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MBA Strategic Management - 2016 - Case study 26 - Tesla Motors, Inc.

MBA Business Strategy/Strategic Management

MBA Strategic Management - 2016 - Case study 26 - Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956

 

CASE 26Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956  

  • CASE ABSTRACT

       Tesla Motors, Inc. is in the business of developing, manufacturing, and selling technology for high-performance electric automotives and power train components. Hoping to develop a greater worldwide acceptance of electric vehicles as an alternative to the traditional internal combustion, petroleum based vehicles that dominate the market, Telsa is the first company that commercially produced a federally compliant electric vehicle with the design styling and performance characteristics of a high-end performance automobile. Telsa currently offers one vehicle, the Roadster, for sale, as well as supplying electric power train components to Daimler for use in its Smart EV automobile. Additionally, Tesla has a partnership with Toyota Motors to develop and supply an electric power train for Toyota’s Rav4 SUV.      Founded by Martin Eberhard and Marc Tarpenning in 2003, Tesla went public in June 2010 with IPO at $17 a share, raised $226.1 million in its first stock debut. Since Elon Musk took over as the CEO, Tesla has been one of the most innovative automotive producers in the world, earning recognition through the Global Sustainability Innovation Award in 2009. Tesla purchased former NUMMI factory in Fremont, California, the most advanced and cleanest automotive production plant in the world. Both Daimler and Toyota have also invested $50 million each to form strategic alliances. Tesla will provide electric vehicle (EV) expertise for their car development, while Toyota and Daimler will provide opportunities for Tesla to diversify its revenue streams, network, and access to extensive supply chains.  Decision Date: 2011                       FY Sales: $116 millions                                          FY Net Loss: ($154,328) millions  

  • CASE SUBJECTS AND ISSUES

  Industry Analysis                                    Strategy Formulation                      Competitive AdvantageStrategy Implementation                   New Product DevelopmentCore Competencies                         Market SegmentationRetail Marketing                          International GrowthMarketing Strategy                        ManufacturingCompetitive Strategy                      Direct Sales 
III. STEPS COVERED IN STRATEGIC DECISION-MAKING PROCESS      

  • CASE OBJECTIVES

 

  • To discuss product innovation: all electric automobiles.

 

  • To discuss new product development.

 

  • To discuss domestic and international growth opportunities.

 

  • To discuss licensing proprietary technology.

 

  • To discuss retail sales.

 

 

  • SUGGESTED CLASSROOM APPROACHES TO THE CASE

 

  • This is an excellent case for instructor-led discussion.

 

  • This is an excellent case for an exam or written case analysis.

 

  • This is an excellent case for a team presentation.

 

    • This is an excellent case for an individual or team strategic Audit.

 

 

     VII. DISCUSSION QUESTIONS 

  • How effective is Tesla’s direct sales model?

 

  • Should Tesla consider other channels of distribution?

     

  • Should Tesla focus on domestic or international growth?

 

  • Can Tesla make more money selling cars or licensing their technology?

 

  • Will Tesla need to issue more stock?

 

  • Can Tesla convince consumers to buy all electric cars?

 

  • Should Tesla produce more models?

  

  • CASE AUTHOR’S TEACHING NOTE – Not Available

 

  • STUDENT STRATEGIC AUDIT

 

  • Current Situation
  • Current Performance

Founded by Martin Eberhard and Marc Tarpenning in 2003, Tesla went public in June 2010 with IPO at $17 a share, raised $226.1 million in its first stock debut. Since Elon Musk took over as the CEO, Tesla has been one of the most innovative automotive producers in the world, earning recognition through the Global Sustainability Innovation Award in 2009. Tesla purchased former NUMMI factory in Fremont, California, the most advanced and cleanest automotive production plant in the world. Both Daimler and Toyota have also invested $50 million each to form strategic alliances. Tesla will provide electric vehicle (EV) expertise for their car development, while Toyota and Daimler will provide opportunities for Tesla to diversify its revenue streams, network, and access to extensive supply chains. Toyota also has formed a partnership with Panasonic to collaborate on battery cell development.

  • Strategic Posture

 

  • Tesla’s current mission, objectives, strategies, and policies are both clearly stated and can be seen from its performance.

 

  • Tesla is in the electric automobile business. Its mission is “To develop alternative energy vehicles for people who love to drive.” It is an appropriate statement for Tesla because its EVs are stylish and provide high-end performance for driving enthusiasts.

