Tesla Motors

IntroductionTesla Motors was founded in 2003 in Silicon Valley. The company specializes in manufacturing and

selling electric cars, electric vehicle powertrain components and battery products. Tesla currently occupies a unique position in the luxury electric automobile market, being the sole dominant player in that market. In order to increase car sales, Tesla also invests heavily in the infrastructure to support the operations of its vehicles, suchas the Supercharger network, battery swap stations and service stations. Tesla has also leveraged its capabilities in manufacturing battery products and has begun venturing into the industry and home power packs business via its Powerwall products. In 2015, Tesla delivered 50,580 cars, which surpassed its 2014 record of 33,157 units. Inthe US luxury car market, Tesla is the market leader with 26.55 % market share in 2015.

Strategy FormulationFor Tesla, an effective strategy approach would be rapid prototyping. Tesla has been dominant in the

electric vehicle market with the Tesla Model S and Model X. As the next step in their expansion strategy, Tesla aims to expand into the mass market with the Tesla Model 3. The Model 3 was announced on July 16, 2014, withdeliveries expected in late 2017. As of 7 April 2016, Tesla has reported 325,000 reservations for the new Model 3. As of today, Tesla has been successful in attracting buyers for the new products due to their branding and unique value proposition. However, as the company matures, they will require a more robust market research strategy. Using a rapid prototyping approach, Tesla will be able to test the market demand on their futureproducts. By utilizing their existing car platforms, Tesla will be able to test out various features and different designs of their vehicles in order to further attract customers. Tesla will also be able to quickly identify any design flaws or issues with their production and rectify them before they go into mass production. This presents an attractive cost savings as they will avoid costly vehicle recalls, as well as potential lawsuits due to faulty vehicles. Rapid prototyping will also allow Tesla to quickly identify consumer needs and trends, and quicklyadapt to the rapidly changing consumer demands. Furthermore, if Tesla is able to leverage their modular car chassis platform and rapid prototyping technology, Tesla may be able to eventually offer highly customizable electric vehicles to their customers, which will further increase their unique value proposition.

Strategy AnalysisOne of Tesla’s key strategies moving forward is the construction of a huge battery manufacturing facility

in order to cater for the battery production of its electric vehicles and power pack products. In order to assess the robustness of this strategy, a hypothesis test can be carried out as part of a strategy analysis.

HypothesisWill Tesla’s Gigafactory be able to produce 35 gigawatt-hours per year of cells and 50 GWh/yr of

battery packs by 2020, as well as reduce production costs by 30%?

Core AssumptionsTesla’s gigafactory will have the capacity to produce 35 gigawatt-hours per year of cells and 50 GWh/yr

of battery packs, and will achieve full production by 2020. The gigafactory will utilize economies of scale to drive down production costs. Tesla’s plans to build several gigafactories in the future in order to meet future demands and further reduce costs. Building the gigafactory will allow Tesla to produce more electric vehicles and battery products, as well as implement new technologies that will produce more efficient and cost effective

batteries.

Value testThe gigafactory could cut down production costs up to 50% via economies of scale, improved chemistry

and supply chain optimization. Current Model S battery packs costs about $250/kWh, but new technology in battery chemistry will produce a potential 30% reduction to about $88/kWh. With the construction of the gigafactory, the pack-level cost is expected to drop to about $38/kWh. Although these cost reductions are only estimates, the economies of scale and supply chain optimization of the gigafactory will still reduce production costs.

Execution TestThe gigafactory has begun construction since June 2014 and is currently on track. As of March 2016, the

factory is about 14% of its full build-out size but has already started production on Power Wall and Power Packs.Panasonic has agreed to invest $1.6 bil on the gigafactory.

Scale TestTesla plans to expand and potentially double the size of the Gigafactory. In June 2015, Tesla purchased

1,864 acres of land adjacent to the original 1,00 acres Gigafactory site. Tesla also plans to build other gigafactories in the future. On April 30, 2015, Tesla announced that the current factory will be known as Gigafactory 1.

Defensibility TestConstruction of the gigafactory will reduce Tesla’s unit production cost and increase its battery

production capacity. The ability to produce battery packs cheaply and in large quantities will solidify Tesla’s unique value proposition, as it will be difficult for competitors to compete with Tesla. The gigafactory will also reduce the prices of Tesla’s vehicles, making it cheaper and more attractive to customers.

