value chain configuration for tesla motors in brazil
TRANSCRIPT
Antonio Addar io
“VALUE CHAIN CONFIGURATION FOR TESLA
MOTORS IN BRAZIL”
TESLA MOTORS IS ARGUABLY THE MOST INNOVATIVE ELECTRIC AUTO MAKER
1. en.wikipedia.org/wiki/Tesla_Motors
Tesla Motors, Inc. is an American company that designs, manufactures, and sells electric cars and electric vehicle powertrain components1.
Tesla Motors gained widespread attention following their production of the Tesla Roadster, the first fully electric sports car. The company's second vehicle is the Model S, a fully electric luxury sedan.
Tesla also markets electric powertrain components, including lithium-ion battery packs to automakers including Daimler and Toyota
Revenue US$2.013 (2013)Operating income US$61 million (2013)Net income US$74 million (2013)Total assets US$2,417 million (2014)Total equity US$667 million (2013)
THE ELECTRIC VEHICLES INDUSTRY IS STILL EMERGING BUT VERY
COMPETITIVE
• High entry costs• Breakthrough is a must• Tacit knowledge
required in high tech
New Entrants : Low
• All major brands are competing
• Emerging market competition in low cost segment
EV Industry : High
• Battery Suppliers: High for Industry but Low for Tesla is building it’s own factory
• For other components varies: Medium
Suppliers : Medium
• Large number of substitutes
• Hybrids, Bio-diesel• Other emerging tech
like Hydrogen Fuel Cell• Conventional
combustion engines
Substitutes : High• Price sensitive,
demanding consumers: High
• Options available but not many “viable”, all lack either $ or performance: Low
Consumers: Medium
THE INDUSTRY HAS CLEAR BUT CHALLENGING SUCCESS FACTORS
Electric Vehicles
Industry - Key Success Factors
Quality & Design
Cost
Vehicle Autonomy
Government Policy, Incentives & Compliance
Vehicle Commercialization
Target Audience
Battery Commercialization
Recharge Pricing & Payments
Charging and Service Stations
Need to match non-EV to attract masses
Regulation can make a big difference
Sale, renting, leasing option.
Different income have different preferencesSale, renting, leasing
optionsFree vs. Per Usage
Prepaid vs. Postpaid Infrastructure, availability and
density of stations
To be competitive with non-EV. TCO
attractivenessLow at 50km, Med 51-150km, High
>150km
Note: this is not Tesla Motor’s official strategy. We have reverse engineered their strategy based on their market moves and investor presentations.
REGARDLESS OF THE CHALLENGES TESLA HAS AN AMBITIOUS PLAY-TO-WIN
STRATEGY
Increase Market Share
Vision
Strategic Goals
Objectives
Supporting
Practices
To drive the world’s transitionto electric mobility by bringing a full range of increasingly affordable electric cars to
market.
Move Fast Do the ImpossibleConstantly Innovate Reason from “First Principles” Think Like Owners We are ALL IN
Expand Production Grow customer support
• Increase market share (500k vehicles by 2017)
• Launch 3rd gen price (30-35$k price range)
• Increase battery supply
• Augment production capacity
• Increase by 75% stores & service centers (2014)
• Grow supercharger network 200% (2014)
Design Engineering Mfg
Sales & Distributi
onService Charging
Value Chain (owned by Tesla)
TESLA HAS RECONFIGURED AND TAKEN FULL OWNERSHIP OF ITS VALUE CHAIN WITH A
SERIES OF DISRUPTIVE STRATEGIC INITIATIVES
Component Suppliers Financing Electricity
Suppliers
Customer
Value System
Re-thinking Sales: Apple inspired owned flag ships stores - NO DEALERS , NO CMO, NO AD AGENCY
Re-thinking Charging & Service:FREE CHARGING at Tesla Supercharging Stations 90 SECS BATTERY SWAPS,NO OIL CHANGES
Re-thinking Battery Supply: building a solar powered GIGAFACTORY capable of the today’s world capacity production
Re-thinking Business Model: SELL EMISSION CREDITS , LICENSING OWN TECHNOLOGY, IN CAR ADVERTISING, OPEN SOURCED PATENTS PORTFOLIO
Quality & Design
Cost
Vehicle Autonomy
Government Policy, Incentives & Compliance
Vehicle Commercialization
Battery Commercialization
Recharge Price & Payments
Charging & Svc Stations
IN DOING SO TESLA IS RAPIDLY BUILDING A COMPETITIVE ADVANTAGE
VRIO Analysis
- $5b battery Gigafactory - Free recharge at superchargers- Full value-chain ownership
Costly to imitate
Target Audience
Key Success Factors
- Tesla cars have great design - The only EV car reaching 300 miles on a single charge.
