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Business Report on Tesla...

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Business Report on Tesla, Inc.

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Ex Execu ecu ecutive tive Su Summa mma mmary ry The purpose of this essay is to outline the threats that Tesla has to overcome in order to further take advantage of potential opportunities. Along with covering the business performance throughout, the essay mainly discusses how the external environment and internal strategies have influenced the firm’s growth. As a result of the analysis, there are additional recommendations which could sustain the long-term development of the business. As much as selling directly to the customer has proved to be cost-effective and time saving for the customer, the recent laws in the Unites States are affecting Tesla’s plans by banning direct distribution. Further, Tesla’s network of superchargers which is stretched out around America and West Europe encourages more people to buy their cars, but technological improvements conducted by oil company Shell are threatening with the release of faster charging points. The announcement of the lower-cost Model 3 has brought Tesla great deal of attention, yet the number of early adaptors is fairly small, and thus the company needs to expand the categories of archetypal customers. Nevertheless, Elon Musk personality has built a beneficial reputation around the company, which provides Tesla a sustainable competitive advantage. However, to maintain the same continuous growth there are still many challenges to overcome and strategies to improve. For example, instead of being constantly in the spotlight by promoting new products, Tesla could focus more on increasing the ir rate of production. Moreover, with constant setbacks from recent laws banning the direct distribution of cars, the electric vehicle company should persuade their competitors to sell directly to the customer by displaying the various advantages.

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EXE EXECUT CUT CUTIIVE SU SUM MMA MAR RY ....................................................................................................... 2 1.INT 1.INTRO RO ROD DUCTION.............................................................................................................. 4 2.IND 2.INDU UST STRY RY & BU BUSINE SINE SINESS SS EN ENVIRO VIRO VIRON NME MENT NT A ANALY NALY NALYSSIS IS.............................................................. .............................................................. 4 3.A 3.ASSE SSE SSETS TS A AND ND RES RESO OU RCE RCESS - V VRIO RIO FFRAMEW RAMEW RAMEWORK ORK .................................................................. 7 TESLA’S SUPERCHARGERS .............................................................................................................. 7 LITHIUM-ION BATTERIES ............................................................................................................... 8 TESLA’S 3 STAGE MASTER PLAN ..................................................................................................... 8 4. 4.MARKE MARKE MARKETT SEG SEGME ME MENT NT NTAT AT ATIO IO ION N................................................................................................ 9 5. 5.RECO RECO RECOMM MM MME EN DATI ATIO ON S & CO CON NCL CLUS US USIO IO ION N................................................................ ............................................................................. ............. 11 6. 6.REFE REFE REFERE RE RENCE NCE NCESS ................................................................................................................. 13 7.APPE 7.APPENDIX NDIX ..................................................................................................................... 18

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1.In 1.Intr tr trodu odu oduction ction Founded in 2003 in California, Tesla, Inc. is an electric car company which operates in North America, Europe, and Asia. ‘Our goal when we created Tesla a decade ago was the same as it is today: to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.’ says Elon Musk, Chairman, Product Architect and CEO of Tesla Motors (2013, pp.1). Since its establishment, Tesla has won several awards such as the Auto Pacific ‘Highest Satisfaction Premium Brand’ (AutoPacific,2016) or the ‘2017 AAA Top Green Vehicle Award’ for Model X, after being tested and ranked by fuel-efficiency and car emissions (AAA, 2017). Even though Tesla reported a loss on $650 million in 2016, in April 2017, the company ’s market value went above $50 billion for the first time, surpassing Ford’s stock price (B. Lee, 2017).

The popularity of Tesla’s CEO Elon Musk has seen a sharp increase in recent years due to its innovative and futuristic ideas, risk-based decision making and charisma. In November 2017, the so called real life Tony Stark of Iron Man (Rothaermel, 2017), due to his impressive accomplishment, reached 15 million followers on Twitter. His personality has brought Tesla more attention, especially among st millennials where the company is ranked highest in ‘coolness’ (Google, 2017).

