Contents

Tesla Motors and its Strategy

Industry and Competitor Analysis

Disruptive Innovation Model

Business Units: Production | HR | Finance | Marketing
Future Outlook

What is Tesla?
Named after the pioneer of Alternating Current, Nikola Tesla, TESLA is a typical Silicon valley
company that only makes totally electric vehicles
No hybrids. No hydrogen. No hype.

Vision
Vision of a world without gasoline cars
Proving to the world that electric is not only cleaner but better
Trigger an electric transport revolution

Driving Forces
A CLEAN START

COMMITTED TO
ELECTRIC

BUILT AROUND THE

DRIVER

SPARKING
REVOLUTION

Porters Potential
Five Force
Analysis
Entrants

Buyers

Potential Entrants

Buyers

Low Threat

There are few competing vehicles

Only one successful entrant company in 100
years

Moderate Threat

Moderate bargaining Power in B2C segments

Industry Competitors
Moderate Competition

Due to high entry barrier

Competing major brands and evolving market

Suppliers

Low Threat
Low Bargaining power of suppliers due to
multiple suppliers supplying similar parts
High Bargaining Power of company due to inhouse talent for Engine and Chassis and
transmission

Substitutes
High Threat

Newer hybrid variants like Plug-ins

Very few viable alternatives to cars

Corporate Strategy
Emulate Technological Product life
cycle
Enter with high end product
Wait for acceptability
Penetrate Cost Conscious consumer
markets

Pushing Products through Thought

Leader/Early Adopters
Following the Cell-phone, Laptop like
technology intensive product
introduction strategy

Management is aware of the

push and patience required
to the market to accept the
product in larger numbers

Strategy & Product Evolution

2008-12
High price Low volume
Roadster, the first fully
electric sports car
Base Price $1,09,000

2012
Mid price Mid volume
Model S, the fully electric
sports sedan
Base Price $ 69,900

Use sales of Roadster & Model S to drive battery business

2014
Lithium Ion battery packs to
automakers like Daimler &
Toyota

2015
Model X, full size Electric
Crossover Utility Vehicle base
price announced

2017
Low price High volume
Model 3, a scaled down
version of Model S
$ 35,000

Use battery sales to drive future affordable models

In 2006, when the co-founder and current CEO of Tesla Motors Elon Musk was asked about their strategy, he stated:
The starting point is a high performance sports car, but the long term vision is to build cars of all kinds, including low cost family
vehicles

Strategic Goals
Selling its own vehicles online & in company-owned showrooms
Selling powertrain components to other automakers
Serving as a catalyst and positive example to other automakers

Expansion
Achieve 20K
Model S
Production
Goal

Partner with
Toyota,
Mercedes
Expand to all
Automakers
Standardize EV
parts for
efficiency

Battery
technology &
electric motors
have broad
potential

A focused differentiation strategy because their customers are

mainly from middle & upper income levels, and Tesla focuses on
providing high performance and creative electric cars

Strategy Summary

Partnering
with Auto
Makers

Hunt for
newer
technology

Business Level Strategy

Corporate Level Strategy

A market penetration strategy as Tesla intends to enhance its
influence on the current markets with their current products.

International Level Strategy

A Transnational strategy as Tesla focuses on the domestic markets
but is also continuously expanding into global markets

Cooperative Strategy
A Strategic Alliance strategy as Tesla Motors formed partnerships
with many firms like Toyota, Daimler, Panasonic, etc.