 

  • The corporate, business and functional objectives are to 1) Achieve both growth in sales and profits, 2) Provide technological leadership in the field of electric vehicles and 3) Foster sustainability and social responsibility. These objectives are consistent with its strategic postures.

 

  • The corporate, business and functional strategies are to pursue 1) Growth through innovation and increased product offerings with development and sale of the Model S is to create higher demand and revenue, 2) Expansion through strategic alliances, from partnerships with Toyota and Daimler to supplying electric power trains to use in their electric vehicle design, 3) Sustainability and social responsibility efforts through development of non-petroleum products and producing very little carbon emissions, 4) Product differentiation with focus on a high-priced, high-performance electric vehicles that compete against traditional performance cars, 5) Highly integrated marketing, sales and distribution efforts through its Tesla stores and 6) Increase international market share through its international expansion. These strategies are consistent with its strategic postures

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  • The policies are to focus on utilizing green energy & technology, and on producing luxurious, high performing EV. Tesla has extensive portfolio of intellectual properties from its proprietary technologies and soft wares that are used to manage efficiency, safety and controls. They are consistent with its strategic postures of producing high performance automobiles that use clean, environmental friendly sources.

 

  • Tesla’s current strategic postures reflect its international expansion plan. Tesla currently does not have international operations, all operations is based in its HQ in Palo Alto, California. It is on its way to opening a number of stores worldwide to increase customers’ knowledge of Tesla’s EV.

    

  • Corporate Governance
  • Board of Directors

 

  • The 8 members of BOD are Elon Musk, Brad Buss, Ira Ehrenpreis, Antonio Gracias, Steve Jurvetson, Prof. Dr. Herbert Kohler, Kimbal Musk and Larry Sonsini. They are all external directors, except Elon Musk, the Chairman, Product Architect and CEO of Tesla.

 

  • In total, the BODs own less than 10% shares of stock.

 

  • The stock is publicly traded.

 

  • The directors have diverse work experiences in industries such as design, engineering, finance, investment, software, law and corporate governance. They also have international experience necessary to support its international expansion.

 

  • Most of them have been Tesla’s board members since its IPO.

 

  • These board members are actively involved in Tesla’s strategic management. They actively participate and suggest its future directions.

 

  • Top Management

 

  • The top management consists of Elon Musk (Chairman, Product Architect and CEO), JB Straubel (CTO), Deepak Ahuja (CFO), Franz Von Holzhausen (Chief Designer), George Blankenship (VP, Sales & Ownership Experience), Gilbert Passin (VP, Manufacturing), Eric Whitaker (General Counsel), Diarmuid O’Connell (VP, Business Development), Arnnon Geshuri (VP, HR), Peter Carlsson (VP, Supply Chain), and Jerome Guillen (Director of Model S Programs).

 

  • The 11 executives have diverse work experiences, with backgrounds in different industries including technology, consulting, design, sales, and marketing. They are international experts in countries such as Japan, Germany, and other parts of Europe.

 

  • The top management has been responsible for Tesla’s performance over the past few years. They helped Tesla to strive in EV automobile industry.

 

  • It has established a systematic approach to strategic management only to a certain extent due to Tesla’s nature of using innovation as its main drive of growth.

 

  • The executives have been heavily involved in the strategic management process.

 

  • N/A

 

  • Strategic decisions are made ethically in a socially responsible manner. Being socially responsible is part of Tesla’s corporate culture. Its principle of developing non-petroleum based vehicles clearly shows its commitment to foster sustainability.

 

  • N/A

 

  • Top management is sufficiently skilled to cope with likely future challenges. They have directed Tesla into the right direction towards overall growth.

 III. External Environment (EFAS refer Exhibit 1)

  • Societal Environment (PESTEL Analysis)

 

  • Economy

 

  • Competing in an industry that is expanding. (O)
  • Absolut market share is less relevant than how fast it is growing its market share.

 

  • Massive budget deficit. (T)
  • Members of Republican Party have focused their demands for budget cuts in the “discretionary spending” arena, which is where alternative energy funding falls.
  • EV industry has very few lobbyists and is more vulnerable to being targeted in budget cuts.

 

  • The economic recovery has created more demand for higher priced, luxury vehicles. (O)

 

  • Much more stable costs of electricity make an electric vehicle more desirable. (O)
  • The variability of oil prices, most of the times increasing oil price, means that traditionally powered vehicle owners cannot predict their fuel costs.

