Környezetvédelem | Tanulmányok, esszék » Rakesh Naga Chinta - Tesla as a Transformational Leader in a Sustainable Eco-Lifestyle

Source: http://www.doksinet TESLA AS A TRANSFORMATIONAL LEADER IN A SUSTAINABLE ECO-LIFESTYLE Rakesh Naga Chinta Source: http://www.doksinet Table of Contents Introduction and Executive Summary . 3 External Analysis of Tesla – 1 . 3 PESTEL Analysis . 3 Internal Analysis of Tesla . 4 SWOT ANALYSIS . 5 Strategic Analysis of Tesla. 6 Source: http://www.doksinet Introduction and Executive Summary This paper is a strategic analysis of Tesla Motors, Inc.: “How Tesla Motors Inc can improve its strategy to sustain its competitive advantage on the electric vehicle market and confirm its position as a transformational leader in sustainable life-style?”. Tesla Motors was created in 2003 by a group of engineers in Silicon Valley with a vision to create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles. In 2008, Tesla shattered those standards by creating the Roadster, a car capable of traveling 245 miles on a single charge,

along with a 0-60 time of 3.7 seconds. With a slow growth and declining sales margin within the early release of its “Roadster”, tesla has made a remarkable recovery and has proved that “electric vehicles can be safe, user-friendly usable and reliable to the market. The Model S, an electric luxury sedan, being released in 2012, won Motor trends 2013 car of the year award. It has been the best-selling plug-in electric car for two consecutive years: 2015, 2016. Of the approximate 356,232 electric vehicles around the world today, Tesla accounts for 50,000. It reached a peak of 150000 units sold by November 2016 As of December 2016, it lies best, being second to the Nissan Leaf. The Model S was then followed in September 2015 by the Model X Teslas next vehicle is the Model 3, releasing mid 2017 with a base price of US$35,000, assuming it to be the most-affordable wide-range EV ever released in the industry. All large auto manufactures, other than Toyota (the limited production Rav4e

can travel 103 miles per charge), have yet to create an electric vehicle that can travel more than 100 miles on a charge. A seventh of the market share is remarkable for a company started just more than a decade ago. The EV company specializes in lithium-ion batteries, electric vehicles and residential-consumer based solar panels, in co-operation with Solar City. External Analysis of Tesla – 1 PESTEL Analysis Political- The U.S government has shown interest in renewable energy and electric vehicles, Tesla was granted a $465 million low interest loan from the Department of Energy, Tesla has paid off the loan, but without it, they may have never been able to get the company to attract so many investors. Some states, like Colorado and Virginia offer state tax credits over 5,000 dollars to entice customers to buy electric vehicles. Tesla wants to distribute vehicles from the manufacturer to the consumer, eliminating the third party middle man, the private owned dealerships. Dealership

transactional finance is given by Exhibit 2 Legal- Michigan recently passed H.B 5606, that forces all manufacturers to have third party dealerships Electric vehicles have lower maintenance costs making them ill-suited for this type of business model. Also, if consumers and producers are being negatively impacted by laws; isn’t that infringement on a free and open market? Regardless, the only group contributing political contributions and the only one benefiting from the laws being passed are the automotive dealerships. Economics- Growth rates are slow in the U.S, but that hasnt stopped people from buying cars on credit through “deals” such as 0% financing. The catch that most people don’t realize is that the interest is already added into the MSRP when the car is sold increasing the base price but making it seem as if the customer is getting a deal in the long run. New car sales have been rising rapidly since the recession in 2008. The sales are back to the same level they were

prior to the market collapsing Tesla has managed to come out of the recession with ever increasing stock prices. Social- Most citizens support the idea of investing our taxes into sustainable fuels and products using sustainable resources. Even after most companies who were given large government loans failed to materialize into successful companies; Americans are still supportive of the endeavors to create a sustainable economy. Going green is a very popular term these days Technology- Tesla assembled a team that was a mix of specialists from the car industry and people with their roots in Silicon Valley. Musk believed that Tesla’s Silicon Valley roots gave it an important edge when it came to this kind of innovation. Exhibit 8 explains the division of stakeholders within the company. Their improvements in batteries, aerodynamics, and rolling resistance are leading to an increase Source: http://www.doksinet of 40-50% in range efficiency for the prototype Roadster 3.0; making it

