Tesla Final Paper CS

Crhystian Sanchez Professor Loughlin INTL 480 Tesla Motors Inc. Tesla Motors is a sustainable transportation company that designs, develops, manufactures, and sells high performance fully electric vehicles and energy storage products. It’s a Palo Alto, CA, based company, and has established its own network of vehicles, service centers, and Supercharger stations around the world. However, Tesla Motors gained worldwide attention after the production of their first full electric sports car, the Tesla Roadster in 2008, and has been making headlines since. Currently, the company produces and sells two fully electric vehicles, the Model S and the Model X. The Model S is a technological luxurious high performance sedan and the Model X a Sport Utility Family vehicle. Since the introduction of the Model S in 2012, the company has experienced a great demand for the vehicle delivering over 107,000 units, and increasing. Additionally, Tesla has unveiled their new Model 3, which is a more affordable sedan for the mass market. The company also sells energy storage products, which includes a highly efficient Powerwall unit to store and distribute enough energy to power an entire house. The Powerwall is available in 3 different models, 7kWh battery, 10 kWh, and the 100 kWh depending on the need. Furthermore, Tesla is working on the development of the Powerwall 2 and a Solar Roof, which will be introduced to the market in 2017. Strategy As of 2016, Tesla is operating in 3 countries United States, Netherlands, and China. First and foremost, Tesla has reported higher car sales in United States than any of the other markets. However, our strategy is to penetrate the European market with a new state of the art mega factory, as there is huge potential and demand for the Model S and Model 3. Tesla’s Model S demand over the last years has been strong in Europe, especially in more environmentally conscious European countries. Moreover, this has boosted Tesla as competitor for European car manufacturers like BMW, Mercedes Benz, and Audi, and even out selling some of their current models. The attractiveness of the European markets is in part due to the fact that most European countries are very environmentally conscious. Some European countries are on the top of the most sustainable countries in the world. Switzerland has a sustainability index of 89.1, Sweden follows with 86.0, Norway with 81.1, finally France and Austria comes last with 78. From an Industry based view, this is highly beneficial because there are growth opportunities by attracting customers. Tesla’s main goal is to change the mentality of the customs, and influence them to move to sustainable energy as their main source of energy. Furthermore, European mind set is ideal for the task because overall they are moving in the same direction as Tesla. Eventually, Tesla hopes to get a leadership position in the automobile market in Europe, as customer become more and more aware of the environment. Netherlands is currently home of the only European Tesla Assembly plant. The car parts are shipped over from Tesla US, and are ready for final assembly before being delivered to supply Europe’s demand. However, demand is increasing rapidly, and Netherlands will not be able to supply the demand for the Model S and Model 3. Our goal is to have a fully operating Tesla Europe facility by 2020 that can produce 1000 vehicles per week, for an amount of 50,000 cars per year. Being able to fulfill this goal is crucial to Tesla because it needs to reach delivery goals of 40,000 to 60,000 vehicles to supply the demand of European customers. Tesla is considering Norway as the main option for the new factory in Europe. It is crucial that Tesla positions its factory in a country that is able to deliver to all Europe and that can supply with competent workers. However from an Institution based view, Norway is a sweet spot for Tesla. Due to their government’s tendency of being “pro green,” it ‘s likely that Tesla is able to find investors and less restriction to operations. Additionally, Norway is the European country with more customers per capita in any other country in Europe. The entry mode chosen is though the acquisition of an engineering company to enter the market. The reason being, that Tesla needs the experienced personnel to be able to manufacture the vehicles. Additionally, the expertise and knowledge of the firm will be a valuable asset for Tesla and help with R&D in the future. Therefore, from a resourced based view they have a valuable intangible asset, which is human resources and capabilities. It will also facilitate operations and also less training costs because of the experience they already have. Once the facility is ready to operate, its expected to be able to mass-produce 1,000 Tesla cars per week. The state of the art facility will provide the works with a complete robotic assembly line, much like the one used in the other factories. Before, the facility is fully functional Tesla will partner with a company that can distribute the vehicles from Norway to the rest of Europe in 12 days or less. This way, ensuring that all orders that are received in the factory can be delivery efficiently and effectively. Tesla has to consider, that without enough Supercharges the expansion will not be a success. For that reason, Tesla is planning on building 300 new strategically placed Tesla Supercharger locations. As of now there are 590 Superchargers around Europe but with the expected growth this amount will not be enough. Additionally, Tesla will open 100 new stores around Europe so customers can buy their own model. Furthermore, Tesla retailers will be strategically placed in shopping malls, keeping the same strategy as in US, and in convenient locations near upscale neighborhoods. This is a valuable resource to Tesla, as they will have physical resources in the way of assets to increase value for the European customers. Tesla’s globalization strategy into the European market is one of rapid expansion. For this expansion to happen, Tesla plans to use a significant amount of the revenues generated from all model sales during the upcoming years. However, Tesla is confident that the expansion to the European market will be a great success and will lead to higher revenues. Furthermore, it’s Tesla’s plan to change the mindset of the European customer, and lead them into being a fully sustainable continent. Five Forces Framework Intensity of Rivalry among Competitors: The rivalry in the automobile industry is very high. This is due in part because there are a lot of competitors out there. BMW, Audi, and Mercedes Benz are the strongest competitors in the luxury automobiles market in Europe. Yet, Tesla does differentiate itself from the competition with its fully electric cars. However though, this is a very attractive market and is expanding really fast. Therefore, Tesla is vulnerable to strong competition by other automotive companies who are moving aggressively into this market. Threat of Potential Entrants: As mention in the last section, Tesla does face a threat from potential new entrants because of the attractiveness of the market. When Tesla was