Tesla Motors

As of the 21st century transportation has amounted to 64% of Global oil demand.
Amongst the common forms of transportation many might assume aircrafts or trains constitute a
vast piece of this oil consumption. Staggeringly enough more than 60% of energy in the U.S. is
used by personal vehicles. Breaking down the personal motor vehicle industry, two prevailing
components exist, natural gas and alternative energy vehicles. In the U.S the alternative energy
motor vehicle sector composes a mere 3% of the market. Within that small percentage lies
electric vehicles at 1%. This is the industry in which our company Tesla thrives.
Tesla provides two fundamental products to its customers; premium luxury electric
vehicles and Powerwall home batteries. Presently, Tesla has two cars on the market, the Model S
and Model X. By the end of 2016 the Model 3 will be available for purchase. Aside from the line
of electric vehicles Tesla produces, the company also provides customers with options of
purchasing their Powerwall home battery structure. This solar powered sustainable energy
storage system generates electricity to power homes for day to day use or as backup methods.
Breaking Teslas vehicles from the typical automobile mold, mudane services such as oil
changes, visual inspections, and engine fluid checks are non existent. Customers will only need
to have their tires rotated and brakes checked during their covered annual inspection. Another
service provided are the charging stations, displayed by Google Maps on the cars 17 touch
screen that conveniently direct drivers to the nearest connector. Strategically placed by shopping
centers and restaurants, Teslas solar powered Supercharger stations allow customers to charge
their vehicles free of charge within minutes.
When examining our industry as a whole, one can see that Tesla is much smaller than its
competitors like General Motors or Toyota. A contributing factor to this is the size of these
companies and Teslas short existence. In terms of total sales, Tesla made $3.198 billion dollars
in 2014. General Motors generated $155.93 billion dollars and Toyota took in $25.69 trillion
dollars in sales in 2014. After looking at these statistics, one can infer that Tesla isnt generated
nearly as much revenue as its competitors. However, Teslas Model S received green car of the
year award, broke the sales record and is the worlds best selling plug-in vehicle. This clearly
shows that consumers have a want/need for electric vehicles.
However, the industry could be divided into different market segments in which we may
operate. Performance vehicles as well as electric vehicles would exist in these segments, with
technological savvy buyers (high), income level (high), as well as high cost-conscious eco
buyers.
Segments
Type of product sold: luxury, performance, pure electric, alternative energy, eco-conscious
Geographic distribution: domestic, regional, interregional and international (Sweden, Norway, &
America top distribution locations)
Growing segments: pure electric vehicles market is growing
Stable segments: automobile transportation market is virtually stable
When examining Tesla it is important to look at the competitive forces in the industry that
determine the average profitability of firms. Using Porters five forces model, we can see that the
customers are eco conscious individuals with a need for an electric car. Tesla may not be leading
the industry, however they do set an industry standard in terms of high quality. With the top

