tesla motors - a look at strategic model

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A look at the strategy of Tesla and the story till now.

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Page 1: Tesla Motors - A Look at Strategic Model
Page 2: Tesla Motors - A Look at Strategic Model

Tesla Motors and its Strategy

Industry and Competitor Analysis

Disruptive Innovation Model

Business Units: Production | HR | Finance | Marketing

Future Outlook

Contents

Page 3: Tesla Motors - A Look at Strategic Model

Vision of a world without gasoline carsProving to the world that electric is not only cleaner but betterTrigger an electric transport revolution

Named after the pioneer of Alternating Current, Nikola Tesla, TESLA is a typical Silicon valleycompany that only makes totally electric vehicles

No hybrids. No hydrogen. No hype.

A CLEAN START SPARKING REVOLUTION

COMMITTED TO ELECTRIC

BUILT AROUND THE DRIVER

What is Tesla?

Vision

Driving Forces

Page 4: Tesla Motors - A Look at Strategic Model

Potential Entrants BuyersPorter’s Five Force Analysis

Potential Entrants

Low ThreatThere are few competing vehiclesOnly one successful entrant company in 100 years

Buyers

Moderate ThreatModerate bargaining Power in B2C segments

SuppliersLow Threat

Low Bargaining power of suppliers due to multiple suppliers supplying similar partsHigh Bargaining Power of company due to in-house talent for Engine and Chassis and transmission

Substitutes

High ThreatNewer hybrid variants like Plug-insVery few viable alternatives to cars

Industry Competitors

Moderate CompetitionDue to high entry barrierCompeting major brands and evolving market

Page 5: Tesla Motors - A Look at Strategic Model

Corporate Strategy

2008-12 2012 2014 2015 2017• High price Low volume• Roadster, the first fully

electric sports car• Base Price $1,09,000

• Mid price Mid volume• Model S, the fully electric

sports sedan• Base Price $ 69,900

Lithium Ion battery packs to automakers like Daimler & Toyota

Model X, full size Electric Crossover Utility Vehicle base price announced

• Low price High volume• Model 3, a scaled down

version of Model S• $ 35,000

Use sales of Roadster & Model S to drive battery business

In 2006, when the co-founder and current CEO of Tesla Motors Elon Musk was asked about their strategy, he stated: “The starting point is a high performance sports car, but the long term vision is to build cars of all kinds, including low cost family

vehicles”

Emulate Technological Product life cycleEnter with high end productWait for acceptabilityPenetrate Cost Conscious consumer markets

Pushing Products through Thought Leader/Early AdoptersFollowing the Cell-phone, Laptop like technology intensive product introduction strategy

Management is aware of the push and patience required to the market to accept the product in larger numbers

Strategy & Product Evolution

Use battery sales to drive future affordable models

Page 6: Tesla Motors - A Look at Strategic Model

Expansion

Partnering with Auto Makers

Hunt for newer technology

Achieve 20K Model S Production Goal

Partner with Toyota, MercedesExpand to all AutomakersStandardize EV parts for efficiency

Battery technology & electric motors have broad potential

Selling its own vehicles online & in company-owned showroomsSelling powertrain components to other automakersServing as a catalyst and positive example to other automakers

Strategic Goals

A focused differentiation strategy because their customers are mainly from middle & upper income levels, and Tesla focuses on providing high performance and creative electric cars

A market penetration strategy as Tesla intends to enhance its influence on the current markets with their current products.

A Transnational strategy as Tesla focuses on the domestic markets but is also continuously expanding into global markets

A Strategic Alliance strategy as Tesla Motors formed partnerships with many firms like Toyota, Daimler, Panasonic, etc.

Stra

tegy

Sum

mar

y

Business Level Strategy

Corporate Level Strategy

International Level Strategy

Cooperative Strategy

Page 7: Tesla Motors - A Look at Strategic Model

Potential Entrants BuyersSWOT Analysis

Strengths

First mover in fully electric sports car Strong supplier to other Automakers like Toyota Strong technological expertise in the area of

electric transmissions & drive train Ability to develop vehicles completely in house

including the sub-assemblies required Current platform developed for Model S has the

ability to be used for their future crossover model

Weaknesses

Full in-house development of sub-assemblies leads to higher costs due to diseconomies of scale

Higher prices for car models than similar combustion engine powered cars

Dependence on continuing innovation Less Awareness as compared to Audi, Toyota or

Mercedes

Opportunities

Growing support by Governments in the form of exemptions from duties, etc.