 

  • EVs cost significantly more than traditional vehicles of similar style and performance. (T)

 

  • Technological

 

  • Industry-related technology is always advancing in EV industry. (O)

 The technologies can be used to improve the EVs. They are related to intellectual properties, battery cell design and knowledge & skills of the workforce. Some are available for general use, however most technologies are proprietary. Many companies own patents of technologies that they developed in-house.  These IPs will provide the companies with a competitive advantage. Development of new battery technology, by companies like Planar Energy, for EVs could also potentially provide more energy for a lower cost.    

  • Political – Legal

 

  • Various federal and state governmental agencies are currently supporting loan programs through the Department of Energy and the California Zero Emission Vehicle (ZEV) program. (O)

 

  • Focus on decreasing U.S. dependence on petroleum products. (O)

 

  • Global economic policies supporting usage of environmentally sustainable products such as EVs. (O)

 

  • Many regulations compliance required to develop EV. (T)
  • Numerous safety requirements governed by the National Highway Traffic Safety Administration.
  • Battery safety and testing is heavily regulated by the Pipeline and Hazardous Materials Safety Administration.

iii. Automobile manufacturer and dealers regulations issues.

  • New regulation of minimum noise requirements, mandated by the Pedestrian Safety Enhancement Act of 2010.

 

  • Socio-Cultural

 

  • Continuous shift towards green energy. (O)
  • President Obama committed to funding “green” initiatives through various vehicles.
  • Setting a goal of getting 1 million electric cars on the road by 2015.

 

  • Customer perceptions of EV being underpowered, clunky looking, hard to change, quirky and undependable vehicles. (T)

 

  • Absence of public infrastructure for recharging electric vehicle batteries. (T)
  • High reliance on a network of available power sources.
  • Limit EV driving range.

iii. Negative impact on the image of EV.All these forces are different in other regions of the world. US being one of the most developed countries in the world has one of the leading EV markets along with countries, such as Germany, UK and Japan. Other less advanced countries such as China, India, and Russia have not reached the stage where the market is geared towards green technology. 

  • Task Environment

 

  • Threat of New Entrants: Low
    1. Hybrid technology is well understood by major automobile companies.
      1. They developed & marketed their own version of electric/gasoline hybrid vehicles.
    2. All-electric & hydrogen fuel-cell automobiles are unique technologies that need resources to develop.
    3. Energy storage and motor technologies are barriers to new competitors.
    4. Rechargeable battery systems and fuel cells are newer technologies that require large investments in R&D.
    5. A competitor needs to develop its own technologies/partner with another company.

 

  • Bargaining Power of Buyers: Moderate
    1. Fragmented industry, customers are highly influenced by trend.
    2. Target market is people that make over $75,000 a year that is sensitive to environmental change.

 

  • Threat of Substitute Products: Low
    1. Substitutes are traditional cars, train, bus, bicycle, motorcycle.
    2. EV is the most environmentally friendly mode of transportation that satisfies high end customers.

 

  • Bargaining Power of Suppliers: Moderate
    1. Parts are sourced from many suppliers that often are the single source of vendor.
    2. Companies are vulnerable to delays and increased cost.

  

  • Rivalry Among Competing Firms: High
    1. Primary competitors are Mitsubishi i-MiEV, Nissan LEAF, Chevy Volt, Toyota Prius, BMW Hydrogen 7, Honda Clarity.
    2. Price of EVs is very competitive among them. Costs of production are very high due to no economies of scale. There is also no standardization in the process of development because EVs are a newer technology.

 

  • Power of Other Stakeholders: Moderate
    1. Environmentalists typically have certain degree of influence in the government. Especially as the new Presidential election is coming up.

 

  • Summary of External Factors

Based on the PESTEL Analysis and Porter’s Five Forces, Tesla Motors, as an incumbent, is in an attractive global electric car producer industry.  Due to the current part delays, and to keep up with intense competitive rivalry, Tesla has to try pushing down its fixed cost as low as possible. Tesla has to find ways to be less dependent to its vendors and accelerate its parts production. As the industry is in growth stage, Tesla also has to find ways to differentiate and reduce costs of its EV so that it would perfectly meets consumers’ demand in different parts of the world. Satisfied consumers will lead to long lasting brand loyalty, and this will ensure that Tesla will maintain its position as one of the most innovative EV producers in the world. 

  • Internal Environment (IFAS refer Exhibit 2)
  • Corporate Structure

 

  • Tesla’s current corporate structure is centralized, with all the decisions made in the HQ. Tesla also relies heavily on its intellectual property and its patents. It is organized on the basis of functions which can be clearly seen from the role of the top-level executives. (S)

 

  • The structure is clearly understood by everyone in the corporation (implied by case).

