Foundations of Business Strategy Strategic Analysis Report: Tesla Motors Inc. Executive Summary

Transcription

1 Foundations of Business Strategy Strategic Analysis Report: Tesla Motors Inc. 1 Executive Summary Tesla Motors Inc. is part of the automotive industry, with a specialization in the electric vehicle (EV) market, it manufactures vehicle as well as electric powertrain components. The market for electric- based vehicles is expected to grow approximately to 10.6 million globally, or to approximately 14% of new vehicles sold by 2015, from 1.75 million units or 3% of new vehicles sold in 2008 (2). GM, Toyota and BMW own a significant part of this market (24%) with Tesla Motors only accounting for 0.01% as seen in Exhibit B. Industry The electric vehicle industry growth however is increasing as fuel prices remain high and there is a greater concern for the environment thereby resulting an ever- increasing demand for more energy efficient cars (See Exhibit A). Political factors are incentivizing competitors such as BMW, GM and Toyota to invest in more research and development of effective electric vehicles due to grants provided by the government (See Exhibit B for details on each manufacturers electric vehicle fleet). Tesla will experience direct competition from other electric vehicle entrants, with indirect competition from existing and emerging plug- in hybrid vehicle manufacturers and competition from substitutes including gasoline hybrid and gasoline powered vehicles (See Exhibit C). Tesla Motors is currently operating within the upper- range luxury vehicle market that accounts for 15% of the market (3) and there is currently little threat from the other EV manufacturers with respect to a product that can compete against the performance offered by Tesla s vehicles for the same price range (Based on analysis from Exhibit A, B). Tesla has a major competitive advantage due to its Powertrain technology as seen in Exhibit D but the direction of other large manufacturers towards developing competitive EVs means this advantage may dwindle as these firms direct more resources towards developing at par technology (Exhibit B). Technological developments especially with battery technologies will result in meaningful cost reductions. Currently EV batteries account for 50% cost of the vehicle (2), with limitations for mass adoption of battery powered electric vehicles being battery range limitation and high costs. Continued R&D and anticipated economies of scale should spur significant cost reductions and performance improvements (5). Furthermore, the economy bouncing back from a recession and customers looking to save on costs with EVs would mean Tesla needs to be develop supporting infrastructure through charging stations, availability of plug- ins in parking garages, restaurants and other commercial establishments to support recharging facilities for its vehicles (3). This should overcome the range anxiety that is currently hindering adoption rates of electric vehicles in the market and

2 show promising demand for Tesla Motors vehicles and other electric vehicles in the near future (4). Competitive Situation Tesla Motors is particularly well positioned to capture and sustain a significant share of the high- end luxury niche market. Through analysis of Exhibit C, competition with alternative products such as hybrids and low displacement diesel vehicles poses a moderate threat; substitute products that are currently offered such as GM s Chevy Volt have to yet to reach the performance advantage Tesla products have to offer. Tesla Motors is well placed at an advantage due to its technology, brand recognition and unique component product lines (power trains, vehicle batteries etc.) as seen in Exhibit D & E. Currently, in the automotive industry, large capital investment is required to setup an automobile- manufacturing factory. This coupled with strict laws and regulations for entry into the industry make it difficult for new competitors to affect the strategic positioning Tesla has (Exhibit C). Continued partnership with large vehicle manufacturers such as Toyota and Daimler mean only a small number of true competing vehicles are present, that too in different niches compared to Tesla resulting in a overall low threat to the company. Bargaining power evidenced by buyers is extremely low due to a large demand for electric vehicles that provide the range given by Tesla, no other comparable technology exists both at a consumer choice level or business choice level from other manufacturers when it comes to vehicle choice or electric battery/power train technology (Exhibit C). Bargaining power from suppliers is also low due to all components of Tesla cars being developed primarily in- house. Tesla sources its Li- ion cells from various manufacturers but its engine and chassis are developed in house. Moreover, Tesla Motors has a distinctive and difficult to imitate capability when it comes to its brand appeal as well as integration of powertrain technology with vehicle design and systems (4). Tesla has a great competitive advantage when it comes to leading in electric vehicle technology and ability to integrate its powertrain technology with its vehicle design and software to produce a high performing product (See Exhibit E). It s ability to leverage its advanced technology through the use of unique sales model such as owning and controlling its own vehicle sales network helps to rapidly focus on product development through quick customer feedback (See Exhibit F). Moreover, strong alliances with major manufacturers through supplying powertrain components and exclusive partnerships provide a competitive advantage in diversifying its service model to not solely relay on vehicle sales and enhance its research and development of products by leveraging other manufacturing insights (See Exhibit F). Conclusion That being said, although Tesla Motors is well placed in the industry right now a question remains on how their current capabilities will enable them to remain at a competitive advantage in the Electric Vehicle market in the near future. Major manufacturers such as GM and Toyota are investing more resources into developing technology that is at par with what is being developed by Tesla. Tesla has evident weaknesses when it comes to supply problems in terms of components if demand