the first car to have an expected range of 400 miles. Environmental- Driving vehicles without consuming and burning gasoline is great, but using electricity derived from coal plants defeats the purpose. Tesla is in the process of developing battery packs to be used in conjunction with solar panels to help utilize the suns abundant energy truely making Tesla eco friendly. VRINE Analysis: Tesla is a new company with new ideas: The values, mission, and founding of the firm are based in technology. This could make it harder for other auto makers to copy or reverse engineer their products. Legally, non-disclosure and non-compete agreements may be required by the ones working on the tech in order to keep Tesla Motors ahead of the competition. Additionally, the knowledge Tesla has is costly to imitate. Large manufactures have spent billions trying to create an electric vehicle with hybrids being the best thing they can come up with, here Tesla has it’s informational knowledge as an

advantage. Competitive Rivalry: PORTER FIVE FORCES: Supplier power - Engineering are produced by tesla and Lithium ions cells are supplied by Panasonic with which tesla conclude a partnership to built a Giga factory in Nevada decreasing battery final cost by 30% from here to 2018.The individual cost prices for an IC car is given by Exhibit 1 - Solar panels for Solar Roof are provided by solar city which will soon merge with Tesla. - demand is growing with the accessible model 3 (35 000$) and tesla forecast a production growth from 100 000 in 2015 to 500 000 in 2020. Competition is important in various car engine supplier but a necessity to shift could cost tesla a lot in delivery postponing. Buyer power - Collective actions in order to push price down have consequently low probability to occur. - In case of important defaults, they could gather their discontent to force tesla decrease its prices Due to an aggressive price strategy, arguments to push prices even lower are rare. Delivery

processes are long and deadline often delayed what could make customers claiming for discount. Threat of substitution- considering electric car market (no matter H2, biofuel, biogas), medium potential of substitution driven by common transports, bicycle trends or low cost car subscription programs, considering widely sustainable life-style market, low potential of substitution evidenced by small amount of available alternatives in providing intelligent energy management services to consumers. Threat of new entry - High financial barriers for new entrants in the car industry making new entrant very occasional. - Traditional car manufacturer will entry the electric car market as soon as 2017 or already did. They embody a high short-term threat on electric car market Government and Law - Safety norms for electronic products empower the government to legally delay deliveries. - Ethical issues concerning Self-driving decision making empower the government to sue tesla for AI problematic

decisions - Financial participation and help provided by governments make teslas activities leveraged by public decisions. A study in 2009 conducted by DOJ,found consumers would save approximately $2200 on vehicles that are sold directly from manufacturers to consumers. So what is stopping them? In 2013, the U.S federal government gave a $7,500 tax credit for the purchase of EVs such as the Leaf or the Model S. Individual states often gave additional incentives Manufacturers that fell short could buy ZEV credits from others who were above the mandated minimum. The rule encouraged the production of EVs directly and by giving producers of EVs an extra source of income. However, the price of such credits was expected to drop quickly as all producers started selling more EVs. Internal Analysis of Tesla Tesla performances: Tesla’s investments in R&D, Capital expenditure and operating expenses have steadily increased since 2010 to pick in 2015 explaining an important decrease in cash

flows this year. General competences and capabilities: Electric Vehicle Manufacturing (EVM) and High Performance Battery Manufacturing (HPBM) are proper competences which materialize in concrete Strategic Business Units, while the third one is one intangible capability involving a more abstract Tesla power; The capability to draw a consistent future. Organization’s resources Source: http://www.doksinet Tesla Motors Financial/Physical resources: According the Tesla Balance Sheet, Tesla Motors has $1.2 billion in cash reserve for a total $8 billion in total assets. The company owns its factory, the Tesla Factory which is in South Fremont California and can produce 2000 cars per week for a total of 100 000 per year. Another factory located in Nevada, the Gigafactory which has been financed by Tesla and some of its partners including Panasonic, is currently operational and should reach its optimal activity by 2018 thus pushing down batteries costs by 30%. The 17th of November 2016,