competitors like General Motors and Toyota leading the industry in terms of profitability, it is
crucial to remember that Tesla specializes in electric cars that are high quality, whereas General
Motors and Toyota arent specialized in electric cars and produce them for lower income level
consumers.
The threat of new entries include; already established vehicle manufacturing companies
without an electric SBU. This means that auto manufacturers that have yet to expand into electric
vehicles pose as a threat because they have the parts to create electric vehicles, so they would
just need to invest more in R&D, as well as adjust their business plans. Outside entrants new to
the automotive manufacturing business also pose as a threat because the industry is still a
relatively new industry in comparison to the gas engine industry, so there is still time for new
businesses to develop and take control of market opportunities. Tesla is still within its first ten
years of operation, and so far, the popularity of electric powered cars has not surpassed the
popularity of gas engine vehicles. This means that there is a threat of an outsider because they
have the chance to make a profound process of innovation that changes the way people think of
the electric vehicle. In short, the threat of new entries strength is high.
Looking at the buying power of Tesla franchises, Tesla not only manufacturers its own
vehicles, but also distributes them. This means that Tesla is not subject to another companys
value process. The Tesla franchisees purchase the vehicles from the manufacturing plants at at
wholesale and sell them to individual consumers, none of which have significant purchasing
power. The strength of buying power is low.
Teslas supply chain consists of countless vehicle parts suppliers; Modine and Brembo
being its top two. The suppliers supply different vehicle parts such as, AGC Automotive and
windshields, Brembo and brakes, Fisher Dynamics and power seats, Inteva Products and
instrument panels, Modine Manufacturing Co, and battery chillers, Sika and acoustic dampers,
Stabilus and liftgate gas springs, ZF Lenksysteme and power steering mechanisms. Considering
all of this, supplier power is moderate because there is are substitute products available for
buyers, as well as the fact that there are a decent amount of suppliers and many buyers.
Threat of substitution is high when looking at Tesla and their industry. There are vehicle
substitutes available like natural-gas automobiles, plug ins, hybrids, trains, and busses. Battery
substitutes also exist like aluminium batteries and flow cell batteries.
Finally, when we analyze rivalry within the industry we see that it is moderate. Teslas
biggest competitors are the Toyota Prius, General Motors, nanoFLOWCELL AG, and BYD.
Based on the assessment of the strength of the competitive forces, we can conclude that
the profitability of this industry is moderately profitable. Because Tesla motors specializes solely
in electric cars, its profits come solely from those. Toyota and General Motors on the other hand,
sell electric cars, natural-gas automoviles, and hybrids, so they have more opportunity for profits.
Using the PESTEL framework to analyze the general external environment of our
industry we found numerous positive changes occurring that may develop further into
opportunities, along with a few external trends that have been developing into threats as well.
Currently, sociocultural forces are shifting among societies who are now valuing lowemission cars as opposed to natural gas. There has been recent trends of high-cost conscious eco
buyers due to ecological factors such as global warming, rising oceans, melting glaciers. all in
pursuit of sustainable economic growth surrounding these environmental issues. Eco conscious
buyers and suppliers realize the world is no longer separate, that we must coexist, shifting focus
now to sustainability. Technological factors have led to product innovations like the electric
vehicle, solar power, etc. enabling our industry to flourish.

Recently, oil prices have plummeted, economic and political turbulence in other countries
have stoked the drop to $33 a barrel globally. With oil reaching record lows, equivalent to the
recession in the early 2000s and the Great Depression in the 1930s, the electric vehicle market
has taken a hit. The profitability trend for the automotive manufacturing industry is rapidly
spiraling downward. The YTD Return for the entire industry is -23.1%, while Tesla is performing
even worse at -37.31%. Sales for Tesla continue to plummet as gas prices sink because
purchasing an expensive electric vehicle looks like an unattractive investment to consumers
when gas is so cheap. Current low oil prices however are a temporary fluke caused by the price
war between the major oil producing nations, Saudi Arabia, United States and (upcoming) Iran.
When this price war ends and/or oil supplies ultimately diminish consumer oil prices will again
skyrocket causing carbon combustion engine vehicles to again become cost prohibitive forcing
consumers to look to lower price alternatives like the Tesla Motors electric vehicles. Timing for
these changes are critical to Tesla Motors as the company must remain solvent during these longterm transitions.
Along with the recent drop in oil prices, Chinas economy has taken a turn for the worse,
entering into the largest economic slowdown in 25 years. China is the worlds largest car market,
both domestic and international manufactures continue to project plant expansions within the
country despite the downturn. Amidst the deceleration of its economy and depressed car market,
personal vehicle sales grew 3.9% this year, still showing a significant drop from the previous
years sales of 9.2%, posing a threat to our industry.
Our generation and future generations face environmental devastation if the worlds
energy source remains fossil fuel dependent. Greek for completely new, the name Holocene
reflects an era of natural environmental global warming that started after the ice age.
Anthropocene, the age of humans, is the most recent epoch beginning in the late 1940s,
categorizes this new era we live in where human activities are now gravely hastening global
warming. Carbon dioxide levels have risen from 277 ppm to 369 ppm within the last century. At
the moment pollution is so disastrous in China schools and factories have been shut down, half
of private cars have been ordered off the road, and the country has declared their first pollution
red alert. With over half of the planets surface allocated for human use, Earths strato ozone
layer has been severely depleted with the increase in co2 concentrations. Leading future
generations to be faced with severe climate change issues.
On top of environmental issues surrounding us, our planet will hit peak oil by 2030, the
maximum production of a finite source of natural resources, which currently are being used for
just about everything in our daily lives.
Innovations in our industry in the early twentieth century began addressing these
problems. Opportunities exist in populous countries facing severe pollution crises such as China
and India. China just recently acknowledged a need to convert to alternative sources of energy in
order to alleviate their pollution crisis, Tesla can move on this and become the modern day Ford
Model T story by selling commodity vehicles in volume to Chinese consumers.
Current trends of green ecologically conscious buyers, suppliers, manufactures are
sprouting up everywhere. The world seems to be grasping the seriousness of theses issues and is
no longer ignoring climate change. Scientists presented climate change to the world almost 30
years ago, it is only within the last 5 years acceleration has increased in our industry. The
significance of these recent trends vastly impacts electric vehicles, in a positive way. As we
approach 2030 we will see a decrease in production of gas powered automobiles and conversion
to alternative energy vehicles. This represents a pivotal opportunity for the electric vehicle