Increasing Oil & Gas prices Large International Market potential Increasing awareness and support for Green

Automotives

Threats

Competition from large Auto companies in Electric and alternative fuels

Selling to average public seems difficult to achieve at their current business model

Their strategy for pricing (skimming) has not been used so far in the auto industry

Increasing Internal Combustion Engine efficiency

Page 8: Tesla Motors - A Look at Strategic Model

PortfolioSports Performance Car, based on the Lotus Elise platformFirst commercially available Tesla automobileFirst car to run on lithium ion batteries0-60 mph in 3.7 secondsRange: 245 miles

New platform to be revealed in 2016Challenger to BMW 3 Series Mercedes C Class, Audi A3 & othersSales to begin in 2017Gigafactory essential to bring down battery pricesRange: >200 miles

Seven passenger MiniVan blended with SUVMultiple drive train configuration availabilityFalcon Doors0-60 mph in less than 4.4 seconds for the single motor versionRange: 267 miles

Premium SedanWorld's first Dual Motor electric car increases efficiencyAutopilot Mode 0-60 mph in 3.2 secondsRange: 285 miles

$85,000

$110,000

$75,000

$35,000

Page 9: Tesla Motors - A Look at Strategic Model

COMPETITOR ANALYSIS

Tesla Model S Nissan Leaf BMW i3 Toyota RAV4 EV

Launch Year 2013 2013 2014 2012

EPA rated Combined Fuel economy

95 mpg-e(35 kW-hrs/100 mi)

115 mpg-e(29 kW-hrs/100 mi)

124 mpg-e(27 kW-hrs/100 mi)

76 mpg-e(44 kW-hrs/100 mi)

Avg. Fuel Cost to drive 25 miles $0.94 $0.87 $0.81 $1.32

Base model Sticker Price (in USD) $69,900 (60 kW.h bat. pack) $30,000 $42,300 $50,700

Competitor Analysis

Plug-in Pure Electric Vehicle Segment

The Premium Sedan Segment

Tesla Model S BMW 7-Series Mercedes-Benz S-Class Audio A8

Launch Year 2013 2013 2014 2012

Avg. Fuel Cost per milecalc $0.03 $1.65 $1.42 $1.87

Base model Sticker Price (in USD) $69,900 (60 kW.h bat. pack) $74,195 $92,350 $71,990

Q1 sales (2013) (in units) 4750 2338 3077 1462

Page 10: Tesla Motors - A Look at Strategic Model

TIME

RANG

E

Performance demanded by `the market

Mitsubishi i-MiEV (62 miles; 2010)

BMW i3 (100 miles; 2013)

Tesla Model-S 85kWh battery pack (265 miles; 2013)

Toyota RAV4 EV (83 miles; 2012)

Tesla Model-S 60kWh battery pack (208 miles; 2012)

DISRUPTIVE INNOVATIONDisruptive Innovation

Page 11: Tesla Motors - A Look at Strategic Model

Superchargers

Proprietary recharging stations across nations to enable free-for-life countryside travel

Cost of superchargers to Tesla = $2,25,000

Most setups run on solar energy and recharges the Model S for half range in 20 minutes

Superchargers station will soon allow swapping of batteries that takes only 90 seconds, for a small fees

So the only decision one has to make at a supercharger station is if they want the charge fast or free

Page 12: Tesla Motors - A Look at Strategic Model

Tesla currently operates in NUMMI, California, a facility that was abandoned by Toyota and GM

Facility has an area of 5 million square feet of factory spread out on 2 levels

Model S production lines fill just 20% of the current production facility space

Space readily available for future expansion for Model III

Very high level of automation for ensuring consistent high quality

Production Policies

Page 13: Tesla Motors - A Look at Strategic Model

Investment of $5 billion for production of Li-ion batteries in NevadaIt would double the capacity of battery production of the world (by 2013 standards)The gigafactory would be a net-zero energy footprint and will be run by renewable sources of energy (wind and solar)Estimated cost reductions by 30 percent by 2017 and 50 percent by 2020