2.In 2.Ind dus ustry try & bus busiiness eenvi nvi nviro ro ronm nm nme ent an analys alys alysis is According to Rothaermel (2017, pp.66) “A firm’s external environment consists of all the factors that can affect its potential to gain and sustain a competitive advantage”. Thus,

it is vital for the company to know what opportunities and threats may occur in the future in order to provide it with long-term sustainability.

Political factor

Economic factor

Socio-cultural factor

Technological factor

Laws that protect dealership selling (US)

Fluctuations in currency rates

The advantage of having a low population(Norway)

Possible entrance of tech companies in the car industry

Figure 1. PEST Framework.

A recent case study of Tesla Motors, Inc. v Johnson (2016) shows that currently in the US, only 22 states allow Tesla to sell its cars directly to the customer. Hence, Tesla has been arguing for a long time that it should be allowed to operate in every state due to the competitive automotive market which is mainly dominated by internal combustion vehicles (Cronowski, 2017). The company believes that selling through dealerships will not only prevent the goal of a long-term investment, due to dealers focusing on short-term sales, but it will substantially increase the price of the car and decrease the likelihood of the firm’s success as an auto-manufacturer (Crane, 2014).

Although initially, Tesla sold their products mainly in North America, as they began to target new market segments in different regions, the production of vehicles increased. As a result, the fluctuations in currency rates are highly impacting the revenues. According to Tesla’s 2016 Annual Report most of their earnings are in Euros, Japanese Yen and British Pounds, and thus the company gained $26.1 million foreign exchange in expenses last year. Consequently, if the value of the US dollar will get stronger, the exchange rates will have a significant effect on cash flows by lowering the profits.

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In September 2013 Tesla’s Model S became the number one selling car for the first time in Norway (Voelcker,2013). And although the implementation of substantial financial incentives to electric vehicles (EVs) in Norway plays a big part in the high number of sales of electric cars, the low population also has a significant contribution (MarketLine, 2016a). With a population of only 5 million, it’s easier for people to follow consumer trends and be informed of the cost-saving opportunities when buying a green car (Ibid, 2016b). Therefore, even if the total number of EVs in Norway is comparably less than it is in the US, the social factor can have strong impact in raising awareness of the price reduction in electric cars, while making Tesla hugely successful.

Undoubtedly, Tesla is the only start-up automotive manufacturer that has managed to find its way into the giants of the car industry by being dedicated to making only battery powered vehicles. As Tesla’s success “has been built on exploiting technology trends more aggressively than other carmakers are willing or able to do” (Knight, 2016, pp.1) there is a small chance that other motor vehicles company would take such high risks. However, professor Eric Van de Steen who made a case on Tesla Motors in 2015, says that the biggest threat for Tesla is the possible entrance of technologic companies such as Google or Apple in the automotive industry. While for now, this is only a warning for Tesla, in a few years Apple could act as a major competitor for the car industry, as it is now for the smartphone companies.

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3. 3.As As Asse se sets ts an and d re ressour ources ces - V VRI RI RIO O Fram Frame ewo work rk Grant (1991) argues that the resources and capabilities of a firm provide for two main purposes: •

as foundation for a firm’s strategy

•

as main source of profit

Resource/Capability

Valuable

Rare

Imitability

Yes

Yes

No

Organisational Support -

Yes

Yes

No

-

‘The Master Plan’

Yes

Yes

Yes

Yes

Elon Musk

Yes

Yes

Yes

Yes

Tesla’s Superchargers

Lithium-Ion Batteries

Competitive Implications Temporary Competitive Advantage Temporary Competitive Advantage Sustainable Competitive Advantage Sustainable Competitive Advantage

Figure 2. VRIO Framework

Tes Tesla la la’s ’s Supe Superc rc rcha ha harge rge rgers rs The majority of people owning an electric car will charge their cars overnight. However, the ‘range anxiety’ along with the time spent charging the car are often the impediments for anyone looking to buy an electric vehicle. Consequently, Tesla has built 790 fast charging equipment stations across North America, Europe and Asia, which increase the battery’s life up to 80% in only 40 minutes (Marketline, 2017). Tesla’s superchargers are about 16 times faster than the average public charging stations (Sehested, 2014), thus this resource acts as a unique selling point and is difficult to obtain in the near future by any other electric

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vehicles companies. Further, according to an article in the Wall Street Journal, Tesla’s plan to double the number of chargers at each of their stations by the end of this year will make this asset increasingly challenging and costly to duplicate (Higgins, 2017). Nevertheless, the network of Superchargers is a short-term competitive advantage as oil and gas company Shell has recently publicised their plans to deliver 400 charging stations across Europe until 2020 which could charge up a car in 5 to 10 minutes (Ambrose, 2017).

