Global Team Assignment (GTA)
The GTA permits participants to investigate and understand whether companies based in
developing countries adopt different strategies/approaches to globalize and/or compete than
do those based in developed markets. In doing so one of the key issues in strategic
management covered over the course will be addressed, namely; why and how do companies
differ? The GTA also provides a vehicle to apply concepts and tools encountered over the
course in the analysis of an industry and two competitors competing in that industry
What I need help with is 500 words of a Core Competency Comparison
1
Table of Contents
1
TABLE OF CONTENTS ............................................................................................................................... 0
2
EXECUTIVE SUMMARY – 446 (NEED TESLA) ............................................................................................. 2
3
INTRODUCTION (255) .......................................................................... ERROR! BOOKMARK NOT DEFINED.
4
INDUSTRY OVERVIEW (TOTAL SECTION 2137) (329) ................................................................................ 4
4.1
4.2
HISTORY OF AUTOMOTIVE INDUSTRY (335) .................................................................................................... 5
EVOLUTION OF CLEAN VEHICLE INDUSTRY (HYBRID, NATURAL GAS, FULL ELECTRIC) (462)ERROR! BOOKMARK NOT
DEFINED.
4.3
4.4
4.5
4.6
4.7
4.8
TREND AND FUTURE OF AUTOMOTIVE INDUSTRY (48) (ANALYSIS MISSING HERE) .... ERROR! BOOKMARK NOT DEFINED.
ENVIRONMENT CHANGES, CHALLENGES AND OPPORTUNITIES (328).................................................................... 6
HOW THE RECESSION IS AFFECTING AUTOMAKERS (75) (NEEDS CHINA/EUROPE VIEW) .......................................... 7
THE FUTURE OF THE AUTOMOTIVE INDUSTRY (123) (NEEDS CHINA/EUROPE VIEW) ............................................... 7
TECHNOLOGY AND AUTOMOTIVE (182) ......................................................................................................... 8
PORTER'S FIVE FORCES ANALYSIS OF AUTOMOBILE INDUSTRY (255) .................................................................... 8
5
DEVELOPING COUNTRY COMPETITOR – BYD AUTO (TOTAL 3151)........................................................... 9
5.1
5.2
5.3
5.4
5.5
5.6
5.7
6
DEVELOPED COUNTRY COMPETITOR – TESLA (4456) ............................................................................ 26
6.1
6.2
6.3
6.4
6.5
6.6
6.7
7
INTRODUCTION TO BYD AUTO (334) ............................................................................................................ 9
PESTEL (49) .......................................................................................................................................... 10
PORTERS FIVE FORCES ANALYSIS (417) ........................................................................................................ 14
CORE COMPETENCIES (667) ...................................................................................................................... 16
SWOT (1021) ....................................................................................................................................... 18
RESOURCES AND CAPABILITIES (59) ............................................................................................................. 22
FUTURE CHALLENGES / RECOMMENDATIONS (604) ....................................................................................... 23
INTRODUCTION TO TESLA (541).................................................................................................................. 26
PESTEL (1641) ...................................................................................................................................... 27
PORTERS FIVE FORCES ANALYSIS – TESLA & EV MARKET (658) ........................................................................ 33
CORE COMPETENCIES (395) ...................................................................................................................... 35
SWOT (851) ......................................................................................................................................... 36
RESOURCES AND CAPABILITIES (370) ........................................................................................................... 39
FUTURE CHALLENGES / RECOMMENDATIONS................................................................................................. 40
SYNTHESIS AND INTEGRATION(AFTER OTHER SECTIONS WRITTEN) (10 PAGES) .................................... 43
7.1
7.2
7.3
COMPARISON ANALYSIS ............................................................................................................................ 43
FORWARD LOOKING STATEMENTS ............................................................................................................... 46
LESSONS LEARNED.................................................................................................................................... 46
8
BIBLIOGRAPHY ...................................................................................................................................... 48
1.
APPENDIX 1: LINEAR STRATEGIC MANAGEMENT PROCESS ................................................................... 51
2.
APPENDIX 2: MCKINSEY 2020 FORECAST (MISSING) ............................................................................. 55
3.
APPENDIX 3: LIST OF ELECTRIC VEHICLES (EV) AND PLUG-IN HYBRID ELECTRIC VEHICLES (PHEV) ......... 56
4.
APPENDIX 4: FIRM’S RESOURCES AND CAPABILITIES CLASSIFICATION ................................................. 57
2
Executive summary – 446 (Need Tesla)
While environmental protection and sustainability issue have become the focus and major
concerns in most of the countries in the world, the air pollution resulted from automobile
emission is also becoming a significant issue to be resolved. With such forward-looking view,
Tesla and BYD have started their adventure in electric/new energy car sector nearly a decade.
Bearing the expectations from the nations and the environmental protectionists, both BYD and
Tesla are entitled to tremendous resources and first mover advantages that the other
competitors have no access to.
This paper aims to evaluate the difference in corporate
strategies between the two companies, one from the developed region and the other is from the
developing country. We wish to learn from our analysis below how BYD and Tesla achieve their
leading status in different regions today.
From our analysis, we see how BYD uses its strong base in battery manufacturing to
support its research and development in the electric car models. We also see the constant
support from the Chinese government towards BYD, which demonstrates the government’s
determination on eliminating the severe polluted air in major cities in China. While BYD is still
searching for the stable technologies in its car components and battery manufacturing, Tesla as
an international car manufacturer offers superior technology safety to the consumers. Like
BYD, Tesla as the pioneer in the electric car market has created a high entry barrier to the other
competitors, and the stability of its research and development capabilities has brought Tesla to
the next level among its peers. Despite the high production costs as shared by BYD, Tesla has
thrived through the use of US government subsidies as well as significant international demand.
Unlike BYD, which is still considered a local Chinese car brand, Tesla has escalated itself to the
international market place and has drawn the attentions from all over the world.
While the prospect of BYD and Tesla is considered bright and promising, the arising
number of participants who are making efforts to enter into this developing market is a threat to
BYD and Tesla even though both firms are currently enjoying their first mover advantages. More
and more international car manufacturers are looking into the entry point to the electric car
sector and are eager to explore its potentials such as Toyota, Nissan, Ford and GM. While BYD
and Tesla are trying hard to maintain their competitive advantage, the competitive ability of
facing new market players is a key future direction for both of the companies.
We believe that the continuous improvement on its manufacturing technologies and the
reduction of manufacturing costs are two of the most important subjects to be evaluated by BYD
and Tesla. We also understand that while electric/energy car sector will always be a market with
large demands, the ability to distinguish themselves with other market participants will also be a
competitive advantage for BYD and Tesla to think about. [Leave for further revision when Tesla
recommendation is prepared]
3
Industry Overview (Total Section 2137) (329)
The automobile is one of the most
diverse and crucial drivers of the modern
economic market. A world without automobiles
today cannot be imagined, yet it has its issues.
With
the
developing
regions
economies
growing in an even faster tempo, so is the
automobile market. Various sources state the
global car sales will grow exponentially in the
coming decades with no sign of slowing. As
such, auto manufacturers are faced with
increasing demand for a growing population as
Figure 1: Vehicle Ownership Projections
oil and petroleum resources begin to reduce.
According a Boston Consulting Group study, the BRIC (Brazil, Russia, India & China)
Auto markets are some of the regions with an extremely fast growth, mainly China
(PRNewswire, 2010). One of the main reason is
the GDP per head is rising sharply, their
populations are getting more capital and are
obtaining the ability to buy an automobile, and
with the automobile become more productive and
continuing to increase economic output.
In developed regions, however, the car is
a luxury product that most of the population can
Figure 2: BRIC Vehicle Assembly Projections
afford, whether in the first or secondary markets,
most own at least one vehicle. In this region, the industry can be split up in three segments:

Original Equipment Manufacturers (OEMs) - The big auto manufacturers produce
some of their own parts, but they cannot produce every part and component that
goes into a new vehicle. Companies in this industry manufacture everything from
door handles to seats.

Replacement Parts Production and Distribution - those replaced after the purchase
of a vehicle. Air filters, oil filters and replacement lights are examples of products
from this area of the sector.