the merger with the solar cells manufacturer Solar city – a firm whose board of director is close to Tesla – has been validated by both executives. This merger should allow Tesla to become a leader in solar cells market Ultimately, Tesla is discussing with the German automated manufacturer Grohmann Engineering for an eventual acquisition which should allow Tesla to reach a 500 000-annual production and meet the current 300 000 demand. Concerning Intellectual Property, Tesla policy is clear and consistent with Elon Musk’s long term vision; “All our patent are belong to you” titles an official tesla publication from the July 12 of 2014. This open source shift means $0 will be made on tesla numerous patents. SWOT ANALYSIS Business Analysis: Tesla Motors designs, develops, manufactures, and sells high-performance fully electric vehicles and energy storage products. It has established its own network of vehicle sales and service centers, as well as Supercharger stations around the

world to accelerate the widespread adoption of electric vehicles. As of December 31, 2015, it operated 208 locations, along with 585 Supercharger stations in North America, Europe, and Asia. The company currently produces and sells two fully electric vehicles, the Model S sedan and the Model X sport utility vehicle. As of December 31, 2015, Tesla has delivered over 107,000 new Model S vehicles worldwide, after its first shipment in June 2012. The Model X was first delivered in the third quarter of 2015. Management’s goal is to start production and deliveries of the new Model 3, which is a lower priced sedan designed for the mass market, in late 2017.Vehicles are produced primarily in California, The Netherlands, and at a new Gigafactory near Reno, Nevada. They are sold through a network of Tesla stores and galleries, as well as through the Internet. Total revenue in 2015 was slightly over $4 billion, with 48% of sales from the U.S, 9% from Norway, 8% from China, and the remainder

from other countries. The company also sells energy storage products, including the 7 kWh and 10 kWh Powerwall for residential applications and the 100 kWh Powerpack for commercial and industrial applications. These products, marketed under the Tesla Energy brand, were first delivered in the third quarter of 2015. As of December 31, 2015, the company had 13,058 full-time employees and was headquartered in Palo Alto, California. The company was founded in 2003 and had its IPO on June 29, 2010. Strengths Unique Position in the Auto Market: Tesla is not the only auto manufacturer that offers electric vehicles, it has created, and dominated, the market for luxury, long-range electric automobiles. This market is distinct from the one for less expensive electric vehicles, as well as the market for luxury gas-powered vehicles. Robust Sales Growth: Tesla has been growing at a rapid pace over the last few years, thanks in large part to the public’s excitement for its automobiles. Sales

increased 27% in 2015, after jumping 59% in the prior year. The extraordinary growth has been driven by strong global demand for the Model S Firstquarter 2016 orders for the Model X, which was introduced in the third quarter of 2015, increased fivefold on a sequential basis. Management plans to deliver 80,000 to 90,000 of these two brands in 2016 However, the new Model 3 has been stealing the spotlight in recent weeks. This car, with its much cheaper $35,000 price tag, was first introduced in March of this year to much fanfare. Weaknesses: Burning Through Cash: This is largely due to the significant investments it has made in research and development for the transformative technology in its cars. The cutting-edge auto maker posted revenues of just over $200 million in 2011, while reporting sales of over $4 billion in the recent years. Tesla is also investing heavily for the construction of its Gigafactory in Nevada, which has already begun producing battery packs and will likely

manufacture lithium cell batteries by year’s end. Because of these large cash outlays, Tesla has reported negative free cash flows and earnings for nearly every year since its IPO. As a result, Tesla has been forced to raise more debt and sell more shares Source: http://www.doksinet High Debt Load: The company has a relatively high debt load. As of March 31, 2016, Tesla had nearly $2.5 billion of long-term debt and capital leases on its balance sheet, or roughly 72% of total capital This compares to only $1.4 billion of cash on hand Interest payments on this debt are fairly significant, and will likely continue to cut into earnings. If the company is unable to satisfy its debt obligations, because of insufficient cash flows, it may have to reduce or delay investments and capital expenditures, which could hamper future growth. Opportunities: Model 3: Tesla’s newest brand was recently introduced to much excitement and fanfare in late March of this year. The Model 3 is priced much

