tesla motors - a look at strategic model
DESCRIPTION
A look at the strategy of Tesla and the story till now.TRANSCRIPT
Tesla Motors and its Strategy
Industry and Competitor Analysis
Disruptive Innovation Model
Business Units: Production | HR | Finance | Marketing
Future Outlook
Contents
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
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
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
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
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
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
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
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
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
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
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
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
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
Financial Policy
Financials
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
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
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
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
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
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
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”
“
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
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
27
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