 

  • Currently structure is consistent with its corporate strategies. (S)

 

  • Not typically comparable to other companies of this type and size as most of similar operations that focus on EV is a department within a large company. (S)

   

  • Corporate Culture

 

  • There is a share belief of employing innovation in works, its environment is fast paced and culturally unstructured. (S)

 

  • The culture of innovation is consistent with its corporate strategies. (S)

 

  • The culture holds the central role in solving problems faced by the corporation. (S)

 

  • The culture is compatible with the employees’ diversity of backgrounds. Tesla employs techies and business hybrid employees to operate the company. (S)

 

  • Tesla’s current operation, from production to delivery, is based in Palo Alto, California. The only operation abroad is the Tesla stores that are meant to educate the future customers. (W)

 

  • Corporate Resources

 

  • Marketing
  • Tesla’s brand is heavily tied to the environment/green movement, generating a lot of free media publicity. The promotion strategy is a clear strength for Tesla, especially considering that recommendations from friends and relatives, along with word of mouth, are the most influential factors for luxury/sport car’s key demographic. (S)
  • Marketing strategy is not clearly stated, they are merely implied from the performance.
  • They are consistent with the corporation’s overall strategic postures.
  • Tesla’s current marketing outreach is limited due to its infancy and lack of resources. The marketing mix (4Ps) is targeted on the luxury vehicle markets. Tesla focuses on a very narrow segment of early adopters and environmentalists that have resources to afford their car. Along with its minimal product offering, Tesla is limited by its distribution and fulfillment infrastructure. It has dealerships in premium locations, regional sales representatives, and online ordering. Its sales representatives are usually in charge of arranging test drives and vehicle delivery to the customers. (S/W)
  • Trends emerge is that customers are becoming more sensitive to green technologies and aware about energy conservation due to rise in oil prices.
  • The trend has significantly impacts past performance and will definitely boost future performance.

iii. This analysis support the corporation’s past and pending strategic decisions.

  • Marketing does not provide Tesla with significant competitive advantage. Its current advantages in price are through $7,500 government tax credit for buying fuel efficient vehicles and the low cost of maintenance & fuel.
  • Tesla’s marketing performance compared to other corporations is not as advanced and rigorous. Tesla is much smaller than other EV producers that are part of larger automotive corporations. However, being one of the first to market high-performance EV, Tesla has a first-mover advantage in branding and customer experience.
  • N/A
  • The only marketing initiatives that Tesla has outside of the United States are through its own stores.
  • N/A
  • Finance
  • Main objectives are to increase growth in profits and sales by creating and selling new models in addition to their only model that is currently being sold, the Roadster, as well as providing technology leadership with its innovative electric batteries and related products. The next model is a four door sedan, named the Model S, and was due to be completed and ready for sale in 2012. Tesla’s other means of revenue is derived from sales of their patented electric power train components to other companies.  Sales of the Roadster also provide income in the form of Zero Emission Vehicle Credits, which can be sold to other car manufacturers that don’t sell electric cars. (S)
  • The objectives are clearly stated. Tesla is building a new factory with a capacity of 20,000 cars per year to be ready to build the new Model S.  Their proprietary technology includes 35 issued patents and 280 patents pending and the new Model S will have 3 battery options with different mileage ranges and prices.

 

  • The objectives are consistent with their goals of building alternative energy vehicles. Tesla is tied to the environmental movement, which has given them free publicity due to their leadership status in the industry.

 

  • Tesla’s cash position isn’t ideal. They were able to raised $226 million in an IPO in June 2010. They received a loan from the US Department of Energy of $465 million in 2010.  The company has suffered a net loss every year but revenues have been improving each year.  Their liquidity ratios are solid but debt levels are high as with any young company that is in a new industry and selling a new technology.  (W)

 

  • The company is an industry leader and has the best technology in the business and has many patents to protect their products. Their negative earnings and debt levels are areas of concern as well as the unknown demand for electric vehicles as electric battery technology is their main business and source of income.

 

  • N/A

 

  • Tesla has suffered a net loss each year and has mostly negative profitability ratios due to the company and industry still being in its infancy and with the new technology, which brings uncertain demand and risk for the future. Tesla’s future financial success and possibly their existence depends are the future demand for electric vehicles and the infrastructure to support them. 

 

  • Yes the company is building a new plant to support future growth and investing in new car models. They are spending to protect their proprietary technologies as they are crucial to future success.

 

  • Finance doesn’t provide the company with a competitive advantage as they are not very stable financially at the moment.