lower, at $35,000, the price tag puts the vehicle in the same price range as lower-end Mercedes-Benz and Audis. Elon Musk, CEO of Tesla, stated that “you will not be able to buy a better car for $35,000, even with no options.” This car could transform the company from one which produces 70,000 to 80,000 cars, its current estimate for this year, to one that manufactures ten times that in a few years. This is the car that may make that a reality Cost-Reduction Initiatives: In order for Tesla to finally begin posting profits, it will need to bring down costs. It is making moves to accomplish this goal As we mentioned earlier, the company is in the process of building batteries for its vehicles at reduced costs, possibly up to 30% lower than what it currently pays. The company’s ability to lower costs and support economies of scale while realizing greater efficiencies in production and distribution should help to bring down unit costs and improve the bottom line in the coming

quarters. Threats: Funding Production Ramp: There are concerns that Tesla may not be able to fund its ambitious production ramp in the coming months. While Tesla surprised many when it announced that it hoped to manufacture 500,000 cars in 2018, two years ahead of schedule, many were left wondering how exactly it planned to do so. While it had nearly $15 billion of cash on hand, as of March 31, 2016, the capital outlays for the project will be much larger. Competition: The automotive market is highly competitive, although Tesla finds itself in a unique position. Given the high price of its current offerings, most of its competitors are other luxury cars, which all are currently using standard internal combustion engines. Once the lower-cost Model 3 hits the market in late 2017, it will not only compete with Audi, BMW, and Daimler, but also lower cost electric vehicles, including the Nissan Leaf and Chevy Bolt. All of these companies have been in business far longer than Tesla, and have

greater financial, manufacturing, and marketing capabilities, so the company will need to prove that it is capable of competing on a larger scale and at higher volumes. Strategic Analysis of Tesla Tesla can be broken into 2 segments. Auto Industry and Battery Industry Their batteries are designed for the auto industry but having a battery division, with the most advanced batteries in the world, allows Tesla to work with the other manufactures; supplying them batteries for their electric Vehicles. Recently, Toyota and Mercedes implemented Tesla’s battery into the Rav4 and Mercedes B-Class. Also, they are currently in the process of building a massive 5 billion dollar battery factory that will produce more lithium ion batteries in 2020 than all of the world’s combined output today. The market of the Li-Ion batteries is given by Exhibit 4.It has a variable cost described in Exhibit 5The cost of The plant is scheduled to open next year and will be running at full capacity by 2020.

Economies of scale dictate this will dramatically decrease their cost. Financial Analysis: From Tesla’s financial analysis given in Exhibit 12: 2013-2014:Tesla was off to a great start in 2013. In the first half of 2013, it sold 10,500 model S cars and was expanding sales to Europe. Musk said that Tesla planned to be shipping 40,000 Model S per year by the end of 2014.99 Tesla had been profitable in the first half of 2013 and by September its market cap was about a quarter of that of BMW. 2014-2015:With only a margin near 50,000 in vehicle sales, Tesla still needed to capture its marketleadership through disruption. Even with these sales in figure, tesla has managed to yield a 4376% change within the year of 2014-2015.It has managed to beat other fierce auto-manufacturing companies namely Audi, BMW, Mercedes, etc. Source: http://www.doksinet Competitive Sales and Market Share: Being that the Tesla S has a range of nearly 300 miles and the number is only expected to increase; the

manufactures I would place in its strategic group is BMW, Mercedes, Renault, and BYD. The BMW I3 is reported to get over 100 miles in range with certain functions like heat and A/C turned t energy saving mode. Mercedes has also come out with a B-Class with an expected range of 85 miles Both these models are cheaper than the Tesla by $15,000 to $20,000. The I3 would be placed in the Small Premium Vehicles row and the B-Class in the Premium Vehicles row. These cars are much cheaper, yet they still fall way short of the range Tesla Models put out. Renault having an expected range of 130 miles In its first year on European market in 2013, it sold over 10,000 models, making up 40% of the European electric vehicle market (8). Lastly, BYD is the top Chinese manufacturer of electric vehicles The e6, boosts a range of 122 miles, making it the runner up in range while offering the vehicle for about $35,000 before any incentives. In the world’s largest auto market, according to estimates; they