Rubber Fabrication - This includes everything from tires, hoses, belts, etc.
(Investopedia Staff, 2014)
Globalization is a huge factor affecting the auto market. Most different brands of
automobiles can be found in most markets (developed as well as developing). The monopoly of
the local brands is gone, mainly due to the mergers and joint ventures of most traditional
automobile manufactures.
3.1
History of Automotive Industry and the evolution of clean vehicles (325)
Although Germany and France held the blueprints for
the modern automobile in the late 1800s, Americans dominated
the industry in the first half of the twentieth century because of
mass production techniques created by Henry Ford and the
production line (History, 2010).
The petrol powered Ford Model T was the car benefited
by economy of scale advantages of mass production lines,
Figure 3: Ford Model T
Production Line
making automobiles much more accessible and popular. Other
innovations introduced to post-World War II models like the electric self-starter, the closed allsteel body, the high-compression engine, hydraulic brakes, synchromesh transmission, and lowpressure balloon tires, as well the availability of cheap petrol made of petrol-powered cars
easier for more people to drive (History, 2010).
The OPEC oil embargo on the 70’s escalated the gasoline prices and contributed to
draw more interest in improvements and alternatives to the predominant internal combustion
engines. First with Germans and after with the Japanese, the automakers focused on fuelefficient, functionally designed, well-built small cars. Electric vehicles also became a more viable
and interesting option (History, 2010).
“The history of electric mobility is a demonstration of the world’s persistent ingenuity and
adaptation in transportation” (Anderson & Anderson, 2013). It starts very early on the
automotive industry history, with the first four-wheeled electric car built in 1888, and becoming
the top selling road vehicle in the United States on 1900.
However, innovations on production line, fuel-efficient and the lower price to operate and
manufacture of gasoline driven cars made electric vehicles become all but extinct due market
competition (Soos, 2010).
It was not until the OPEC oil embargo on the 70’s when the high price oil prices renewed
interested in electric vehicles. The escalate of pollution concerns on the 80 and 90’s made the
low emission agenda part of many global environmental legislation around the world, also
contributing to developing the EV market. Governments increased incentives to the
development of electric technologies and on tax credit to consumers look at the industry as a
more viable option (Hybrid Vehicle, 2011).
3.2
Environment Changes, Challenges and Opportunities (328)
According to the World Health Organization, air pollution is a serious challenge that has
taken more than seven million lives around the world just in 2012. The policy of industrializing
first and cleaning up later is an aggravating factor, mainly in faster developing countries such as
India and China. The estimation of the China’s former health minister is that 350,000 to 500,000
people die prematurely because of air pollution each year. In addition, only three of the 74 most
important Chinese cities met the national health air standard in 2013. The factoring in the
human and economic costs of millions of pollution-related illnesses and deaths requires growth
strategies targeting the long term and in a more
comprehensive manner (NYTimes Editoral, 2014).
Transportation emissions accounts for a
considerable part of the problem. In developed
countries like in the United States, the population
growth, urban sprawl, and low fuel prices contributed
to a 35% increase in travel in the last decade. Just in
the U.S., the transportation emissions have increased
about 18% since 1990, with the emissions from
Figure 5 - Total U.S. Greenhouse Gas
Emissions by Economic Sector in 2012
vehicles representing roughly 28% of its total
greenhouse gas emissions. The poor fuel efficiency in its vehicle market is a great opportunity
of change for mitigating the problem (EPA, 2014).
Hybrids and electric cars are a promising opportunity for tackling the problem. However,
geographic, economic and political factors make this market more attractive in some countries
than on others. In the U.S., the cheapest price of petro-powered vehicles and the huge
availability of natural resources make the market to focus more on fuel efficiency to solve the
problem rather than on green economy. In countries with huge population and lack of natural
resources as China, electric carmakers see it as the market of the future, mainly because of a
strong government investment and incentives (Economist, Highly Charged, 2013).
The future of electric power is not found
only
in
vehicles
for
personal
or
public
transportation, the future holds tremendous
opportunities for the following vehicle types as
well:
heavy
industrial
industrial/commercial,
micro
buses,
lighting
EV/quadricycle,
mobility for the disabled, military and marine
(Das, 2014).
3.3
Figure 6 - Ex-factory value of EVs, in 2024, by
application sector (IDTechEx)
How the Recession is Affecting Automakers (75) (Needs China/Europe view)
Strategies for the automotive industry plan to boost productivity and competitiveness
(especially in Southern Europe) while attempting to rein in healthcare and pensions costs. In
the United States, intensifying pressures for the domestic automotive industry are affecting the
price of raw materials (which have seen almost a 50% increase in cost) and the declining U.S.
dollar. While U.S. exports are attractive, other countries are waging a currency war to prevent
their currencies from dropping (Banks, 2012).
3.4
The Future of the Automotive Industry (123) (Needs China/Europe view)
While some analysis forecast encouraging vehicle sales, healthcare and pension costs
threaten margins for U.S. automakers. Recently, the U.S. vehicle sales have been driven by
fleet sales (sales of a large number of vehicles to companies such as rental car agencies and
commercial truck operators). The growing rate of the retired population appears to be slowing
the demand for new vehicles domestically. Data shows that the retired populations drives their
vehicles 40 percent less and make fewer new vehicle purchases (Banks, 2012).
Factors that will affect the future growth of equipment manufacturers and suppliers
include demanding legislative mandates on emissions, safety and quality, new or evolving jointventure business models due to all the recent mergers and acquisitions in the industry, and
narrowing product portfolios.
CHINA (write-up): It is the fact that the local car manufacturers in China have devoted to the
research and development of electric car, such as BYD and its main competitor, Geely
Automobile. The foreign manufacturers are also putting in efforts either to cooperate with the
existing local car manufacturers who have started with the electric car business like BYD, or to
pull together a team for the purpose of independent establishment. That being said, new energy
is a future trend for the car manufacturers in China and will continue to be for at least the next
decade.
(Geely’s new electric car-EC7)
3.5
Technology and Automotive (182)
Technological advances in the future of automotive companies will dominate future
markets as high-tech equipment is becoming more prevalent. Examples of some upcoming
technology advances include security and communications services.
Practical applications
include voice assisted driving directions, parking, acceleration and vehicle failure detection.
Other applications include vehicle-to-vehicle communications to ensure vehicles keep a safe
distance from each other to avoid collisions and other enhanced safety features. Automakers
will be pressured to develop a global platform, upon which vehicles are designed, engineered
and produced, to leverage the most capital-intensive equipment and resources initially, and then
customize and accessorize later for regional preferences (Banks, 2012). To stay competitive in
the future, car manufacturers and suppliers will need to develop a vision in order to succeed, in
the same way in which Apple has done with its iPod, iPhone and iPad products (Banks, 2012).
A Five Forces Analysis of the industry was conducted to undersand the opportunity to
know the potential profitability in an industry or a segment of a company and to know in which it
competes or may choose to compete (Hitt, Ireland &Hoskisson, 2011).
3.6
Porter's Five Forces Analysis of Automobile Industry (255)

Threat of New Entrants: (Low) Large-scale automobile manufactures require
significant capital investment and infrastructure. Consumer brand loyalty is high in the
market and significant governmental restrictions, guidelines and safety laws make road
certification a costly venture for a new company.

Power of Suppliers: (Low) Many automobile suppliers rely on one or two automakers
to purchase a majority of their products. And as a result, suppliers are extremely
vulnerable to the demands and requirements of the automobile manufacturer and hold
very little negotiating power.

Power of Buyers: (High) In the past, the bargaining power of automakers was
unchallenged. The consumer began searching for price and reliability alternatives with
foreign vehicles and alternatives; choices have since increased significantly. Switching
costs are generally low with the institution of leasing and favorable financing terms.

Availability of Substitutes: (Medium) When analyzing this factor, consider not only the
consumer purchasing from a different manufacturer, consider the likelihood of people
taking the bus, train or airplane to their destination. The higher the cost of operating a
vehicle, mainly gasoline and insurance, the more likely people will seek alternative
transportation options.
However, a personal vehicle offers greatest comfort and
convenience.

Competitive Rivalry: (High) Highly competitive industries generally earn low returns
because the cost of competition is high. The auto industry is considered to be an
oligopoly, which helps to minimize the effects of price-based competition. However,
rebates, preferred financing, maintenance packages and long-term warranties have
helped to entice consumers to purchase a new vehicle while also placing pressure on
profit margins (Investopedia Staff, 2014).

