Foundations

of Business Strategy 1
Strategic Analysis Report: Tesla Motors Inc.

Executive Summary

Tesla Motors Inc. is part of the automotive industry, with a specialization in the
electric vehicle (EV) market, it manufactures vehicle as well as electric powertrain
components. The market for electric-based vehicles is expected to grow
approximately to 10.6 million globally, or to approximately 14% of new vehicles
sold by 2015, from 1.75 million units or 3% of new vehicles sold in 2008 (2). GM,
Toyota and BMW own a significant part of this market (24%) with Tesla Motors
only accounting for 0.01% as seen in Exhibit B.

Industry
The electric vehicle industry growth however is increasing as fuel prices remain
high and there is a greater concern for the environment thereby resulting an ever-
increasing demand for more energy efficient cars (See Exhibit A). Political factors
are incentivizing competitors such as BMW, GM and Toyota to invest in more
research and development of effective electric vehicles due to grants provided by
the government (See Exhibit B for details on each manufacturers electric vehicle
fleet). Tesla will experience direct competition from other electric vehicle entrants,
with indirect competition from existing and emerging plug-in hybrid vehicle
manufacturers and competition from substitutes including gasoline hybrid and
gasoline powered vehicles (See Exhibit C).

Tesla Motors is currently operating within the upper-range luxury vehicle market
that accounts for 15% of the market (3) and there is currently little threat from the
other EV manufacturers with respect to a product that can compete against the
performance offered by Teslas vehicles for the same price range (Based on analysis
from Exhibit A, B). Tesla has a major competitive advantage due to its Powertrain
technology as seen in Exhibit D but the direction of other large manufacturers
towards developing competitive EVs means this advantage may dwindle as these
firms direct more resources towards developing at par technology (Exhibit B).
Technological developments especially with battery technologies will result in
meaningful cost reductions. Currently EV batteries account for 50% cost of the
vehicle (2), with limitations for mass adoption of battery powered electric vehicles
being battery range limitation and high costs. Continued R&D and anticipated
economies of scale should spur significant cost reductions and performance
improvements (5). Furthermore, the economy bouncing back from a recession and
customers looking to save on costs with EVs would mean Tesla needs to be develop
supporting infrastructure through charging stations, availability of plug-ins in
parking garages, restaurants and other commercial establishments to support
recharging facilities for its vehicles (3). This should overcome the range anxiety
that is currently hindering adoption rates of electric vehicles in the market and

show promising demand for Tesla Motors vehicles and other electric vehicles in the
near future (4).

Competitive Situation
Tesla Motors is particularly well positioned to capture and sustain a significant
share of the high-end luxury niche market. Through analysis of Exhibit C,
competition with alternative products such as hybrids and low displacement diesel
vehicles poses a moderate threat; substitute products that are currently offered
such as GMs Chevy Volt have to yet to reach the performance advantage Tesla
products have to offer. Tesla Motors is well placed at an advantage due to its
technology, brand recognition and unique component product lines (power trains,
vehicle batteries etc.) as seen in Exhibit D & E. Currently, in the automotive industry,
large capital investment is required to setup an automobile-manufacturing factory.
This coupled with strict laws and regulations for entry into the industry make it
difficult for new competitors to affect the strategic positioning Tesla has (Exhibit C).
Continued partnership with large vehicle manufacturers such as Toyota and
Daimler mean only a small number of true competing vehicles are present, that too
in different niches compared to Tesla resulting in a overall low threat to the
company. Bargaining power evidenced by buyers is extremely low due to a large
demand for electric vehicles that provide the range given by Tesla, no other
comparable technology exists both at a consumer choice level or business choice
level from other manufacturers when it comes to vehicle choice or electric
battery/power train technology (Exhibit C). Bargaining power from suppliers is also
low due to all components of Tesla cars being developed primarily in-house. Tesla
sources its Li-ion cells from various manufacturers but its engine and chassis are
developed in house. Moreover, Tesla Motors has a distinctive and difficult to imitate
capability when it comes to its brand appeal as well as integration of powertrain
technology with vehicle design and systems (4). Tesla has a great competitive
advantage when it comes to leading in electric vehicle technology and ability to
integrate its powertrain technology with its vehicle design and software to produce
a high performing product (See Exhibit E). Its ability to leverage its advanced
technology through the use of unique sales model such as owning and controlling its
own vehicle sales network helps to rapidly focus on product development through
quick customer feedback (See Exhibit F). Moreover, strong alliances with major
manufacturers through supplying powertrain components and exclusive
partnerships provide a competitive advantage in diversifying its service model to
not solely relay on vehicle sales and enhance its research and development of
products by leveraging other manufacturing insights (See Exhibit F).