managed to sell over 18,400 cars, holding 31% of the total market share. Other car companies notably: Volkswagen, Kia, Ford, Toyota, Smart, Chevy, and Nissan all have electric vehicles or plug in hybrids but their unappealing style, focus on gas engines, and low range provide a clear mobility barrier between the two groups. Potential International Market Analysis of Tesla: In attempts to expand into emerging markets, Tesla started selling its cars to the Chinese market in August of 2013. According to China Daily, the MIIT reported sales of 83,900 electric vehicles in 2011 According to Exhibit 3, which displays the auto sales in China shows that sales total 60,000, but Tesla did not meet their 5000 estimate. The cars were not delivered until the middle of 2014 Unfortunately, due to China’s 25% import tariff rate, transportation costs, and other taxes, the vehicles starting price increased from $71,000 to $121,000. Even though China has a larger market, the Infrastructure of Europe

makes it a more promising market in the near future. With the number of free charging stations growing in Europe, Tesla could attract more of the market share. Inflation will continue to rise in the US as long as the Federal Reserve continues to print off $80 billion a month. This also negatively impacts our exchange rate. In an effort to expand globally, Tesla has announced plans to start production of cars in China in the next few years. This will help lower the cost of their vehicles by avoiding the import tariff and help reduce the risk of exchange rate fluctuations. The biggest international markets for Tesla are China and Europe. Competition in Europe is much higher than it is in the US According to an article from Forbes, sales of electric vehicles in Western Europe were up 51.7% to grab 49% of the market share. Of the 58,582 cars sold, the Nissan Leaf was the top seller in Western Europe last year at 14,354, the Renault Zoe second at 10,885 followed by the Tesla Model S at

8,698. BMW sold 8,290 i3s, with the VW E-Up and E-Golf selling 8,461. Partnerships and Co-operative decisions: Tesla also sold electric powertrains to other car manufacturers and provided design services for electric powertrains. It had developed and was producing powertrains for the Toyota Rav4 EV, in a deal that was expected to generate about $100 million between 2012 and 2014.97 A similar deal with Daimler might be worth almost $300 million98 Co-operation and Merger with Solar City: Tesla Motors will be co-marketing sustainable energy products from other companies along with the car. For example, among other choices, we will be offering a modestly sized and priced solar panel from SolarCity. This system can be installed on your roof in an out of the way location, because of its small size, or set up as a carport and will generate about 50 miles per day of electricity. Battery Environment Tesla Motors Lithium-Ion cells are not classified as hazardous and are landfill safe. Since the

battery pack can be sold to recycling companies (unsubsidized) at the end of its greater than 100,000-mile design life. Moreover, the battery isn’t dead at that point, it just has less range Power Plant Emissions A common rebuttal to electric vehicles as a solution to carbon emissions is that they simply transfer the CO2 emissions to the power plant. The obvious counter is that one can develop grid electric power from a variety of means many of which, like hydro, wind, geothermal, nuclear, solar, etc. involve no CO2 emissions Customer perspective/issues and views of the current EV market The first were issues related to EVs being a new technology with considerable uncertainty about Source: http://www.doksinet longevity, resale value, and safety. The second were different sources of “range anxiety,” and the early lack of charging stations. The latter issue was being resolved, as many companies and public entities started offering both private and public charging stations. Tesla

also operated a network of more than 15 Supercharger stations where customers could charge their car for free. It also introduced a battery swapping service that could exchange a depleted battery for a charged one in about 90 seconds. Tesla expanded rapidly in 2014, starting with only charging stations in Norway, the expanded to 12 countries this year with plans to expand into the every country in Europe by 2016 .This network will have no less than one charging station every 100 km. This will be an attractive promise for potential customers Competitive sales growth and potential product growth: And indeed, on May 8, Tesla announced a net income of more than $10mln on $560 million in sales. Tesla had outsold both Nissan and GM in electric cars in the U.S Its Model S had sold more than the BMW 7 and Audi A8 combined The sales comparison of these companies is given by Exhibit 9. Over this period, its stock price almost tripled Recently, Elon Musk announced that reservations for the new

battery system called powerwall could be a game changer. They are meant to be paired with solar panels and can store large amounts of power for only $3,000 to $3,500. Tesla has already received reservations for nearly $800 million in powerwalls The pilot study they ran in California has shown that electric bills were reduced by 20-30%. Plus, they are guaranteed to last 10 years, This could make tesla a market leader in mass-consumer based solar panels. Assumptions, Interpretations and strategic Suggestions based on strategic analysis Tesla’s competitive market position will be determined by the end of 2018.In the case where Tesla follows its 2016 trend and increases its net income to reach substantial positive figures in 2018, the company will must expand its business by extending its activity to new locations. Nowadays Tesla factories are only located in the USA which make them relatively centralized. Opening new factories in Europe can be a real opportunity for the firm to reduce