4
4.1
Developing Country Competitor – BYD Auto (Total 3151)
Introduction to BYD Auto (334)
BYD Auto Company Ltd, or also known as "Build Your Dream", is a Chinese car
manufacturer based in Shenzhen, Guangdong Province.
Originally Tsinchuan Automobile
Company, it was acquired by the BYD Company in 2002. The BYD Company is originally a
rechargeable battery company that made their fortune with mobile phone batteries and later
mobile phone accessories. By the time of the acquisition in 2002 it was one of the largest
companies of its kind in China. BYD wanted to enter the electric car business, and y the
acquisition of the Tsinchuan Automobile Company, BYD not only got the business license to
build cars (required in China) but also the capability to produce cars. CEO and Founder of BYD
Company, Mr Wang Chuanfu, is passionate to build an affordable electric car for the common
people. Additionally, BYD would look to design and produce luxury electric cars utilizing the
technology knowhow obtained with the 50:50 joint venture with Daimler AG, the brand name
Denza. (Reference?)
Mr. Wang Chuanfu founded the BYD COMPANY in 1995 and he’s currently the CEO.
The company’s prime product at that time was rechargeable batteries for the mobile phone
industry and subsequently BYD moved into phone accessories. In 2002 the company was listed
in the Hong Kong stock exchange. By 2010, Bloomberg listed BYD in the top 100 tech
companies in the world.
By 2009 the first electric cars and busses came on the market, seven years after the
acquisition by Tsinchuan Automobile.
To stimulate the sales in the city of Shenzhen was to
procure 500x E6 models to serve as taxi's and about 1000x models of the electric bus. In the
same year BYD started to export abroad the electric
vehicles, starting with the K9 electric busses to the
US and EU.
By 2013 BYD Auto sold half million cars,
making it the 10th largest car producer in China.
These weren't all electric cars, however, they were
gasoline powered primarily with the first hybrid cars
(F3DM) that were produced starting in 2008.
Figure 7: BYD E6 Electric Vehicle
4.2
PESTEL (49)
There are forces of change that affect businesses that are beyond their control. The
appropriate understanding of the big picture of the Political, Economic, Socio-Cultural,
Technological, Legal and Environmental factors are key for a company to successfully take
advantage of an ever-changing operational environment instead of opposing to it.
4.2.1 Political Factor (339)
In 1997 China signed the Kyoto Protocol in which China aim to reduce the greenhouse
effect as a result of car emissions being one of the largest contributors of the greenhouse effect.
Even China, as a developing country, is not obliged to give fixed targets. In addition there is a
growing concern on the fast growth of the oil thirst / requirements of economic China. To deal
with these issues the Chinese government started as of 2010 in five major cities (Shanghai,
Shenzhen,
Hangzhou,
Hefei
and
Changchun)
incentive programs for electric cars as a pilot. (Needs Non-Wik Ref)
(see http://en.wikipedia.org/wiki/Government_incentives_for_plug-in_electric_vehicles#China )
Hu Zhaoguang, Vice President and the Chief Energy
Specials at China State Grid, China’s largest utility company,
stated, "Electric cars will grow fast in China because the
government wants them to”. The head of GM China group,
Kevin Wale, shares the same opinion that the Chinese
government is supporting electric vehicles technology more
than any other country on earth (Dumaine, 2010).
The
booming on Chinese auto industry coupled with the potential
Figure 8: Traffic in China
oil scarcity and the climbing pollution levels in the country are
some key drivers for the government proposing stimulus
measures for the auto industry (Jie, 2011).
The Chinese Automotive Industry Plan is a strong political commitment that aims to
create capacity to produce 500,000 new energy vehicles by 2015 and a cumulative five million
units by 2020. The goal is to increase sales of such new-energy cars to account for about 5% of
China’s passenger vehicle sales (GreenCarCongress, 2012). In order to achieve that target,
government incentives has been provided for green-car purchases, reaching almost a third of
some car’s listed retail price (Chiu & Murphy, 2013).
The money is already flowing, with roughly $17 billion funds for R&D and the installation
of charging stations as well many provincial governments offering automakers cheap land and
consumer additional subsidies. For example, Beijing and Shanghai’s municipal authorities
included BYD auto cars (E6 and BAIC Motor models) under government subsidies of as much
as $8,800 to encourage the use of new energy cars (Xinhua, 2014).
4.2.2 Economical Factor (335)
The 2003-2008 energy crises imposed a quite challenge for the expansion of the
automotive industry mainly because of the high increases in petro fuel prices.
The same
slowdown was not perceived by the electric auto industry that oppositely was benefited by a
strong increasing demand for new energy powered vehicles.
Another important event shaping the economic environment is the fact that since 2009,
China became the world’s largest automaker and automobile market, surpassing U.S. and
Japan, representing a great opportunity any car company to develop. China additionally that as
part of its five-year plan (2011-2015) a target become the most innovative country, providing
enough economical helping to its car industry to take the lead in electric cars industry (Dumaine,
2010).
The strong external oil dependencies in China, where the country imports about twothirds of its oil, also plays an important role on the economic environment of the country, as the
consequence is an expensive cost of the gasoline, about $4 a gallon, especially for a country
with a low-income per capita income of just $2,800 a year (Dumaine, 2010). Skyrocketing price
increases on a Chinese car fleet can impose a much higher pressure on the oil price because of
the increase in demand. For Oliver Hazimeh, a partner at consulting firm PRTM, “It most likely
will be cheaper for China to subsidize the cost of electric-car batteries than to secure the oil
supply." (Need Reference Here)
As the worlds second largest economy, China needs to establish a more sustainable
energy matrix for supporting its development. As a sound commitment to that, the goal of the
China’s 12th Five-Year Plan for Economic and Social Development (2011-2015) is to have
21.6% of the country’s total energy demand sourced from renewable energy by 2020 (KPMG
China, 2011). This strategic plan means a huge opportunity for investments and the
development of new technologies as for the electric vehicles. According to United Nations
report, in 2011 China was responsible for almost one-fifth of total global investments in
renewable energy investments ($52 billion) (Perkowski, 2012).
4.2.3 Socio-Cultural Factor (127)
Various international crises have influenced some important changes in social trends, as
making people more favor in vehicles with lower and cheaper energy consumption. Especially
in China where the cost of the gasoline is expensive and the pollution is heavily affecting the
biggest cities, making urban Chinese more concerned with climate change and willing to use
ecological products (Dumaine, 2010). Despite an improving new energy government programs,
public opinion and feelings toward electric vehicles in China are not yet formed: only one in five
(20%) are open to considering them for purchase (Stanton, 2013).
For the BYDs general
manager of Asia-Pacific auto sales, “the use of electric vehicles in public transport is the first
step and a more realistic way to promote and popularize the products" (Chiu & Murphy, 2013).
4.2.4 Technological Factor (324)
The biggest drawback of electric vehicles is the operating range of the vehicle; related to
its primary limited source of energy, the battery.
The lithium-ion batteries are a strategic
technology for electric cars and the Chinese automakers have a competitive advantage its
production. The expertise comes since the 1980s when the U.S. moved electronics
manufacturing to Asia. Intel estimates that today in China around 33,200 people work in lithiumbattery production, against just 1,100 in the U.S., allowing Chinese companies like BYD to make
some of the cheapest car batteries in the world (Dumaine, 2010).
A key element for the
manufacture of advanced electric motors and battery system is dysprosium, a rare earth
element with a metallic silver luster. An around 99% of the total worldwide production of this rare
material comes, like any other rare material, from China (Wikipedia, 2014).
Another important technological change is regarding viable recharging options for
electric vehicles. The CNOOC Chinese oil company is exploring battery-swapping stations,
where clients drive in, drop off their depleted battery, and drive off with a fresh one in less than a
minute. A startup company called "Better Place" has successfully built a battery-swapping
station infrastructure in Israel and Denmark, offering the possibility to handle five different
brands of battery, showing that different suppliers would not be a limitation. According to Shai
Agassi, Better Place CEO, “China is the perfect place for swappable batteries because most
urbanites live in high-rises without easy access to charging stations”, besides that this solution
would avoid adding strain to the grid as big cities would like the Chinese would face (Dumaine,
2010).
According to Bill Russo, a senior adviser at Booz & Co., the Chinese are trailing in the
development of internal-combustion engines and aiming to become a dominant global purveyor
of battery-powered vehicles technology (Dumaine, 2010). Aligned to that, BYD Auto has been a
leading Chinese company on this sector, becoming the first company to produce purely electric
vehicles in the world.
4.2.5 Environmental Factor (247)
The Chinese motivation for going electric is driven by some other factors than just the
desire for a green agenda. The World Bank estimates that 16 of the 20 most polluted cities in
the world are in China (The World Bank, 2007), putting the environment as an important and
hard-to-ignore issue.
Electric vehicles could help the Chinese cities to alleviate the smog that chokes China's
traffic-clogged streets, and slightly lower greenhouse-gas emissions than gasoline cars even if
the electricity that powers them come from dirty fossil fuels1 (Dumaine, 2010). Example; during
the 2008 Olympic Games the local government of Beijing had restricted the use of automobiles
1
Energy generated from coal represents around 75% of the power in China.
during the Olympics, especially the use of government cars that resulted in a significant
reduction of the air pollution.
Another fundamental reason is that China need to solve its severe oil addition: with more
than 19% of the world population, the country has just less than 1.5% of the world oil reserves in
2013, importing about two-thirds of its oil (Wikipedia, 2014).
Several governments have being looking for investment opportunities the electric vehicle
industry for their public transportation system. Many local transportation authorities, such as in
Shenzhen, Changsha, Xi’an, Tianjin, California, São Paulo, and other ones in Spain, Canada,
Colombia and U.K, have being looking for newer, cleaner and more efficient propulsion
technologies, with lower operating-cost, implementing pilots to test electric buses (4-Traders,
2014) (Bloomberg, 2014) (Michell, 2014), creating several target export markets for BYD.
4.2.6 Legal Factor (117)
A low emission agenda has been parts of many global environmental legislation around
the world:

More and more countries have been approving more strict legislations on emission of
automobiles

The European Union have issue emissions legislations since 1994

President Obama announced in 2009 a national fuel efficiency policy: all new cars and
trucks sold in U.S. need to increase fuel economy and reduce greenhouse gas pollution

Due to the severe pollution occurred in Beijing and the major first-tier cities in China, the
Chinese government has promulgated new regulations to restrict the volumes of the cars
and to impose rigid liability against the drivers and car manufacturers if the emission is
not in compliance with the government standard.
4.3
Porters Five Forces Analysis (417)
4.3.1 Threats posed by new entrants - Medium

Industry growth, the Chinese car market is expected to grow with an average of 8% 10% annually for the next few years (see McKinsey 2020 forecast – Appendix 2). The
auto market grew in 2013 around 13.9% annually. This is lower than the previous 10
years when the market grew about 30% annually.

