Tesla Motors Inc. Redefining the Automobile Industry

Anthony Gonzalez

04/07/16

Executive Summary

Tesla Motors Inc. was founded by Martin Eberhard and Marc Tarpenning in 2003. The company

headquarters is located in Palo Alto, CA and is led by CEO Elon Musk. Tesla is the leader in electric

vehicle manufacturing and was the first to create a fully electric sport vehicle, the Tesla Roadster in

2011. Social expectations for finding renewable energy solutions are at an all-time high as the world

begins to see the effects of climate change. The changes in sociocultural expectations helps to drive

Tesla’s mission statement to accelerate the world’s transition to sustainable energy.

Tesla has many rivals that currently hold 68.2% of the market share including GM, Toyota, and

Ford. Even if Tesla is able to meet its goal of around 325,000 pre-orders from the Model III, the company

would still have less than 1% overall market share in the US automobile industry. Tesla hopes that by

offering differentiated vehicles at more accessible prices, the company can drive the market from

gasoline vehicles to hybrid and fully electric vehicles.

From 2010 to 2014, Tesla has experienced financial losses in all aspects of their business. While

the company made revenues of $3,198,356, up from $116,744 in 2010, it is not enough to cover cost of

goods sold or operating expenses of $2316,685 and $1,068,360 respectively. Tesla is taking all of its

gross profit of $881,671 and putting it back into R&D of the company. In order to move from the luxury

car market to the general automobile market, Tesla needs to find ways to cut costs in order to meet its

goal of offering a $35,000 Tesla Model III.

In order to stay competitive in the market, Tesla should continue invest in lowering costs through

R&D which will lead to increased revenues. By providing lower cost vehicle options, increasing revenue,

and building a sustainable competitive advantage to produce lithium ion batteries for its vehicles, Tesla

can begin making an impact in the automotive industry and become the leader into the EV market

segment. Overall, Tesla is still a young company with a lot of potential. If Tesla and Elon Musk meet their

goal of becoming the leader in manufacturing EV’s, Tesla will soon become one of most revolutionary

companies in history of the automobile industry.

1

Table of ContentsTesla Industry Overview..................................................................................................................................3

Dominant Economic Characteristics & PESTEL Analysis.........................................................................3

Driving Forces..................................................................................................................................................5

Competitive Forces & Industry Impacts.......................................................................................................6

Industry Attractiveness...................................................................................................................................7

Key Success Factors......................................................................................................................................8

Strategic Group Map........................................................................................................................................9

Financial Analysis..........................................................................................................................................10

Profitability......................................................................................................................................................10

Liquidity..........................................................................................................................................................11

Growth Rates Compounded Annually........................................................................................................12

Leverage........................................................................................................................................................12

Financial Summary.......................................................................................................................................13

Tesla Analysis.................................................................................................................................................14

VRIO...............................................................................................................................................................14

Value Chain / Resource Based View..........................................................................................................15

SWOT Analysis.............................................................................................................................................16

Competitive Strength Assessment and Matrix Analysis...........................................................................17

Tesla Strategy..................................................................................................................................................18

Company Mission..........................................................................................................................................18

Strategic Issues.............................................................................................................................................19

Strategic Recommendations.......................................................................................................................20

Tesla Strategy Implementations..................................................................................................................21

Appendix...........................................................................................................................................................23

Table 1: VRIO Analysis................................................................................................................................23

Table 2: Competitive Strength Assessment Matrix...................................................................................24

Figure 1: Strategic Group Map....................................................................................................................25

Table 3: 2014 Tesla Financials...................................................................................................................26

Table 4: 2013 Tesla Financials...................................................................................................................27

Bibliography.....................................................................................................................................................28

2

Tesla Industry Overview

Tesla Motors Inc. was founded in 2003 by Elon Musk and JB Straubel. Tesla currently designs

and manufactures fully electric luxury cars and efficient energy solutions. Elon Musk is now the current

CEO and visionary for the company. Tesla Inc. became well known after creating the first electric sports

car, the Tesla Roadster. As society and the government continues to push for eco-friendly vehicles,

Tesla hopes to lead the charge for fully electric vehicles to become the norm in the automobile industry.

Tesla Motors competes within the automotive industry. The automotive industry is made up of

many different automobile manufactures with many different types of vehicles, ranging from traditional

gasoline vehicles to new hybrid and fully electric vehicles. At this time, Tesla Motors sells two luxury fully-

electric vehicles, the Model S and the Model X. As Tesla expects to roll out its $35,000 Model 3 in 2017,

the company hopes to make its mark outside of the luxury vehicle segment and become the leading

electric vehicle manufacturer in the global automotive industry.

Dominant Economic Characteristics & PESTEL Analysis

Dominant economic characteristics of the automobile industry include the growth rate, projected

growth, and market share data based on revenue. The US Automobile Industry as a whole experienced

5.4% growth from 2010 to 2015. In 2015, the US Automobile Industry has a projected revenue of $107

billion. Based on market share, the top three companies in the automobile industry combined for 47.8%.