SWOT Analysis
Potential Entrants

Buyers

Strengths

First mover in fully electric sports car

Strong supplier to other Automakers like Toyota
Strong technological expertise in the area of
electric transmissions & drive train
Ability to develop vehicles completely in house
including the sub-assemblies required
Current platform developed for Model S has the
ability to be used for their future crossover
model

Weaknesses

Threats
Competition from large Auto companies in
Electric and alternative fuels
Selling to average public seems difficult to
achieve at their current business model
Their strategy for pricing (skimming) has not
been used so far in the auto industry
Increasing Internal Combustion Engine efficiency

Full in-house development of sub-assemblies

leads to higher costs due to diseconomies of
scale
Higher prices for car models than similar
combustion engine powered cars
Dependence on continuing innovation
Less Awareness as compared to Audi, Toyota or
Mercedes

Opportunities

Growing support by Governments in the form of

exemptions from duties, etc.
Increasing Oil & Gas prices
Large International Market potential
Increasing awareness and support for Green
Automotives

Portfolio
Sports Performance Car, based on the Lotus Elise platform
First commercially available Tesla automobile
First car to run on lithium ion batteries
0-60 mph in 3.7 seconds
Range: 245 miles

$85,000

Seven passenger MiniVan blended with SUV

Multiple drive train configuration availability
Falcon Doors
0-60 mph in less than 4.4 seconds for the single motor version
Range: 267 miles

$35,000

$110,000

Premium Sedan
World's first Dual Motor electric car increases efficiency
Autopilot Mode
0-60 mph in 3.2 seconds
Range: 285 miles

$75,000

New platform to be revealed in 2016

Challenger to BMW 3 Series Mercedes C Class, Audi A3 & others
Sales to begin in 2017
Gigafactory essential to bring down battery prices
Range: >200 miles

Competitor Analysis

COMPETITOR ANALYSIS

Plug-in Pure Electric Vehicle Segment

Tesla Model S

Nissan Leaf

BMW i3

Toyota RAV4 EV

Launch Year

2013

2013

2014

2012

EPA rated Combined Fuel

economy

95 mpg-e
(35 kW-hrs/100 mi)

115 mpg-e
(29 kW-hrs/100 mi)

124 mpg-e
(27 kW-hrs/100 mi)

76 mpg-e
(44 kW-hrs/100 mi)

Avg. Fuel Cost to drive 25 miles

$0.94

$0.87

$0.81

$1.32

Base model Sticker Price (in USD)

$69,900 (60 kW.h bat. pack)

$30,000

$42,300

$50,700

The Premium Sedan Segment

Tesla Model S

BMW 7-Series

Mercedes-Benz S-Class

Audio A8

Launch Year

2013

2013

2014

2012

Avg. Fuel Cost per milecalc

$0.03

$1.65

$1.42

$1.87

Base model Sticker Price (in USD)

$69,900 (60 kW.h bat. pack)

$74,195

$92,350

$71,990

Q1 sales (2013) (in units)

4750

2338

3077

1462

DISRUPTIVE INNOVATION

Disruptive Innovation

Tesla Model-S 85kWh battery pack (265 miles; 2013)

Tesla Model-S 60kWh battery pack (208 miles; 2012)

Performance demanded by `the market

RANGE

BMW i3 (100 miles; 2013)

Toyota RAV4 EV (83 miles; 2012)

Mitsubishi i-MiEV (62 miles; 2010)

TIME

Superchargers
Proprietary recharging stations across nations to enable free-for-life countryside travel
Cost of superchargers to Tesla = $2,25,000
Most setups run on solar energy and recharges the Model S for half range in 20 minutes
Superchargers station will soon allow swapping of batteries that takes only 90 seconds, for a small fees
So the only decision one has to make at a supercharger station is if they want the charge fast or free

Production Policies
Tesla currently operates in NUMMI, California, a facility that was abandoned by Toyota and GM
Facility has an area of 5 million square feet of factory spread out on 2 levels
Model S production lines fill just 20% of the current production facility space
Space readily available for future expansion for Model III
Very high level of automation for ensuring consistent high quality

Gigafactory
Investment of $5 billion for production of Li-ion
batteries in Nevada
It would double the capacity of battery production of
the world (by 2013 standards)
The gigafactory would be a net-zero energy footprint
and will be run by renewable sources of energy (wind
and solar)
Estimated cost reductions by 30 percent by 2017
and 50 percent by 2020