3 Foundations of Business Strategy Strategic Analysis Report: Tesla Motors Inc. 3 increases significantly (Exhibit E). Furthermore, the luxury market share is quite niche and a small part of the overall electric vehicle market. In order to sustain its competitive advantage it has to attempt to follow one or more of the following strategic paths in the near future: Enter the mass market through development mid to low- range cost electric vehicles, this will allow them to leverage its technological advantage and capture a significant piece of the EV market and increase its customer loyalty base. This is currently evidenced by Tesla Motors plane to release a upper- mid- range model named X in the near future (3). Continue to create supporting infrastructure in a manner that enables not only travelling through all of North America but globally through charging station development in Europe and other areas such as Australia where growth Tesla cars is prevalent. Diversify their technological capability to serve other industries aside from automobiles such as the aviation industry, railway industry and shipping industry. Based on these three possibilities, through a VRIN analysis (See Exhibit D), leveraging Tesla s innovative culture and current advantage in terms of technological capability. It is recommended that Tesla Motors being by investigating potential industries outside of the automobile industry to leverage its technology. Example being the incorporation of powertrain technology into Boeing s 787 dream- liner fleet that is currently experiencing battery efficiency issues (7). This strategic approach increases the possibility of exploiting economic rents in untapped markets where current technology is not feasible/sufficient. Revenue from this strategic approach can then be used to aggressively expand production capabilities of Electric Vehicles at Tesla Motors as well as invest in improving its powertrain technology and enable it to compete with the larger manufacturers that are set to enter the market with well- performing electric vehicles soon.

4 Exhibits Exhibit A: Environmental Analysis Demographic Trends Environmental Analysis Tesla s high price point caters towards individuals with a yearly disposable income of $100,000+ Influx of baby boomers set to retire and increase in younger generation will mean an consumer base catered more consciously towards buying green friendly products Target market are car enthusiasts, follow trends and are environmentally conscious Major automobile market holders are: Toyota Motor Corporation General Motors Corporation Ford Motor Company Hyundai- Kia Automotive Hondo Motor Ltd. Socio- Cultural Influences Technological Development Political Legal Pressures Macroeconomi c Impacts The industry it self is segmented into the following type of vehicles: Compact and subcompact cars (36%) Midsize and full- size sedans (44%) Sports cars (5%) Luxury cars (15%) As fuel prices remain high and greater concern for the environment is seen from Consumers, more energy efficient cars are increasing in demand. The major automakers are required to also release more energy efficient vehicles to the market as per Govt. bail out agreements. Maximum range for Tesla cars is 300 miles Charging station infrastructure expected to be deployed along high ways Department of Transportation has created charging stations and listed them on publicly accessible website Over 50 patents related to Powertrain components Canada has many cities with 120 volt outlets ideal for charging Plug- in hybrids and all- electric vehicles qualify for a $2,500 to $7,500 federal tax credit Department of Energy grants US$465 million loan to Tesla in 2009 House Bill 3351/Senate Bill 1659 which would allow manufacturers of electric cars to sell directly to consumers in Texas Ontario government has announced it requires one in every 20 vehicles to be electrically powered by 2020 with Incentives in rebates from $4,000 to $10,000 Cost of operating a vehicle is increasing due to rising fuel costs Steady economic growth and job creation as well as low inflation and strong stock market should motivate consumers to buy new cars

5 Foundations of Business Strategy Strategic Analysis Report: Tesla Motors Inc. 5 Fleet of cars from recession times are nearing and- of life which will drive consumers to the new car market Estimated 300,000 additional lease returners compared to 2013 will create an increase in number of leases/purchases of new vehicles in 2014 Exhibit B: Competitor Analysis Competitor Analysis Company Tesla BMW GM Toyota Market Share.01% 2% 10% 12% Sales Growth ( % 13.08% 1.32% % year) Employees Revenue (ttm) 1.32B 10.48B B B Unique Selling Point High quality electric vehicles with excellent features and design as well as superior functionalit y and performanc e. Evident effort being directed towards entering low- emission, low- consumption auto market Company s first all- electric series production vehicle is available Designs and builds its own electric motors for its models Innovative and keeping up with competito rs through products such as the Chevy Volt Well establishe d brand since 1908 Well- known brand with a large market presence and large manufacturi ng capability. Unique pricing practices and operations that lowers buyer power and provides competitivel y priced cars