General Motors, Toyota Motors, and Ford Motors have market shares of 18.0%, 16.9%, and 12.9%

respectively. To better understand the market environment, Tesla can use a PESTEL analysis to analyze

macro-environmental factors.

A tool that can assist companies in analyzing environmental factors that affect the environment of

the automobile industry is the PESTEL analysis. PESTEL analysis is a marketing tool used to analyze

the macro-environment factors that have direct impacts on a company. PESTEL is an acronym that

stands for political, economic, sociocultural, technological, environment, and legal / regulation.

3

The political macro-environment includes policies such as tax policy, fiscal policy, tariffs, and the

political climate. A company in the automobile industry should be aware of import and export taxes as it

looks to expand into international markets. For example, there is a $7,500 tax-credit which is offered to

the first 200,000 buyers of electric vehicles from an individual US automobile company.

The economic conditions affect the general economic climate and specific factors such as interest

rates, exchange rates, and the rate of economic growth. For the automobile industry, when fuel prices

rise, consumers want more fuel efficient vehicles. Since gasoline prices have fallen down to around

$2.00 a gallon, consumers desire for fuel efficient vehicles is not as prevalent as it was when gas was

around $4.00 a gallon. The higher gas prices increase, the more likely consumers will to purchase hybrid

and electric vehicles. Companies in the automobile industry should be aware of changing supply and

demand in the economy. When customers begin using more electrical energy to fuel vehicles and less

natural resources like oil and gasoline, the price of electricity will increase and gasoline prices may

decrease over time. If electricity prices increase too high, it may drive buyers back to using gasoline

vehicles.

Sociocultural forces include the societal values, attitudes, and lifestyles that impact demand for

goods and services in an industry. In recent years, there has been a push toward healthier lifestyles and

less pollution as issues like climate change are having a direct effect on the earth. However, after

incidents like the BP gulf coast oil spill and the Volkswagen diesel scandal, consumers do not have high

trust companies in any industry to make ethical decisions. Consumers are becoming increasingly social

with technology and may attempt to make purchases to improve their social status and image.

Technological factors in the macro-environment include the change of technical developments

and its effect on society. Technology is rapidly changing in society and businesses are often struggling to

implement these technologies before they become obsolete. Tesla was created with growth in mind and

has consistently shown it can stay ahead of changing technology. Tesla Motors offers technology

features that are not available from rival company vehicles. Automobile manufacturers and software

companies like Google and Apple are partnering to create software for self-driving vehicles to. As

4

technology changes and grows, so must the automobile industry in order to meet customer demands and

stay competitive.

The environmental forces that affect the industry include climate change, weather, and natural

resources which have an effect on transportation and utilities. Tesla’s foundation is built on creating

environmentally friendly zero emission vehicles. As society becomes more aware of the effects of

pollution from gas emission vehicles leading to climate change, there has been a push for creating

electric and hybrid vehicles.

Legal and regulatory forces include the law with which companies must comply such as

consumer, labor, and occupational health and safety regulations. The US government offers loan

programs for automobile manufacturers to create environmentally friendly vehicles. When America bailed

out the US automobile industry, one of the requirements was that there would have to be a certain

amount of money spent on creating more energy efficient and economically friendly vehicles. The auto

industry must also avoid falling into scandals similar to Volkswagen where the company purposefully

broke regulatory laws and emitted unhealthy emissions into the atmosphere.

Driving Forces

Driving forces are the major underlying causes of change in an industry and competitive

conditions. Three major driving forces of the automobile industry include but are not limited to the

changes regulatory influences / government change, product and marketing innovation, and emerging

new internet capabilities.

Regulatory influences and government change in the automobile industry ensures that

governments can have some form of control over what the automobile manufacturers can and can’t do.

An example of regulatory influences includes mandatory emissions testing on vehicles to keep

companies from creating excess pollution into the environment.

Product and marketing innovation are an essential driving force in the automobile industry.

Automobile manufacturers know that interaction with consumers is changing, with utilizing social media

and technology being necessary to stay competitive. Over the years, society has moved to a digital age

5

where emerging new internet capabilities and applications such as XM radio, internet connections in

vehicles, and voice command communication are mandatory features for standard vehicles.

Competitive Forces & Industry Impacts

Porter’s five forces provide a powerful tool to diagnose the automobile industry’s competitive

pressures. The five forces include the power of substitutes, buyers, suppliers, new entrants, and rivals.

The international automobile industry has a high power of substitutes in international countries

such as Europe due to more advanced transportation options and less distance between destinations. In

the United States, cars are almost a necessity if you do not live in a large city due to old transportation

methods and, in comparison to Europe, larger distances between cities and towns. The power of

substitutes is higher when good substitutes are available and competitively priced, substitutes are

comparable, and buyers have low costs of switching to a substitute.