Next StepsIn order to realise the strategy and the benefits from the construction of the gigafactory, Tesla has to

monitor and ensure the successful completion of the gigafactory by 2020. Tesla has to ensure that the Gigafactory will reach peak production by 2020 in order to meet the demands of its power packs and vehicle deliveries. In terms of uncertainties, Tesla has to invest sufficiently in battery chemistry in order to developmore efficient and cheaper battery packs to reduce the cost of pack per kWh. Tesla should also work with suppliers to ensure long term volume contracts are in place to reduce the price of raw materials, as well as working closely with the government to capture any tax exemptions and benefits.

Strategy Implementation AlignmentTesla’s strategy is to disrupt the current gasoline vehicle market and to push the transition from gasoline

to electric vehicles. For external alignment, all of Tesla’s strategies have been aligned to produce zero emissions and reducing reliance on gasoline vehicles. The Gigafactory that is currently in construction will be powered by renewable energy sources, with the goal of achieving net zero energy. Tesla also has a strong internal alignment. For example, Tesla’s car sales showrooms are all wholly owned by Tesla, as this will provide a clearer message to the staff to understand the product and the direction of the company. In terms of leadership alignment, Elon Musk has been a strong advocate of clean energy and zero emissions. Other than investing in Tesla, Elon also invests is photovoltaic companies to produce solar panels for homes.

AbilityTesla recognizes the significance of its mission and therefore understands that it will require the

necessary talents in order to achieve its goal. Although Tesla has grown significantly over the past few years, it still embraces a startup mentality. Tesla takes their hiring process seriously and not only do they adjust their hiring process by country, they also have different strategies for each position. Tesla also has a referral programme to ensure that they recruit the best talent available. Although Tesla invests in hiring the best talent, they should focus on training and developing their own talent. This will ensure that the company will have a

talent pipeline that is ready to run the organization as the company grows.

ArchitectureTesla has embraced a startup mentality. Teams work in small focused groups that are agile, efficient

and focused on excellence. As a growing company, Tesla has somewhat the right balance of bureaucracy and uncertainty. As it is a company that intends on disrupting the gasoline vehicle industry, it is key that the companyremains less bureaucratic in order to make faster decisions. However, there has to be key accountable decision makers that are able to make the clear decisions and focus on delivering the key outcomes.

AgilityAs a growing company, Tesla has been an agile company in order to respond to the market changes.

From the organizational learning model, Tesla has been open to the outside. It recognizes that its mission for zero emissions is a difficult one. As such, Tesla has opened its patents to the public in order to foster innovation and growth. By doing so, Tesla is able to explore and exploit the development done by other companies using its patents. Internally, Tesla has been sharing internal knowledge to all of its business units. This can be seen from its car showrooms. All of the car showrooms leverage the same approach and share any learning to provide a unique and personalize customer service. Tesla is also future driven, where it focuses on long term goals by experimenting continuously. Tesla is constantly experimenting with new battery technology and battery chemistry in order to produce more efficient and cheaper batteries. At the same time, Tesla is also focused on thepresent, where it owns and solves its own problems. Recognizing that it is unable to meet the growing demand ofbattery pack and vehicles, it invests in a large Gigafactory that will be able to supply the current and future demand of their products.

ConclusionTesla is well positioned within its niche market of luxury electric vehicles. As the company grows, it

will need to be able to scale and increase its capacity to produce battery packs and vehicles in order to meet the rapidly growing consumer demand. Recognizing this, Tesla needs to focus on ensuring the successful completionof the Gigafactory and reducing its costs to produce cheaper, more affordable cars. As the company continues to grow, it will need to utilize its car platforms to produce more different vehicle models to attract and cater to a wider consumer base. From an organizational standpoint, the company will need to focus on talent development in order to build a robust talent pipeline to support Tesla’s goal to accelerate the world’s transition to electric mobility with a full range of increasingly affordable electric cars.

