Tesla Motors
Taylor Burnett, Nemo Carbajal, Chris Sheehy, Davie Buyanga, Mark Tlanda
July 29,2013
IMS 3310.002
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Executive Summary
Tesla Motors in an all-electric, luxury vehicle manufacturing company that began selling
cars in 2008. The Tesla Roadster, Model S, and Model X have opened up a whole new window
in the automobile market. Their company, located in California, sells the cars directly to
consumers, rather than through dealerships, all over the world. Tesla cars provide a valuable,
rare, and inimitable product to give them a competitive advantage in the market and make them
appealing to potential customers. Tesla aims toward the high-end buyer at this time, but hopes to
decrease the price of their cars in the near future in order to make them more family friendly.
Tesla also faces the problem of state governments not allowing car manufacturers to sell directly
to the consumer; rather, the vehicles must be purchased through a dealership. This dilemma
poses a threat to future Tesla sales and growth throughout the United States.
Introduction
Electric vehicles have become a huge player in the automobile industry in recent years.
Big name manufacturers such as Chevrolet, Ford, Nissan, and Toyota have built and sold their
own types of battery-powered cars. For the most part, all of the electric vehicles are the same.
They are meant to get the driver from point “A” to point “B” without using gas. Tesla Motors
has worked to change the world’s perception of these eco-friendly vehicles from small, ordinary,
and slow into a luxury, powerful sports car that happens to also be an electric car.
Tesla Motors was founded in 2003 and introduced its first model, the Tesla Roadster, in
2008. As of 2012, the Roadster had been sold in 37 countries around the world. Tesla introduced
their second car, the Model S, in 2012, and have began production of their third vehicle, the
Model X, in hopes of it reaching the streets by early 2014. These cars are nothing like your
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average Prius or Volt. Each has its own sleek design and the Roadster can accelerate from 0-60
in under 4 seconds. Both the Model S and Model X come with customizable luxury interior
features like a 17-inch touch screen control panel. Price tags for these cars can range anywhere
from $60,000-$100,000.
Elon Musk is one of the co-founders of Tesla and serves as its current CEO. Their
headquarters and production site are located in California, where nearly 3000 people are
employed. Tesla currently has stores in 11 different countries in Europe and is building a
production facility in Amsterdam to distribute their cars among European buyers. Tesla also has
stores in Australia, Hong Kong, and Japan. Tesla is a publicly traded company and recently
posted their first profits in the first quarter of this year. Their stock prices have raised nearly
$100 in the last twelve months.
Financial Crisis (Issues):
During the Global Financial Crisis from 2007-2008, Tesla Motors was detrimentally
affected, much like other large global firms. Throughout the crisis, Tesla was creating their new
vehicle The Model S. As funds were restricted due to the crisis, progress for the vehicle was put
on hold. If Tesla did not receive a source of financial stability, their company would inevitably
decease. The Department of Energy; is the federal department responsible for maintaining a
national energy policy for the United States. While the financial crisis was still active, the
federal government approved a $25 billion auto loan that was created by the Department of
Energy (Business Insider). Tesla reaped the benefits of $465 million in federal loans. Tesla
utilized this capital by investing $365 million towards the Model S and invested a $100 million
in their manufacturing plant. Also, Elon Musk (One of the founders) invested his last 35 million
into Tesla. After Tesla received the financial stabilization from the Department of Energy and
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Co-Founders, they were eligible to emerge from the crisis, maintain their employees, and
successfully launch their Model S vehicle.
Resources and Capabilities
Tangible Resources and Capabilities
Tesla’s Model S factory became fully operational in the second half of 2012. This should
allow an increase in the production of motor vehicles to a targeted 21,000 worldwide deliveries
for 2013. Efforts are being channeled towards continually stabilizing and improving the
production process. Tesla has entered into strategic partnerships with both Daimler-Mercedes
Benz and Toyota for the development of electric vehicle power train components and systems,
which include the design and development of battery packs, drive units and chargers. This is the
only instance of outsourcing in the Model S production process. These partnerships started in
2011, and Tesla has been able to meet all it’s deliverables thus far.