The power of buyers in the automobile industry is low. A single buyer does not have strong power

within many industries. The automobile manufacturers do have many rivals, but a buyer cannot negotiate

prices because they do not tend to buy in bulk. Because vehicles are a large purchase for most buyers,

they tend to be more price sensitive when making a purchase decision. The power of buyers is low when

buyer demand for buying vehicles is high, automobile manufacturers are differentiated, and when buyers

cost of switching is high.

Power of suppliers in this industry are considered medium to high depending on the quality

standards of the vehicle and the company. Most automobile manufacturers use plastic and metals that

do not require overly high quality standards making switching suppliers easier which leads to the power

of supplier’s being medium. Luxury vehicles in the automotive industry require higher quality features

which leads to a high power of suppliers since there are less suppliers to manufacture high end supplies.

The power of suppliers tends to be higher when products and services supplies are short, differentiated,

and there are no equal substitutes for the suppliers.

The power of new entrants is important because it lets a company know what the likely-hood of a

new company entering the market may be. The more potential within the industry, the more companies

may flock to become a part of that industry. The automobile industry’s power of new entrants is low to 6

medium. In order to enter into the automotive industry, a company would require large amounts of capital

to develop auto manufacturing plants, marketing, and would need to be differentiated from the

competitors to stand out. Threat of new entrants is low when the industry is experiencing high economies

of scale, initial capital requirements are higher, and governmental policies are restrictive.

The last of Porter’s five forces is the power of rivalry. The US automobile industry has high power

of rivals. Rivalry is lower when buyer demand is growing quickly, cost to switch companies is high, and

there are numerous competitors. Within the automobile industry, there are numerous auto makers that fit

into 31.8% of the overall market share, with the top five companies holding on to the remaining 68.2%.

Industry Attractiveness

When considering entry into a market or determining if a company should stay in the current

market, it should determine if the industry is attractive for new entrants as well as for existing firms.

Existing firms view the automobile industry as having medium to high attractiveness. Low threat of new

entrants, high rivalry power, and the high amount of potential in the market all lead to a medium to high

attractiveness level for firms already within the automobile industry.

New entrant’s attractiveness into the automobile industry is low. New entrants will face high

competition, high barriers of entry (strong plant management, production, and high marketing costs), and

diversified competition. Existing firms should not worry much about the threat of new entrants entering

into the automobile industry and stealing market share.

Key Success Factors

Key success factors include the strategy elements, product and service attributes, operational

approaches, resources, and competitive capabilities that are necessary to prosper and survive within an

industry. There are three questions that companies should use to measure the industry’s key success

factors.

1. On what basis do buyers of the industry’s product choose between the competing brands of

sellers?

7

When a customer buys a car within the auto industry, they must choose between many brands and

models. The two biggest decisions that the buyer will make before making a purchase are the price and

the features of the vehicle. The price of cars both new and used can vary greatly and in most consumer’s

lives is the second largest purchase they will every make. Buyers are also more demanding of

technology and a vehicle must meet the expectations by including features such as backup cameras and

Bluetooth technology to name a few.

2. Given the nature of competitive rivalry prevailing in the marketplace, what resources and

competitive capabilities must a company have to be competitively successful?

In the automobile industry, an auto maker must have a diversified fleet of vehicles to offer to the different

levels of society. Automobile manufacturers usually have an outlet for providing these vehicles to

consumers, such as dealerships. Currently, Tesla has “showrooms”, but a customer would still have to

wait for the company to create the vehicle which is still very different from a traditional dealership.

3. What shortcomings are almost certain to put a company at a significant competitive

disadvantage?

Price and lack of diversity are the two biggest shortcomings that can lead to the failure of an automobile

company. Hummer, for example, only sold one type of vehicle with a very high price tag, and they were

unable to survive in the growing automobile industry.

8

Strategic Group Map

A strategic group mapping is a technique that can show where different market rivals are located

in comparison. A strategic group consists of members of the industry that are closely related within a

market. An example of the US automobile industry major players can be found within the appendix on

Figure 1.

Major Players within the automotive industry

o GM, Toyota, and Ford share 68.2% of the overall US automobile industry

o Tesla makes up less than 1% of the total US automobile industry

Strategies of Major Players within automotive industry

o General motors strategy is to own the most market share by covering a decent sized

market within the US and by keeping prices and performance average and available to all

economic classes of society. GM creates a diversified lineup of vehicles to sell to

consumers.

o Toyota’s strategy is to own a large market share internationally while producing average

priced vehicles with high performance quality and medium product quality.

o Ford’s strategy is similar to General Motors in that the company wants to own market

share within the US and keep prices and performance average and available to all

economic classes of society. Ford creates a diversified lineup of vehicles to sell to

consumers.