Conclusion
That being said, although Tesla Motors is well placed in the industry right now a
question remains on how their current capabilities will enable them to remain at a
competitive advantage in the Electric Vehicle market in the near future. Major
manufacturers such as GM and Toyota are investing more resources into developing
technology that is at par with what is being developed by Tesla. Tesla has evident
weaknesses when it comes to supply problems in terms of components if demand

Foundations of Business Strategy 3

Strategic Analysis Report: Tesla Motors Inc.

increases significantly (Exhibit E). Furthermore, the luxury market share is quite
niche and a small part of the overall electric vehicle market. In order to sustain its
competitive advantage it has to attempt to follow one or more of the following
strategic paths in the near future:
Enter the mass market through development mid to low-range cost electric
vehicles, this will allow them to leverage its technological advantage and capture
a significant piece of the EV market and increase its customer loyalty base. This
is currently evidenced by Tesla Motors plane to release a upper-mid-range
model named X in the near future (3).
Continue to create supporting infrastructure in a manner that enables not only
travelling through all of North America but globally through charging station
development in Europe and other areas such as Australia where growth Tesla
cars is prevalent.
Diversify their technological capability to serve other industries aside from
automobiles such as the aviation industry, railway industry and shipping
industry.

Based on these three possibilities, through a VRIN analysis (See Exhibit D),
leveraging Teslas innovative culture and current advantage in terms of
technological capability. It is recommended that Tesla Motors being by investigating
potential industries outside of the automobile industry to leverage its technology.
Example being the incorporation of powertrain technology into Boeings 787
dream-liner fleet that is currently experiencing battery efficiency issues (7). This
strategic approach increases the possibility of exploiting economic rents in
untapped markets where current technology is not feasible/sufficient. Revenue
from this strategic approach can then be used to aggressively expand production
capabilities of Electric Vehicles at Tesla Motors as well as invest in improving its
powertrain technology and enable it to compete with the larger manufacturers that
are set to enter the market with well-performing electric vehicles soon.

Exhibits
Exhibit A: Environmental Analysis

Demographic
Trends

Socio-Cultural
Influences

Technological
Development

Political Legal
Pressures

Macroeconomi
c Impacts

Environmental Analysis
Teslas high price point caters towards individuals with a yearly
disposable income of $100,000+
Influx of baby boomers set to retire and increase in younger
generation will mean an consumer base catered more consciously
towards buying green friendly products
Target market are car enthusiasts, follow trends and are
environmentally conscious

Major automobile market holders are:
Toyota Motor Corporation
General Motors Corporation
Ford Motor Company
Hyundai-Kia Automotive
Hondo Motor Ltd.

The industry it self is segmented into the following type of vehicles:
Compact and subcompact cars (36%)
Midsize and full-size sedans (44%)
Sports cars (5%)
Luxury cars (15%)
As fuel prices remain high and greater concern for the environment
is seen from Consumers, more energy efficient cars are increasing in
demand.
The major automakers are required to also release more energy
efficient vehicles to the market as per Govt. bail out agreements.
Maximum range for Tesla cars is 300 miles
Charging station infrastructure expected to be deployed along high
ways
Department of Transportation has created charging stations and
listed them on publicly accessible website
Over 50 patents related to Powertrain components
Canada has many cities with 120 volt outlets ideal for charging
Plug-in hybrids and all-electric vehicles qualify for a $2,500 to
$7,500 federal tax credit
Department of Energy grants US$465 million loan to Tesla in 2009
House Bill 3351/Senate Bill 1659 which would allow manufacturers
of electric cars to sell directly to consumers in Texas
Ontario government has announced it requires one in every 20
vehicles to be electrically powered by 2020 with Incentives in
rebates from $4,000 to $10,000
Cost of operating a vehicle is increasing due to rising fuel costs
Steady economic growth and job creation as well as low inflation and
strong stock market should motivate consumers to buy new cars

Foundations of Business Strategy 5

Strategic Analysis Report: Tesla Motors Inc.

Fleet of cars from recession times are nearing and-of life which will
drive consumers to the new car market
Estimated 300,000 additional lease returners compared to 2013 will
create an increase in number of leases/purchases of new vehicles in
2014

Exhibit B: Competitor Analysis

Company
Market Share
Sales Growth (1
year)
Employees
Revenue (ttm)
Unique Selling
Point

Tesla
.01%
74.95%

Competitor Analysis
BMW
GM
2%
10%
13.08%
1.32%

2964
1.32B
High quality
electric
vehicles
with
excellent
features
and design
as well as
superior
functionalit
y and
performanc
e.

106870
10.48B
Evident effort
being directed
towards
entering low-
emission, low-
consumption
auto market
Companys
first all-
electric series
production
vehicle is
available
Designs and
builds its own
electric
motors for its
models

213000
152.84B
Innovative
and
keeping
up with
competito
rs through
products
such as
the Chevy
Volt
Well
establishe
d brand
since
1908

Toyota
12%
-2.16%
333498
289.95B
Well-known
brand with a
large
market
presence
and large
manufacturi
ng
capability.
Unique
pricing
practices
and
operations
that lowers
buyer
power and
provides
competitivel
y priced
cars

Potential Entrants

Exhibit C: Five Forces Analysis

Threat: Low

Small number of competing vehicles in

different niches present
Laws and regulations make entry to industry
difficult
Main vehicle manufacturers are in
collaboration with Tesla
Large capital investment required to setup
manufacturing factory

Suppliers

Industry Competitors
Competition: Moderate

Threat: Low

Battery: Bargaining Power is low

since Tesla buys Li-ion cells from
different manufacturers
Engine: in house development
Chassis/Engineering: High
bargaining power with in house
development due to exclusive
partnership with Lotus for the
Roadster.
Transmission: In house

High entry barrier

Major brands are competing and hold
close to 60% market share
Tesla sector is niche and yet to be
discovered but rising interest may
disrupt this
No other EV in that sector

Substitutes
Threat: Moderate
High entry barrier: Large number of

substitutes available (Chevrolet Volt etc.)