Gigafactory

Page 14: Tesla Motors - A Look at Strategic Model

Cheaper batteries will aid in achieving Tesla’s strategic goal of producing a $35,000 third generation car The investment in R&D will ensure improvements in battery design and performanceTesla will no longer be just an EV company. It will be positioning itself to compete in one of the biggest and most lucrative industries on the planet: the utility and power generation industryTesla has confirmed the Giga factory is not just for electric vehicles. It will supply batteries for use in solar industry. Elon Musk is the Chairman of the board of SolarCity, a company that provides solar systems for homes, business and governments

Gigafactory

Page 15: Tesla Motors - A Look at Strategic Model

ARNNON GESHURIVP, HR (TESLA)

Employees strongly believe that they are part of a great change

Every car they roll out reduces the carbon footprint a bit and makes earth more sustainable

This sense of gratification motivates them

Fresh approach to car manufacturing facilities. Tried to make the factory beautiful with Skylight and windows flood factory with sunlight. The factory is very clean with the walls and floor painted white and machinery bright red. This gives a sense of cleanliness and are pleasing to look at and work in

Bikes (non-motorized) are provided so that workers can get around the factory

Elon musk says “If you make the factory pristine and clean that sets the tone for the vehicle. We want the same sense of quality and precision in the car itself”

Human Resource Policies

Page 16: Tesla Motors - A Look at Strategic Model

Financial Policy

Page 17: Tesla Motors - A Look at Strategic Model

Financials

Page 18: Tesla Motors - A Look at Strategic Model

Items

Three months ended March,

2013 2014

Revenue (‘000 $) 555,203 618,811

Gross Profit Margin 17% 25%

Net Income (‘000 $) 11248 -49800

Operating Cash Flow (‘000 $)

64079 60640

Capital Expenditure (‘000 $)

-57727 -141364

Free Cash Flow (‘000 $)6352 -80724

A 11 % jump in Revenues due to sales of S model

A 25% Gross Profit Margin (twice that for big players like GM)

Operating losses due to R&D investments, Sales & Service expansion

Negative free cash flow due to expansion in sales, services, charging stations & production capacity

Tesla remains unprofitable and doesn’t generate cash. The current valuations supporting the $25 billion market capitalization are based on future expectations.While Tesla’s product is beautiful and the company is a technological pioneer, Tesla remains a speculative stock. The story holds water only with projections of profitability and volumes well in excess of Tesla’s current 35,000 vehicles per year.Toyota (TM), General Motors (GM), Volkswagen (VOW), and Ford (F)—have billions of free cash flow, thousands of established sales and service sites, and a long history of generating value for shareholders.

Financials

Page 19: Tesla Motors - A Look at Strategic Model

Qtly data Jun 2014

D/E ratios Heavy borrowing

Dec 10 Dec 11 Dec 12 Dec 13

2.51 2.99 2.41 5.12

Sep 13 Dec 13 Mar 14 Jun 14

1.09 1.33 1.18 1.06

Annual

Qtly.

Inv T/O Light Inventory

Dec 10 Dec 11 Dec 12 Dec 13

0.45 0.37 0.45 1.14

Sep 13 Dec 13 Mar 14 Jun 14

0.21 0.27 0.18 0.16

Annual

Qtly.

Asset T/O Increasing

Ratios

Page 20: Tesla Motors - A Look at Strategic Model

Musk tweets on Oct 2nd, 2014 about “mysterious D & another” ModelsStock Price up by 5%

Announcement & Delivery of Model S generates buzzStock Price up by 287%

8x times increase since 2010

Charismatic Investor-cum-CEO

Consistent announcement & delivery of Model-S led to massive increase in stock perception

Other projects in pipeline are also expected to materialize & stock prices are going strong

Stock Price Movement

Page 21: Tesla Motors - A Look at Strategic Model

Brand building before selling

Three customer segments- the environmentalists, the car-buyers & the mall-shoppers

Focus is stimulating the mall shopper’s interest & awareness to remain at the forefront of the EV market

Tangible benefits like battery-swap technology & superchargers add to the positive Word-of-mouth

Gratification of using an electric vehicle vis-à-vis a gasoline one is secondary in case of a Tesla. The primary

reason for buying a Tesla is the car itself

Marketing Model

Page 22: Tesla Motors - A Look at Strategic Model

Tesla positions it’s car as the best car, and not the best “electric car”

Elon Musk presents strong opposition to false negative publicity (Top Gear and New York Times incident)