 

  • Tesla’s financial performance is comparable to other young companies with new technologies. It takes time to build up economies of scale to become profitable in a brand new industry.

 

  • Yes, they are public company that is required to follow GAAP and SEC regulations.

 

  • N/A

 

  • N/A

 

  • Research and Development (R&D)
  • Tesla is focused on continuing to improve on their existing electric battery technology and will offer 3 different battery options with varying mile ranges in the new Model S. They continue to purchase patents to protect their unique technology. (S)

 

  • The R&D objectives are implied by the business they operate in (their proprietary software) and their financials with the operating expenses heavily weighted to R&D.

 

  • Yes it is consistent with their objective to provide technological leadership in the field of electric vehicles and promote environmental sustainability.

  iii. Technology is critical to corporate performance.  The company’s revenue stream is contingent on developing superior electric battery and vehicle technology.  For example, the company’s cars have diagnostic systems that link up to Tesla’s headquarters, which enables the technicians to have an idea of what’s wrong with the car even before they go out to the customer. 

  • Yes, they are focused on technology innovation and education and put the appropriate resources toward that objective.

 

  • Yes, their biggest competitive advantage is their proprietary technologies that are patented or patent pending.

 

  • They are earning revenues from the sales of the cars (currently the Roadster) and through sales of their electric power train components. Tesla is also partnering with other automakers such as Toyota and Mercedes Benz to help them build electric vehicles with Tesla’s technologies for a fee. (S)

 

  • Tesla believes in teamwork and wants employees from all departments to work together to share knowledge and ideas. Employees work in an open room with no walls to encourage collaboration. (S)

 

  • The company’s software is designed to be updatable and work on future models. (S)

 

  • Their investment in R&D is consistent with other companies heavily invested in technology innovation.

 

  • N/A; Only factory (s) in the United States

 

  • N/A

                 

  • Operations and Logistics

 

  • In order to produce the new Model S debuting in 2012 Tesla is building a new factory that will have a production capacity of 20,000 cars. Their main operating strength is in the company’s intellectual property and patents. Their software is designed to be updatable and many aspects of their vehicle architecture are designed in order to be used again in future models which will save time and costs.  Tesla distributes using its own stores and sales staff; the company doesn’t want to sell through other dealers. (S)

 

  • They are clearly stated in the case.

 

  • Yes, Tesla wants to build their brand in addition to creating the new electric vehicle technologies so they don’t want to be associated with other automakers by having them sell their cars. (S)

  

  • As stated, the company prefers to keep its distribution in house but needs to rely on over 150 suppliers for more than 2,000 parts. Many of the vendors are a single source which limits the company’s flexibility and increases supply chain risk. (S/W)

 

  • Tesla is building a new factory to meet production needs of the new Model S car.

 

  • Tesla currently sends out maintenance workers called “Rangers” out to the customer’s location to service the car. Current process could be improved upon with focus on infrastructure.

 

  • The new factory is located in Fremont, California. California is known for wildfires and earthquakes, which could pose some risk. (W)

 

  • N/A

 

  • Tesla’s costs are higher than its competitors in the automotive industry because the company hasn’t reached economies of scale. Service costs are high due to their lack of dealerships. (W)

 

  • Tesla needs to increase production/sales of the Roadster and new Model S cars to reach economies of scale and lower costs. Adding service facilities will increase costs in the beginning but save costs later on and into the future.

 

  • The high costs resulted in a net loss in every year it has been in business.

 iii. Yes the company is trying to increase growth and earnings through new joint ventures and new product offerings (Model S car). 

  • The operations don’t yet provide the company with a competitive advantage except for their proprietary technologies.

 

  • Tesla’s software was created to be easy to update and the architecture of the company’s vehicles was built to be transferable to future models. (S)

 

  • N/A

 

  • N/A

 

  • Human Resources Management (HRM)

 

  • Tesla operates similar to a software company. The executive team is comprised of people that are a mix of technology and business savvy. Employees are encouraged to think creatively and challenge the status quo.  The company operates collaboratively with all departments working together, often in one open room.  Tesla attempts to hire and retain top talent through competitive salaries, benefits, and a comfortable working environment. (S)

 

  • The HRM objectives and strategies are clearly stated in the case even going as far to use the phrase “meaningful equity” when describing the employees benefit structure.
  • Yes the company stresses the importance of their intellectual capital and makes sure that their employees are happy. Happy employees tend to work harder and have a clear mind to think creatively.