Strategy differentiation of Major Players

o GM and Ford both are US automobile manufacturers, have a narrow geographic scope

and create medium to high price and quality vehicles.

o Toyota has a broad geographic market scope with medium to high price and quality

vehicles. Tesla by comparison has a medium geographic scope since the company has

expanded to international markets. Tesla is a luxury brand and currently focuses on

creating high price and quality vehicles.

9

Financial Analysis

Profitability

Profitability measures if a business is able to make a profit. Profitability ratios help to determine

how well a company is doing in making a profit in all aspects of the business. The four profitability ratios

are profit margin (ROS), return on assets (ROA), return on equity (ROE), and earnings per share (EPS).

Both the company and investors are looking at these ratios to see if a company is making a profit off of

the day to day business activities.

Profit margins (ROS) reveal a percentage that measures how much of each dollar made is

considered revenue. To calculate profit margin, divide net income over sales revenue. Tesla in 2014 has

a profit margin of -9.19%, down from -3.55% in 2013. A negative profit margin means Tesla has an

overall net loss on each dollar made.

Earnings per share (EPS) is an important financial ratio since it shows investors how much of a

company’s profit is made for each share outstanding. Earnings per share is calculated by subtracting net

income from dividends on preferred stock and dividing over the average outstanding shares. Tesla has

an EPS of $-2.36 which shows that the company is making a negative profit per share outstanding.

Return on assets measures the company’s income in relation to the company’s total assets. To

calculate return on assets, divide net income over total assets. In 2014, Tesla had a ROA of -5.03%,

down from -2.96% in 2013. A negative ROA means Tesla is not generating enough income off of its total

assets.

The final profitability ratio, return on equity (ROE), is a measure of net income in relation to the

equity shareholders have in the company. When calculating ROE, divide net income over total

shareholder’s equity. Tesla had a ROE of -32.25% and -10.71% in 2014 and 2013 respectively. An

important note is even though Tesla is reporting larger negative ROE each year, it does not mean it is a

poor investment choice and investors should look deeper into the activities of the company such as the

liquidity, leverage, and growth of the company.

10

Liquidity

Liquidity measures how well a company is able to pay off its short term debts. Four common

liquidity analysis ratios are the current ratio, quick ratio, cash ratio, and times interest earned (TIE) ratio.

These ratios together can help investors determine if the company is able to properly manage its assets

and pay of its debt. Liquidity ratios can assist a business in determining if the company will be able to

cover its short term debt.

The current ratio measures if all of a company’s current assets can pay back its current liabilities.

Current ratios are calculated by dividing the current assets over the current liabilities. In 2014, Tesla had

current assets of $3,198,657 and current liabilities of $2,107,166 which resulted in a current ratio of 1.52.

In 2013, Tesla had a higher current ratio of 1.88 because the company maintained higher current assets

with less current liabilities. Tesla’s current ratio indicates good short term financial strength since it is

able to pay off its short term debts with its current assets.

The quick ratio is similar to the current ratio in that it measures a company’s ability to pay off

short-term debt, except that the quick ratio negates inventories from the current assets. The quick ratio is

calculated by subtracting inventories from current assets and dividing over current liabilities. After

inventories have been removed, Tesla has $2,244,982 in current assets leading to a quick ratio of 1.07.

This means Tesla has $1.07 in current assets to cover each $1.00 of current liabilities.

The cash ratio measures the total cash and compares it to the company’s total liabilities and is

another tool used by investors to measure a company’s ability to pay back short-term debt. Calculate the

cash ratio by dividing cash over the company’s current liabilities. In 2014, Tesla had $1,905,713 in cash

leading to a 90.44% cash ratio. Having a high cash ratio shows that Tesla only has enough cash to pay

off 90.44% of current liabilities which could lead to Tesla needing to take out more loans.

The final liquidity ratio is times interest earned (TIE). This ratio measures if a company is able to

meet its debt payments owed. TIE is calculated by dividing the earnings before interest and taxes (EBIT)

over interest charges. In 2014, Tesla had an EBIT of -$186,689 and interest charges of $100,886 leading

to a TIE ratio of -1.85 times. Since TIE is below 2.5x, Tesla does not make enough in its day to day

operations to cover its debt which may force the company to borrow more debt. 11

Growth Rates Compounded Annually

Assets from 2010 to 2014 have grown 97.29% from $386,082 to $5,849,251. Sales during the

same four-year period have grown 128.78% from $116,744 to $3,198,356. Income compounded annual

growth rates have stayed negative throughout all four years. Income has fallen from -$154,155 in 2010 to

-$294,040 in 2014 leading to a -17.52% loss. Equity has grown 44.86%. The compounded annual growth

rate had risen from $207,048 in 2010 to $911,710 in 2014. Earnings per share (EPS) diluted increased

6.13% as it went from -$3.04 to -$2.36 from 2010 to 2014.

Leverage

Financial leverage measures the amount of debt a company uses to purchase assets required.

