Tesla Corporate Finance

RUN 5 FORCES ANALYSIS

STRUCTURE

i. Strategic Profile and Case Analysis Purpose

ii. Situation Analysis section

a. General environment analysis

b. Industry analysis

c. Internal analysis

iii. SWOT Analysis

iv. Recommendation

ALSO MAY INCLUDE FINANCIAL ANALYSIS! USE ACF STUFF IF HAVE TIME

Internal organization

SWOT analysis

Synthesis section ---

Alternatives

Evaluations of alternatives

Implementation

General Outline

• Initial funding ($60m) provided by PayPal, eBay and Google Founders
• Car does 0-60 mph in about 4 seconds
• Car can travel 250 miles between charges
• First 100 vehicles have been sold at the asking price of $100k

Two main Tesla issues –

How to move forward and in which direction?

Can either remain its status as a niche manufacturer or high quality, high performance or it can leverage first movers advantage and gain market share with more expanded and affordable access

I. Strategic Profile and Case Analysis

Tesla Motors Inc. is a California based start-up that specializes in the automobile industry with a focus on electric vehicles. Tesla was founded in 2003, under the leadership of Elon Musk and through heavy capital investment from large automobile manufacturers such as Daimler, Toyota, Panasonic, and the U.S Department of Energy. Shortly after, Tesla launched its first Roadster model vehicle, the first of its kind, an electric car that left behind no carbon emissions. Tesla also boasts a high profile leadership team with well-diversified backgrounds and an ability to challenge others in an innovative environment. The adoption of Tesla as a competing entity in the automobile industry may turn out to be a risky one without a sufficient strategy and careful planning. Tesla is competing against a large number of automobile makers, which have a much larger resource pool as well as market share, and there are growing concerns about Tesla’s ability to continue to compete. Tesla’s continued success relies on its ability to compete with established companies and questions arise about whether Tesla should diversify their products, abandon the Silicon Valley approach, and/or alter their retail strategy.

II. Situation Analysis Section

        Tesla Motors lives by its innovative mission statement where it believes that it should “create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.”

1. General Environment Analysis

Demographic:

There are positive global changes in consumer demographics that are favorable in increasing the demand for emission-neutral vehicles. Population growth in India and China, along with economic development, has multiplied the worldwide demand for automobiles providing Tesla an opportunity for growth. There has also been a massive increase with the number of passenger vehicles and coupled with social trends can help Tesla compete in an eco-friendly automobile environment.

Economic:

        The increase in crude oil prices has also affected society and government interest in renewable energy and energy conservation, encouraging society to take alternative modes of transportation. This interest negatively affects the automobile industry but provides Tesla with an opportunity considering they are conserving energy through an energy efficient mode of transportation. Increasing fuel prices also assist Tesla since they help capitalize on customers interested in saving on fuel costs.

Political/Legal:

Tesla Motors currently is facing a somewhat positive environment considering that public concern about global climate change is headed in their favor as well as a growing potential that governments will introduce legal mandates to decrease greenhouse gas emissions. With the rise of carbon taxes, Tesla can also gain a competitive advantage over its competitors that create fuel cars. Along with the legal and political advantages, Tesla also benefits from tax advantages and tax-deductible expenses on their balance sheet through their eco friendly approach to the automobile industry.

Sociocultural:

The sociocultural environment benefits Tesla because of the growing number of environmentally cautious and conscious consumers that care for eco-friendly vehicles. The continuous threat of climate change also creates a supportive environment for Tesla since efforts to reduce environmental damage are growing.

Technological:

The technological advancements in society also assist Tesla since the improvements in lithium-ion battery are not only reducing costs but also improving the electric vehicles. With Stanford researchers claiming they can increase lithium-ion batteries’ lifespan by 10 times, the technological aspect is a major strength and opportunity for Tesla.

Global/Physical:

b. Industry and Competitive Analysis:

Threat of new entrants: LOW

Tesla holds an advantage in the product differentiation aspect through its Roadster model I, which is a sports car that has no equivalent models among competitors, while all other Tesla models face competition in both the electric and hybrid department. Currently, they hold a technological advantage over their competitors considering their EV can travel 3 times further than their nearest competitor. They also have cost advantages independent of scale in the lithium ion department since they are able to sell for 400$ per kWh, while their competitors average 650$ per kWh. Tesla is at a minor disadvantage in the economies of scale and capital department since its competitors in the automobile industry carry an advantage in pooling resources. Tesla also faces heavy switching costs since its competitors have been around for a very long time and have been able to build relationships with their customers in the past. Cars are also a large investment and switching costs are generally high in the automobile industry. Tesla has faced retaliation and can expect its competitors to continue to do so in the face of changing social and political trends pushing the globe towards energy efficiency. The high overall barriers to entry and low threat of new entrants assist Tesla in gaining a competitive advantage.