 

  • Tesla maintains an aesthetically pleasing office space and hires employees that are innovative thinkers to create their next great product. The company does all it can retain its top employees. (S)

 

  • Tesla operates similar to Google and other software companies in how it hires and retains employees as well as the culture, which is fast passed and innovative.

 

  • The corporation’s HRM practices have led to Tesla becoming a leader in the electric vehicle industry and creating proprietary technology that provides them a competitive advantage over their competitors.

 

  • Yes, the company’s focus is on innovation and there HRM practices coincide with that focus.

 

  • Yes, the HRM gives the company a competitive advantage by hiring and retaining the best talent in the industry.

 

  • Yes, Tesla’s employees are highly creative and develop industry leading software and products.

 

  • N/A

 

  • Yes, Tesla is looking to hire more graduating engineering students and sales staff with a focus on those that already have hands on experience to help grow the company. (S)

 

  • N/A

 

  • N/A; company’s operations based in the United States

 

  • The HRM manager is responsible for seeking out and hiring the best talent in the market place and retaining those employees through their benefit structure. This process is critical to the company’s success as the employees are the ones that develop the innovative technology. (S)

 

  • Information Systems and Technology
  • The case does not describe the role of the Information System as a whole; however, it does describe different ways that the company has used aspects of its IS to add value to the customer experience. (S)
  • The goals of the IS are vaguely implied through the different applications described in the case. The main use that Tesla seems to be focused on is Customer Relationship Management, through their website, and various support functions, in the form of the diagnostic software used for performing maintenance on the vehicles.

 

  • The use of their Information System fits well with the strategic direction of the company because they are focusing on providing “technological leadership in the field of electric vehicles” (Hoffman, 2011). Accordingly, the demographic that they are targeting tends to both value and expect high quality service. Through the process of sending company controlled mechanics to work on customer’s cars, not only are owners receiving friendly, knowledgeable staff that are trained in customer service, they also don’t have to deal with the hassle and worry of bringing their car to an unknown mechanic.
  • N/A
  • N/A
  • N/A

                  iii. N/A

  • From the information provided in the case it does not seem that the IS provides much of the competitive advantage for Tesla. The testimonials on the website such as: “driving the Roadster Sport felt like having sex while being sprayed with champagne,” while intriguing marketing tools, do not provide a distinct advantage for Tesla over the competition.
  • The performance of the IS overall is not nearly as well developed as the other companies within the car industry. Tesla is still in the early stages of development compared to other car companies so it has not had the capital to invest in a strong IS. Tesla has utilized the Internet in effective ways; however, and is attempting to broaden the scope of its customer base through their presence on the web. (W)
  • N/A
  • Tesla currently has a global Internet presence, but it is unclear from the case whether or not they have had difficulty getting data across national boundaries.
  • N/A
  • Summary of Internal Factors

Currently, R&D is Tesla’s core competency. Within the burgeoning industry of Electric Vehicles, it is important to continue to fund and develop technologies that will give the company an edge over the competition. Tesla’s current advantages are the range of its vehicles and the acceleration that they have been able to create out of an electric motor. As a high-end car maker, it is paramount to Tesla’s success that they continue to stay ahead of the pack, by continuing to develop leading edge technology. Tesla’s distinctive competency is derived from their HRM. The way in which Tesla recruits, retains, and allows its employees to work creates an environment that fosters creativity and innovation. In order to create breakthrough products and components in the EV industry, it is critical that Tesla separates itself from the hierarchical structure and incrementalist mindset that plagues most car manufacturers. This is the area that sets Tesla apart from other car manufacturers moving forward, and will be crucial to the development and advancement of the Electric Vehicle industry.

  • Analysis of Strategic Factors (SWOT)
  • Situational Analysis (SFAS refer Exhibit 3)

