Tesla Motors’ Strategy to Revolutionize the Global Automotive Industry

Lecturer
Prof. Douglas Foster
Group 2
Tran Thi Minh Tam
Nguyen Duc Anh
Dang Le Anh Phuong
Nguyen Trung Hieu

Nikola Tesla. The Story of Nikola Tesla

Revolutionize Your Commute – by Tesla Motors

• Company overview
• CEO Elon Musk
• Financial Performance
• Tesla’s strategies
• Generic competitive strategies
• Issues and problems
• Future prospects and Recommendation
Agenda

Tesla Overview
2003
• Tesla Motors was incorporated by Martin Eberhard and Marc Tarpenning, 2
engineers
• Headquartered in Palo Alto,California
2004
2008
• Financing operations
• Total of $145 million in investment capital raised in first 5 rounds
• Elon Musk contributed about $74 million – largest shareholder
2010
• Tesla Motors became a public company, offering 13 million more shares
• Losses $943.5 million vs revenue of $861 million (2008 – 2012)
2013
• Tesla reported global revenues of $2.0 billion

Create the most compelling car company of
the 21st century by driving the world’s
transition to electric vehicles.
Move from a mine and burn hydrocarbon
economy towards a sustainable, solar
electronic economy.

Elon Musk And The History Of Tesla, SpaceX, PayPal
– by Business Insider

Was born in South Africa (1971)
Graduated from University of Pennsylvania
Left PhD Program at Stanford University
Co-founder of Zip2, Paypal, SpaceX, SolarCity

Income situation
Income statement
Million $ 2010 2011 2012 2013 2011 2012 2013
Total Revenues 117 204 413 2,013 75 102 387
Cost of Good Sold 86 143 383 1,557 66 169 306
Gross profit (loss) 31 62 30 456 100 (51) 1,417
Research and development 93 209 274 232 125 31 (15)
Selling, general, and administrative 85 104 150 286 23 44 90
Operating profit (147) (251) (394) (61) 71 57 (84)
Interest income (expense) (1) 0 0 (33) (129) (84) (96,409)
Other income (expense) (7) (3) (2) 23 (60) (31) (1,336)
Income taxes 0 0 0 3 183 (72) 1,803
Net profit (154) (254) (396) (74) 65 56 (81)
Fiscal Year Ending December 31 Growth %

Economies of Scale
Income statement
% Revenue 2010 2011 2012 2013
Total Revenues 100.0 100.0 100.0 100.0
Cost of Good Sold 73.7 69.8 92.7 77.3
Gross profit (loss) 26.3 30.2 7.3 22.7
Research and development 79.7 102.3 66.3 11.5
Selling, general, and administrative 72.4 51.0 36.4 14.2
Operating profit (125.8) (123.1) (95.4) (3.0)
Interest income (expense) (0.6) 0.1 0.0 (1.6)
Other income (expense) (5.6) (1.3) (0.4) 1.1
Income taxes 0.1 0.2 0.0 0.1
Net profit (132.2) (124.6) (95.9) (3.7)
Fiscal Year Ending December 31

Financial positioning
Balance Sheet
Million $ 2010 2011 2012 2013 2011 2012 2013
Cash and cash equivalents 100 255 202 846 156 (21) 319
Inventory 45 50 269 340 11 436 27
Total current assets 236 373 525 1,266 58 41 141
Property, plant, and equipment 115 298 552 738 160 85 34
Total assets 386 713 1,114 2,417 85 56 117
Total current liabilities 86 191 539 675 124 182 25
Long-term debt, less current portion 72 268 401 - 274 50 (100)
Total liabilities 179 489 989 1,750 173 102 77
Total stockholders’ equity 207 224 125 667 8 (44) 435
Growth %Fiscal Year Ending December 31

Self-funding or financing
Cash Flow Statement
Million $ 2010 2011 2012 2013
Cash flows from operating activities (128) (128) (266) 258
Purchases of property and equipment (40) (184) (239) (264)
Net cash used in investing activities (180) (162) (207) (249)
Proceeds from issuance of common stock 189 172 221 360
Net cash provided by financing activities 338 446 420 635
Net cash flow 30 156 (53) 644