Rare
- The Powertrain components are bought by Daimler and Toyota to produce vehicles
Valuable
- Shared CEO and only ~24% margins but… - Economies of scale achieved by Gigafactotry and no dealers network
Organized to capture value
✓
✓
✓✓
✓
TESLA IS RAPIDLY INCREASING ITS INTERNATIONAL PRESENCE BUT BRAZIL
IS NOT ON THE MAP YET
- BRAZIL THOUGH IS AN INTERESTING MARKET- TOTAL CAR SALES FORECAST OF 5.7 MILLION IN 2016 (68% INCREASE FROM 2011) - MAJOR CAR MANUFACTURERS PLAN TO INVEST US $25 BN BY 2016
1. Erber 2010. 2. Rezend, Mota and Duarte 20103. http://www.forbes.com/sites/joannmuller/2012/10/05/why-the-worlds-automakers-are-loving-brazil
EV MARKET IS AT EARLY STAGES - SALES EXPECTED TO DOUBLE WITHIN 15 YEARS (IN M UNITS)*. FIGURES BELOW INCLUDE ALL TYPE OF VEHICLES, NOT RESTRICTED TO CARS1
Brazilian automotive industry on the global scale ranks: • 6th place for country in
scale• 5th place in consumer
market• 12th in terms of exports• 13th in imports• 1st in production of
vehicles using renewable fuels
BRAZIL THOUGH HAS A SERIES OF INSTITUTIONAL VOIDS1
Product marketHigh taxes restrain from growth. Electric vehicles do not receive government incentives and the vehicles are taxed based on the higher excise tax rate about 120%2. A Model S retailing around US$90, in Brazil would end up costing about US$200k
1. https://economics.rabobank.com/publications/2014/january/how-to-tackle-the-custo-brasil/2. Coutinho, Castro and Ferreira 2010 3. 2013 Talent Shortage Global Survey of the Manpower group,
Only 14% of Brazil’s roads are paved. No electric charging network stations in isolated areas
Infrastructure
One of the worst red tape requires on average 152 days to start a new venture.
Time to start a new venture
Low level of education leading to a local Talent shortage. Brazil was the second worst scoring country among the 42 countries surveyed2
Human Capital
Taxes Fitter margins Production & distribution cost
Endemic corruption and likeliness of luxury vehicle theft
Lobbies, corruption and violent crime
TESLA’S COMPETITORS HAVE ALREADY ESTABLISHED A PRESENCE AND ARE TRYING TO INFLUENCE THE GOVERNMENT IN THEIR
FAVOR
June 2014 signed a memorandum of intention to produce electric car in Rio de Janeiro.
The National Association of Automobile Manufacturers In Brazil –is proposing the Brazilian government to exempt the import of electric and hybrid vehicles, expanding production to 20171.
1. http://electriccarsreport.com/2013/07/brazil-may-be-the-one-to-open-the-doors-to-electric-vehicles/#ixzz37jXSvmkB
If approved, Brazilian automotive industry may invest less or not at all in the efficiency of combustion engines. The importation of electric/hybrid vehicles will allow manufacturer obtain government incentives, because the calculation of the efficiency is done on the average consumption of all products and not individually.
