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Corporate Strategy report on Tesla Inc.

Report on Tesla Inc.















Table of contents:



Abstract:


We will be looking at the electric car company Tesla which is run by current C.E.O and co-founder Elon Musk, who plays an integral part in the direction of the company’s corporate strategy, scope and strategic position. These are all factors we’ll be dissecting in this report as well as commenting on the effectiveness and efficiency of these decisions.


Introduction:


Tesla is an electric car company which has become, over the course of its almost 20 year lifespan, a sustainable energy company. Tesla’s generic competitive strategy has moved towards broad differentiation from a focused strategy. The declining production costs and increasing popularity of the brand enables them to broadly target customers in the automobile market. Tesla has and continues to vertically integrate the production of their products as in-house as possible. To realise this corporate strategy and improve their scope Tesla have acquired companies such as Maxwell technologies to improve the batteries in their cars and energy storage facilities as well as companies like SolarCity which specialise in renewable technology and battery storage capabilities.


Corporate strategy:


Michael Porter divides corporate strategy into three subsections that almost all firms operate under. There is ‘Cost Leadership, Differentiation and Focus’ (MindTools, 2019). Tesla ‘initially, used focus as its generic strategy for competitive advantage. In applying the differentiation focus strategy, the company emphasized the uniqueness of its products, but also focused mainly on early adopters in the high-end market for electric vehicles’ (Rowland,2018). Tesla currently operate under the broad differentiation idea where they create unique desirable electric vehicles and energy systems. They achieve this through their powerful marketing, intense research and development to enhance their products and intensive growth strategies. They are unique in the automobile market because they provide sleek, beautiful electric vehicles in an internal combustion engine dominated world. Tesla dominate the E.V market which has been growing year on year (Appendix 1). The power of Tesla's brand comes from its innovation in vehicle technology and design. The company broadly attracts all potential customers, who are now increasingly interested in environmentally friendly products. The declining production costs and increasing brand popularity enables the company to broadly target customers in the automobile market.


Scope of the firm:


Tesla is solely involved in the automobile and energy providing industries as its core business. They integrate these units cleverly to complement each unit’s products. The have snapped up vital smaller business which specialises in automobile and energy and have integrated production of these products increasingly under their own roof.


Vertical boundaries:


‘Tesla learned the hard way through the development of the Tesla Model X that sourcing 10,000 components from hundreds or thousands of globally distributed suppliers quickly turns into an exercise in herding cats’(Field, 2019). Tesla have stacked suppliers so they no longer rely on just one provider of a component. As they’re producing a vehicle that is completely different from what’s on the market they’ve had to create their own manufacturing techniques and source their own materials. They have mainly integrated downstream and have brought much of the manufacturing of components in-house. ‘Tesla’s desire to put the best seats in their vehicles led it to bring seat manufacturing in-house’ (Field, 2019). They have also done this with their battery production with the gigafactory in Nevada (Appendix 6). The motives for this seem clear. To have the most efficient and streamlined manufacturing process to drive down the cost of their vehicles which allows them to compete on a mass scale with the internal combustion engine manufacturers. They now have semi-trucks that run the seats the 2.5 miles from their components factory to their main plant. Vertical integration gives Tesla more control over its manufacturing process and allows Tesla to respond much quicker to potential improvements and at a lower cost. The have achieved much of their manufacturing techniques and abilities from leading manufacturing companies such as Grohmann engineering, which they have acquired. This ties in with their strategic position as Tesla’s main advantage is their ability to integrate the newest technology into their vehicles. As Tesla is still quite a new company as far as automobile companies go, they are still benefiting from learning economies. Newer iterations of their cars are becoming easier and more streamlined to build (Appendix 2). Tesla have also adopted a direct-to-consumer approach with the distribution of its vehicles by opening their own dealerships, similar to the Apple stores, to gain more control and also have a massive online presence which out strips the familiar salesman dealership module entirely (Lavietes, 2019).


Mergers and acquisitions:


Tesla has acquired six companies during its life time which have all been to service its goals of vertically integrating production as in-house as possible as well as pushing manufacturing and technological advancements to their furthest (Appendix 3). These companies are no longer separate standalone units as they have all dissolved into Tesla Inc. so we will not be discussing them in standalone terms. One highly publicised acquisition was their purchase of SolarCity, a company specialising in renewable energy generation. ‘Tesla’s co-founder and CEO, Elon Musk, believed that the merger would generate significant cost and revenue synergies, based on his vision of the future of transportation, energy storage, and a “green” economy’ (Gilson and Abbot,2017). It cost the company $2.6 billion in Tesla stock, which many questioned, however it does show the company's commitment to being a fully integrated energy and transportation company. It seems critical to Tesla to maintain control of the process that goes into the manufacturing of their products and the companies they have acquired seem to fit both their organisational and strategic goals. The financing for these acquisitions is dicey and some would argue Tesla should take more of an organic growth method. According to their 10-K company filings Tesla made over a $1 billion loss year ending December 21st 2018 (Appendix 4). An option that Tesla could consider is an equity alliance with future companies which could help production and manufacturing of goods given their financial situation however, thus far, they have not gone this route. The only partnership they have is an exclusive deal with Jeff Dahn, a researcher at Dalhousie University who is a leading figure head in lithium-ion technology. One possible key driver of Tesla’s acquisitions is synergy. By combining their current battery strides for electric vehicles, for example, with the work Maxwell technologies has done with ultra-capacitors, ‘energy storage devices that can charge and discharge rapidly’, they have managed to greatly improve battery life for an important green technology which might not have been possible otherwise without this acquisition (Korosec, 2019).