Ratio
2010 2011 2012 2013
Profitability
ROA (0.40) (0.36) (0.36) (0.03)
ROE (0.75) (1.14) (3.18) (0.11)
ROIC/ROCE (0.55) (0.52) (0.75) (0.11)
EPS (3.04) (2.53) (3.69) (0.62)
Liquidity
Current ratio 2.76 1.95 0.97 1.88
Working capital 150 181 (14) 591
Leverage
Debt to Asset 0.46 0.69 0.89 0.72
Longterm Debt to Capital 0.26 0.54 0.76 -
Debt to Equity 0.86 2.18 7.93 2.62
Interest coverage 200 (1,186) (11,597) 2
Activity
Days in Inventory 192 128 256 80
Inventory turnover 1.90 2.85 1.43 4.58
Ratio

Future sale of used Model S Sedans

Product line
strategy
Technology and
product
development
strategy
Manufacturing
strategy
Distribution
strategy
Marketing
strategy
STRATEGIES

Tesla Model S: "Gallons of Light" Commercial – by Jordan Bloch

Model X
Crossover
Model 3
$35,000 USD

Technology and Product
Development Strategy
• Has spent over $900
million on R&D
• Had been issued 203
patents
• Had designed a
compact, modular
powertrain system with
far fewer moving parts
Tesla Model S (85-kWh battery pack) 265 miles
Tesla Model S (60-kWh battery pack) 208
Nissan LEAF 84
Honda Fit EV 82
Chevrolet Spark 82
Ford Focus EV 76
Mitsubishi 1-MiEV 62

Vehicle Design and
Engineering
• Create in-house capabilities related to designing and engineering
• Had core competencies in computer-aided design and crash test
simulations - expected to reduce the product development time of
new models.
Roadster (built with in-house-designed carbon fiber body)
=> provide good balance of strength and mass
Model S (built with light-weight aluminum body)
=> to help optimize vehicle weight, strength, safety,
and performance

Manufacturing Strategy
• Contracted with Lotus Cars, Ltd., to produce Tesla Roadster
“gliders” at a Lotus factory in England.
• Opened a new 60,000-square-foot facility in Tilburg, Netherlands
Supply chain strategy
- Obtain the needed parts and
components from multiple sources
- Secure alternate sources of supply for
most – single sourced components
Goal: Decreased overall costs per vehicle and increased
manufacturing efficiency

Distribution Strategy
NO
STATIONED
TESLA
DEALER

Distribution Strategy
• Sell directly to buyers, provide after-sale service
Advantages
Create and control Tesla’s own version of a
compelling customer buying experience
Achieve greater operating economies in
performing sales and service activities.
Capture the sales and service revenues of traditional
automobile dealerships

What is Marketing & Brand Strategy? – By Jared Foster

Marketing Strategy
• Resale Guarantee (Buy back 3 year-old vehicle)
• Generate demand for the company’s vehicles and drive sales
leads to personnel in Tesla’s showrooms and sales galleries.
• Build long-term brand awareness
• Manage the company’s image and reputation.
• Manage the existing customer base to create brand loyalty
and generate customer referrals.
• Obtain feedback from the owners of Tesla vehicles and make
sure their experiences and suggestions for improvement were
communicated to Tesla personnel engaged in designing,
developing…
• Marketing online
Seven Ps of
the Marketing
Mix
1. Product
2. Price
3. Place
4. Promotion
5. People
6. Process
7. Physical
Evidence

THE FIVE GENERIC COMPETITIVE STRATEGIES

1. Low-Cost Provider
• A broad cross-section of the marketStrategic target
• Lower overall costs than competitors
Basic of
competitive
advantage
• A good basic product with few frills
(acceptable quality and limited
selection)
Production line

1. Low-Cost Provider
• A continuous search for cost reduction
without sacrificing acceptable quality and
essential features
Production
emphasis
• Try to make a virtue out of product features
that lead to low cost
Marketing
emphasis
• Economical prices/good value
• Strive to manage costs down, year after
year, in every area of the business
Keys to sustaining
the strategy