Gigafactory
Cheaper batteries will aid in achieving Teslas
strategic goal of producing a $35,000 third
generation car
The investment in R&D will ensure improvements in
battery design and performance
Tesla will no longer be just an EV company. It will
be positioning itself to compete in one of the
biggest and most lucrative industries on the planet:
the utility and power generation industry
Tesla has confirmed the Giga factory is not just for
electric vehicles. It will supply batteries for use in
solar industry. Elon Musk is the Chairman of the
board of SolarCity, a company that provides solar
systems for homes, business and governments

Human Resource Policies

Employees strongly believe that they are part of a great change

Every car they roll out reduces the carbon footprint a bit and makes earth more sustainable
This sense of gratification motivates them
Fresh approach to car manufacturing facilities. Tried to make the factory beautiful with Skylight and
windows flood factory with sunlight. The factory is very clean with the walls and floor painted white
and machinery bright red. This gives a sense of cleanliness and are pleasing to look at and work in
Bikes (non-motorized) are provided so that workers can get around the factory
Elon musk says If you make the factory pristine and clean that sets the tone for the vehicle. We
want the same sense of quality and precision in the car itself

ARNNON GESHURI
VP, HR (TESLA)

Financial Policy

Financials

Financials
Items

Three months ended

March,
2013

Revenue (000 $)
Gross Profit Margin
Net Income (000 $)
Operating Cash Flow
(000 $)
Capital Expenditure (000
$)
Free Cash Flow (000 $)

2014

555,203

618,811

17%

25%

11248

-49800

64079

60640

-57727

-141364

6352

-80724

A 11 % jump in Revenues due to sales of S model

A 25% Gross Profit Margin (twice that for big players like GM)

Operating losses due to R&D investments, Sales & Service expansion

Negative free cash flow due to expansion in sales, services, charging

stations & production capacity

Tesla remains unprofitable and doesnt generate cash.

The current valuations supporting the $25 billion market capitalization are based on future expectations.
While Teslas product is beautiful and the company is a technological pioneer, Tesla remains a speculative stock.
The story holds water only with projections of profitability and volumes well in excess of Teslas current 35,000 vehicles per year.
Toyota (TM), General Motors (GM), Volkswagen (VOW), and Ford (F)have billions of free cash flow, thousands of established sales and service
sites, and a long history of generating value for shareholders.

Ratios

Annual
Qtly data Jun 2014

Annual

Dec 10

Dec 11

Dec 12

Dec 13

Dec 10

Dec 11

Dec 12

Dec 13

2.51

2.99

2.41

5.12

0.45

0.37

0.45

1.14

Qtly.

Sep 13
1.09
D/E ratios

Heavy borrowing

Inv T/O

Dec 13
1.33

Mar 14
1.18

Jun 14
1.06

Light Inventory

Qtly.

Sep 13
0.21

Dec 13
0.27

Asset T/O

Mar 14
0.18

Jun 14
0.16

Increasing

Stock Price Movement

Charismatic Investor-cumCEO

Musk tweets on Oct 2nd, 2014 about mysterious D

& another Models
Stock Price up by 5%

Announcement & Delivery of Model S generates buzz

Stock Price up by 287%

Consistent announcement &

delivery of Model-S led to
massive increase in stock
perception
Other projects in pipeline are
also expected to materialize
& stock prices are going
strong

8x times increase since 2010

Marketing Model
Brand building before selling
Three customer segments- the environmentalists, the car-buyers & the mall-shoppers

Focus is stimulating the mall shoppers interest & awareness to remain at the forefront of the EV market
Tangible benefits like battery-swap technology & superchargers add to the positive Word-of-mouth
Gratification of using an electric vehicle vis--vis a gasoline one is secondary in case of a Tesla. The primary
reason for buying a Tesla is the car itself

Marketing Model
Tesla positions its car as the best car, and not the best electric car
Elon Musk presents strong opposition to false negative publicity (Top Gear and New York Times incident)