Two financial leverage ratios are the debt-to equity ratio and the debt ratio. Debt-to-equity ratio shows

total liabilities of a company compared to the value of stock and is calculated by dividing total liabilities

over shareholders’ equity. Tesla had total liabilities of $4,879,345 and stockholders’ equity of $911,710

which led to a debt-to-equity ratio of 5.35%. The debt ratio measures both short- and long-term and

shows how many of the company’s assets are covered by debt. Debt ratio is calculated by dividing total

debt over total assets. Tesla has total liabilities of $4,879,345 and total assets of $5,849,251 which

creates a debt ratio of 83.42% in 2014.

Financial Summary

DuPont analysis shows in a three step breakdown the how profitability, operating

efficiency, and financial leverage all directly affect the ROE. The formula for the DuPont analysis

is shown below:

Tesla had a ROS, or profit margin, of -9.19%, total asset turnover of .55, and an equity multiplier of 6.42.

When multiplying the profit margin, total asset turnover, and equity multiplier together, the ROE for Tesla

in 2014 equals -32.25%.

12

Tesla in 2014 had an overall negative profitability of -$294,040. Though the company

experienced large growth from 2010 to 2014, the company is still experiencing negative ROA, ROS, and

ROE of -5.03%, -9.19%, and -32.25% respectively. Negative profitability can be attributed to Tesla’s

costs of production and other expenses outperforming company sales. Tesla has a negative EPS and

diluted EPS of -$2.36 and -$6.13 respectively in 2014. Tesla’s negative EPS was expected from

investors as the company continues to use all available money and resources into developing more cost

efficient vehicles. Important factors that are directly causing negative financials are high operating costs

(R&D and SGA), high cost of goods sold, and very minimal revenue increases over the past four years.

As of today, though Tesla has not made profits for itself or investors, the company’s stock price

per share seems to be overly inflated as the current stock price is hovering at $265.42. Tesla’s stock

price has increased quickly since its IPO stock price of $26.49 in April of 2011. Investors have been

optimistic of the future of the company since the announcement of the $35,000 all-electric Model III

Tesla.

Tesla Analysis

VRIO

VRIO stands for valuable, rare, inimitable, and nonsubstitutable and are the four tests for

determining if a company has a competitive power. The four questions asked when testing a resource’s

competitive power are shown below:

Is the resource or capability competitively valuable?

Is the resource or capability rare?

Is the resource or capability inimitable?

Is the resource or capability exploitable by the organization?

Determining where resources and capabilities belong on the VRIO provide a path to help a company

decide the type of advantage it has over the industry rivals.

13

There are four types of advantage solutions that a company can have when completing a VRIO

analysis. Sustainable competitive advantage (SCA), temporary competitive advantage (TCA),

competitive parity (CP), and competitive disadvantage (CD).

A sustainable competitive advantage is one that a company develops to outperform competitors

in the industry. In order for a resource or capability to be a sustainable competitive advantage, it must be

valuable, rare, difficult to imitate or substitute, and the company must be exploiting it. Tesla has a few

SCA’s including Elon Musk and the Gigafactory. Elon Musk is a SCA because a company cannot

replicate who he is as a person. The Gigafactory that is being built jointly by Tesla and Panasonic will be

the number one lithium ion battery factory in the world.

A temporary competitive advantage is both valuable and rare. An example of a Tesla temporary

competitive advantage is the autopilot technology the company recently integrated into its cars. This is a

TCA because other companies are already testing and implementing this technology into vehicles as

well. Tesla also has created a global supercharger network for customers to charge their electric vehicle

for free. The supercharger network is a TCA because as the market for electric vehicle’s grow,

companies will create more charging stations that are open for any electric vehicles, similar to gas

stations today.

A competitive parity only needs to be valuable. Tesla has a few CP’s including the “Go Green”

market trend and the Tesla and Panasonic partnership. The “Go Green” trend set by government

regulations and social-cultural changes may not last forever, therefore making it a CP. The Tesla and

Panasonic partnership, while powerful, may crumble if Tesla decides to backward integrate the batteries

it uses for its Tesla models.

A competitive disadvantage is just as important as a competitive advantage. CD’s pass zero

VRIO tests and are considered a disadvantage to the company. Tesla has a CD if oil prices fall. Tesla

has another CD if the company is unable to lower the barrier to entry into the vehicles it sells.

14

Value Chain / Resource Based View

A value chain identifies both the primary and secondary support activities that create value for a

customer. Some examples of primary activities include supply chain management, operations, and

service. Three support activity examples are product research and development, human resource

management, and general administration.

A few examples of Tesla’s primary activities based on the VRIO analysis on appendix table 1.

The primary activity examples include intangible high costs associated with creating electric vehicles

using supply chain management, lack of tangible dealerships for direct distribution to customers, and the

tangible Gigafactory that is being created for building lithium ion batteries. Some of Tesla’s secondary

activities include the tangible autopilot technology created through R&D and Elon Musk as an intangible

human asset for the company.

