Tesla Motors is recommended to expand its product line by introducing a more affordable third generation (Gen 3) electric vehicle model. To accommodate the new model, Tesla would need to restructure by changing to a product-based organizational structure and franchising its company-owned sales and service centers. The recommendation would take 3-4 years to implement starting with organizational changes. It aligns with Tesla's vision, culture, and Elon Musk's preferences to introduce electric vehicles to a larger market at a lower price point.

1. Tesla Motor
Strategic Analysis of Tesla Motors
Wednesday November 19, 2014
BU481 SECTION J
PROF. LEMIEUX
MATTHEW COOK 100294560
JOURDAN BOUSFIELD 110421750
DARYNA SADOVA 100240230
JENNIFER ADAM 110374310
HILLARY BECK 110201090

2. 1
RECOMMENDATION
It is recommended that Tesla Motors continue to expand their product line to offer more
affordable models in order to appeal to a larger market. To accommodate the introduction of a
new model, a thorough analysis revealed that several changes to the organization and its business
models would have to occur. After a structural reorganization, Tesla is to franchise their
company-owned sales and service centers to independent dealerships.
RATIONALE:
Tesla Motors entered their first profitable quarter in 2013, which, along with strong
organizational health, gives them ideal conditions to reposition their strategy to further drive
profits (Exhibits 1-2). Currently Tesla’s culture is inline with this recommendation, which is
critical to the success of the strategy (Exhibit 3).
Releasing a Generation 3 model at a more affordable price fits with Elon Musk’s
preferences and the corporate vision of introducing the organization to a larger market. Musk has
a high degree of power over the organization. Therefore, the decisions made must match his
preferences in order to ensure a successful strategy change (Exhibit 4-5). The Generation 3
model will continue to have the differentiators that currently exist, with the exception of the
mobile service centers. These differentiators include the low maintenance design and wireless
software updates (Exhibit 6).
As a result of government regulations, a strong force acting against the organization,
Tesla Motors needs to change their sales and servicing processes to an independent franchise
system that creates physical locations for vehicle sales, updating and maintenance (Exhibits 7-8).
Restructuring the servicing processes closes the gap created by an increased focus on efficiency
and maintaining first class service, which are not mutually achievable (Exhibit 9).

3. 2
IMPLEMENTATION PLAN
Tesla Motors faces anticipatory change due to the high level of ambiguity surrounding
the problem, their already strong position in the market and the limited sense of urgency. Elon
Musk is tasked with guiding the organization through this implementation plan. His high sense
of commitment and capabilities combined with his reputation will help ensure a successful
execution (Exhibit 10).
To allow for expansions we recommend that Tesla hires of a VP of marketing who will
be tasked with establishing a marketing department. This will enhance Tesla’s brand and move
towards establishing it as a competitive advantage (Exhibit 17). In order for a smooth
implementation, several strategic changes need to occur to the organization and their resources
(Exhibit 11-12).
Tesla should adapt their organizational structure to operate in a product structure. This
will further drive efficiency and innovation while fitting with their current generic strategy and
mass production aspirations (Exhibit 13). This also allows Tesla to focus on the different vehicle
models separately and accommodate the different target consumers. This closes a critical gap
between the organization and the business strategy thus enabling them to grow without
sacrificing the innovative culture (Exhibit 9).
Overall this recommendation will take an estimated 3-4 years to implement beginning
with the changes to the organizational structure (Exhibit 14). For evaluation of other alternatives
considered, refer to Exhibit 15.