Tesla has on-road presence in 37 countries

Its a radically different car with a very high focus on technology. It is an upgradable car which adds features
with software updates. This focus on technology flows with todays smartphone loving generation.
Teslas innovation in automobile sector are often pegged to be what Apple did to the smartphone sector

Starting in the spring of 2016, many Model Ss will be 3 years old, a point at which customers can sel-back
vehicles at or near 50% of their original price. The expectation is that many early Model S buyers will take Tesla
up on its trade-in option (presumably to buy a new Tesla). Tesla will service these used vehicles and then resell
them at prices probably in the range of $35,000 to $50,000pricey by used-car standards, but a deal compared
to the sticker price of a new Model S, which starts at around $70K.

Selling Model: Direct to Customer

Tesla's strategy of direct customer sales and owning its own stores and service centers is a significant
departure from the standard dealership model currently dominating the U.S. vehicle marketplace
Tesla operates over 100 company-owned showrooms worldwide

Tesla owned stores serve the dual purpose of selling and educating the customers
Provides a better control over the selling process ensuring little to no dissatisfaction
Tesla owned stores face stiff opposition from franchisee dealers, and in many states Tesla sales and stores
have been banned in the recent past

Patents: A Twist in the Tale

In June 2014, Tesla opened up its patents
Not trying to build a car company but a whole new industry
Tesla needs the public to stop thinking of them as electric cars, and to start thinking of them simply as
cars. Lose the weird tag

PR benefit. And even then, very few companies can actually copy and start a company
If new EV vehicles are launched, then they too improve the charging infrastructure that will help Tesla too
as building superchargers is not very sustainable

We are all on the same ship. If Tesla succeeds, but the planet is

destroyed, it does not help Tesla. It is similar to a situation in which

we are on a ship with many people, but the ship has a lot of holes in it.
And if we are good at removing the water of our section, then it would
be foolish to not share that bucket design with others. Because if the
ship goes down, were going with it

3-C Analysis

C
C
C

Higher value for customers

Customer

No compromise on performance rather a better and futuristic technology availability

Starting with premium models like Model S, Model X

Company

Penetrating market with Economical models like Model III after higher acceptance of earlier models
Coming in direct competition to established players like BMW, Mercedes, Audi etc.

Higher pressures to match up and up-scale the technology for customers

Companies coming up with their own version of EV cars like BMW i3, BMW i8
and other pilot projects

Competition

Infrastructure

Space readily available for future expansion

HRM

Flat/horizontal structure, Strong leadership, Strong management team

R&D

Leading edge in technology, reinvesting in R&D, excellent product design

Procurement

Partnerships and alliances with suppliers, short-term agreements

Inbound
Logistics
In-house
production
Numerous
suppliers
JIT

Operations

Outbound
Logistics

Innovated and
automated
Multi-functional
robots
Easily
reprogrammable

Own stores in
18 countries
Online
reservation
Showrooms

Marketing and
Sales
Direct to
Customer Sales
Brand Building
Technologically
superior
positioning

Service

Service centers
Superchargers
Warranty policy

Product

Primary Activities

Support Activities

Value Chain Model

What does the Future hold?

Technology Leap Frogging
Autopilot technology, advance safety and driver assistance capabilities

Potential Tesla Vehicle Deliveries

challenges rivals to innovate or being left behind in the automobile arena

When will the competition truly heat-up?

500000

It isn't likely is that none of the global automaker giants will challenge Tesla
as it grows.

Giving away Patents: Stroke of Ingenuity?

High Volume production

of lower-cost car begins

Important step to equalize the main auto-industry between electric cars and

Gigafactory completed,
production of lower cost
car begins

petroleum cars
Brand recognition will take centre-stage: consumers will immortalize Tesla
as pioneers & game-changers of the Auto industry

Volume Model X
production begins
75000

conventional auto-industry

2658
2012

22450
2013

200000
150000

If Teslas technology is being harnessed by competitors alike, Tesla can

summon an army of lower cost companies on their side to attack the

300000

100000

35000

2014

2015

2016

2017

2018

27
2019

2020