The difficulty for the electric auto market is the conventional auto market is cheaper,
more accessible for the low/medium income population, which is the majority of the
consumer market.

Consumers switching costs to electric vehicles are high.

Government programs/incentives for the electric car initiatives will be divided between
the ranking Chinese automobile manufacturers.
==== (Needs Citing using MS Word Bibliography and where used referenced inline with text ======
http://porters-5-forces.blogspot.com/2011/11/porters-5-forces-in-automobile-industry.html
4.3.2 Power of suppliers – Low

The electric car requires less parts compared to the conventional car

BYD was one of the top battery companies in China and has sufficient know-how and
technologies with respect to the battery production internally, reducing dependence.

BYD is one of the main suppliers for the electric cars battery. For the rest of the car
components BYD Auto already had a supply chain due to the Tsinchuan Automobile
Company.

Most car components suppliers/manufacturers including multi-nationals have established
their presence in China. Therefore, the rigid competition results in the lower bargaining
power of the suppliers and plenty supply.
4.3.3 Power of buyers- Medium

BYD Auto targets the low/medium income market. Therefore the products are relative
cheap.

Hybrid vehicles still considered luxury in China.

No government incentives for consumer to buy electric or hybrid cars in China.

Government program to upgrade the public transport sector in China with EV's.
4.3.4

Product substitutes - High
There is a large market for the electric bicycles and the electric or natural gas public
transport within the big cities.
4.3.5

Intensity of rivalry among competitors - High
Intense rivalry, given limited consumer market and number of manufacturers in the
market space. The market competition is between the regular combustion engine cars
and the hybrid cars as well as a well-organized public transport system in most cities.

Consistent advertising, comparison marketing and sales to entice consumers to
purchase and choose over other brands.

Main competition is the hybrid car industry where cars are mainly used only as electric
car due to limited travel distance.

There is small electric charging network in China. So the electric car can only be used in
regional transport.