4. 3
Exhibit 1 – Financials Exhibit 2- Organizational Health
Operating Performance
Profitability • Gross profit margin (June 2013): 20.35%. 179.53% increase since December 2012
• Operating margin (June 2013): 2.05%
• Return on assets (2013): 0.0026%
• Return on assets in 2012 was negative
Financial Position • Not enough financial data to calculate leverage and liquidity ratios
• Inventory turnover (2013): 1.47
• Increase in cash and cash equivalents by 270% since 2012
• Increase in total assets by 69.44% since December 2012
Market Performance • Growth rate in sales:
• 2013: 133.98%
• 2012: 102.34%
• 2011: 74.95%
• Sold 10,500 model S cars in 2013 and is expanding sales to Europe
Organizational Health
Enthusiasm • Elon Musk (CEO) is enthusiastic about building a new mass-production vehicle
• Elon is passionate about this job
• Managers and employees are innovative and creative
• Tesla’s team includes specialists from the car industry and people from Silicon Valley
who contribute to innovation process
Boundaries • not enough information provided in the case
Problem Solving • Tesla recognizes that is has a lack of experience in car design or assembly, however is
able to turn this lack into advantage during the crisis in the car industry
• Recognizes that custom-design might put it at a cost disadvantage
• Tesla’s founders and its original engineering team do not have a background in the car
industry, however overtime is able to attract many specialist from the car industry to join
the team
Learning • Identified issues related to battery charging and as a result introduced supercharger
stations and battery swapping service
• Learns from others’ experiences to improve the handling of the car and efficiency of the
cabin
• Cooperates with Panasonic to modify the design of the car, concentrating on safety
factors
Sustainability • Not enough information provided in the case
Ratio Dec-
2012
Jun-
2013
%
Change
Inventory
Turnover
N/A 1.47
Return on
Assets
-
35.56%
0.0026% -
100.0073
%
Gross
Profit
Margin
7.28% 20.35% 179.53%
Operating
Performance
Organizational
Health
+
+
-
-
Complacent
Organization
Crisis
Desired State
today

5. 4
Exhibit 3 – Organizational Capabilities
Culture Behaviour Capabilities
Innovative, learning,
collaborative, inclusive
• Hard working employees
• Frequently new ideas that come from
innovative culture
• No competition between employees,
since salaries are paid instead of
commissions
• Employees are trusted
• Be the first manufacturer of mass
produced electric car
• Continue operations to generate profits
• Change society’s negative perception
about electric cars and make it
affordable and desirable for the average
person
Leadership Organizational Structure Management processes
Participative, very
engaged, since Musk
funds the company
• Functional with VP’s for departments • Centralized decision making, since
decisions are made at top level by VP’s
Exhibit 4 – Vision/Mission
Exhibit 5 – Management Preferences
Job Context
Elon Musk is the current CEO and President of product design at Tesla Motors. As a top-level executive and large
provider of capital, Musk has established himself as a critical influencer over the organization.
Basic Needs
Beliefs
1) Strong Roots in Silicon Valley give Tesla
an Edge on Innovation
2) Mass Manufacturing is the future for Tesla Motors
3) Selling Electric cars on a salary basis creates less of conflict of interest
Core Beliefs/Values
Innovation, luxery, quality, environmental impact
Vision
To Provide quality and luxurious electric vehicles
for all
Mission
Develop and manufacture a successive line of
electric vehicles, each one more afforddable and
innovative than the last, without sacriAicing quality
or performance
LOW
HIGH
Security
Musk makes risky decisions with a high reward. If his decision to
back the resale value of the Tesla Model S had failed that could have
lead him to bankruptcy.
Recognition
Musk took advantage of opportunities in the press to
thank and recognize the devoted team working on the
Model S without attributing the success solely to
himself.
Achievement
Musk has had huge success with
several companies such as Paypal
and Space X.
Power
Key decisions and actions of the
company are largely decided by
Musk and is personal beliefs.