One of Tesla’s internal strategic factors that provide great strength for the company is the collaborative corporate environment that they have created. In any company that relies heavily on innovation, it is important to be able to collaborate across functional silos in order to work toward a common goal.Another strength that Tesla possesses is its autonomy. Most of Tesla’s competitors are simply divisions or project groups within a larger corporation. These companies are forced to compete for resources and may not receive the funding or human capital that they deserve. In contrast, Tesla’s sole focus is creating alternative energy electric vehicles that are fun to drive, and this goal allows them to focus all of their resources on creating the best product they can imagine.A huge weakness for Tesla is their narrow niche of customers that they currently appeal to. The price tag alone significantly limits the number of people capable and willing to foot the bill. The release of the model S will help expand the company’s customer base; however, at close to $60,000, it is still extremely high.A final internal weakness that poses a significant threat is the limited physical presence that Tesla has outside of California. Aside from representatives across North America, England, and Asia, Tesla only has the Internet for interested customers to access information on their brand. The limited amount of dealers is significant, because this significantly influences the availability to the general public.One of the major external strategic factors is the threat/opportunity to the future of Tesla is the upcoming election. If Barack Obama remains in office, Tesla will continue to benefit from government subsidies and regulations that will aid in their success. However, if Mitt Romney wins the election, many of the green energy policies that President Obama put into place are likely to be repealed.Another major strategic factor is the stability of electricity prices. This opportunity is key to Tesla’s success because it is a major contrast to the instability of oil prices. As the price of oil creeps toward $200 a barrel, this opportunity grows in importance.A critical factor that Tesla must guard against is the threat that internal combustion vehicles are becoming more efficient and affordable. EVs cost significantly more than internal combustion cars of similar style and performance. A pivotal aspect of Tesla strategy will be to lower the costs associated with electric vehicles, or to increase public knowledge of the tangible savings that these cars can offer.Another crucial strategic factor that cannot be ignored is the public perception of EVs. A distinct threat to Tesla is the misnomer that all EVs are underpowered, clunky looking, and undependable. Changing public perception of EVs will be critical to Tesla’s success moving forward.   

  • Review of Mission and Objectives
  • The current mission at Tesla is “to develop alternative energy electric vehicles for people who love to drive” (Hoffman, 2011). This mission fits well with the key strategic factors and problems as they stand currently; however, if government subsidies and grants cease to exist following the presidential election, it may be difficult to continue to operate under this mission. Tesla’s current objectives are “to achieve both growth in sales and profits, provide technological leadership in the field of electric vehicles, and foster sustainability and social responsibility” (Hoffman, 2011). These objectives fit perfectly with both the niche market that they target, as well as the distinctive competencies that the company possesses. Tesla’s collaborative work environment fosters creativity and innovation, which is crucial in developing technology that leads any industry.
  • The mission and objectives should only be changed if the country experiences drastic policy changes with regards to “green energy.” If this happens, it would create near insurmountable obstacles for a company already struggling to turn a profit. Under such circumstances, it would be advantageous for Tesla to change its focus from the manufacturing of EVs to the development of proprietary parts and technologies for use in electric vehicles. The capital requirements needed to manufacture cars are extremely high, so selling these assets to a company with greater economies of scale could help Tesla continue to advance the technology of EVs, while significantly reducing its cost structure.
  • This shift in strategy would have a significant effect on Tesla because this would change them from a car manufacturer to purely a supplier. Under this new model, Tesla could attempt to partner with Lotus to develop a Tesla model under the Lotus name, because the company already uses Lotus vehicle bodies. This would be an inexpensive way to continue to produce the Tesla brand and leverage the enthusiastic following that Tesla has. Tesla could also continue to leverage its distinctive competency in HRM because the need for innovation in the EV sector would remain high.

   