SWOT Analysis

SWOT is an acronym for strengths, weaknesses, opportunities, and threats. SWOT analysis

assists a company in coming up with a strategy that focuses on the company’s ability to find strengths,

overcome weaknesses, take advantage of opportunities, and defend itself from external and internal

threats. Tesla is a new and small player in the automobile industry and could use the SWOT analysis to

assist in creating a long term strategy.

One of Tesla’s greatest strengths is Elon Musk. Musk is a visionary and well known CEO who

has led Tesla to grow as a company and be seen to the public as an innovative company. Tesla has also

become the first company to introduce a fully electric sports car into the market.

Tesla’s has a few important competitive deficiencies that should be noted. Tesla has no physical

dealerships which keeps many consumers from finding and experiencing the vehicle. Tesla Motors also

has not turned a profit since the company has chosen to reinvest all revenue back into R&D and SGA

and continues to experience high cost of goods sold.

15

Opportunity is the reason why Tesla has been able to enter the automobile industry with its many

rivals. The growing company should continue to look for opportunities in the low end segment of the

market by offering its $35,000 all electric vehicle. Tesla should also take advantage of the growing social

expectations to find more energy efficient and “green” vehicles to reduce emissions.

Tesla faces many threats within the automobile industry including its high price on vehicles and

low diversification. In order to stay competitive in the industry, Tesla must continue to be the leader in the

growing electric vehicle segment of the auto industry. As the electric and energy efficient vehicle

segment continues to grow, more competitors will enter and saturate the market. Tesla lacks the financial

stability of the top automobile manufacturers, so the company should focus on becoming more price

conscious to gain customers and market share.

Competitive Strength Assessment and Matrix Analysis

A competitive strength assessment (CSA) is a planning tool used by a company to compare itself

to rivals in different areas of the industry. Competitive strength assessment measures the key success

factors of a company and then weights those strengths next to the company rivals. The weights of each

key success factor must always add up to 1.

Direct rivals of Tesla included on the CSA matrix include GM, Toyota, Daimler AG, and BMW.

The strongest weighted key success factor in the matrix is product performance at 30%. Tesla is even

with Daimler and BMW with a strength rating of 9 out of 10. Tesla is rated highly in this category because

it favors the high end market with high demands and expectations from consumers. Tesla also has

efficient vehicles which can travel over 200 miles in a single charge. Finally, Tesla had great vehicle

performance with all of its EV’s traveling from 0 – 60 MPH in less than 6 seconds.

The weakest weighted strength assessment for Tesla was the relative cost position at 5%. At the

time of the case Tesla had a strength rating of 3 in this category because the company only sold luxury

vehicles with little differentiation. In comparison, Toyota was ranked highest at an 8 due to the Prius

hybrids under $30,000 and BMW’s $41,000 EV.

16

Financial strength, manufacturing capabilities, and raw material costs all had a weight of 10%.

Tesla scored low in all three strength assessments with strength ratings of 1, 4, and 4 respectively. One

of the reason marketing capability had a low Tesla is only utilizing press and word of mouth for

marketing. Financial strength had a strength rating of 1 because the company is failing to make a profit.

Finally, the raw material costs are currently costing the company a lot since the materials have to be of

high quality to meet the expectations of the luxury buyers. In comparison, the highest company’s in these

three key success factors were Chevrolet and BMW. Quality, image, and reputation are weighted at 20%

and is led by Tesla, Daimler, and BMW all with strength scores of 10. The vehicles created by all three

companies ranked highest are of exceptional quality, are made with premium parts, and have an

excellent reputation with their customers.

Tesla received an overall CSA matrix score of 6.3 out of 10. Daimler had the top overall strength

rating at 7.95. The second highest CSA score was BMW with 7.55 and Chevrolet followed close behind

at 7.15. Tesla is one of the newest companies of the rivals which could be why the score may be lower.

Also, Tesla needs to better its relative cash position, increase its financial strength, and create a better

marketing and distribution system to improve its score and become one of the top rivals in its market

segment.

Tesla Strategy

Company Mission

Tesla’s company mission is “To accelerate the world’s transition to sustainable transportation.”

(Tesla, 2016) Tesla’s current generic strategy is to be differentiated. Along with being differentiated,

Tesla is also attempting to set the bar for electronic vehicles in the automobile industry. Tesla is building

infrastructure like the supercharger network to set up charging stations around the world. Recently, in

order to differentiate further, Tesla also revealed a new product outside of the automobile industry called

the Powerwall which falls within a separate industry.

17

Tesla’s present strategy doesn’t always fit with the market forces in the industry. Product and

market innovation for Tesla is different since it only relies on word of mouth and the press coverage.

