles are the norm.
As Tesla transitions towards a higher volume of production, the firm must continue to secure its
vitals (debt, demand, and production). If the market projections are correct and the Gigafactory
projections are correct, Tesla will be looking at a very positive future for itself. However, the future is
fickle and so are consumers. Risks of competitors entering the market and displacing Tesla are real and
could derail the firms leadership in the market. At this point, time will tell and Tesla should remain
vigilant in that regard. Tesla has a strong market position, a strong brand name, and is laying the
groundwork for a strong company, but serious threats exist to slow Tesla's vision of the future.
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