6. 5
Exhibit 6 – Value Proposition
PRODUCT ATTRIBUTES VALUE DIFFERENTIATOR
Electric engine High performance, environmentally
conscious
Yes, no other competing models are
electric (BMW, Mercedes)
Panoramic glass roof Elegant and upscale, prestige No, lots of luxury models
Low maintenance design; no need for
traditional transmission system
Owners have to perform significantly
less repairs
Yes
Wireless Software Updates Performance issues easily fixed, lower
risk
Yes
Best range for an electric vehicle Convenience, performance, reliability,
ease of use for everyday transport
Yes
Mobile service centers Convenience, accessibility Yes
Exhibit 7 – Porter’s 5 Forces
Porter’s 5 Forces
1.Substitutes: (Medium) • Variety of substitutes such as bicycles, public transportation and
walking, however available substitutes offer limited attractive prices,
features and performance trade-off
• Limited switching costs
2. Rivalry: (Low to Medium) • Many competitors within the car industry
• Good industry growth, since industry is expected to grow to US$ 25
billion by 2020
• Low product perishability
3.Threat of Entry: (Low to Medium) • Substantial capital requirements
• No government policy in place
• Substantial economies of scale requirements
4.Suppliers: (Medium to High) • Limited number of substitutes
• Medium product differentiation
• Low supplier’s dependence on the industry
5.Buyers: (Low) • Low volume purchases
• Customers are not sensitive to prices
• Low product standardization within the industry
• Low switching costs
Overall Industry Assessment:
(Medium)
• Overall, industry is favourable for high levels of profitability, since
none of the forces is high enough for the industry to be unattractive
Exhibit 8 – PEST
PEST
Political
• Tax-subsidies when you purchase a EV ($7500)
• Additional incentives were given in some states
• Cali. $2500 rebate and access to HOV lane (also
required a % of vehicles that manufacturers sold
to be EV)
• Some states passed laws so Tesla couldn’t sell online
• Department of Energy added 6000 public charging stations
• Car companies are lobbying government to ban Tesla from
selling through independent dealerships
Technology
• Lithium-Ion batteries
Others using special car batteries
• Vehicle range
• Software updates
• Customization features
• Considered benchmark for their level of
electronic integration
• New technology (unsure of the life)
Overtime, will be easier to copy as the technology will
be easier/cheaper to obtain
Social
• Changing way people see electric cars
Economic
Industry was expected to grow to US$25 billion

7. 6
• More green consumer by 2020
Exhibit 9 – Diamond E Gaps
Exhibit 10 – Starting Condition Exhibit 11 - Change Agenda
Organization
The centralized decision
making and functional
structure does not align with
the innovative culture that the
organizations strives for.
Business Strategy
Several of the organizations
core activities such as the
wide variety of servicing
options that are offered
become no longer feasible if
the organization chooses to
become a mass manufacturer.
A strong focus on efficient
production while maintaining
first class service may not be
mutually achievable.
Management Preferences
The management preference to become
a mass manufacturing of electric
vehicles creates strategic tensions by
hindering the organizations ability to
remain a leader in innovation.
Resources
As the technology used in Tesla’s
electric motors becomes more widely
understood and refined the
manufacturing prices will decrease
allowing the newer generations
remain profitability while staying
competitive with other companies.
However, to mass-produce the
organization will have to focus on
efficiency whereas they currently
focus on effectiveness.
Environment
The business strategy is
aligned with the industry
trends and increasing
societal concerns towards
greater fuel efficiency and
sustainability.
By lowering the price point,
Tesla’s technology will be
more accessible to a larger
market.
Time
Good
Poor
Strategic
Performance
Anticipatory
Change
Reactive
Change
Crisis
Chang
Behavioural
Change
• Organization
• Culture
• Leadership: Partcipative
• Management Processes: Decentralized Decision Making
• Organizaional Structure: Product Structure maintaining a
focus differentiation strategy
• Behaviour
• Capabilities
• Innovation
• Quality
Non-
Behavioural
Change
• Resource
• Implement a more standardized production process to
increase efAiciency
• Design a gen 3 model (CA)
• Change the sales resources from independent dealerships to
a franchise program that also offers servicing
• As the sale of Tesla’s increase and franchise become more
common the Rangers program will be slowly phased out
based on geographic areas
• Introduce formal marketing, establish Tesla brand
Behavioural Change
• Organization
Non-
Behavioural
Change
• Resource
• Implement a more standardized
production process to increase efAiciency
• Design a gen 3 model (CA)
• Change the sales resources from
independent dealerships to a franchise
program that also offers servicing
• As the sale of Tesla’s increase and franchise
become more common the Rangers
program will be slowly phased out based
on geographic areas
• Introduce formal marketing, establish
Tesla brand