Manufacturing and logistic efficiencies are currently a work in progress and are certainly
not comparable to the other major automakers. With production having been fully implemented,
potential customers can now order a customized Model S vehicle, as opposed to the previous
pre-order process, where a reservation was made and commencement of an actual order being
put through once the backlog had been fulfilled. The pre-order process continues for other
countries (with the exception of the US) where production is still to be fully implemented. The
majority of components used in production are from single source suppliers. Tesla is therefore
solely dependent on these suppliers, and should suppliers refuse to continue to deliver these
components, it could affect production negatively. Tesla does not have the kind of power that the
major automakers like GM and Ford have, to influence delivery timeframes etc.
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Intangible Resources and Capabilities
Tesla’s core competency is in power train and vehicle engineering and the intellectual
property that supports this competency. Tesla has 117 issued patents and more than 258 pending
patent applications. Issued patents start expiring in 2026. Having these patents is a key part of
Tesla being in a market of its own because they give them exclusive legal rights to innovative
parts. Other intangible resources include the knowledge, innovation, and skills that Musk and JB
Stranbel (CTO) possess that are instrumental in the research and development efforts of the firm.
Value, Rarity, Imitability, and Organization
The all-electric, luxury cars Tesla produces coincide with the VRIO framework. Tesla
engineers and designers are continually developing the power train and battery technology in
efforts to have a charge that will power a vehicle for longer mileage before a recharge is
necessary. The relative small size of the company allows for speedy resolution to development
flaws and a free flow of innovation, which may be stifled in a more bureaucratic atmosphere
typical of larger firms. The limited resources available for research and development may create
a challenge and hence development has to take account of budgetary constraints. The major
automakers have continued focusing on gasoline-powered cars, with some companies now
actively pursuing more fuel-efficient type vehicles. GM has come up with the Chevy Volt, and
Nissan the Leaf. These are, however, run by fuel engines with electric acting as a supplement.
Tesla is the only company that has a car that is 100% electric run, making their product rare.
Tesla is still working on setting up full production capacity as well as working in efficiencies to
reduce costs of production, which in the long run may impact the price of its cars.
Resources and Capabilities Recommendation
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Tesla seems deficient in the organization area of the VRIO framework, but is improving.
Tesla did not produce their first line of cars until 2008, five years after the firm was created. This
was a result of poor organizational practices and sent Tesla into millions of dollars in debt. Since
then, the firm and their organization have improved each year. Manufacturing and production
has increased due to their improved factory hiring of more employees. To continue to turn a
profit, Tesla should focus on the organizational side of their company: i.e. their factory, the
production process, their workers, the sales department, and research and development. This will
lead to more success because they are rich in the other characteristics of the VRIO framework.
Tesla does have a very valuable part in the automobile industry, being the only luxury electric
vehicle company. Tesla is also rare in that it is the only purely battery manufacturer of vehicles,
which has intellectual property rights through patent protection, which, in turn, gives it the
ability to make imitation costly for potential upstarts. These areas are being fully exploited by
Tesla, thus creating a sustainable competitive advantage.
Market selection & Entry mode choice
Marketing strategy
Tesla had many first-mover advantages since they were the first automobile firm to enter
the all-electric luxury car market. The main strategy for Tesla motors since it began rolling out
electric vehicles (EVs) was to aim for the high-end market, toward “early adopters” consumers
that were willing to pay premium. With the earnings from their first production, Tesla could use
that profit to create another EV to be produced at higher volume at a lower cost. This is the
current stage Tesla is in, with the Model S, known as high electric luxury sedan. The last part of
their plan is to make a more family affordable EV. For the long-term plan, Tesla hopes to have a
wide range of models that will be affordable to most of the public, including affordably priced
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family cars. By 2016, Musk promises to have a car priced below $40,000. It is said to be a
similar competitor to the BMW 3-series, but will be easier and less expensive to produce. Musk
hopes to make it a reality, taking into consideration how expensive it is to build EVs. Musk was
quoted saying, “What the world really needs is a great, affordable electric car, I’m not going to
let anything go, no matter what people offer, until I complete that mission.”
