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Tesla Motors Business Analysis

Updated August 24, 2021
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Tesla Motors Business Analysis essay

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Tesla Motors is an overall great company. Tesla offers innovative product designs, luxury, and all-electric vehicles. Not only does Tesla have competitive advantages, but Tesla has an expanding market, innovative technology and business diversification. However, like any other great company, Tesla has several business issues that need to be attended to. Tesla suffers from a limited infrastructure, high debt, and expensive products compared to their competition. Tesla should be concerned about dealership regulations, increase in raw material price, and the current business model.

Our expert consultant team conducted several different analyses to develop this information. The business model canvas, SWOT analysis, and qualitative competitive analysis were some of the analysis’s that our team conducted. These analyses gave us the information to provide your management team with the most efficient and effective methods to assist Tesla in overcoming tough situations. Tesla will potentially face the challenge of the risk of increasingly expensive batteries.

The batteries account for 25% of the vehicles cost which increased the price of the vehicles. Tesla outsourcing their batteries will help reduce their production costs. The global shift away from fossil fuels will increase the numbers of hybrid and all-electric cars anticipated to be on the road. The anticipation of more electric cars will potentially increase Tesla’s sales. Our expert team recommends investing in Tesla Motors despite not having a profitable year yet. We recommend that Tesla expands their foreign markets and increase investments in product innovation.

Company Information

Tesla, Inc. (formerly Tesla Motors, Inc.) is an American automotive and energy company based in Palo Alto, California. The company was founded July 1, 2003 by a group of engineers: Elon Musk, Martin Eberhard, Marc Tarpenning, J. B. Straubel, and Ian Wright. Tesla specializes in manufacturing electric cars and, its SolarCity subsidiary, solar panel manufacturing. Currently Tesla manufactures 3 vehicles: Model S, Model X, and Model 3. In 2020, Tesla will release the Tesla Roadster. In 2017, Tesla produced 101,312 vehicles and revenue of $11.759 billion. There operating income is in the hole $1.961 billion and total equity is in the hole $4.237 billion. Tesla currently employs 45,00 employees. Tesla’s vision statement is “to create the most compelling car company of the 21stcentury by driving the world’s transition to electric vehicles.” The corporate vision emphasizes the company’s focus on renewable energy. Tesla’s mission is “to accelerate the world’s transition to sustainable energy.” Tesla believes that the faster the world stops relying on fossil fuels and moves towards a zero-emission future, the better.

Business Model Canvas

Value Proposition

Tesla is a luxury choice and for real car-lovers. The design of it is unique and the comfort of driving the car is amazing. Their mission statement is: “to accelerate the world’s transition to sustainable transport.’ Their vision statement is: “to create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.” The car is in the next level of electrical cars, which gives good value for environmental and sustainable caring people. Something that also brings good value for the customers, is the free charging stations that tesla provides, and how quick the battery gets fully charged. Tesla´s customer service is amazing, and their employees are well trained.

Key Partners

Through all these years, Tesla has had a lot of different partnerships. Some of them have been Toyota, Daimler, Panasonic etc. Daimler sold their last holdings in 2014, and Toyota sold their shares in the summer of 2017. Both Toyota and Daimler invested 50m each when they partnered up. Panasonic have since 2010 collaborated on developing next-generation battery cells for Tesla. The partnership between Tesla and Panasonic is considered as a strategic alliance. Other partnerships that are important for Tesla are battery stations, main suppliers, NVIDIA, and regulators.

Key Activities

One of the key activities for Tesla is R&D (research and development), which is one of the reasons Tesla can provide their value proposition about being sustainable, and it also strengthens one of the other key activities which is high miles per charge. As mentioned earlier, one of the most important things for Tesla is being environmentally friendly. This is also one of their key activities, to keep the car as environmentally friendly as possible. Furthermore, one of the most important key activities is to produce advanced electrical cars with good technology.

Key Resources

One big key resource for Tesla is the human resource. Tesla needs an extremely good team of people with high technological knowledge to produce the perfect car and keep on top. One other essential key resource is the car itself, Tesla need the electrical cars to sell. No car, no Tesla. Good partnerships are always a good thing, and Tesla has some partnerships, such as with Panasonic and NVIDIA. The car business is not a cheap one, which is why financial resources are very important for Tesla too. They received a low-interest loan from the US department of Energy, and they also had some companies buying shares in Tesla in the earlier years.

Cost Structure

One very important cost is development and cutting-edge technology. The cost-structure is value-driven with the big focus on creating value for their customers. Furthermore, this means that the high quality and performance cars are more important than minimizing costs. Since Tesla has expensive cars, the prices will obviously be higher, but minimizing costs are not totally distant from their focus. Other costs are related to real estate, engineering and employee salaries, manufacturing, maintenance and marketing.

Customer Segments

As a car manufacturer, you need to understand which customer segments you should target with which cars. Usually, Tesla would not target low-income people. Overall, Tesla´s target market is the high net worth influencers, car lovers, environmental-caring people and safety conscious people. Tesla´s model S, which is their most sold car, is targeting a larger group of people than the other cars, but it´s still considered as a niche market. Even though Tesla tried to segment differently with making a bigger car with seven seats fitting for families, it is still a car with environmental focus and pretty design with heavy acceleration. It is actually one of the fastest cars in the world, and still has one of the best safety rankings.