Lithiu ithium-I m-I m-Ion on Bat atte te teri ri ries es One of the key points for Tesla’s success and steep evolution into the automotive industry is the ability to integrate multiple technologies into an environmentally friendly and appealing car. Using the lithium-ion battery enabled Tesla to have ‘the highest density energy in the industry’ (pp. 14) in a battery pack which only weighs 990 pounds (MarketLine, 2013). Despite this being a valuable asset to the company, other firms have started to expand their investments in developing electric car technology. For example, BMW Group are currently investing 200 million in Battery Cell Competence Centre which could provide car ranges of up to 700 kilometres (Zipse, 2017) making the lithium-ion battery a temporary competitive advantage for the company.

Te Tessla la’s ’s 3 St Stage age M Mas as aste te terr Plan The Master Plan, made by Tesla approximately 10 years ago implies 3 main stages. First, the release of an electric sports car that would prove the potential of an EV to customers and that would provide the company with the required finances for stage 2: the production of a family car (Musk, 2017a). The final phase is to release an affordable electric vehicle that

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could reach the masses, and thus increasing substantially the number of EVs in the world (Ibid, 2017b). This strategy has proved to be extremely effective as Tesla is the first start-up company in 90 years that crosses the high barriers into the automotive industry (Ibid, 2017c). However, the price to sustain the business growth has been inevitably costly as it involved a 465 million loan from the Obama Administration, a 50 million investment from German manufacturer Daimler and when the financial crisis hit in 2008, Elon Musk provided the company with his own capital (Vance, 2013; Thompson, 2015). Further, in order to ensure that this capability has sustainable competitive advantage, the CEO of Tesla released a statement revealing the “part deux” of the Master Plan (Musk,2016).

Tesla has a fair amount of competitive advantages, hence why it has accomplished to survive as a start-up company. Nonetheless, having Elon Musk as a CEO is a fundamental asset to the company due to his full dedication for success, his vision for the future, bright mind and personality.

4.Mark arket et Se Segmen gmen gmenta ta tation tion Tesla’s long-term goal is to introduce electric vehicles in the daily lives of people by replacing the internal combustion engine with batteries. Unfortunately, in 2011 Indiana University found that not many people are eager to invest in new technologies that are not yet fully understood by the mainstream buyers and as a result, the majority of people purchasing a Tesla are environmentally conscious customers, technology ‘geeks ’, earlytechnology adaptors or brand buyers (Reese 2017) (Figure 2).

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Environmentally concious

Brand

Early adaptors

buyers

Tech 'Geeks'

Figure 2- Typical groups of customers

Consequently, as Tesla’s high-technology features and electronic batteries are transforming the car into an exciting gadget rather than maintaining the conventional transport purpose, people who share a passion for electronic devices are more likely to buy a Tesla. In a National Geographic documentary, Elon Musk expressed Tesla’s principle of investing at first in reputation and worry about the profit later (2017). According to Michael Ramsey, the director of a research company, the groups that are buying Tesla are not the usual luxury-car customers, they are people who would be willing to pay that amount of money only for this brand (Ibid., 2017). Therefore, their marketing strategy resembles a lot to Apple’s by bringing on the market products which people wish to have because of the other’s conception about the company. However, with the release of Model 3 there will be a significant shift in consumer demographics due to its lower price and the targeted mass market.