its delivery costs, decentralize its activities and better frame the European market. Indeed, in Europe Tesla Motors can see lots of new opportunities; after the merger of the German engineering business Grohmann, the giant could start think about opportunities in the UK. Indeed, Britain is known to have talented automotive engineers People would think that after what happen in England in Jun 2016, the England market would slow down but the country remains an attractive market for new entrance, especially because its 17% corporate tax, and could be an occasion for Tesla Motors to expand its activity to another country in Europe. In the case where Tesla does not achieve to meet its demand and make a sufficient profit, Tesla will be quickly out performed by new electric models of traditional car makers. In such situation, no investment in Europe nor anywhere would be relevant. The best thing Tesla could do in such scenario is increasing its partnership strategy with car makers producing

electric car to supply them core electric components and thus make a profit in other’s car sales. In both situations, Tesla could also use its transformational leadership to expand its activities in sustainable life-style services. Solar roof merger is a key strategic decision and new tiles created by both companies must be sold across the whole world. This should allow Tesla to create quick profit which could be a high competitive advantage vis-à-vis of its competitors which, for the major part, only sell cars or car-related goods. Conclusion and short-term recommendations Tesla is currently doing well. By investing a lot in R&D as well as in Property, Plant and Equipment, the firm correctly strengthen the ground to become from now to 2018/2020 a profitable leader in electric car manufacturing ready to climb its growth phase. Being relatively young in the car market, which could be a dangerous weakness, Tesla strategically diversify its activity to a larger market which is

sustainable lifestyle market. This market adjustment is especially relevant concerning Tesla, mainly because its CEO Elon Musk has a great background in revolutionary companies whose long-term visions converge toward a global optimistic scenario. The next 3 years will be determinant for Tesla’s future which can be exceptional if it keeps its electric pioneer aura as well as unsatisfactory if strategic errors reduce Tesla’s advance. In both case, Tesla must keep investing in energy management services which is a solid opportunity to make the whole Tesla activity full of sense and consistency. For potential customers, to reduce worries about resale value, finally, Tesla guaranteed a resale value pegged to similar BMW and Source: http://www.doksinet Mercedes models, backed by Elon Musk’s personal fortune: which was a compelling security for current customers of Tesla. • Export Solar roof to as many consumers as possible. Millions of houses are built every year, tiles are often

part of it and Solar roof is a simple substitute to classic tiles. More solar energy is there, more we will need to manage it smartly which occasionally could increase our Power wall sales. • Keep partnering with traditional car makers to provide them battery packages. If they enter the market violently with high volume produced, Tesla will be unable to follow the rhythm so it should at least benefit of this sudden competition by providing core electric components. Sell a “Pro-Pack” including models III for employees and Power Pack to optimize companies’ energy consumption. Target high economic growth regions like Singapore or Dubai Model III is accessible for companies and employees will be satisfied and more productive. Trade agreements: For example, free trade agreements make it easier to expand internationally. Thus, a recommendation is for Tesla to globally expand its operations. It is also recommended that the company should increase its marketing aggressiveness to

increase its market share, especially in countries other than the United States. This move could reduce market-based risk, considering that Tesla has limited sales operations in overseas markets. • • Source: http://www.doksinet Source: http://www.doksinet Exhibit 3 The following chart shows the sales of electric cars in china(estimation) Source: http://www.doksinet Source: http://www.doksinet Exhibit 7: This displays the stock market change from Nov 1’13 to May 1’15. Source: http://www.doksinet Exhibit 8: This chart displays the Key Executives and Large Stakeholders of Tesla. Source: http://www.doksinet Source: http://www.doksinet Source: http://www.doksinet Bibliography Musk, E. (2006, August 02) Tesla Retrieved July 02, 2017, from Tesla: https://www.teslacom/blog/secret-tesla-motors-master-plan-just-between-you-and-me Allison GATLIN, Elon musk’s “aura of Invincibility” will nail Tesla-SolarCity merger, Investors Business Daily (Jan. 7, 2016),

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