2. Broad Differentiation
• A broad cross-section of the marketStrategic target
• Ability to offer buyers something
attractively different from competitors
Basic of
competitive
advantage
• Many products variations, wide
selection; emphasis on differentiating
features
Production line

2. Broad Differentiation
• Build in whatever differentiating features buyers
are willing to pay for; strive for product
superiority
Production
emphasis
• Tout differentiating features
• Change a premium price to cover the extra costs
of differentiating features
Marketing
emphasis
• Stress constant innovation to stay ahead of
initiative competitors
• Concentrate on a few key differentiating features
Keys to sustaining
the strategy

3. Best-Cost Provider
• Value-conscious buyersStrategic target
• Ability to give customers more
value for the money
Basic of
competitive
advantage
• Items with appealing attributes;
assorted upscale features
Production line

3. Best-Cost Provider
• Build in upscale features and appealing
attributes at lower cost than rivals
Production
emphasis
• Tout delivery of best value
• Either deliver comparable features at a lower
price than rivals or else match rivals on prices
and provide better features
Marketing
emphasis
• Unique expertise in simultaneously managing
costs down while incorporating upscale
features and attributes
Keys to sustaining
the strategy

4. Focused Low-Cost Provider
• A narrow market niche where buyers
needs and preferences are distinctively
different
Strategic target
• Lower overall cost than rivals in serving
niche members
Basic of
competitive
advantage
• Features and attributes tailored to the
tastes and requirements of niche
members
Production line

4. Focused Low-Cost Provider
• A continuous search for cost reduction while
incorporating features and attributes matched
to niche member preferences
Production
emphasis
• Communicate attractive features of a budget-
priced product offering that fits niche buyers’
expectations
Marketing
emphasis
• Stay committed to serving the niche at lowest
overall cost; don’t blur the firm’s image by
entering other market segments or adding
other products to widen market appeal
Keys to sustaining
the strategy

5. Focused Differentiation
• A narrow market niche where buyer
needs and preferences are distinctively
different
Strategic target
• Attributes that appeal specifically to
niche members
Basic of
competitive
advantage
• Features and attributes tailored to the
tastes and requirements of niche
members
Production line

5. Focused Differentiation
• Custom-made products that match the
tastes and requirements of niche members
Production
emphasis
• Communicate how product offering does
the best job of meeting niche buyers’
expectations
Marketing
emphasis
• Stay committed to serving the niche better
than rivals; don’t blur the firm’s image by
entering other market segments or adding
other products to widen market appeal
Keys to sustaining
the strategy

TESLA’S COMPETITIVE STRATEGY
• Low-Cost Provider
• Broad Differentiation
• Best-Cost Provider
• Focused Low-Cost Provider
• Focused Differentiation

TESLA – FOCUSED DIFFERENTIATION
Broad Differentiation
Focuson
High-end market
High performance car
Customers with middle and
upper income

Low-Cost Provider

Target a small group of customers
Cannot adopt low cost or hybrid
strategies
Survive on only product design and
leading-edge technologies

Battery Pack Fires – The
Situation
♦ Three incidents within 5 weeks (October – November,
2013) caused no serious injuries or deaths
♦ Occurring after high-speed collisions

Situation
• November, 15th 2013
• Not relating to battery but either wall socket or charging
cable
• Damages up to $25,000
Result of
Investigation
• Faulty wall-socket problem
• Cardboard boxes spread out the fire
Reacting
• Redesigning charging cable to automatically cut-off
when problem occurs
• Providing free new cable for existing cars
Battery-charging Fire in the
Residential Garage

Problems
• National and international bad media coverage
• Concerns of using high-energy-density cells
• Problems of chemistries, materials used and design
• 20% dropdown in stock price
Solutions
• Making official announcement through blog posting
(November 18th 2013)  Immediately react to calm
down public opinion
• Updating air suspension  Reduce the damages to
underbody
• Requesting full investigation from the National High-way
Traffic Safety Administration (NHTSA)  Determine root
cause
• Providing warranty policy  Show confidence of safety level
of car + save company’s image

RESULTS
NHTSA reaffirmed 5-star safety
rating for Model S
Adding titanium shielding,
aluminum deflector bar and
plate to Model S
NHTSA stopped
investigation

Retail: Can Tesla's stores handle a big
increase in shoppers?