6 Exhibit C: Five Forces Analysis Potential Entrants Threat: Low Small number of competing vehicles in different niches present Laws and regulations make entry to industry difficult Main vehicle manufacturers are in collaboration with Tesla Large capital investment required to setup manufacturing factory Suppliers Threat: Low Battery: Bargaining Power is low since Tesla buys Li- ion cells from different manufacturers Engine: in house development Chassis/Engineering: High bargaining power with in house development due to exclusive partnership with Lotus for the Roadster. Transmission: In house Industry Competitors Competition: Moderate High entry barrier Major brands are competing and hold close to 60% market share Tesla sector is niche and yet to be discovered but rising interest may disrupt this No other EV in that sector Buyers Threat: Low B2C: Bargaining Power: Low due to Demand being Very High B2B: Bargaining Power: Low; No other comparable technology available Substitutes Threat: Moderate High entry barrier: Large number of substitutes available (Chevrolet Volt etc.) Competition with Hybrids and Plug- in Hybrids Low displacement turbo diesels with low emissions and good fuel economy

7 Foundations of Business Strategy Strategic Analysis Report: Tesla Motors Inc. 7 Exhibit D: VRIN Analysis Value Car manufacturers are leveraging Tesla Motors powertrain components for use in their own vehicles due to its superior performance compared to other industry alternatives Rare Tesla cars are the only electric vehicles currently that have a range of 300 miles on a single charge due to its use of powertrain technology complemented by excellent structural design Imperfectly Imitable All major automobile manufacturers have created electric powered models using various technology but none of achieved the level of performance offered by the powertrain model and Tesla car design Non- substitutable Substitutes available include the use of powertrains used in hybrid cars and other electric vehicles, however none have been able to achieve the performance delivered by Tesla s powertrain technology Exhibit E: SWOT Analysis Strengths Weaknesses Opportunities Threats Battery electric Limited scale of Rising costs of oil Large vehicle first mover advantage Rising revenues Bold marketing operations, no economies of scales and low sales volume and gasoline can lead to growth in energy automobile market due to manufacturers devoting more money towards research and strategy High priced consumers development of Self- operating and products choosing to spend electric cars and distribution Increasing more in order to fuel cells Strong competition in the purchase an Increased internal partnerships with market electric car combustion engine other automobile Low market share Increased efficiency seen in manufacturers Slow growth in awareness seen new cars Leading edge electric car market from consumers Concentrated and technology Strong laws and regarding carbon heavily regulated Strong brand regulations in footprint and industry image industry by environmentally Loss of Excellent product government consciousness government being fastest and Component supply Strong subsidies more energy problems if government Technological efficient car on the demand increases support on innovation from market significantly transition to competitors energy efficient Future vehicles Large competitors entering market international market potential

8 Exhibit F: Capabilities Analysis Leading Technology Sales Partnerships Leader in electric power technology. Battery pack capable of storing 53 kilowatt hours of usable energy, double that of any other commercially available electric vehicle battery pack Powertrain technology leveraged in its own set of vehicles through expertise in electric vehicle design and systems integration Highly competent electrical engineering, software, and controls as well as vehicle engineering and manufacturing Rapid customer focused product development process Perception in community of a brand that is a leader in high- performance long- range electric vehicles Utilization of direct to customer sales through its unique showrooms Owns its vehicle sales and service network and sells and services its cars through the internet Excellent brand management in terms of leveraging appeal of CEO Elon Musk when it comes to marketing the brand Strong alliance with other auto makers such as Daimler and Toyota Diversification to become a electric powertrain production facility catered to other electric vehicle manufacturers Combined research and development with Panasonic on Li- ion batteries Coordinated design of electric vehicles with Toyota Exhibit G: References 1. Goldman Sachs Group, Inc. Americas: Clean Energy: Energy Storage. June 27, Ashtiani, C., Cullen, G., Davis, P., Greenwald, J., Hardigan, P., Eladio, K.,... Zimmerman, 3. D. (2011, February). Plug-in electric vehicles: A practical plan for progress. Expert Panel Report, School of Public and Environmental Affairs at Indiana University. 4. Gairthwaite, J. (2011). Tesla prepares for a gap as roadster winds down. New York Times. Retrieved July 14, 2014, from 5. Patel,H.,&Aalok, V. (2010,August). TeslaMotors: Electrifying luxury. Report. J.P.Morgan Securities. 6. Ramsey, M. (2010, October). High battery cost curbs electric cars. Wall Street Journal. Retrieved July 24, 2014, from 7. Boeing 787 Dreamline Battery Problems, Retrieved July 24, 2014, from