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5.Re Recom com comm mend ndaatio tions ns & C Concl oncl onclusion usion The future growth of Tesla depends on the ability to predict and respond quickly to new challenges. As Elon Musk has managed to constantly keep the brand it in the public eye, it meant that the company eliminated their advertising costs (Schultz, 2017). This definitely reduces their cash outflow, but does it increase sales? When Tesla revealed Model 3, the company received a great deal of attention, but the cars are still in the production process, and thus the deliveries are being delayed hindering customer satisfaction. The same goes for the recent announcement of Tesla Truck and the new Roadster. Even though there’s a lot of excitement around the company and its products, showcasing more cars without being able to meet expectations cannot increase sales revenue. Therefore, Tesla could focus on upgrading their rate of production rather than constantly promoting their vehicles by constantly being in the spotlight with new products and technologies . As shown in the PEST Analysis, states in America are banning the direct distribution of cars. Consequently, if Tesla aims to survive in this competitive market, it should fight for its right to sell directly to the customer by persuading other car companies to do the same. With the evolution of technology, buying a car online is more convenient now for any customer and dealerships are a barrier between the consumer and the business. Additionally, when having stores instead of dealership, the buyers wouldn’t have to negotiate to get discounts which would simplify the process. Therefore, by trying to get other auto manufacturers to see the advantages of direct selling, Tesla would avoid further lawsuits battles and costs.

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Regardless of the wide range of resources and capabilities which could provide a longterm sustainability, Tesla has yet to overcome some major challenges. The number of people who own an electric vehicle is still relatively small compared to those who possess an internal combustions car and if the firm wants to extend their production further to the mass market, they need to constantly supply the car with attractive features. To attract new groups of customers, the company should consider developing advertisements targeted at female buyers. Moreover, as Elon Musk considers that the firm’s innovative technologies are enough to bring in other categories of buyers, using commercials to attract customers is a feasible and low-cost method. To conclude, given the recommendations above and with the continuous evolution of their assets and resources, Tesla could sustain the same constant growth that it has now and ensure a long-term survival in the car industry.

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6.Re .Refe fe feren ren rences ces AAA NewsRoom, 2017. Consumer Appetite for Electric Vehicles Rivals Pickups [online] Available at: http://newsroom.aaa.com/2017/04/consumer-appetite-electric-vehicles-rivalspickups/ (Accessed: 17 Nov. 17) Ambrose, J., 2017. Shell petrol stations to charge up electric cars in just five minutes. Telegraph [online]. Available at: http://www.telegraph.co.uk/business/2017/11/27/petrolstations-charge-electric-cars-just-five-minutes/ (Accessed at: 27 Nov. 2017) AutoPacific, 2016. Vehicle Satisfaction Awards [online] Available at: http://www.autopacific.com/vehicle-satisfaction-awards (Accessed: 17 Nov. 17) Chang E., Webb A., 2017. Apple CEO Tim Cook finally lifts lid on self-driving car project. Independent [online] Available at: http://www.independent.co.uk/news/business/news/apple-self-driving-cars-tim-cook-ceolaunch-driverless-autonomous-system-tech-ai-a7788871.html (Accessed: 27 Nov. 2017) Cronowski L., McGrath J., Skelton J., 2017. The Licensing Journal. Franchising. Tesla takes on Michigan in Its Fight to Sell Directly to Consumers [e-journal] 37(1), pp. 16-18. Available through: ABI/INFORM Global 888 (Accessed: 19 Nov. 2017) Crane, D. A., 2014. Tesla and the car dealers’ lobby. Regulation [e-journal] 37(2), pp.1014. Available through ABI/INFORM GLOBAL: https://search.proquest.com/abiglobal/docview/1546004564/27E7BBF74CF84ADFPQ/1?acc ountid=14888 (Accessed: 21 Nov. 2017) Forbes, 2017. U.S. Electric Vehicle Sales Soared In 2016 [online]Available at: https://www.forbes.com/sites/rrapier/2017/02/05/u-s-electric-vehicle-sales-soared-in2016/#51416013217f ( Accessed: 28 Oct 2017)

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Bodisch, G. R., 2016. Economic Effect of State Bans on Direct Manufacturers Sales to Car Buyers [pdf] Washington: Eco...