industry to thrive. Ironic too that over a hundred years later Mr. Teslas engine, with the modern
day advances in energy storage, will overtake the carbon combustion engine.
There are two long-term outcomes for the automotive industry: 1) petroleum runs out and
the automotive industry is forced to switch for good to alternative fuel options like electric car or
2) man-kind continues using fossil-fuel transportation and destroys the environment forcing
governments to finally restrict use of carbon fuels. Either long-term alternative indicates that
electric vehicles will replace carbon fuel vehicles.
Fossil fuels are finite, they will be entirely depleted from the earth in the future so
alternative energy sources will need to be found to power transportation. Electricity is preferred
as it does not destroy the atmosphere like fossil fuel emissions. Tesla is poised to be a major
industry player due to its is strong electric fuel source branding. Other major auto manufacturers
would be required to quickly redesign and retool their product lines to electric fuel. Failure to do
this quickly or with poor branding could cause them to lose to Tesla Motors who has built their
entire brand from day one around exciting autos powered with clean electric energy.
Todays low oil prices present an immediate threat to Teslas profitability, but if Tesla can
handle the pressure of low oil prices in the short-run, they will have the future opportunity for
high sales and profitability ahead of them when high fossil fuel costs are inevitable to return and
lower-cost electric cars will become more desirable. Once the current oil price war is over oil
prices will skyrocket as demand again outpaces supply. Thus, even though petroleum vehicle
manufacturers may seem like a good investment today, Tesla Motors in the long run is a more
attract investment. The only unknown is how long the oil price war will continue and if Tesla
Motors can sustain profitable during this period. The CEO and visionary at Tesla Motors is Elon
Musk, a knowledgeable entrepreneur who does appear to be diversifying the companys products
into other product lines such as more efficient energy storage, electric home energy production,
and high-speed mass-transit via ground and space.
Finally, populous countries with pollution concerns such as China
presents opportunities for Tesla Motors. Pollution for China is a growing
concern, and as policies within the country seek to reduce the levels of
pollution, one can expect to see the rise in the clean energy consumables
industry. The government of China may even advocate for citizens to drive
electric cars as opposed to gas powered vehicles. Another opportunity in
China comes from the vast number of vehicles demanded. In 2015 alone,
over 25 million vehicles were purchased in China. Low gas prices today may
mean that the demand for gas fueled vehicles will be temporarily on the rise,
but further fluctuations will help the case for electric cars as consumers will
grow tired of gas price volatility.
In summary the effects of global warming act as an opportunity for Tesla Motors.
Governments will decide to implement stricter and stricter policies to fight to global warming.
This can be seen in the recent 2016 Paris agreements to this effect. Governments will give more
and more subsidies to both auto manufacturers and auto consumers to switch to cleaner
renewable energy sources. Eventually the tipping point will be reached where these financial

incentives outweigh the cost of maintaining the status quo and consumers will to switch cleaner
electric vehicles. Tesla Motors will be poised in a sweet position when that occurs.

Tables:

References:

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