Companies within the automobile industry tend to rely heavily on advertising to sell vehicles and market

to customers. Tesla product features are within the driving forces of automobile industry. Tesla’s strategy

matches well with the sociocultural message of going green. The company’s strategy to reprogram

vehicles remotely and add features fits in with emerging new internet and applications driving force. With

tax credits up to $7,500, they are currently utilizing regulatory influences to their advantage until they sell

200,000 EV’s.

Tesla’s overall goal is to lead the automobile industry into the era of EV’s. Since Tesla is ahead of

most of the industry rivals, when the market shifts in the favor of EV’s, Tesla will be the leader with the

most market share in the industry while the rest of the rivals will be behind. The most effective SCA of

Tesla is Elon Musk. Musk is a strong intangible human asset and is the innovator and leader of the

organization and drive behind Tesla’s mission. As an example, Elon Musk has taken a dramatically

lowered salary down to $35,360 a year in order to put more of the company’s money toward innovation.

Another strong SCA is the Tesla / Panasonic Gigafactory that will become the world’s largest producer of

lithium ion batteries. Since lithium ion batteries are used in many of today’s EV’s, Tesla and Panasonic

will control the manufacturing and rivals will have to purchase from Tesla to meet demand.

Strategic Issues

To stay competitive, Tesla must address strategic issues that affect the company directly. Tesla

currently has high operating costs and are reinjecting all revenue back into R&D and SGA. The reason

Tesla has decided to invest heavily into operating costs is to lower the overall costs of the vehicles and

improve the technology behind EV’s. Without enough sales revenue, Tesla can’t invest as much back

into operating costs without taking out more debt. Tesla motors also has high COGS for each vehicle

which leads to low profit for each vehicle sold.

Another issue Tesla is facing when competing with other auto manufacturers is the lack of

physical dealerships. While Tesla does offer gallery’s, there are not many compared to the thousands of

18

different dealerships offered by other rivals. Tesla also has high cost accessories such as adapters,

charges, and car parts. As it stands, Tesla is unable to pass on many cost savings to its customers which

is leading to the high luxury price of its vehicles.

Investors are an essential part of Tesla’s strategy. Currently, investors believe that Tesla will lead

the automobile industry into the EV market. Tesla’s current stock price seems to be overhyped at the

moment after looking at the company financial information. Tesla’s strategy to enter the home utility

market with Powerwall comes with many strategic issues. First, the Powerwall has a high cost of entry

with a starting price of $3,000. A strategic issue of the Powerwall is the device still requires external

infrastructure solar panels in order to function.

Strategic Recommendations

Increasing revenue streams by marketing more and driving down material costs can assist Tesla

in fixing both the sales revenue issues as well as helping to lower high operating costs. To increase

revenue, Tesla should look into creating subscription models with the technology in their vehicles. For

example, if Tesla were to implement a Tesla monthly fee for the updates to the vehicle, internet access in

the vehicle on the go, and on call support for technical problems for $50.00 per month, they could

increase revenue. Tesla could also add a membership or premium membership for customers to offer

special perks such as discounts to hotels, restaurants, and travel coupons, similar to AAA insurance.

In order to satisfy investors, Tesla may need to perform a stock split to rebalance its stock price

while still rewarding current investors. While the strategy to bring energy efficiency to the home utility

market is helping to diversify Tesla, the company needs to work on lowering the entry level price and

attempt create an all-in-one system that doesn’t require external infrastructure. By creating an all-in-one

proprietary system, Tesla could set themselves as the only company who can install and service the

equipment. Tesla can also charge a monthly fee for this service as well to increase monthly revenue from

customers. The monthly fee would cover phone support, servicing, and insuring the equipment.

19

In order to address the strategic issue of not having physical dealerships, Tesla can work with

privately owned dealerships to sell their cars for a monthly fee. Tesla would also have to increase

production at a fast enough rate to deliver cars to the dealerships. Another option to avoid building

numerous dealerships across the country would be to buy preexisting dealerships. This would save on

land and construction costs and would allow for basic restructuring. Tesla would have to be strategic to

place the dealerships in markets that could afford the price of Tesla’s to ensure a steady stream of buyer

traffic.

Tesla Strategy Implementations

There are 6 steps within the strategy execution process and they are broken up into three distinct

sections: boundaries, rewards, and culture / leadership. These steps measure the how, what, who, when,

and where questions of the implementation. In order to avoid strategies failing, Tesla must follow

through with all steps within the implementation process carefully. If Tesla is able to outperform targets

and value chain activities are performed efficiently, the strategy should be successful.

How should Tesla be organized?

Tesla should be organized the way it is with a strong CEO in Elon Musk leading the innovation

and growth of the company. By taking a salary cut, Musk set an example that he is not growing Tesla for

the now, but for the future. The skills of the employees are essential to ensure that Tesla is hiring the

best and brightest minds to help the company become the global EV leader. In order to obtain the best

global talent, Tesla should market itself as having a desired culture for potential employees. Tesla should

also offer growth opportunities for employees within the organization.