4.4
The growth of the Electronic vehicle industry currently is slow.
Core Competencies (667)
Pre-note: "The Chinese government has been demonstrating its consistency in
implementing economic goals for many years now. The electric mobility industry is a case at
hand to underline the unique power that results from matching company strategy with a
developing national home base and jointly developing it forward. The core competence of BYD,
constant process design optimization, has resulted in a fast development from a battery
producer to an automotive producer, perfectly combining the core ingredients of being a
forerunner in e-car production". quote from Tjeerd looking for quote
To describe the core competencies of the BYD, the history of BYD is required to be
reviewed again. BYD started in 1995 as a rechargeable battery manufacturing company for cell
phones. The strategy of BYD was not to rely on acquired new technology from outside China for
the production process but rather utilize China’s fast growing resource of human capital, which
certainly at that time, was cheaper compared with the fully or semi automated factories. Using
human resources in the manufacturing, BYD could keep the manufacturing cost low. By 2002,
BYD was the largest battery manufacturer in China (roughly 65% of all batteries are being
produced by BYD. This large growth only fueled the desire to diverse more and so BYD started
to diversifies into other parts of the cell phones. These days BYD produces most of the parts of
the cell phones for various trademarks like Nokia.
But the core business was/is still the battery manufacturing business. BYD set up an
extensive R&D program, and by now BYD is market leader in various rechargeable battery
systems, the first Core Competence of BYD.
As the Chinese government set the development of the electric car concept high on the
agenda in their 5 year plan, promoting the development of advanced R&D centers and the
development and usage of full electric drive automobiles to selective cities and private.
Example: Chinese government will give it's user 50000 rmb (~5000-7000euro) subsidy for every
electric car on the road. With the government support BYD set forth on a new innovation, to
produce an affordable full electric car. To pursue this endeavor, BYD acquired an auto
manufacturer for their core competence and supply chair, second core competence.
The third core competence of BYD is the R&D. The R&D system at BYD has been
developed during the battery business, to become a highly innovative system, which not only
looks at new technology but also on
low cost of manufacturing. This group
was mainly responsible to transfer or
better
said
combine
the
high
technology of the rechargeable battery
and that of the automobile. The result
was BYD Auto started to produce in
2008 their first hybrid car, the F3DM.
Soon BYD found the battery is the key
Figure 9: BYD Product Mix
of the performance of the car. The first hybrid of BYD could drive about 100km on battery power
and addition 300km on fuel. BYD latest version is the full electric car, the E6, which has a
performance of ~400km range on battery. The latest move from BYD Auto is the joint venture
with the European based automobile company Daimler. BYD Auto core business is the
affordable electric automobile. The joint venture will focus more on the high end, the luxurious
electric automobile range.
The last core competence which BYD acquired since 1995 in the ~15 years, it's ability to
move into new markets. First was the rechargeable battery market (various types), later mobile
phone accessories and parts for various trademarks. And now into the electric automobile
industry, by transforming a traditional automobile company into a electric automobile company.
This entrepreneur drive is a key core competence BYD has to be successful in this business.
All is said, BYD Auto and it's venture into the electric automobile business, will become a
success story as the Chinese government support of this new technology. No doubt that BYD
Auto will have some influence on the government. It only shows the rapid development of BYD
Auto electric automobile need social support via government.
"National Competitive Advantage of China in Electric Mobility: The Case of BYD", by
Kasperk, Garnet; Wilhelm, Jan; Wagner, Wolfgang
4.5
SWOT (1021)
4.5.1 STRENGTH
4.5.1.1 Government Support (128)
The automotive industry in China has been the largest in the world measured by
automobile unit production since 2008. The Chinese government had been very supportive in
terms of the incentive policies for encouraging the development of car industry. For example,
the restrictions on the foreign investment in the automobile sector have been eliminated to the
minimum. In addition, there are also laws and regulations enacted for the purpose of
maintaining customer’s interests in the purchase of vehicles. The reduction of import tax rates of
imported cars, the cancellation of specific quota for imported cars, the promulgation of laws and
regulations to stimulate the second-hand car market, the request to the local government to
terminate any of the policies that may deter the consumption of automobiles etc. (Peng, 2010)
4.5.1.2 First Mover Advantage (118)
BYD is the pioneer among the local
Chinese car manufacturers with respect to
electric automobiles.
Based on their core
competency in battery production and a strong
R&D capability, as well as the resources obtained
from the acquisition of the semi-conductor chips
company in Ningbo City of China, it launched the
very first plug-in hybrid electric car in the world in
Figure 10: BYD Electric Powertrain
2009, F3DM. Afterwards, they further advanced
into electric car production and subsequently launched the E6.
BYD is also the first to
cooperate with taxi companies to adopt electric cars as taxies. In 2010, BYD launched another
electric car model, K9. (Peng, 2010) BYD has set its footprint as it pursues becoming the
leading electric car company in the world.
4.5.1.3 Insight in Green Technology (105)
BYD has a deep understanding about the automobile market and holds great insight
about the future trend of the industry.
With the increased awareness for environmental
protection, BYD anticipated that green energy and energy saving will be an important issue and
future direction for car manufacturers. With the prospect prediction of Chinese economy and
the huge consumer basis in China, the electric car products of BYD has become the first choice
for the consumers who has concerns about sustainability, energy consumption and
environmental protection.
For example, the sales of E6 have shown 92% growth in 2012 and 2013 since it is
launch while the other gasoline powered models have seen reduced year of year (YoY) growth
(see below chart).
Figure 11: BDY Sales Figures (Dec-13 to Feb-14)
4.5.1.4 Mature Distribution Channels and After-Sale Services (74)
Incorporated in 1995, BYD has established distribution channels and long-term
relationship with the dealers. With the existing customer base, BYD will be able to make sales in
efficient manner. In addition, there is a lot of after-sale service shops established in the major
cities in China and globally. They provide the consumers one-stop service from maintenance to
loan services. The dealers offer competitive loan interest rates in order to attract the consumers
to buy from BYD.
Figure 12: BYD Global Locations
4.5.1.5 Pricing Strategy and Brand Image (92)
The pricing strategy of BYD is very favorable and appealing to the young generations
and white collars. It is considered affordable and is relatively cheaper among the similar car
models. (Is BYD competitive in its pricing strategy?) In addition, BYD has established its own
image and reputation in China as face of Chinese manufactured cars. Some of its supporters
purchase from BYD for the purpose of encouraging the success of local brands. The loyalty of
the Chinese consumers has become strength for BYD in the Chinese market especially in the
younger generation.
4.5.2 WEAKNESS
4.5.2.1 Defect on Battery Products (93)
The production of battery products for BYD faces several issues. The quality of the
battery is not stable and frequently has defects. The technology in developing battery products
doesn't seem to be up to certain standard that the consumers will trust. While BYD is in
discussion with Tesla, who also encounters the same issue with BYD, the solution has not been
determined so far. Moreover, the patent disputes over the battery related technology could also
become a potential risk for BYD while it further expands its market in electric cars. (BYD SWOT
Analysis)
4.5.2.2 Competition with International Brands (67)
Although some of the BYD purchasers are being supportive and encouraging for the
Chinese local manufacturers, it’s not understood if the consumers in China do make distinction
on the international and local brands. When speaking about international brands, the consumers
believe that good quality and good technology are the reasons for buying an imported car.
Therefore, the competition BYD faces both in China and overseas is rigid.
4.5.3 OPPORTUNITIES
4.5.3.1 Government Support for Green Energy (177)
The Chinese government has published different policies and plans to continuously
support the development of electric cars. Considering the severe air pollution among major
cities, the Chinese government realizes the importance of working on sustainable energy and
environmental protection. Therefore, in 2012, the government launched “100 Thousand New
Electric Cars on the Road” activities through out 13-20 cities in China. In 2015, it is anticipated
that the green energy cars will amount to 20% of the sales of the vehicles in China. By doing so,
the government expects to reduce 20% of the energy consumption comparing to 2008. The
government has planned to publish more incentives for the car manufacturers to enter into the
electric car market and is in the process of enacting relevant rules regarding the electric car
production. That being said, we can anticipate that the electric car market will be increasing with
such preferential government policies. In this regard, BYD certainly has its advantages as the
first comer to the market and will set up entry barriers for other competitors to come in.
4.5.4 THREAT
4.5.4.1 Incompleteness of New Energy Market (66)
As a new emerging market, it is still waiting for a complete and systematic framework
and ancillary procedures to support the new energy market, including the relevant technology,
the legal protection, the industrial standard, the government policies and the consumer
behaviors. Therefore, BYD needs to make efforts on the market research as well as interfacing
and influencing government policies or risk operating in an unfriendly environment.
4.5.4.2 Competition of other Car Manufacturers (101)
The competition among car manufacturers is severe in terms of the pricing strategy, the
promotion, R&D capabilities, and most important, the quality of the products. As stated earlier
that there are at least 20-30 major car brands doing business in China. As such, if the other
major car manufacturers being entry into EV market, BYD may not be able to compete with the
international car manufacturers in terms of the advance technology such as Tesla. Also, BYD
as a local manufacturer has not fully explored its opportunities through the promotion and
advertisement, which process is slightly slower than the other competitors. [Angel to update the
chart and send to Phil later. ]
Figure 4: BYD SWOT Matrix
4.6
Resources and Capabilities (59)
The chart below sets out BYD’s resources and capabilities from internal or external
aspects. The strong R&D technologies and solid battery-manufacturing basis provide BYD a
base for further development on the electric cars with energy saving options. The support from
the Chinese government and the increasing awareness of the environmental protection
consciousness give BYD a direction to move forward.
Figure 14: BYD R&C Matrix
4.7
Future Challenges / Recommendations (604)
4.7.1 Quality and Innovation (131)
Despite its leading status in electric car sector in China, the battery defects of BYD cars
is still a big concern when the consumers make decisions on purchasing cars from BYD. It was
claimed by the Japan car manufacturers that the battery technology of BYD is considered the
old technology utilized by Japanese 30 to 40 years ago. As such, how to better use the
derivative technologies or the inventions to improve the functions of the car becomes a
significant issue for BYD. In the recent few years, BYD has been making efforts on improving its
battery quality as well as the stability of the cars. The new S6 and G6 models tend to attract
more consumers by promoting its battery with great quality and the overall safety of the car.
4.7.2 Technology and Cost Reduction (146)
The type of battery currently adopted by BYD is called “lithium iron phosphate battery”.
According Anto Hirohikalu of Sohu Cars, the production costs for Lithium iron phosphate battery
is quite high. A lot of battery manufacturers will use replacements to reduce costs. (Interview
with Anto Hirohikalu)
Plus, while the processing technology of lithium iron phosphate can be
varied based on the battery to be produced, it is difficult to claim the patents over the processing
technology. That being said, BYD is not able to share its research and development costs with
the competitors who may want to be licensed with BYD’s battery technologies by charging
royalties. BYD will have to bear these costs moving forward. Therefore, from the economic
stand point of view, how to reduce their costs for the production of batteries is crucial if BYD
would like to increase its margin on the sales.
4.7.3 Cooperation with International Automobile Manufacturers (153)
Although a pioneer of electric vehicles in China, BYD is primarily a local Chinese brand
and faces the competition of international brands such as Tesla. (BYD and Tesla) In addition,
the design and quality of BYD car models has not yet reached the competing level with other
prestige brands such as BMW, VOLVO and TOYOTA. Therefore, if BYD wants to expand its
business into the international market, the alliance with the international brands will effectively
increase its name exposure to the next level and will be able to improve the confidence of the
consumers on the quality of the cars when consumers are thinking about buying from BYD. In
addition, the exchange and sharing of technologies with international car manufacturers will add
new blood to BYD’s internal integration and the direction of future development. It should bring
BYD new thoughts about its capabilities and competing advantages, which will help BYD’s
growth moving forward.
4.7.4 Improvement on Marketing Strategy (174)
While the focus of its sales is in energy saving, BYD should also focus on which market
segment it should concentrate on in marketing. It is not clear which market segment BYD