Tesla has on-road presence in 37 countriesIt’s a radically different car with a very high focus on technology. It is an ‘upgradable’ car which adds features with software updates. This focus on technology flows with today’s smartphone loving generation.Tesla’s innovation in automobile sector are often pegged to be what Apple did to the smartphone sector

Starting in the spring of 2016, many Model S’s will be 3 years old, a point at which customers can sel-back vehicles at or near 50% of their original price. The expectation is that many early Model S buyers will take Tesla up on its trade-in option (presumably to buy a new Tesla). Tesla will service these used vehicles and then resell them at prices probably in the range of $35,000 to $50,000—pricey by used-car standards, but a deal compared to the sticker price of a new Model S, which starts at around $70K.

Marketing Model

Page 23: Tesla Motors - A Look at Strategic Model

Tesla's strategy of direct customer sales and owning its own stores and service centers is a significant departure from the standard dealership model currently dominating the U.S. vehicle marketplaceTesla operates over 100 company-owned showrooms worldwide

Tesla owned stores serve the dual purpose of selling and educating the customers

Provides a better control over the selling process ensuring little to no dissatisfactionTesla owned stores face stiff opposition from franchisee dealers, and in many states Tesla sales and stores have been banned in the recent past

Selling Model: Direct to Customer

Page 24: Tesla Motors - A Look at Strategic Model

In June 2014, Tesla “opened” up its patentsNot trying to build a car company but a whole new industryTesla needs the public to stop thinking of them as electric cars, and to start thinking of them simply as cars. Lose the weird tag PR benefit. And even then, very few companies can actually copy and start a companyIf new EV vehicles are launched, then they too improve the charging infrastructure that will help Tesla tooas building superchargers is not very sustainable

Patents: A Twist in the Tale

We are all on the same ship. If Tesla succeeds, but the planet is destroyed, it does not help Tesla. It is similar to a situation in which

we are on a ship with many people, but the ship has a lot of holes in it. And if we are good at removing the water of our section, then it would be foolish to not share that bucket design with others. Because if the

ship goes down, we’re going with it”

Page 25: Tesla Motors - A Look at Strategic Model

CCC

Customer

Company

Competition

Higher value for customers

No compromise on performance rather a better and futuristic technology availability

Starting with premium models like Model S, Model X

Penetrating market with Economical models like Model III after higher acceptance of earlier models

Coming in direct competition to established players like BMW, Mercedes, Audi etc.

Higher pressures to match up and up-scale the technology for customers

Companies coming up with their own version of EV cars like BMW i3, BMW i8

and other pilot projects

3-C Analysis

Page 26: Tesla Motors - A Look at Strategic Model

Supp

ort A

ctivi

ties Space readily available for future expansion

Flat/horizontal structure, Strong leadership, Strong management team

Leading edge in technology, reinvesting in R&D, excellent product design

Partnerships and alliances with suppliers, short-term agreements

Prim

ary A

ctivi

ties

Value Chain Model

In-house productionNumerous suppliersJIT

Innovated and automatedMulti-functional robotsEasily reprogrammable

Own stores in 18 countriesOnline reservationShowrooms

Direct to Customer SalesBrand BuildingTechnologically superior positioning

Service centersSuperchargersWarranty policy

Prod

uct

Infrastructure

HRM

R&D

Procurement

Inbound Logistics Operations Outbound

LogisticsMarketing and

SalesService

Page 27: Tesla Motors - A Look at Strategic Model

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What does the Future hold?

265822450 35000

75000100000

150000

200000

300000

500000

2012 2013 2014 2015 2016 2017 2018 2019 2020

Potential Tesla Vehicle Deliveries

Volume Model X production begins

Gigafactory completed, production of lower cost

car begins

High Volume production of lower-cost car begins

Technology Leap Frogging

Autopilot technology, advance safety and driver assistance capabilities

challenges rivals to innovate or being left behind in the automobile arena

When will the competition truly heat-up?It isn't likely is that none of the global automaker giants will challenge Tesla

as it grows.

Giving away Patents: Stroke of Ingenuity?Important step to equalize the main auto-industry between electric cars and

petroleum cars

Brand recognition will take centre-stage: consumers will immortalize Tesla

as pioneers & game-changers of the Auto industry

If Tesla’s technology is being harnessed by competitors alike, Tesla can

summon an army of lower cost companies on their side to attack the

conventional auto-industry