Customer Relationship

If there is one thing Tesla is handling well, it is creating a good relationship with their customers. Their showrooms and employees are really important factors in creating the relation they want to their customers. From the second you put your foot inside of a Tesla store, the employees are more than motivated and ready to try creating a nice bond with you. Therefore, the showrooms are important to Tesla, because this is usually where the bonding starts. They treat every individual coming in to their store as a potential customer, which provides good satisfaction for the person coming in. Even though a lot of Tesla´s focus is on the personal assistance, they also have self-service on their online webpage. The homepage is super easy to use, and it gives you good information about the cars, when it needs inspection, and basically everything you need to know about the car. They also have a forum-page you can sign up for, which is where other Tesla-owners ‘meet’ to write their thoughts, questions and opinions about Tesla and their cars.

Channels

Tesla is an independent company who deals with all their sales themselves, from the production to the ending sale. They have showrooms all around the world where you can schedule a test drive with a well-trained Tesla employee. Furthermore, the company gets direct sales through their webpage where the customers can do a purchase of a car.

Revenue Streams

How does Tesla earn their money? They obviously earn money on their car sales, but also on their creative way of giving the customers different payment options. They can pay in the showroom, online, but also through subscriptions. Tesla also get some of their income from battery-sales, service of the car, membership fees, and wall-connector-sales. A lot of people and companies lease cars, which is the third income of Tesla, their leasing agreement. Tesla use their partner Athlon car lease for their leasing agreements.

Industry and Competitive Analysis

Tesla has many different NAICS codes, however the main code is 336111 for automobile manufacturing.

Porter’s 5 forces

  • Competitive Rivalry

Since Tesla’s main consumer base is upper luxury vehicles, they are in direct competition with automobile manufacturers such as Audi, and BMW. This is due to the perceived quality to price ratio, grouping it with these other manufactures. If someone was looking to purchase a BMW, they might consider a Tesla while if someone is looking to purchase a Toyota the Tesla would be out of the price range.

  • Bargaining Power of Buyers or Customers

Bargaining power for consumers if very low for Tesla. The consumer base using the Tesla are usually climate conscious. Knowing this there are low substitutes coming from BMW and Audi. Audi is still in production of their all electric line, while BMW has two. One costing on average 150,000 and the other 50,000. These prices are out of the range of the average Tesla buyer. There is also a high cost in switching. A regular Tesla does not operate in the usual manner of a standard vehicle. Tesla’s are all electric with very futuristic features such as autonomous driving and parking. Switching to another line of car would mean a whole change in the consumers way of living. They would have to start thinking about the monetary aspect of gas. They would also lose all the luxuries that are only offered with the Tesla.

  • Bargaining Power of Suppliers

Due to the innovative technology there are not a lot of suppliers thus leaving Tesla to manufacture most of their main components such as the batteries and motors. Due to competition obtaining inside information Tesla is very quiet about their suppliers but with further research I have found Tesla purchases their windshields, seats, power steering, and many other components. Though these suppliers do not have a lot of bargaining power as they have substitutes themselves.

  • Threat of Substitutes

Threats of substitutes is very weak but will grow in time. As of now BMW has two all-electric vehicles that are out of the price range for the average Tesla buyer. Audi is set to make deliveries for their all electric line in early 2021 which will be a direct substitute to Tesla. The Audi has a set sticker price of 75,000 which is close to Tesla’s price.

  • Threats of New Entrants

Threats of new entrants are very low. There are numerous barriers to entry for automobile manufacturers and thus they will need a very large capital cost. Switching cost is very high for Tesla as Tesla cars have numerous patented technology the consumers will miss. There are also high costs to brand development. There are numerous electric automobile companies in development, but their brand is very unknown. This is why you see big competitors stepping into the all-electric vehicle lines. Competitors such as BMW and Audi already have the brand name, but they are met with the product differentiation and the patented technology that comes with the Tesla.

The industry as a whole is very profitable. According to Tesla’s annual reports each year it has increased its revenue. In 2015 revenue reached 4 billion, 2016 7 billion, and in 2017 revenue reached 11.8 billion.

Strategic Position

Tesla´s Primary Business-Level Strategy

Tesla Inc.´s operates with a primary differentiation business-level strategy. Most of its value is created in product differentiation from other companies. Since Tesla produces high end cars, the company´s product not only competes with electric cars, but also with standard luxury cars. One of the differentiations to competitors is the high level of customer service, which is why Tesla sells its cars only through direct sale. Another is Tesla’s own network of superchargers: “Fully charge […] Tesla vehicles in about 30 min for free.” Tesla cars are high tech cars. The high innovations in the cars brought Tesla high customer satisfaction. For example, some parts of service maintenance can be done from home, and no technician has to be physically there.

