Tesla Motor's Strategy to Revolutionize

the Global Automotive Industry

Group 1
MGT 711: Corporate Strategy
Summer 2018
EMBA Program
BRAC Business School
BRAC University
Our Team

Sheemana Das (13274006)

Md. Ahsan Kabir (16274016)
Md. Khabirul Alam (16374002)
Rashed Ferdous (17374008)
Abul Fazal Md. Didar Chowdhury (17374023)
 Table of Content
1. Company Background
2. Macro Environment
3. Competitive Environment
4. Value Chain Analysis
5. Current Strategies
6. SWOT Analysis
7. Key Strategic Issues
8. Recommendation
Company Background
 Company Background
2004
First Round of Investor 2008
Funding & Elon Musk First Product Launch:
became Chairman Tesla Roadster
Elon became CEO

2003 2005-2008 2009

Established by Martin Continuous Fund Partnership with Daimler
Eberhard & Marc Raising DoE Loan
Tarpenning
 Company Background
2013
Launched Tesla S, an all 2014
electric premium sedan Expected
production of Tesla
Model X SUV

2010 2013 2017

Went Public raising $26 Raised over $1 Billion Anticipated release of a
million by issuing 4.5 million cheaper $35K electric car
Common Share
Macro Environment
 Macro Environment
Components of Company Macro Environment Effect of Macro environment on Tesla

• Government plan to reduce carbon from increasing

number of vehicles.
Political /regulatory and legal factors • The development of the new tesla products must be
conducted safely abiding intellectual property barriers of
the country.
• The general cost the electric cells was decreasing which
allow Tesla to build for lower cost to increase its profit
Technological
margin.
• High rate of technological change
• Tesla had achieved a growing volume of sales without
traditional advertising and at relatively low marketing
Social costs
• Increasingly popularity of low-carbon lifestyles
• Increasing preference for renewable energy
• Decreasing battery costs
Economic • Decreasing renewable energy costs
• Economic stability issues
Competitive Environment
 Porter 5 Forces diagram
New Entrants (High)
• High barrier of new entry
• High capital intensive

Suppliers (High) Rivalry (Low)

Bargaining power of
• Low bargaining powers • Numerous established competitors. Customers (Low)
with suppliers
• Brand loyalty • Dealer and customer have
• Multiple cell strong negotiation power over
manufacturer product price.

Substitutes (Low)
• Many available substitute of Car in
transportation business
• Cheaper public transport
• Existing similar market
 Company Financial Analysis
Revenue
2,500,000

2,000,000 2,013,496

1,500,000
Company revenue growth was constant and
1,000,000
achieved its maximum growth in 2013.
500,000 116,744 204,242 413,256

0
2009 2010 2011 2012 2013 2014

Gross profit (%)

35%

30% 30%

25%
26% Tesla gross profit margin was very unstable
20%
23%
and in 2013 achievement was not satisfactory
15%
compare to previous years.
10%
7%
5%

0%
2009 2010 2011 2012 2013 2014
 Company Financial Analysis (Cont..)
Operating expense
600,000

500,000 517,545

424,350
400,000

300,000 313,083
Company operating expense observed the
200,000
maximum in 2013, and the operating expense
177,569

100,000
is continuously aggregate every year.
0
2009 2010 2011 2012 2013 2014

Operating proftitability (Loss)%

100%

80%
In 2013, the company experienced it’s net
74%
60% positive profitability for the first time.
40%

20%

0% -3%
2009 2010 2011 2012 2013 2014
-20%

-40%
-52% -53%
-60%
 Company Financial Analysis (Cont..)
Current ratio
3.00
2.76
2.50

2.00 1.95
Apart from 2012 company's current ratio is
1.88

1.50 satisfactory.
1.00 0.97

0.50

0.00
2009 2010 2011 2012 2013 2014

Total debt to asset ratio

0.90
0.80
0.83

0.72
Company is not managing most of their asset
0.70
0.60 from debt and the ratio is quite healthy for
0.50
0.40
the company.
0.30 0.31

0.20 0.22

0.10
0.00
2009 2010 2011 2012 2013 2014
 Company Financial Analysis (Cont..)
Total debt to equity ratio
7.00
6.48
6.00

5.00

4.00
In 2011 & 2012 debt was very high against
3.00

2.00
2.65 equity but in 2013 they are in better position
1.00 1.12 and need more equity investment.
0.41
0.00
2009 2010 2011 2012 2013 2014

Cash flow
300,000
257,994
200,000 Till 2012 it was negative cash flow but in 2012
100,000 it is good.
0
2009 2010 2011 2012 2013 2014
-100,000
-127,817 -128,034

-200,000

-266,081
-300,000
Value Chain Analysis
 Value Chain Analysis
• Designing business model
Design • Submission of model and credentials

Engineerin
• Create reediness as per design
g

Manufactu • Prepare for manufacturing as per proposal

ring

Sales and • Distribute through proper channel

distributio
n

• Create channel through service will be provided

Service

• Charging faculty and awareness creation.