positions itself to be in the Chinese market. While we are all fully aware that BYD is the leader
in the electric car sector, the energy saving advantage did not bring BYD great profits in China.
The Chinese consumers still pay more attention on the design and functions of the cars,
especially for females. There are also a group of consumers who only chase after luxury cars,
such as BMW and Mercedes. Unfortunately to say, environmental protection is not the main
stream of thinking when consumers in China make purchase decisions on vehicles. If BYD limits
itself to the group of customers who like the idea of energy saving and environment issues, it
will be difficult to sustain and increase sales Therefore, BYD should review its marketing
strategy and find out how to best promote its products in China or other countries.
5
5.1
Developed Country Competitor – Tesla (4456)
Introduction to Tesla (541)
Tesla Motors was founded in 2003 by a group of Silicon Valley engineers who “set out
with one mission, to prove that electric vehicles could be awesome” (Tesla Motors).
Headquartered in Palo Alto, California, Tesla Motors has grown immensely in just under 11
short years of operation, from an initial round of Series-A funding between $7.5M to $10M
dollars to a current market capitalization of $26.16B dollars. Today, the company employs
roughly 2000+ people in 31 global locations, and they are continuing to expand their operations
and global presence at a significantly fast pace. Their
CEO is Elon Musk, a person who is highly regarded
today as one of the most influential entrepreneurs in
the last decade. In addition to Tesla, he is the
CEO/CTO
of
Space
Exploration
Technologies
(SpaceX), the first commercial company to dock with
the International Space Station and return to Earth, as
Figure 5: Elon Musk
well as SolarCity, the leading provider of solar power
systems in the United States, and the co-founder of PayPal, the world’s leading internet
payment system (Tesla Motors).
Tesla went public on June 29, 2010 in a landmark event. This was the first public
offering of an American auto manufacturer in the United States since the Ford Motor Company
in 1956; and the IPO surpassed all investor expectations. From an initial expected price range
of $14-$16 per share, the companies first day on the market settled at $23.89, a 41% premium
over initial expectations (Cowan & Jarzemsky, 2010). Since that date they have not looked
back; on March 29, 2014 Tesla's stock closed at $212.37 and a market capitalization of
$26.16B; 10x their IPO value in just four short years (Tesla Motors).
In 2006, Tesla began introducing their first prototype vehicle, The Roadster. By 2008,
the company was in full production, and by 2012 had produced and sold nearly 2,400
Roadsters. At the same time they entered full rate production of the Roadster in 2008, Tesla
announced their next vehicle, a game changing concept vehicle known as the Model S. Where
the Tesla Roadster was a modified 2-door Lotus Elise converted from gasoline to fully electric,
the Model S represented a radical design change in vehicle manufacturing; it was a high
performance 4-door sedan, fully electric vehicle built from the ground up completely in house by
Tesla with no outsourcing. The Model S incorporated highly unique and radical ideas never
implemented before in a vehicle; and it has been met with tremendous consumer response. In
just under two years of full-rate production, they have produced and sold 25,000 Model S
vehicles globally (Voelcker, 2014). In 2013, the Tesla Model S has already displaced top selling
luxury automotive brands such as BMW, Mercedes, Lexus and Acura as the top selling luxury
vehicle, and the car was won numerous and prestigious awards, from the 2013 “Motor Trend’s
Car of the Year”, 2013 “Automobile’s Magazine Car of the Year”, 2013 “World Green Car
Award” to “Time Magazines Best 25 Inventions of the Year 2012” award (Tesla Motors).
Following this prestigious product launch, Tesla is now following up the Model S with the Model
X, a high performance fully electric crossover SUV that takes dead aim at the luxury SUV and
Minivan market, and they are set to start delivery in 2014.
5.2
PESTEL (1641)
5.2.1 Political
Tesla’s current operating environment in the United States is quite favorable, and has
been since the start of the company.
Tesla was partially funded through the American
Recovery and Reinvestment Act (RITA Research and Innovative Technology Administration,
2013), as well as the Department of Energies (DOEs) Advanced Technology Vehicle
Manufacturing (ATVM) program, which as signed into law by President Bush and later awarded
after President Obama took office. The DOE granted a $465 million loan to Tesla in 2009
(Mother Earth News, 2014) as part of an $8 billion program funded by the government to help
fund advanced vehicle technology. This program in part helped support the engineering and
production of the Model S, and the development of powertrain technology that is now Tesla’s
core competency and key differentiator from their competition. Tesla paid this loan off nine
years early despite media and investor critics, and Tesla was careful to thank all of those who
made it possible, including "the Department of Energy and the members of Congress and their
staffs that worked hard to create the ATVM program" (RITA Research and Innovative
Technology Administration, 2013).
Along with the US federal loans utilized for startup and R&D funding, Tesla also relies on
support from US politicians through a complex series of federal and state subsidies that
incentive consumer purchases and make their vehicles pricing more attractive. For each
purchase of a new Tesla acquired for personal use, the federal government offers a $7,500
federal tax credit. In addition, various states offer additional income-tax credits, including $6,000
in Colorado and $7,500 in West Virginia (Koopman, 2013).
5.2.2 Environmental
Tesla Motors believes that electric vehicles lessen dependence on petroleum-based
fuels and rely instead on domestically produced electricity, overall boosting the national
economy and its independence from foreign oil. Studies estimated that the Tesla Roadster can
cost as little as $5 to charge, which totals just $279 in annual fuel costs. This represents an
enormous 83% savings compared to the $1625 estimated annual fuel costs for gas-powered
vehicles. The Model S maintains multiple battery pack options, and can vary from $5-$15 a day
to charge depending upon mileage drives; it’s estimated annual fuel cost is still half the national
average. In California and other states, electric vehicles are also eligible to use high-occupancy
vehicle (carpool) lanes, which saves drivers time and money by avoiding congested highway
lanes and promotes consumer adoption (Tesla, 2014).
The Tesla Roadster has an efficiency of 88%, compared to 20-25% efficiency for
traditional gas-powered vehicles. A higher efficiency means less energy is needed to produce
the same propulsion, thus reducing the vehicle’s electricity consumption and associated
environmental impacts. Tesla vehicles’ carbon and pollutant emissions will improve as more
renewables are integrated into the grid over time. Gas-powered vehicles, on the other hand, use
only a nonrenewable source (gasoline) and cannot capitalize on the integration of more
renewable energy sources. Tesla vehicles have the capacity to be fueled by electricity from
100% renewable energy such as solar power (Tesla, 2014).
5.2.3 Social
CEO Elon Musk noted Tesla’s market entry strategy back in 2006, stating “The strategy
of Tesla is to enter at the high end of the market, where customers are prepared to pay a
premium, and then drive down market as fast as possible to higher unit volume and lower prices
with each successive model” (Tesla Motors). Tesla vehicles are still regarded as being for the
upper middle class for those who can afford such a forward thinking vehicles premium pricing,
however demand is surging for electric vehicles as gas and oil prices continue to rise. There
are plans after the Model X to introduce a mid-ranged priced vehicle, codename “Bluestar” that
will be in the $30K target price range aimed squarely at the middle class consumer, consistent
with Musk’s strategy from 2006 (Tesla Motors).
5.2.4 Technological
Tesla maintains a significant technological advantage over its current competition
market. They posses a market leading power and drive train covered by more than 40 patents
with another 200+ pending.
This core technology is so advanced, that most of the major
competitors have begun seeking partnerships for drive train development in their own brands.
Toyota has entered into a $60M dollar agreement for a fully electric RAV4, Daimler as well has
invested $50M for a fully electric SMART car for European sales (Tesla Motors, 2010). The fact
that they now have contracts to develop propulsion technology for both the largest luxury auto
brand in the world (Mercedes), as well as the largest automobile manufacturer in the world
(Toyota), speaks a great deal of this small silicone valley firms position in the automobile
manufacturer market.
Tesla recognized their need to maintain their competitive advantage in production as
well. When making a determination
of where to manufacture the Model
S, they were looking at several
areas and locations of potentially
where to build a production facility.
But auto manufacturing plants are
significantly large investments of
sunk capital, and the start-up still
needed to determine whether they
would
receive
a
return
on
investments for such a large cash
Figure 16: Tesla Factory (NUMMI Plant)
outlay. Enter the New United Motor Manufacturing Inc (NUMMI) factory, a 50% Toyota, 50%
GM owned facility that shut its doors after 25 years due to the GM bankruptcy because Toyota
did not wish to keep it running alone.
Tesla purchased the facility for $59M in total ($42M for
factory, $17M for machinery), a fractional price from what it would have taken the company to
invest in their own new facility (Baker, 2012). Tesla now only utilizes a small portion of the
facilities capacity, but it now has a state of the art production house with significant room for
expansion if and when it needs it, and did so with minimal investment.
Tesla is also aligning their
verticals and ensuring that their supply
chain will be able to support their large
demand with the most critical part they
need, batteries. Instead of relying on
outsourcing and supplier innovation,
Tesla is going it alone. The world's
largest lithium-ion battery factory—a
10-million-square-foot
so-called
Gigafactory planned by Tesla Motors
for
Figure 17: Tesla Gigafactory Production Expectation
2017—will
eventually
produce
more battery power each year than
was produced globally in 2013 (Dillow, 2014). The factory represents a significant investment
for Tesla, and would make them the leading global provider of lithium-ion batteries when the
factory reaches full production.
Additionally, Tesla again is innovating
not only in their technologic capability, but
also their infrastructure support for their
product. Electric vehicles have been typically
limited by one major factor, range.
Only
Tesla’s most expensive Model S (300-mile
range at a cost of about $70,000) will
Figure 18: Tesla Supercharger Station
compete with Internal Combustion Engine
(ICE) vehicle range of 300 – 400 miles/tank. Plug-in Hybrid Electric Vehicle (PHEV)s, which use
electricity only to run the powertrain for a limited range (i.e., 33 – 50 miles) and then a reserve
gasoline tank to regenerate the electric powertrain beyond the all-electric-only range, effectively
provide ranges up to 300 miles per charge and gasoline tank (Koopman, 2013). Tesla has
sought to remedy this problem with a significant investment of their own, the supercharger
station. With the installation of the supercharger networks, Tesla Model S owners can charge
their vehicles for free for life along the most prevalent highways in North America and Europe.
To date there are 82 stations in the United States and 14 in Europe with significantly more
planned. By 2015, 98% of the U.S. will be covered and within range of a supercharging station.
Source (Tesla Motors)
5.2.5 Economic
Stable economic conditions inspire consumer confidence, particularly in the realm of
large purchases such as home and auto. The auto industry expects another year of growth in
2014, with new car sales in excess of 16 million. Consumer demand will partly come from
delayed purchases of the previous years as the American (and other) economy has recovered.
The federal and state tax incentives will certainly bring the price range of Tesla vehicles into
consideration for more consumers, especially given the consistent rising gasoline and diesel
prices.
Tesla’s current market capitalization is $26.16B dollars, second only to GM.
The
company’s stock has price estimates as high as $350 per share in 2016 (a 33% increase), a
debt-to-equity ratio of .91 (below industry average) and gross profit margin of 31.56%. While
these numbers sound impressive, their net profit margin for 2013 was actually -2.64%, causing
some investors to consider the company overvalued (Owusu, 2014). However, given the auto
manufacturers potential for future cash flows, their market valuations continue to rise.
Additionally, Morgan Stanley has joined forces with Tesla as their major creditor, placing
significant value that should help make leading producer of low-cost energy storage. Morgan
Stanley analyst Adam Jonas wrote, “Tesla’s quest to disrupt a trillion $ car industry offers an
adjacent opportunity to disrupt a trillion $ electric utility industry. If it can be a leader in
commercializing battery packs, investors may never look at Tesla the same way again” (Sharf,
2014).
5.2.6 Legal
Several laws in different states do not allow Tesla to sell directly to the consumer.
During the second week in March 2014, the motor vehicle commission in New Jersey voted to
prohibit carmakers from selling directly to the public, effectively keeping New Jersey residents
from being able to purchase Tesla vehicles in that state. Consumers can go to Tesla
showrooms in other nearby states if desired. Tesla vehicles can also be purchased online
directly from the company. (Brown, 2014)Overall, that makes 5 states with bans on selling direct
to consumer (DTC), 2 with significant restrictions, 2 with pending legislation. The population of
those states is 57 million (bans), 15 million (restrictions), 31 million (pending). If Ohio and New
York go through with their rules, Tesla will have problems in 9 states representing more than
100 million people — close to 1/3 of the U.S. And there’s no reason to believe that dealers
associations in other states won’t be emboldened by what happened in New Jersey.
(Rogowsky, 2014).
Source: (Rogowsky, 2014)
Porters Five Forces Analysis – Tesla & EV Market (658)
5.3
5.3.1 Threats posed by new entrants - Low