If the proposal is accepted in full, the domestic industry will have a good way to prevent competitors. There won’t be production incentives until 2017, automakers with factory in Brazil (accounting for 88% of sales) will be protected against new players like Tesla
Nissan Leaf operating as a taxi in Rio de Janeiro
TO SUCCEED TESLA NEEDS TO RECONFIGURE IT’S VALUE CHAIN TO ADAPT, COOPERATE,
AND FACILITATE A RAPID ENTRANCE INTO THE MARKET
Design Engineering Mfg
Sales & Distributio
nService Chargin
g
Value Chain (owned by Tesla)
Component Suppliers Financing Electricity
Suppliers
Customer
Value System
Open Local Assembly
Facility
Partner with local player
(e.g. JV to deploy superchargers at
Petrobras stations)
Deploy & connect highly
urbanized centers
High import taxes
Lack of infrastructure
Mix international
and local talent (both top
managerial and skilled labor positions)
Time to launch new venture
Internationalizationof Activities
InstitutionalVoids
Red tape, lobbies & corruption
Note: the detailed rationale of the proposed changes is in the appendix
Tesla Motors is a very attractive, innovative, and fast growing Electric Vehicle manufacturer. Currently they don’t have a presence in Brazil
Judging from the analysis performed, Brazil is an attractive but very challenging market. This might explain the lack of Tesla presence in the country
To be able to make an accurate entry recommendation we would need to perform a thorough market analysis
Our study has instead highlighted a set of changes to the existing value chain configuration, that Tesla should adopt to successfully execute its strategy in Brazil
CONCLUSIONS & RECOMMENDATIONS
http:/ /en.wikipedia.org/wiki /Tes la_Motors http:/ / i r. tes lamotors.com/ http:/ /www.s l ideshare.net/ lmaiol i /strategic-market ing-for- tes la-motors-uc-
berkeley-extension http:/ /www.s l ideshare.net/nkhattab/tes la-strategic-management-final-30084939 http:/ /www.s l ideshare.net/TheMotleyFool /5-d isrupt ive-reasons-to -buy-tes la-
motors http:/ /prezi .com/pztxvxbtz3ct/business-strategy-tes la-motors/ http:/ /www.thunderbird.edu/blog/faculty/washburn/2011/04/17/tes la-toyota http:/ /www.technologyreview.com/news/426909/can-tes la-survive/#comments https:/ /www.youtube.com/watch?v=D9h1Kx-2bpM http:/ /michael .schwanzer. info/uclan/BT3001/a1.pdf http:/ /www.marketplace.org/topics/sustainabi l i ty /tes las-secret-success-sel l ing-
emiss ions-credits http:/ /www.tes lamotors.com/2014shareholdermeet ing http:/ /prezi .com/qlunzh5h7lug/?
utm_campaign=share&utm_medium=copy&rc=ex0share https:/ /economics.rabobank.com/publ icat ions/2014/ january/how-to-tackle-the-
custo-bras i l /
REFERENCES
APPENDIX
RATIONALE FOR TESLA’S VALUE CHAIN RECONFIGURATION IN
BRAZIL
Open Local Assembly Facility
Partner with local player (e.g. JV to deploy superchargers at
Petrobras stations)
Deploy & connect highly urbanized centers
High import taxes Lack of infrastructure
Mix international and local talent
(both top managerial and skilled labor positions)
Time to launch new venture
Red tape, lobbies & corruption
Large scale endeavors require strong local knowledge, network and influence. Quite often foreign multinationals have failed to roll out businesses in Brazil because of such reasons. The locals refers to this as “Custo Brazil” that would translate to “the actual cost of doing business in Brazil”. http://en.wikipedia.org/wiki/Brazil_cost
Effectively launching and operating a business is extremely hard due to various and cultural and legislative factors. Lobbies and corruption go also hand in hand, and the automotive that sector has strong ties with the oil industry. Forming a strategic alliance with an existing Industry juggernaut of the likes of Petrobras is paramount to obtain the right level of political influence and access to critical resources.
Brazil extends over a vast area and only 16% of roads are paved, on the other hand population is concentrated around key urbanized areas. Just the state of Sao Paulo is home to 40 million Brazilians, about 1/5 of the country population. Connecting the 8 major cities will allow access to about 120 million people
Opening a local assembly factory is a common practice that has been adopted by Ford, GM, Fiat, Volkswagen. Main vehicle component can still be manufactured overseas but by assembling the various parts in Brazil the company can avoid the high import taxes for finished goods. The Brazilian government enforces a strict protectionist policy.