Charging
Current Strategies
Strategic Objective
To drive the world’s transition to
electric mobility by bringing a full
range of increasingly affordable
electric cars to market.
Focused Differentiation Strategy
Tesla eventually needs to shift towards Focused
Low-Cost / Best Cost Strategy.
Tesla Product Line Strategy
1. Develop a high-end, high performance sports car to prove that electric
vehicles are both stylish and efficient. Use the sports car to develop
core intellectual property and patents.
2. Introduce a premium sedan that competes with brands like BMW,
Mercedes and Audi.
3. Produce hundreds of thousands of low cost premium electric vehicles
for mass adoption.
Tesla Product Line Strategy
Tesla Vehicle Engineering Strategy

1. Entirely In-House Team.

2. All Aluminum Car Bodies. Lightweight and facilitates longer range.
3. Proprietary technology, software, and gearbox, motor, battery packs,
and design.
Manufacturing Strategy
1. Own production facility in Fremont, CA.
2. Sourcing from various outside suppliers.
3. In-house development of key components.
4. Heavy degree of automation in plant.
5. Cost saving initiatives to achieve greater efficiencies.
6. Pursuing to achieve economics of scale.
Supply Chain Strategy

1. Over 2000 parts from over 300 global suppliers.

2. Tries to create alternative sources.
3. No long term agreements with any suppliers.
4. Highly customized components are developed internally.
Distribution Strategy

1. Distribution and Marketing Combined.

2. Superior customer experience.
3. Streamlined purchase process.
4. Direct relationship.
5. Capture retail mark-up.
6. More efficient.
Marketing & Service Strategy

1. Generate demand through show rooms and sales galleries.

2. Build long term brand awareness.
3. Manage existing customer base to create loyalty.
4. Continuous feedback from Tesla car owners.
5. WOW through service.
6. Word of mouth creation. Customers’ are the best spokepersons.
SWOT Analysis
 SWOT Analysis
• Ability to raise large capital. • Supplier dependency for battery component.
• Strong R&D with 203 patents and 280 • Production bottleneck.
pending. • Relatively small product line.
• First full eclectic car manufacturer. • Single site key manufacturing.
• Majority of production is inhouse. • Negative Cash Flow & high R&D cost.
• Direct to customers distribution.

STRENGTHS S W WEAKNESSES

OPPORTUNITIES
O T THREATS

• Strong shareholder confidence & rising • Entry of large auto manufacturers in EV.
stock price. • Lobbying of Dealers against direct selling.
• Increasing global interest in electric cars. • Disruption by competitors with technology.
• Rapidly advancing technological • Consumer’s perception of EV safety and
innovations, automation, and AI. reliability.
Key Strategic Issues
Key Strategic Issues

1 Low Production Capacity

Tesla’s vehicle production capacity is low and
depends on one manufacturing plant located
in Fremont, CA.
• Single assembly line causes significant
delays and extremely long wait times
for consumers.
• Reliance on few suppliers can threaten
production.
• Unable to generate positive cash flow
for the past 5 years.
Key Strategic Issues

2 Hyped Up Stock Price

Tesla’s stock price has climbed from $34 in
January 2013 to over $250 in March 2014.

• The company incurred five years of

losses totaling $943.5 million on
combined revenue of $861 million
between 2008 and 2012.
• The price increase is majorly in
anticipation of Tesla’s future
performance.
• Can create a bubble burst.
Key Strategic Issues

3 Corporate Leadership
Tesla’s brand image and stock market
performance is closely knit with Elon Musk’s
enigma.
• Elon Musk is the CEO, Chairman of the
Board, and Chief Designer.
• His is committed to his other business
ventures too, and usually splits time.
• This can create a strategic decision
bottleneck, and will not create future
leadership.
Key Strategic Issues

4 Small Market Share

In 2013, global sales of plug-in EVs were less
than 1% of the global vehicle sales.

• EVs are not yet widely accepted as

primary vehicles globally.
• Tesla’s products are still expensive
premium products.
• It’s not possible to revolutionize the
global automotive industry without an
entry level competitively priced car.
Recommendations
 Recommendation
Ramping Up Production Capacity through
Strategic Partnership
Tesla needs to increase its production capacity. A move to do that could be by
setting up strategic alliances with major manufacturers from other industry. A
good option could be major airline manufacturers like Boeing or Airbus.

If they can set up a technology exchange program, it’ll significantly benefit

Tesla. Airline manufacturers are champions of supply chain and manufacturing
technology management; the two domains Tesla needs immediate help.

Tesla can offer their IP and other R&D assets with those companies.
 Recommendation
Focus on Getting a Small Cheaper Economy Model
Ready for Market
Tesla needs to focus their R&D activities in developing a car that’s in cheaper
price range. They can get into further partnership with Toyota to focus on Asian
market.

The only way to revolutionize the global market is by capturing the mass
market segment.

They can gather the funds for that in two ways. One is by asking the
government for a large long term low interest rate loan (US DoE). The other
could be by raising capital from market through another series of stocks.
 Recommendation
Corporate Restructuring

Tesla can hire a full time CEO with proven track record of manufacturing
industry excellence. Elon Musk can take the role of advisor and Chairman of
the Board.

A seasoned CEO will help Tesla to overcome the inefficiencies of being a

relatively new company and will help in achieving a greater economics of scale.

Elon Musk being relieved as the CEO can focus more on Tesla Model 3
development, rather than running the company on a day to day basis.
 Recommendation
Focus on Consumer Education Based Marketing

Electronic cars are still not that popular and adopted by consumers. Tesla
needs to change it’s marketing strategy towards consumer education about the
benefits of EV over IC Engine Vehicles.

Public perception towards new technology is always skeptic. People may have
reliability, resale, cheap maintenance, and viability concerns about buying
Electric Cars.

Tesla can help raise awareness in this arena. They can promote their
technology as ecofriendly and sustainable. Also, they can align their cars with
SDG to spread the future products around developing countries.
 Recommendation
Continuous Communication with All Stakeholders

Tesla high stock price is backed by shareholder’s confidence only, both on the
company, and the future mass adoption of this technology.

So, Tesla needs to maintain constant communication with it’s shareholders to

keep this confidence intact.

A drop in the confidence will have disastrous results on the market. Till date
Tesla has been very proactive in addressing any arising issues. But this effort
has to be consistent.
THANK YOU!