Currently not many companies competing in fully electric vehicle category as in
automobile industry (Patterson, 2011).

High barriers of entry such as manufacturing facilities require significant investment.

Government regulations for safety, emissions and other requirements must be satisfied.
Targets proposed for 2020 are different depending on the country and region and type of
emissions, the “U.S. has set the toughest standard for emissions of nitrogen oxides
(NOx), and Europe is more aggressive on standard emissions of carbon dioxide than the
U.S. and China (Mosquet et al, 2011).

Brand equity and consumer loyalty for established manufacturers with large market
shares is high.

Consumers switching costs to electric vehicles are high, since electric vehicle industry is
developing and an innovation for consumers; and a new electric vehicle is less
affordable than other new automobiles.
5.3.2 Power of suppliers – Low

Tesla Gigafactory currently in production to sustain organic battery production in place of
supplier dependency; reduce cost and accelerate innovation.
(Musk, 2014). Tesla’s
engineering is proprietary making not available substitutes for components, such as
power trains, instead is supplying Toyota and Daimler with power train programs (Musk,
2014). Firm major investment is on mechanical, electrical and software R&D.

There are not readily many available suppliers substitutes for charging devices.

U.S. auto unions historically wielded significant strength, but their influence is being
reduced lately due to shift from Detroit manufacturing (Snavely, 2014) and since Tesla is
much likely to a Silicon Valley company, where workers work without union
representation (Baker, 2014).

Smaller supplier firms who now supply newer technology components not covered by
auto unions.
5.3.3 Power of buyers – Medium

Luxury electric car price is high, generally consumers purchase 1-2 vehicles, but with
current market prices for electric vehicles, the buyer power is low since they cannot buy
2 or more vehicles of this kind.

Quantity and supply. Currently there are 3 luxury and sport all-electric vehicles brands
in available to choose from, and 9 plug-in hybrid electric vehicles (PHEV) brands as
shown in Appendix 3. Competitors on clean technology are increasing thus increasing
the industry products.

Consistent sales, discounts and financing programs to entice consumers to purchase.

Government is providing incentives, such as tax credits, rebates, free parking, among
others; or buying and owning a Tesla electric vehicle worldwide program in accordance
with local regulation. (Tesla Motors)
5.3.4 Product substitutes – Moderate

Green movement to bicycles such as implementation of bike share programs2 and other
major urban environments reduces need for vehicle.

Green movement to green public transit such as natural gas buses also removing
consumers from automotive market.

Reduced consumer credit means less are purchasing even if wanted.

More efficient hybrids and clean burning turbo-diesels entering market.

Motorcycles.

Rideshare, car and van pools.

Zipcar and other car rental options by the day.

Cars are selling less, yet people are still moving from point a to point b.

Buyers’ cost of switching to a non-gasoline means of transportation and motorcycles is
low (Clean Technica, n.a.). Even to acquire a non sport EV such as: Nissan Leaf, Ford
Focus Electric, Toyota RAV4 EV, Smart fortwo electric drive.
5.3.5 Intensity of rivalry among competitors - Moderate

Intense rivalry3, given limited consumer market and number of manufacturers in the
market space.
At Washington D.C. since 2008 launched this bike sharing system as a “Transit Development Plan”:
http://capitalbikeshare.com. And in New York City: http://citibikenyc.com/about
2

Consistent advertising, comparison marketing and sales to entice consumers to
purchase and choose over other brands.

Defensive positions with many cutbacks, reduced production and recent financial
bailouts from the government.

12 major brands with sub-brands that move upwards of 50 in the US, hundreds
worldwide. Competitors are roughly of the same size. Mainly competitors are: BMW i3,
Mercedes Benz SLS Electric.