Marketing: Wider range of buyers will
require more charger options

RECOMMENDATIONS
Shift to Broad Differentiation strategy
Be available for different market segments
Stay on innovation and development

FUTURE PERFORMANCE &
REVOLUTIONIZING THE GLOBAL
AUTOMOBILE INDUSTRY
TESLA Become the leading edge company
and revolutionize the industry
The environment creates good
conditions for the company’s growth
Face competition from established
and well-known manufacturers

REFERENCES
Hirsh, J., (2014). Elon Musk Opens up Tesla patents to everyone. Retrieved from:
http://touch.latimes.com/#section/-1/article/p2p-80485073/ on 15th July 2014.
Musk, Elon, (2014). All our patent belong to you. Retrieved from:
http://www.teslamotors.com/blog/all-our-patent-are-belong-you on 22nd July
Martin (2014). Generic Competitive Strategy. Major Strategy Frameworks. Retrieved from
http://www.cleverism.com/generic-competitive-strategy/
Moonis Ahmed (09 Dec 2014). Tesla's Competitive Strategy. Retrieved from
https://www.scribd.com/doc/249627022/Tesla-s-Competitive-Strategy
Joseangelalvarezfuente@gmail.com (2015). Tesla Strategic Analysis. Darren School of
Business, University of Virginia
Yafeng(Elsie) Liu (March 2014). Tesla Motors Inc. Case Synopsis. BUS 478-
Strategy/Section: D300.
Daniil Chaika (2014). How Tesla Motors can manage the extreme competition from large
and premium manufactures. SIM336 - Strategic Management.

1. What does Tesla means?
A. A fruit
B. A place
C. A name
D. A device

2. What is Tesla’s nationality?
A. Germanian American
B. Serbian American
C. Singaporean American
D. Vietnamese American

3. How many inventions that Tesla
independently research?
A. Over 500
B. Over 600
C. Over 700
D. Over 800

4. Which technology does not base on Tesla’s
patent?
A. Cellphone
B. Wireless device
C. Powerbank
D. Internet

5. Where was Elon Musk born?
A. US
B. South Africa
C. Canada
D. Russia

6. Which is the first company of Elon Musk?
A. Tesla
B. Paypal
C. Zip2
D. SolarCity

7. Elon Musk sold Zip2 for?
A. eBay
B. Compaq
C. IBM
D. Microsoft

8. Elon Musk studied in which university?
A. Harvard
B. Stanford
C. Pennsylvania
D. MIT

STRENGTHS
+ The first to develop entirely electronic sports car.
+ A strong competitor to major other brand.
+ Proficiency in technological area of electronic
transmissions and trains.
+ Manufacture only electronic cars: the problem with
the fuel cell is that they are always 10 years into the
future. When it comes to hybrid and diesel, if oil is
used faster than it can be replenished, it will
eventually run out or become more expensive.
+ The model S, won the 2013 most trendiest car of the
year, a competition that began in 1949.
+ Model S also became a 5-star safety rating from the
U.S. National Highway Traffic Safety Administration.
WEAKNESSES
+ Production cost is higher than
their competitors.
+ The infrastructure around
electric cars does not exist:
stations to charge the cars like
gas stations.
+ Limited operating history
considered to the competitors.
+ Limited revenues which leads
to lack of profitability.

OPPORTUNITIES
+ Supply of oil is limited, therefore
higher oil prices leads to more
demand for electronic cars.
+ People are more concerned with
the environmental issues.
+ Alternate use of battery
technology such as absorbing
powers from solar panels.
THREATS
+ More competition over
environment friendly cars by the
larger competitors than Tesla.
+ Expensive than the combustion
engine cars.

MASTER PLAN
+ Build sports car
+ Use that money to build an affordable car
+ Use that money to build an even more
affordable car
+ While doing above, also provide zero emission
electric power generation options

Tesla Motors’ Strategy to Revolutionize the Global Automotive Industry

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