Entry Mode Domestically & Global
Tesla is transforming the automobile purchase experience. Currently the entry mode for
Tesla has been through mainstreaming, by selling its own vehicles in a growing amount of selfowned showrooms and online. Unlike traditional car dealerships, Tesla stores are designed to be
stylish and inviting, aiming at the high-end buyer. Tesla is hoping to be different by owning and
operating its own dealerships, and sell vehicles online. This is a battle being fought around the
nation in many states that support dealer groups. At the moment, Tesla has several showrooms
across the country meant to reach out to the public to educate them more about EVs. The
unfortunate part is that if a consumer ends up wanting to purchase a Tesla, they have to buy one
from California, and then have a third party ship it directly to them. The approach Tesla uses to
sell cars is similar to the method Apple uses to sell phones. This is no surprise considering Tesla
recently hired former Apple and Gap Executive George Blankenship. Blankenship is known for
establishing smart growth business retail throughout Asia, Europe, and North America. He was
made Vice President of Design and Store Development for Tesla. Using Blankenship’s
experience, Tesla will more than likely mirror Apples retail strategy and network.
Market Selection and Entry Recommendation
We believe that Blankenship is a good fit with Tesla because he is well known for
establishing energy-efficient retail process by thinking environmentally forward. Blankenship
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should help build Tesla's retail strategy and network through building a long-term retail
development plan to give consumers the chance to buy Tesla cars while learning more about
EVs. Blankenship announced that Tesla was going to open 25 more stores worldwide, one of
them being the first in China. China is an exciting market considering there is a low interest
amongst the public on expensive EVs, but the government is in favor of them because of the high
pollution rates Chinese cities have. This liability of foreignness is a risk that Tesla is willing to
take due to the potentially large reward of the Chinese auto market. The rest of the stores are to
be split between the United States and European countries.
Political
Tesla also faces many problems selling their vehicles, the main one being formal
institutions: state government laws. For the most part, auto sales are regulated at the state level.
In some states, Tesla has had little or no problem opening its stores. In other states, auto dealers
and their allies in state government, are resisting Tesla's plans, fearing it could ultimately
undermine the system of franchised auto dealers. If Tesla is allowed to sell to consumers
directly, Chevrolet, Ford, all other auto makers would want to do the same which would
eliminate the need of dealerships. In Texas, Tesla has a petition with one hundred thousand
signatures in favor of letting them sell their cars directly to buyers. Recently, however, the
legislature in Texas failed to pass a bill backed by Tesla that would have loosened the state’s
restriction on dealerships owned by automakers. Tesla wishes to sell their own cars because they
believe franchise dealerships would not represent their products properly and not push them as
aggressively as the gasoline powered vehicles. Tesla has showrooms in Texas, however they are
not allowed to let people test drive, take orders, or even give them a price. Buying online is legal
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in every state however, some states, such as North Carolina, are pushing to ban online sales of
vehicles.
Political Recommendations
The only way to solve this dilemma is by going through the democratic process in order
to change the current laws regarding automaker owned dealerships. Tesla is taking a political
risk by trying to work around the normative pillars of only letting dealerships sell cars to
consumers, so that they may sell their EVs directly to buyers. If Tesla is determined to avoid
selling through dealerships, they should continue with their petition and fight to change the
common law of how automobiles are sold.
Conclusion
Tesla has created their own niche in the automobile industry. They are the first to
manufacture and sell a luxury, all-electric car. Through the VRIO framework, they have created
their own comparative advantage to other auto manufacturers. Tesla’s future looks bright, with
their new leadership and continuing innovation, especially if they are able to break through the
state regulatory pillars of automobile sales.
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Sources
Tesla Motors
http://www.teslamotors.com/
Business Insider
http://www.businessinsider.com/tesla-faces-some-big-obstacles-in-the-chinese-market2013-7
http://www.businessinsider.com/north-carolina-may-ban-tesla-sales-2013-5
http://www.businessinsider.com/tesla-is-moving-into-europe-2012-12
Forbes
http://www.forbes.com/sites/timworstall/2013/07/05/if-apple-can-sell-through-applestores-why-cant-tesla-sell-through-tesla-stores/
http://www.forbes.com/sites/michelinemaynard/2013/07/03/tesla-fans-will-get-aresponse-from-the-white-house/
CNN
http://politicalticker.blogs.cnn.com/2013/07/02/white-house-petition-backing-tesla-hits100000-signatures/?iref=allsearch
http://news.blogs.cnn.com/2010/05/20/toyota-and-tesla-motors-team-up-to-makeelectric-cars/?iref=allsearch
http://www.cnn.com/2013/05/15/opinion/harley-tesla-best/index.html?iref=allsearch