8. 7
Exhibit 12 – Generic Strategy
Current Strategy Reasoning
Focused
Differentiation
• Reputation for quality
• Sole supplier of premium/performance electric vehicles
• Technology leadership
Current Positioning Reasoning
Variety-based • Offer variety of a Electric Vehicles for Performance to Premium markets
• Do not intentionally target environmentally conscious drivers
Exhibit 13 – Guidelines for Action
Exhibit 14 – Balanced Score Card
Balanced Score Card
Financial
2013 Sales Growth Rate: 133.98%
Lithium Ion Battery Market Growth from 2012 to 2016 79% à $5.625B Annual Sales within Automotive
Net income $10M on $560M in sales 2013
Customer
Satisfaction à Superior service options → Tesla Rangers, Valet Service, service center, battery swapping
service. Highest rating Consumer reports has ever given (model S)
Acquisition à Marketing based on superior speed, comfort, and handling
Retention à Wireless Software updates, high resale value back by Elon Musk
Profitability à See Exhibit __ for financial ratios and performance
Internal Business
Process
Low cost resource acquisition initiatives (obtain manufacturing equipment at huge discount)
Bringing Manufacturing completely under Tesla
90% of Model S parts done on injection molding machines
Learning &
Innovation
Empowering of Sales & Customer Service Agents (Salary, Tesla Rangers)
Leading Innovation (High R&D % spending compared to BMW)
Increase Industry Knowledge (bringing manufacturing under Tesla, selling Drivetrains)
Guidlines for Actions
Priority Objectives
1. Change the
organizationa
l Structure
from
functional to
product
structure
(0-6 month)
Rearrange
existing
department
s by
seperating
based on
products
2. Move from
company-
owned
dealerships
to a
independent
franchise
(0-on going)
Phase out
the existing
‘Tesla
Rangers’
program
based on
geographic
regions
3. Introduce
formal
Marketing
channels
(4-8 Month)
Begin by
hiring a VP
of
marketing
who will
establish a
department
4. Release the Generation 3
model
(3-4 Years from now)
Design a
lower price
vehicle
Implement
new
manufactur-
ing
processes
Priority Actions
Readiness Driven Goals
Tesla
motors is
operating in
the
Anticipatory
change
stage
These Goals
will give
them an
opportunity
to
Leadership-
Participative
Collabroative
Pace - "Jog"
Need to
change
before they
release the
Gen 3 model
Time

9. 8
Exhibit 15 - Alternatives
Alternative Management Preferences Market Opportunity Sustainable CA
1. Do not release Gen 3 and keep current product org structure No - does not align with Musk’s frozen preferences
2. Change to product org
structure and release Gen 3
model
Yes, agrees with vision/frozen
Preferences
- Increase in size of vehicle market - Yes, includes software
update functionality,
and proprietary EV
design
3. Keep current org structure
and release Gen 3 model
Yes, agrees with vision/frozen
Preferences
- Same as above - Same as above
Alternative Resources Capabilities Risk
2. Change to product org
structure and release Gen 3
model
- Strong marketing team to drive sales
- Focus resources on systems that
add value
- Enhance innovation in
organization
- Gives teams ability to handle risk
associated with multiple product
lines
- Lower risk than
current structure
3. Keep current org structure
and release Gen 3 model
- Strong marketing team needed
- Need nimble staff to create products
- No does not allow for innovation
- Teams are not currently tasks to
handle multiple product lines
- High risk as structure
does not allow for
multiple product lines to
easily exit
Exhibit 16 – Value Chain
Primary Activities
Inbound Logistics Operations Outbound
Logistics
Marketing and Sales Service Centers
- Raw Materials
come from suppliers
- Batteries from
Panasonic
- Manufacturing
done in house
- Manufacturing
and engineering
under one roof
- Online
sales and
company
show rooms
- Sales is not done on commission
- Marketing does not stress the
value of environmentally friendly
by rather speed, quality, comfort
and luxury
- Independent from sales
- Licensed Tesla service centers
- Tesla rangers are mobile service centers
- Tesla Valet Service
- Wireless Software updates done
remotely
Support Activities
Infrastructure Human Resources Tech Resource acquisition
- Functional (many VPs) - VP of HR attracts and
selects key team members
to enable innovation
- Software updates
- Innovation
- Acquired factories at a fraction of regular
price
- Collaboration with many suppliers
Manufacturing Sales and Ownership Design
- Produces vehicles in house, which
ensures control, quality, and
convenience.
- Marketing department needed - Engineering to produce new car designs (e.g. Glass roof,
power train etc.)
Exhibit 17 - Resources
Resources V I R O
Design (Drivetrain, cooling system) ✔ ✔ ✔ ✔
Software Update ✔ ✔ ✔ ✔
Management Team ✔ ✔ X X
Sales Network ✔ X X ✔
Brand X ✔ ✔ ✔
Charging Stations ✔ X ✔ ✔