5.4
Electronic Vehicle industry growth yet is slow.
Core Competencies (395)
Tesla’s introduction into the automobile industry is groundbreaking.
In an industry
dominated by behemoth giants such as BMW, Mercedes, GM, Toyota, Ford, Honda and Nissan,
they’ve have been able to introduce a disrupting and innovative product that is beginning to
revolutionize the industry. Many of Tesla’s competitors have been working to innovate in the
electric vehicle market; each has met with some degree of success and failure. GM introduced
the Chevy Volt, Toyota the Prius Hybrid family of vehicles, Ford the Fusion, Honda the Fit and
even Nissan the Leaf; are all great examples of incremental advances in the electric vehicle
marketplace but none have captured the hearts and minds of the consumer as Tesla has done.
Tesla possesses something that all of the other auto manufactures do not, the lack of
legacy. Where existing manufacturers currently build and deliver a full menu of gasoline and
diesel cars, trucks, minivans and SUV’s all with varying option packages, price points and
discounts, electric vehicles and hybrids make up just a small segment portion of their entire
product offering. They are forced to continue making investments in their traditional combustion
engine product lines to continue fulfilling their demand base, leaving little room to innovate in
this new electric vehicle market. Even as they begin to do so, it only begins to erode their
existing consumer base for gasoline and diesel vehicles. Rather than market share expansion,
they only alter their current positions composition.
From the bottom up, Tesla represents a different view of the auto manufacturer, one
purely focused in the electric vehicle market space with core competencies far different than
their competitors. JB Straubel, Tesla’s Chief Technology Officer (CTO) was quoted in 2008,
stating that “A very low-cost and efficient single-speed gearbox mated with a continually
3
As noted in Producing Cleaner Autos from Organization of Motor Vehicle Manufacturers site:
http://www.oica.net/category/auto-and-fuels/
improving motor, invertor
and battery is the core
competency
Tesla’s
of
powertrain team, and it is
the also our roadmap for
future vehicles” (Straubel,
2008).
This
statement
profoundly displays Tesla’s
vision for their organization,
a singular focus on making
the
most
powerful
Source: (PatentDocs)
and
efficient electric vehicle in the marketplace today. The lack of legacy means they have nothing
to distract them in their mission as well; to date they have over 40 patents for their electric
drivetrain with another 200+ pending approval. They are technologically years ahead of their
competition and continue to innovate in this domain, furthering their competitive advantage.
5.5
SWOT (851)
5.5.1 Strengths
From Tesla Motors inception, the company has been focused on a vehicle for specific
market; a car with distinctive technology designed for people who wanted an outstanding
appearance, quality construction and economical. (Hartung, 2012). This made Tesla to become
the first automaker to entry on the electric sports vehicle without any of the traditional trade-offs
that others were facing due to no legacy within their brand. These are significant highlighted
strengths of the company.
To comply with attributes listed above Tesla Motors does completely assembly its cars
in-house, from its design to its total assembly. Tesla workers, entrepreneurs and engineers,
having Silicon Valley mindset: entrepreneurship and technology driven (Yohn, 2013); build up
the car from lightweight components assembled by robots (total 160) and about 3,000 workers
working aside to install all the components of it (Lavrinc, 2013). This varies greatly from the
existing US Detroit mindset of massive production lines like Henry Ford and the Model T, where
efficiency was gained through production optimization.
Tesla gets advantages of this
technology for speed, precision and cleanliness, strength versus its competitors. This drives to
have high production and Research and Development costs, but as soon as it can continue to
produce a better car that meets customer’s needs at a fraction of the main sport ones (Ferrari,
Porsche Panamera, Audi 8, BMW 7 to mention few), it will continue to be a premium brand
value proposition.
All these, makes possible a higher customer experience and performance, for example
the Model S 85-kWh lithium-ion battery gives around 200 miles before needing a recharge;
while competitors Ford Focus Electric and Nissan Leaf can give around 80 miles (Consumer
Reports Magazine, 2014). For this kind of attributes and others, Tesla Model S was rated 99 out
of 100 in 2013 according to the Consumer Reports, an expert, independent, non-profit
magazine and website organization that performs consumer annual reports.
5.5.2 Weakness
The performance of Tesla of the past few years has been astounding, innovating new
products and designs have begun to capture not only consumer expectations, but also Wall
Streets. While generally a company that has shown exponential growth is a very welcomed
sign, Tesla’s vision for long term energy stability, investments in the Gigafactory and other
ventures such as the follow on Model X may prove difficult for the company to keep both
consumers and investors happy while simultaneously positioning the company for long-term
sustained growth. “Tesla, for instance, trades at 12.6 times sales -- that compares with a priceto-sales ratio of about 0.5 for General Motors and Ford and 1.7 for the S&P 500. With a lofty
valuation like this, saying the market has enthusiastic expectations for Elon Musk's U.S.-based
electric car-maker may be an understatement.” (Starks, 2014) Missing quarterly profit margins
or expectations may reduce the significant operating capital the firm has generated in just a few
short years. Consumer demand and production capacity could also play into devaluation.
“Expecting to produce and sell 500,000 cars per year by 2020 (from just 22,500 last year), it
could be argued that Tesla's future potential is equally as exuberant as the stock's current
valuation. (Starks) The exposure and potential for capital to be removed from current and future
investment projects could significantly hurt potential future cash flows for Tesla; expectation
management to banks, Wall Street and consumers will need to be closely managed to continue
positioning the company for growth.
5.5.3 Opportunities
Prices of oil and gasoline continue to rise, and as they continue to increase so will the
increased interest on different alternatives of transportation like electric vehicles, bicycles or
public transportation. The demand of electric vehicles is growing but still needs to have a big
infrastructure of charging stations, which Tesla has been building along USA, Canada, and
Europe. Willing customers will be able to freely charge their electric car as occurs with gaspowered cars and plans to complete a nationwide charging network to connect the USA most
popular routes by the end of 2015. The time of battery charging is relatively fast (about 45
minutes) and will be for free and battery swap will have a cost (Tesla Motors, 2014; Lord, n.a).
5.5.4 Threats
There are state or federal incentives to finance the acquisition of an electric vehicle the
state of California offers rebates to buyers (as shown on Appendix 3). Other kinds of incentives
are: tax credits, free parking, unrestricted access to high occupancy commuter lanes, etc. For
instance, Tesla applies the USA federal tax credit incentive that government offers with the
purchase of a new electric car for personal use, also at the District of Columbia, taxes
exemption and fee reduction eligibility is applied. In Netherlands, the tax exemption will be
available until 2015. This helps to encourage customers’ acquisition by means of making it
more affordable a great opportunity to rise the demand of the product and increase sales. But
not too many people know about the incentives that can apply for, hence, it is still a threat for
the manufacturer since government can cut down the incentives (Tesla Motors, 2014; Ingram,
2013).
Figure 19: Tesla SWOT Matrix
5.6
Resources and Capabilities (370)
Tesla’s Silicon Valley mindset combines a technologically based business, passionate
and talented people, huge levels of optimism & strength to embrace failure, quick adaptability
and cooperation among others. Top management starts with the end in mind. Generally people
possess critical and analytical thinking, curiosity about the environment, creativeness, and
openness. Tesla Motors has a high performance culture and organization, innovating through
creative and disruptive products and services (Oppong, 2013; Founder Institute, 2013). Doing
things differently versus traditional vehicle manufacturers is one of the valuable and rare
capabilities the company has as long as it continued ability to be costly-to-imitate by its
competitors.
Employees have strong engineering background either on power and electrical or
vehicle design and manufacturing, which is a rare capability since gives the company
specialized and focused on technology to coupled then with the vehicle manufacturing, which
Tesla defines as the one that will sustain its leadership on electric vehicle industry (Tesla
Motors, 2014).
Intellectual and technological development is a rare and non-substitutable capability for
Tesla. With their in-house made electric powertrain, which not only they design and build for the
models they sell but also for other car manufacturers such as Daimler and Toyota, they’ve
created a core competency in which to base their business model from. (Tesla Motors, 2014).
To achieve this the company owns manufacturing facilities at Tesla Factory in Fremont,
California in the United States, and in Europe at Tilburg, Netherlands. Besides the facilities,
Tesla Motors does market and sell their cars without dealers but through their owned stores and
galleries in order to perform a closely customer relationship management, as well as for a better
control on inventory turnover (Tesla Motors, 2014). The latter can be considered as a temporary
competitive advantage that needs to take future considerations.
With all these physical, organizational and human resources and capabilities, the
company looks forward to enhance customer’s experience, in addition to their own process of
building their models, the regulatory compliance and quality is important on their goal and
market positioning. For that reason, Tesla focuses on earning zero emission regulatory credits
and safety standards from organizations as shown on figure X. Another reason for aiming to
earn regulatory credits is to obtain financial revenues.
Source: Hitt (Appendix 4) and (Tesla Motors)
5.7
Future Challenges / Recommendations
This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write.
1. Evolve luxury car models - continue to introduce innovative attributes to luxury
models, in order to continue to apply its focus and differentiation strategy, not only
locally but also globally.
2. Expand service and sales capacity - consider the growth company has to
experience, specifically at operations in order to maintain the numbers and
preference of customers.
3. Consider environmental affected countries - should consider countries with major
concerns regarding pollution and where major population is totally conscious about
ecological issues. This to obtain market and increase sales.
4. Gen III - would represent a great step for Tesla on the way to provide an
affordable car to decrease the cost of switch. With this more people would be able
to enjoy the innovative car.
5. How beneficial is to sell regulatory credits in excess? Need to keep an eye on the
driver or objective to obtain regulatory credits because can be seen from two points
of view, which can make the market to react on the contrary due to obtaining
credits just to sell them and refinance themselves instead of doing to provide a
better product.
Analysts at Barclays in particular do not think the drive will be smooth for Tesla. “Tesla will be
dependent on strong Chinese demand. While we expect strong initial interest from early
adopters in China, we see challenges to broader luxury market adoption,” analysts at the bank
said. (Blanc, 2014)
6
Synthesis and Integration(After other sections written) (10 Pages)
================================================
.
a) Comparison of candidate global strategies: compare the global strategy followed by each
competitor, where they are similar, where they differ, which approach you prefer, and
why. Indicate what each candidate might learn from the other, if anything?
.
b) Following and based on your global strategy comparison provide forward-looking
recommendations for the next 5-10 years for each candidate, focusing if applicable on
how trends/changes at the industry/firm level threatens their competitive position, and
what each should do to sustain/improve their competitive position over the next 510years? Justify why your recommendations are feasible and compelling.
.
c) What does your study/analysis teach us about management in the global
businessenvironment today?
================================================
6.1
Comparison Analysis
6.1.1 Core Competencies
This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write.
6.1.2 PESTEL
This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write.
6.1.3 SWOT
While comparing Tesla and BYD in their SWOT analysis, we found that there are a lot of
characteristics in common for the two companies, including the first comer to the market,
substantial investment in the R&D technologies, the huge potential in the market due to the
environmental concerns around the world, the high production costs and the severe competition
among other competitors etc. However, the image and reputation established by Tesla in the
international market is a plus for Tesla for the future internationalization and for gaining support
from the international resources. [Angel to send the graphs below to Phil ]
(Need to put this into graphic to read easier, color would help)
SIMILARITY
BYD/T
ESLA
STRENGTH
WEAKNESS
OPPORTUNITIES
THREATS
*First in the
local market
for
manufacturin
g electric
cars.
* R&D costs
are extensive.
* the
environmental
protection
awareness in the
world.
* Rigid competition
among
international and
Chinese car
manufacturers.
* Venture
start up
building from
ground up.
* Not yet
producing at
optimum
economy of
scale.
* No
outsourcing
* the first comer
advantage in the
electric car market
(the creation of
entry barrier to the
other competitors)
*Increase of oil
and gas pricing
pushing for the
demand of electric
cars.
* Strong R&D
capacity.
(Need to put this into graphic to read easier, color would help)
DIFFERENCES
BYD
STRENGTH
WEAKNESS
OPPORTUNITIE
S
THREATS
* A local
Chinese
without much
publicity to
* Defective
battery
products and
constant
* Strong
government
support due to
the air pollution
* Incompleteness of
the new energy
market.
the
international
market.
*Strong
battery
industrial
experience
and basis
which
supports the
manufacture
of the electric
cars.
maintenance
issues.
in major cities in
China.
* the un-established
brand value.
* Large
international
demand.
* Achieving economy
of scale at luxury
pricing. Hard to
maintain premium
brand that is
affordable to mass
consumers.
* Competitions
against the
international
brands.
*Strong
government
support for its
development.
TESL
A
* MotorTrend
2013 Car of
the Year
(brand value)
*Without its
own battery
capacity.
*No special
government
support.
* Financial
profile.
Currently
trading at
130x. While
this could be
viewed as
strength, if
they miss
margins,
earnings or
revenue…
could have
significant
value
destruction
within market.
* High
production
cost based in
the US.
* Loss of government
subsidies.
* Product adoption.
Legacy combustion
engines have been in
American DNA for
hundred years.
Sound and noise
satisfaction that
comes for most auto
enthusiast nonexistent in electric
vehicles.
* Luxury brands
crowding market
space with
alternatives. BMW
has new I8,
Mercedes, Lexus and
Toyota leading in
Hybrid.
6.1.4 Resources and Capabilities
This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write.
6.2
Forward Looking Statements
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write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
This is where we write. This is where we write. This is where we write. This is where we write.
This is where we write. This is where we write. This is where we write. This is where we write.
This is where we write. This is where we write. This is where we write. This is where we write.
This is where we write. This is where we write. This is where we write. This is where we write.
This is where we write. This is where we write. This is where we write. This is where we write.
This is where we write. This is where we write.
6.3
Lessons Learned
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write. This is where we write. This is where we write. This is where we write. This is where we
write. This is where we write. This is where we write. This is where we write. This is where we
This is where we write. This is where we write. This is where we write. This is where we write.
This is where we write. This is where we write. This is where we write. This is where we write.
This is where we write. This is where we write. This is where we write. This is where we write.
This is where we write. This is where we write. This is where we write. This is where we write.
This is where we write. This is where we write. This is where we write. This is where we write.
This is where we write. This is where we write.
Word Count: XX,XXX
7
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1.
Appendix 1: Linear Strategic Management Process
2.
Appendix 2: McKinsey 2020 Forecast (Missing)
3.
Appendix 3:
List of Electric Vehicles (EV) and Plug-in Hybrid Electric
Vehicles (PHEV)
Source: Clean Technica, Electric Cars for Sale in 2014; U.S. Department of Energy.
4.
Appendix 4: Firm’s Resources and Capabilities Classification
Company’s resources and capabilities are classified as follows:
Tangible
Financial
Internal and external sources of financing, financial
strength
Physical
Plant and equipment, locations and access to raw material
Organizational
Intangible
Human Resources
Source: Hitt et al, 2011
Contracts, patents, stakeholder relationships
Firm reputation, brand name
Skills, background, training of managers and employees,
organizational structure