In addition to the high level of innovation and technical diversity in the cars, Tesla promises high quality to the customer: “Long Range and Recharging Flexibility,” “High-Performance Without Compromised Design or Functionality;” “Energy Efficiency and Cost of Ownership”

“Self-Driving Development”, which promise the customer an “expertise in vehicle autopilot systems” and “continuing to make significant advancements in the development of fully self-driving technologies.”

Recently, other car manufacturers presenting their first electric cars have increased competition. Additionally, Tesla seems unable to meets its high demands and production goals. Furthermore, the company repeatedly harms itself, as with the recent scandal surrounding Elon Musk’s confusing announcement to take Tesla off the stock market, or the issuing of the “largest recall in its history” in March 2018.

In general, Tesla was very successful in its first years with its business level strategy, because they were able to convince many customers about their unique product. But it has decreased significantly in the recent past as Tesla was not able to reach its targets.

SWOT Analysis

Strengths

  • Strong R&D department
  • Dealership
  • Innovative product and designs
  • Strong sales growth

Weaknesses

  • Expensive products compared to competition
  • Limited infrastructure
  • Dependent on suppliers for batteries
  • High debt
  • Time consuming delivery

Opportunities

  • Increases in gas prices
  • Innovative technology
  • Expanding market
  • Business diversification

Threats

  • Current business model only allows Tesla to produce a limited amount of vehicles
  • Strong competition
  • Increase in raw material price
  • Dealership Regulation

Like any company, Tesla also has weaknesses and threats. One of the biggest potential weaknesses of Tesla is the limited infrastructure and the time consumption of delivery. Tesla is currently unable to meet the high demand because they are limited to one plant. This currently has a negative impact on sales. Tesla is better prepared for the limited infrastructure and the threats of ever-increasing competition. With its very strong R&D and therefore highly innovative products and designs, Tesla retains a competitive advantage.

However, the ever-growing market for electric cars and ever-increasing gas prices is a huge opportunity for Tesla to use their competitive advantage. But they definitely have to get a grip on the limited production and manage to produce a higher number of cars to meet growing demand. If they manage to sell more cars, they can lower their high debts, which put them at a disadvantage with their competitors. The must also expands their economies of scale, and counteract the price increasing of raw material by ordering higher amounts.

Qualitative Competitor Analysis

Since Tesla is in the market for electric and high-end cars, it has many competitors. In this Qualitative Competitor Analysis, Tesla is compared to General Motors, and in particular to its electric car segment.

In terms of resources, there is a high degree of similarity, but also some differences. For example, GM has some advantages in terms of supply chains, through its greater experience and higher economies of scale. Tesla is considered as more innovative, rated second on the Forbes list of the most innovative companies in 2017 and 4th in 2018. But GM does not need to be ashamed of their innovations – particularly considering their latest model electric car, the Chevrolet Bolt EV.

Considering customer service, they are competitive, but Tesla has an advantage in terms of the quality of the batteries, which allows them both a batteries to them. With Panasonic producing the batteries for Tesla, Tesla will no longer have potential problems of production distribution. The function of the vertical integrations also allows a cost reduction in their vehicles.

References

  1. The Electric Cars, Solar Panels & Clean Energy Storage | Tesla. (n.d.). Retrieved from https://www.tesla.com/
  2. Gebraucht, gesucht, gefunden.(2018). Retrieved from https://www.autobild.de/artikel/elektroautos-reichweiten-ranking-5574133.html
  3. Investors. (2018). Tesla. Retrieved from http://ir.tesla.com/financial-information/quarterly-results
  4. Model S. (2018). Tesla. Retrieved from https://www.tesla.com/
  5. Nimmt Elon Musk Tesla von der Börse. (2018, July). Frantfurter Allgemeine. Retrieved from http://www.faz.net/aktuell/finanzen/finanzmarkt/elon-musk-ueberlegt-tesla-aktie-von- der-boerse-zu-nehmen-15727483.html
  6. Partner Innovation. (2018) Nvidia. Retrieved from https://www.nvidia.com/en-us/self-driving-cars/partners/
  7. Tesla, Inc.’s Mission Statement & Vision Statement (An Analysis). (2018, August). Retrieved from http://panmore.com/tesla-motors-inc-vision-statement-mission-statement-analysis
  8. Tesla Names New General Counsel. (2018, December). Tesla Motors Club. Retrieved from https://teslamotorsclub.com/
  9. Tesla is Experiencing a painful year — here’s everything that has gone wrong so far (2018, October). Business Insider. Retrieved from https://www.businessinsider.com/tesla- challenges-in-2018-2018-
  10. United States Security and Exchange Commission. (2018, February). Tesla, Inc. Retrieved from https://www.sec.gov/Archives/edgar/data/1318605/000156459018002956/tsla- 10k_20171231.htm#Item_1
  11. What Makes Tesla’s Business Model. (2018, October). Investopedia. Retrieved from
  12. https://www.investopedia.com/articles/active-trading/072115/what-makes-teslas- business-model-different.asp
  13. 2018 Chevrolet Bolt EV. (2018, December). General Motors Fleet. Retrieved from https://www.gmfleet.com/chevrolet/bolt-ev-electric-vehicle.html
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