AppendixFigure 1: Market Share of Luxury Vehicles in the US (2015)

Automobile Market Share 2015

Audi A7 : 8 %

Audi A8 : 4 %

BMW 6 Series : 8 %

BMW 7 Series : 9 %

Jaguar XJ : 4 %

Lexus LS : 7 %

Mercedes CLS Class : 6 %Mercedes S Class : 22 %

Porsche Panamera : 5 %

Tesla Model S : 27 %

Audi A7 Audi A8 BMW 6 Series BMW 7 Series Jaguar XJ

Lexus LS Mercedes CLS Class Mercedes S Class Porsche Panamera

Tesla Model S

meta-chart.com

References1. Tesla Motors. Tesla Motors Company Overview. [Online].; 2011 [cited 2014 Feb 22. Availablefrom: http://files.shareholder.com/downloads/ABEA-4CW8X0/980559372x6291394x435109/5368027D-392C-4EE2-AA66-E4ECE954A244/TSLA_Investor_Presentation.pdf.2. Trefis Team. Tesla's Unique Position In The Car Market Is One Of Its Biggest Strengths. [Online].;Jul 2015 [cited 2016 Apr 16. Available from:http://www.forbes.com/sites/greatspeculations/2015/07/02/teslas-unique-position-in-the-carmarket-is-one-of-its-biggest-strengths/#45d66f7322ec.3. Hessler Y. Tesla sold more than 50,000 Model S sedans in 2015, a new annual record. [Online].;Jan 2016 [cited 2016 Apr 16. Available from: http://bgr.com/2016/01/03/tesla-model-s-sales-2015/.4. Shahan Z. #1 Large Luxury Car In US = Tesla Model S (2015 Sales Comparison). [Online].; 15 Jan2016 [cited 2016 Apr 16. Available from: http://cleantechnica.com/2016/01/15/1-large-luxurycar-in-us-tesla-model-s-2015-sales-comparison/.5. Gold A. New Tesla Model 3: price, specs, pictures and 2017 UK release date. [Online].; Apr 2016[cited 2016 Apr 16. Available from: http://www.autoexpress.co.uk/tesla/model-3/87867/newtesla-model-3-price-specs-pictures-and-2017-uk-release-date.6. Hull D. Tesla Says It Received More Than 325,000 Model 3 Reservations. [Online].; Apr 2016[cited 2016 Apr 16. Available from: http://www.bloomberg.com/news/articles/2016-04-07/tesla-says-model-3-pre-orders-surge-to-325-000-in-first-week.7. Arye J. Tesla Gigafactory & Battery Improvements Could Cut Battery Costs 50%. [Online].; Sep2015 [cited 2016 Apr 16. Available from: http://cleantechnica.com/2015/09/21/teslagigafactory-battery-improvements-could-cut-battery-costs-70/.8. Damon A. Tesla gigafactory one year later: Economic boost but lagging transparency. [Online].;Dec 2015 [cited 2016 Apr 16. Available from: http://www.rgj.com/story/news/2015/12/06/teslagigafactory-one-year-later-economic-boost-but-lagging-transparency/76638958/.9. Whaley S. Tesla officials show off progress at Gigafactory in Northern Nevada. [Online].; Mar2016 [cited 2016 Apr 16. Available from: http://www.reviewjournal.com/news/nevada/teslaofficials-show-progress-gigafactory-northern-nevada.10. Ramsey M. Panasonic Will Bet Big on Gigafactory. [Online].; Jan 2016 [cited 2016 Apr 16.Available from: http://www.wsj.com/articles/panasonic-will-bet-big-on-gigafactory-1452189826.11. Hidalgo J. Going big: Will Tesla double size of gigafactory plant? [Online].; July 2015 [cited 2016Apr 16. Available from: http://www.rgj.com/story/money/business/2015/07/20/tesla-planningdouble-gigafactory-plant-size/30313473/.12. Kazmierczak K. Tesla Motors – Growing Rapidly and Strategically. [Online].; Mar 2015 [cited 2016Apr 16. Available from: http://www.hci.org/blog/tesla-motors-growing-rapidly-and-strategically.13. The Latest On Tesla Motors, Inc.'s Gigafactory. [Online].; Jan 2016 [cited 2016 Apr 16. Availablefrom: http://www.fool.com/investing/general/2016/01/28/the-latest-on-tesla-motors-incsgigafactory.aspx.14. Randall T. Tesla's Battery Grabbed $800 Million in Its First Week. [Online].; May 2015 [cited 2016Apr 16. Available from: http://www.bloomberg.com/news/articles/2015-05-08/tesla-s-batterygrabbed-800-million-in-its-first-week.