entering the market, the company faced some financial trouble from being new entrants. However, automobile manufacturer, like BMW, have the economic power to enter the market with relatively low threat. Bargain Power of Suppliers: Tesla is a relatively new company; therefore, it doesn’t have the manufacturing capabilities to produce all the parts that go into each car. On that thought, supplier bargain power is relatively high because manufacturers rely on a few suppliers to provide them with the products they need. Panasonic is Tesla’s main battery supplier. As a result, Panasonic has bargain power because it would be hard for Tesla to find another supplier who that can provide the amount and quality of batteries. Bargain Power of Buyers: As of now there is a lot of demand for Tesla vehicles, but there is a scare amount available. Therefore, buyers do not have high bargain power. The vehicles available are targeted towards high-income individuals with price inelastic demand. However, as other companies move into the market and develop their own electric vehicles will strengthen buyer bargain because they will have other options and possible cheaper ones. For these reason, Tesla is developing a cheaper car that will let them be competitive in the long run. Therefore, the bargaining power of buying will still remain fairly low. Threat of Substitutes: The threat is relatively high. Remember that Tesla cars are high performance luxury fully electric cars, thus being a little more expensive than other cars. For instance, combustion engine and hybrid cars that have more market dominance are likely to be a cheaper option to the electric car. Furthermore, there are other methods of transportation available in Europe, like trains and subways that could be potential substitutes. However, many people prefer to have their own car that would be the most convenient method or transportation. SWOT Analysis Strengths: Unique Position in Market: Currently, Tesla is the leader in development of fully electronic vehicles. Not only that, but Tesla is revolutionizing the way we drive by introducing new technologies to the market. Tesla’s latest addition to the car is the self-drive feature, which allows the owner to seat back and enjoy the ride while the car drives itself to the destination. Furthermore, Tesla’s Model S is the leader in long-range electric automobile. Range will vary depending on the model, but the 85D model has a rating of 270 miles per charge. Sale Growth: Tesla has been growing at a very fast pace over the last years, this is due to the customer excitement about the cars and high demand for the Model S. But, there was some major concern among investors that Tesla would not be able to supply the high demand of Model S, thus decreasing its stock. However, Tesla has increased its global deliveries by 78% this year cheering up investors who had been concerned. Additionally, Tesla’s unveil of a new cheaper electric car, the Model 3, has gained back the attention of the market. Weaknesses: Negative Cash flows: Ever from the start of the company, Tesla has been struggling with it’s financial especially because investors didn’t want to take the risk. Furthermore, Tesla has been running through large amounts of cash over the last years. The main investments have been done in R&D and rapid expansion of the company. To keep up with demand, Tesla has invested heavily in a Gigafactory in Nevada were it will be able to mass-produce batteries and vehicles. For these reasons, Tesla has reported negative cash flows and earnings over the last years. High Debt: The Company has a relatively high debt due to some early startup investments. Tesla has almost nearly twice as much debt and capital leases compared to their cash on hand. If the company wants to be stable, they must fulfill their debt obligations. If not, Tesla might have to delay car productions and this can come to negatively affect its future growth. Opportunities: Environmental Awareness: This is one of the most important opportunities that Tesla needs to take advantage from. Environmentally conscious people are starting to look for more sustainable solutions to help the environment. Increasing concerns about environmental pollution and global warming are creating a demand for cars that won’t harm the environment. Furthermore, customers became more conscious of electric cars during substantial rise in the price of petroleum. Model 3: Just in time, Tesla announced a more affordable electric car compared to the Model S or Model X both of which for over $100,000. The Model 3 will go for a price of $35,000, a very significant reduction in comparison to the other models. This is steamily beneficial to the company as it expects to see a huge demand for the car. The Model 3 is set to compete with such cars as the lower end of German high performance cars, such as Audis. Threats: Competition: Although, Tesla is in a unique position compared to the rest of the market there is still a very high level of competition. The market is a possibility for other automobile companies who want to move into the electronic cars. Even though Tesla doesn’t have a straight competitor, companies such as Toyota, Nissan, and Mercedes Benz are on the process of developing their own model. Resource-based View Tangible: Capital State of the Art Manufacturing Facilities Equipment & Supplies Service Centers Supercharger Land Employees Showrooms Intangible: R&D Brand Image Knowledge Reputation Awards for their vehicles Innovation Intellectual Property Strong Partnerships & alliances Capabilities: Growing Sales Mass production Market leadership in Electric Vehicle industry Engineering Excellence Powertrain Components Vehicle Safety VRIO Value: One of Tesla’s most valuable assets is their state of the art production facility. The robotics assembly line and computers running the facility are capable of producing new and improved products very efficiently, and at the same time reducing production costs. Rarity: The fully electric vehicles produced by Tesla are rare in all aspects. First of all, there is no other car like the Tesla. Even though it’s a little expensive they are one of kind from the inside out. Furthermore, the technology incorporated in every car is a masterpiece, from the huge tablet in the dashboard to the one pedal driving experience. Imitability: Tesla has opened its patents to the general public, meaning anyone can use their patents as guide for their own technology. Although, Tesla is a leader in the market, they might be vulnerable to imitation by other companies. However, Tesla considers that this will be advantageous for them and that competition will do well to the company. Organization: The Company is very well organized and structured. Having Elon Musk, and intangible resource of the company, as the head of the company is of great advantage for Tesla. This ensures that the company has the right mindset, direction, and capability to be at its full competitive potential. However, there is major concern that governments will put regulations on electronic vehicles. Therefore, damaging the ability of the company to operate freely and at its full potential. Sanchez 1