What culture is required?

Tesla’s is headquarters is located in Palo Alto, California. The culture expected in that part of the

country has been set by Google. Employees expect an environment where they are offered numerous

benefits such as free lunches, paid time off, and excellent health benefits. To meet these employees

demands, Tesla should try to set up a culture that gives its employees and management the best

20

possible experience. If an employee is happy at work with a culture that is focused on helping him or her

succeed, they will pass that enthusiasm onto the customers of the company.

Does Tesla have a reward structure in place?

Tesla currently does not have a reward structure in place for employees. Tesla should implement

rewards for customer service as opposed to sales. As part of its differentiation process, Tesla should set

itself apart from competitors by offering world class customer service. Tesla could offer extra incentives

to employees who give a 100% satisfaction survey to the company. This helps the customer feel

important and that Tesla is listening to feedback. This also keeps the reward from being exploited by

trying to meet short-term goals such as selling certain features or a specified number of vehicles.

What financial resources are required?

In order for Tesla to be successful, it must increase its financial resources. For years, the

company has not been able to turn a profit. Tesla should look into other alternatives to increasing

revenue such as creating subscription services and member services for their customers. If Tesla can

increase the overall financial resources of the company and come out in the black, the company will be

able to drive down costs and differentiate themselves more. They will also be able to pass the extra

profits back into R&D without having to take out as much debt.

How does Tesla set up administration?

Tesla need to continue to implement a faster production process while still maintaining the same

level of quality for their vehicles. When demand increases for vehicles like the Model III, the company

has to be able to produce the vehicles quick enough. By using technology and engineering practices,

Tesla needs to focus R&D on lowering the production time by removing unnecessary steps and by

finding more affordable solutions to build the same quality vehicles.

21

What type of leaders should be put in place?

Tesla should integrate more leaders like Elon Musk to implement strategies. Leaders in Tesla

need to be able to look past the present and into the future. As Tesla moves towards becoming the

number one EV manufacturer in the world, they must ensure that the company grows steadily, is

managed to not rush into decisions, and that there is little outside influence from bigger companies in

decision making.

22

AppendixTable 1: VRIO Analysis

Competency or Resource Where on value chain Valuable Rare Difficult to imitate or substitute

Org to Exploit

Type of Advantage

Elon Musk Intangible, Human Asset Y Y Y Y SCAGreen Market Trend advantage

(**Not exploiting to full potential**)(need lower priced vehicles)

Intangible, Overall Market Sales Y N N Y/N CP

Declining Gas Prices Intangible, Overall Market Economy N N N N CD

Supercharger Network Tangible, Physical Services / Services Y Y N Y TCA

Tesla & Panasonic Tangible, Relations Y N N Y CPGigafactory

(Most lithium ion batteries produced in world)

Tangible, Supply Chain Management Y Y Y N SCA

Vehicle Accessories Tangible, Product R&D, Technology, and Systems Development

Y Y Y Y SCA

Decreased Barrier of Entry Model 3 ($35,000)

Intangible, Sales and Marketing Y N N Y CP

High Costs Associated with Electric Automobile Market Segment

Intangible, Operations / Supply Chain Management

N N N N CD

Dealerships Tangible, Distribution Y N N N CPAutopilot Technology Tangible, R&D and Technology Y Y Y Y TCA

Powerwall Tangible, R&D and Technology Y Y Y N TCA

Software Updates to Improve Vehicle Capabilities

Tangible, R&D and Technology Y Y Y Y SCA

Table 2: Competitive Strength Assessment MatrixKey Success Factor Weight Tesla Chevrolet

(GM)Toyota Daimler AG BMW

Quality/Reputation/image .20 10 8 9 10 10

Product Performance .30 9 8 8 10 9

Raw material access/cost .10 5 9 8 8 7

Manufacturing capability .10 5 9 9 8 8

Marketing/distribution .15 4 9 9 9 9

Financial strength .10 2 8 9 9 9

Relative cost position .054

7 8 7 7

Overall Strength Rating 1.0 6.3 7.15 7.25 7.95 7.55

24

Figure 1: Strategic Group Map

25

Table 3: 2014 Tesla Financials

26

Table 4: 2013 Tesla Financials

27

References

“Investopedia - Educating the World about Finance." Investopedia. N.p., n.d. Web. 01 Apr.

2016.

Lawlor, Blaine, Dr. "Tesla Motors: A Case Study One Step Beyond." (2016): n. pag. Print.

Tesla Motors, Inc. (2010). Form 10-K 2014. Retrieved from SEC website

http://ir.teslamotors.com/sec.cfm?view=all

"Tesla Motors." Tesla Motors. N.p., n.d. Web. 01 Apr. 2016.

Tesla Motors. Wikimedia Foundation, n.d. Web. 03 Apr. 2016.