  • Strategic Alternatives and Recommended Strategy
  • Strategic Alternatives
  • The current objectives of Tesla can be met if the company continues to focus on a collaborative work environment that emphasizes creativity. As oil prices continue to climb and demand for EVs increases, Tesla will be well positioned to deliver a wider range of vehicles to satisfy different consumer needs. It must be noted, however, that Tesla relies heavily on governmental subsidies and funding, which create a significant threat that cannot be overlooked.
  • The major alternative strategy that is available to Tesla is to transform into more of a collaborator than a vehicle manufacturer. Under this strategy different manufacturers could co-brand with Tesla to produce long range, high performance models of their cars. This strategy would significantly reduce costs to Tesla. While the company would not recognize the same scale of profits, this would be a feasible alternative.
  • a) Cost leadership would be a difficult strategy for Tesla to implement due to the high costs associated with improving EV technologies. Additionally, the mission of Tesla is to “create alternative energy electric vehicles for people who love to drive” (Hoffman, 2011). It would be difficult to develop a cost leadership strategy that fit into the company’s mission. In contrast, a differentiation strategy would fall more in line with the mission at Tesla. Many other car companies have their own alternative energy vehicles on the lower end of the price range, and BMW is the only other luxury car manufacturer that makes a similar product (although they are not for sale to the general public). This gives Tesla a distinct competitive advantage because there are no other readily available alternative products to the Tesla Roadster. As such, Tesla is able to justify the hefty price tag of their luxury electric vehicle.
  • b) It would be difficult for Tesla to adopt a stability corporate strategy because the last thing they want is to remain stagnant. Of the three corporate strategies, this seems to be the least applicable to Tesla because it limits their ability to expand revenues and develop economies of scale. A horizontal growth strategy is the best option for Tesla because now that they have multiple products that serve different demographics, the next logical step is to expand their presence in order to reach out to potential owners across the United States and the globe.  As Tesla grows and acquires more resources, economies of scale will allow them to reduce their unit costs and will hopefully shrink the percentage of revenues spent on R&D. Entrenchment is another viable corporate level strategy for Tesla to take if they are concerned with changes in policy brought on by the upcoming election.  By shrinking their resources and focusing more on the technology development behind the electric cars, Tesla could generate a healthy profit. They would significantly lower their costs and focus their money on developing technologies, which suits their corporate environment well.
  • c) A clear functional strategy that would fit well with current business and corporate level strategies at Tesla would be a technological leader R&D strategy. This strategy focuses funds on developing innovative new ideas so that the company can stay ahead of its competition. This is the type of strategy that Tesla is attempting to utilize. A marketing strategy could also suit Tesla well. This type of strategy focuses heavily on how the product itself is marketed, in an attempt to generate hype and demand.
  • Recommended Strategy
  • We believe that Tesla should pursue a differentiation business level strategy. This strategy allows Tesla to break away from what its competitors are doing in order to create a high quality product at a premium price. For a corporate level strategy, we feel that a growth strategy suits Tesla well. There is a growing interest in alternative fuel cars throughout the US and parts of the globe, and if Tesla decides to pursue dealerships throughout the United States, they will have a greater opportunity to capture a portion of this large market. Finally, we believe that a technological leadership functional strategy fits well with the company’s mission to make alternative energy electric vehicles that are fun to drive (Hoffman, 2011).
  • The differentiation strategy at Tesla is made possible because of the strategic factors relating to their autonomy and the external opportunity of green energy subsidies. These two factors allow Tesla to put as much of their capital in R&D as needed and allow for government incentives to help pay for some of the research and manufacturing. The long term plan for an alternative fuel that reduces its need for petroleum based fuels serves this strategy well. The corporate level growth strategy addresses two internal strategic weaknesses: the limited presence that Tesla has outside of California, and the narrow market segment they serve. Growing their presence will allow them to capture a larger customer base because being able to buy vehicle at a dealership is a large part of the consumer’s decision. Additionally, growing the scope of products that Tesla develops will allow them to provide consumers with a larger amount of options to fit customers’ varying needs. The importance of appealing to a wider range of customers will allow them to generate higher revenues in the future due to their ability to “cast a wide net.” Finally, the technological leaders functional strategy mitigates the effect that petroleum based cars are becoming more fuel efficient and affordable. Improving the effectiveness and range of EVs will have a long term impact on the sales and adoption of EVs throughout the US and the globe. If Tesla is able to develop a great leap forward, the adoption of EVs will skyrocket.
  • The way that the company is shaped currently is mostly in line with the strategic direction we would like to continue to see them follow. However, a major policy change that would help Tesla fit more into a horizontal growth strategy would be to develop a presence within another luxury car brand in order to expand their dealership presence across the United States. Associating with another luxury brand, while remaining separate, would allow Tesla to gain access to customers within the income range they are marketing to, giving them an eco-friendly luxury option.
  • The proposed revised strategies would coincide well with the existing corporate environment and distinctive competencies. The company would continue to leverage its collaborative culture in order to focus more highly on R&D. The one area of concern may be difficult to overcome would be convincing management to give up some of the control surrounding the actual sales process.

VII. Implementation

  • N/A

 

  • With the current sources of funding and government subsidies, increased focus on R&D is feasible. The horizontal growth strategy will be much less capital-intensive than building a network of dealerships around the country. Although Tesla would probably have to pay some sort of fee to secure this type of relationship with a luxury car dealership, the expanded presence would give Tesla a significant boost and increase brand recognition.

 

  • A major operating procedure that will need to be developed will be creating a systematic training program to train partnered dealerships on how to market and sell Tesla cars. Due to the type of customer that Tesla sells to, the program will need to train sales reps on how to focus on concerns of customers that they are selling their products to. This will require sales staff to have knowledge on the environmental impact of Tesla’s cars, the gas consumption savings, as well as the network of charging stations, among other things. This will require a comprehensive training program that is easy to follow and easily implemented across the country.

VIII. Evaluation and Control

  • N/A the case does not discuss information systems at Tesla.

 

  • N/A
  •  

 

 

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