Competition with Hybrids and Plug-in Hybrids
Low displacement turbo diesels with low
emissions and good fuel economy

Buyers
Threat: Low

B2C: Bargaining Power: Low due to

Demand being Very High
B2B: Bargaining Power: Low; No
other comparable technology
available

Foundations of Business Strategy 7

Strategic Analysis Report: Tesla Motors Inc.

Exhibit D: VRIN Analysis

Value

Rare

Imperfectly Imitable

Non-substitutable

Car manufacturers are leveraging Tesla Motors powertrain

components for use in their own vehicles due to its superior
performance compared to other industry alternatives
Tesla cars are the only electric vehicles currently that have a
range of 300 miles on a single charge due to its use of
powertrain technology complemented by excellent structural
design
All major automobile manufacturers have created electric
powered models using various technology but none of achieved
the level of performance offered by the powertrain model and
Tesla car design
Substitutes available include the use of powertrains used in
hybrid cars and other electric vehicles, however none have been
able to achieve the performance delivered by Teslas powertrain
technology

Exhibit E: SWOT Analysis

Strengths

Battery electric
vehicle first
mover advantage
Rising revenues
Bold marketing
strategy
Self-operating and
distribution
Strong
partnerships with
other automobile
manufacturers
Leading edge
technology
Strong brand
image
Excellent product
being fastest and
more energy
efficient car on the
market

Weaknesses

Limited scale of
operations, no
economies of
scales and low
sales volume
High priced
products
Increasing
competition in the
market
Low market share
Slow growth in
electric car market
Strong laws and
regulations in
industry by
government
Component supply
problems if
demand increases
significantly

Opportunities

Rising costs of oil

and gasoline can
lead to growth in
energy automobile
market due to
consumers
choosing to spend
more in order to
purchase an
electric car
Increased
awareness seen
from consumers
regarding carbon
footprint and
environmentally
consciousness
Strong
government
support on
transition to
energy efficient
vehicles
Large
international
market potential

Threats

Large
manufacturers
devoting more
money towards
research and
development of
electric cars and
fuel cells
Increased internal
combustion engine
efficiency seen in
new cars
Concentrated and
heavily regulated
industry
Loss of
government
subsidies
Technological
innovation from
competitors
Future
competitors
entering market

Exhibit F: Capabilities Analysis

Leading
Technology

Leader in electric
power technology.
Battery pack capable
of storing 53 kilowatt
hours of usable
energy, double that of
any other
commercially
available electric
vehicle battery pack
Powertrain
technology leveraged
in its own set of
vehicles through
expertise in electric
vehicle design and
systems integration
Highly competent
electrical
engineering,
software, and
controls as well as
vehicle engineering
and manufacturing

Sales

Rapid customer
focused product
development process
Perception in
community of a
brand that is a leader
in high-performance
long-range electric
vehicles
Utilization of direct to
customer sales
through its unique
showrooms
Owns its vehicle sales
and service network
and sells and services
its cars through the
internet
Excellent brand
management in terms
of leveraging appeal
of CEO Elon Musk
when it comes to
marketing the brand

Partnerships

Strong alliance with

other auto makers such
as Daimler and Toyota
Diversification to
become a electric
powertrain production
facility catered to other
electric vehicle
manufacturers
Combined research and
development with
Panasonic on Li-ion
batteries
Coordinated design of
electric vehicles with
Toyota

Exhibit G: References

1.
2.
3.
4.
5.
6.

7.

Goldman Sachs Group, Inc. Americas: Clean Energy: Energy Storage. June 27, 2010.
http://www.docin.com/p-61696011.html
Ashtiani, C., Cullen, G., Davis, P., Greenwald, J., Hardigan, P., Eladio, K., . . . Zimmerman,
D. (2011, February). Plug-in electric vehicles: A practical plan for progress. Expert Panel Report,
School of Public and Environmental Affairs at Indiana University.
Gairthwaite, J. (2011). Tesla prepares for a gap as roadster winds down. New York Times. Retrieved
July 14, 2014, from http://www.nytimes.com/2011/05/08/automobiles/08TESLA.html
Patel,H.,&Aalok, V. (2010,August). TeslaMotors: Electrifying luxury. Report. J.P.Morgan Securities.
Ramsey, M. (2010, October). High battery cost curbs electric cars. Wall Street Journal. Retrieved July
24, 2014, from
http://online.wsj.com/article/SB10001424052748703735804575536242934528502.html
Boeing 787 Dreamline Battery Problems, Retrieved July 24, 2014, from
http://en.wikipedia.org/wiki/Boeing_787_Dreamliner_battery_problems