Tesla’s strategic position:


Tesla’s strategic positioning reflects the company’s focus on using advanced technologies in its electric vehicles and related products, as a way of competing against the other big automobile companies in the industry. Positioning is critical to Tesla as it helps constituents remember who they are relative to all the other players in the market. I would conclude that Tesla has a competitive advantage on the sheer basis of economic profit. The company makes more profit on each of their vehicles compared to other automobile makers. Ford’s profit margin per vehicle sits around 5% whereas Tesla manage about a 14% profit margin on their vehicles. This is mainly due to the higher price of their vehicles which people pay due to their technological and innovative edge over the competition (Pressman, 2019). Tesla also have the largest market share of electric vehicle sales in the U.S and completely trump their rivals (Appendix 5). The company still struggles with finances, however, this could currently be down to their R&D, manufacturing costs of a new style of vehicle and having yet to benefit from learning economies of scale.


Generic strategy:


Tesla gains competitive advantage over other incumbents because of their direct-to-consumer sales, stores and service centers, innovative consumer financing options, and technological innovation (Benjamin, 2019). The competition from electric car makers can be looked at from multiple levels, however, we mainly only consider two of these levels: Full electric cars and hybrid cars (Appendix 7). Tesla, although competing against other electric vehicle manufacturers, are mainly in competition with the other major automobile manufacturers in the high priced sedan market. Tesla operate under what Michael Porter calls the differentiation positioning strategy. They aim to add value in an area that the customers regard as important and charge a price premium for this. At the moment this is quite a sustainable advantage for Tesla as they are pretty much the only luxury electric vehicle manufacturer in the world. No other company has yet been able to compete with them on facets such as price, battery range, quality and technological advancements. Some of the benefit drivers of Tesla’s differentiation strategy, where they can charge a premium price for their vehicles, come from the performance, quality and features of their cars. The Tesla Model S P100D is one of the quickest production vehicles available and their cars and built in the U.S.A, endorsing build quality. Their vehicles have also been known to upgrade over night resulting in better performance or added features free of charge.


Conclusion:


Tesla are a young yet capable company who clearly understand what market they operate in and what level of competition they face. They use the use of innovation and the moving trend towards sustainability to market their high priced cars to tech savvy conscious consumers. Tesla are trying to integrate and develop the process of electric vehicles by providing the solar panels to create energy and the batteries to hold the energy to then charge your vehicle. To tie all this together they have made smart acquisitions in the marketplace (Appendix 3). They’ve positioned themselves perfectly and look likely to continue ahead strongly due to their brand loyalty they in still in their customers, similar to that of Apple (Benjamin, 2019).


Appendices:


Appendix 1 -











[Information from Statista,2018. See reference no.8]


Appendix 2 -













[Information from Statista,2019. See reference no.9]


Here we can see the amount of vehicles produced by the company every quarter. A steady rise is clear to see as they benefit from both learning economies and better manufacturing equipment and technologies.


Appendix 3 -












[Information from CrunchBase,2019. See reference no.6]


All acquired companies fit into either the energy storage, manufacturing or technology industries. Tesla has consolidated all of these companies under the Tesla Inc. umbrella and they have all been integrated into the manufacturing, creative and distribution lines of Tesla Inc.


Appendix 4 -














[Information from Sec.Gov. See reference no.5]


Appendix 5 -













[Information from Clean Techina. See reference no.12]


Appendix 6 -





[Information from SupplyChain247. See reference no.14]


“The Tesla Gigafactory is designed to reduce cell costs much faster than the status quo and, by 2020, produce more lithium ion batteries annually than were produced worldwide in 2013” (Wesoff, 2019).


Appendix 7 -





[Information from Statista,2019. See reference no.15]


A few cars are already directly for sale, but most of them are small city cars. This market is in the introduction phase of the product life cycle. In this graph, of the battery electric vehicle options, Tesla dominates.


References:


Rowland, C. (2018). Tesla, Inc.’s Generic Strategy & Intensive Growth Strategies (Analysis) - Panmore Institute. [online] Panmore Institute. Available at: http://panmore.com/tesla-motors-inc-generic-strategy-intensive-growth-strategies-analysis [Accessed 10 Oct. 2019].


MindTools (2019). Porter's Generic Strategies: Choosing Your Route to Success. [online] Mindtools.com. Available at: https://www.mindtools.com/pages/article/newSTR_82.htm [Accessed 10 Oct. 2019].


Field, K. (2019). Tesla's Vertical Integration Unlocks Hidden Flexibility & Innovation — #CleanTechnica Field Trip | CleanTechnica. [online] CleanTechnica. Available at: https://cleantechnica.com/2019/03/30/teslas-vertical-integration-unlocks-hidden-flexibility-innovation/ [Accessed 1 Nov. 2019].


Gilson, Stuart C., and Sarah L. Abbott. "Tesla: Merging with SolarCity." Harvard Business School Case 218-038, December 2017. (Revised November 2018.)

Crunchbase. (2018). [online] Available at: https://www.crunchbase.com/search/acquisitions/field/organizations/num_acquisitions/tesla-motors [Accessed 2 Nov. 2019].


Korosec, K. (2019). Tesla’s $218M Maxwell acquisition aims to give its batteries a boost – TechCrunch. [online] TechCrunch. Available at: https://techcrunch.com/2019/02/04/teslas-maxwell-acquisition-aims-to-gives-its-batteries-a-boost/?guccounter=1 [Accessed 2 Nov. 2019].


Statista. (2018). U.S. - PEV sales 2018 | Statista. [online] Available at: https://www.statista.com/statistics/801263/us-plug-in-electric-vehicle-sales/ [Accessed 5 Nov. 2019].


Statista. (2019). Tesla: vehicle production by quarter 2019 | Statista. [online] Available at: https://www.statista.com/statistics/715421/tesla-quarterly-vehicle-production/ [Accessed 5 Nov. 2019].


Lavietes, M. (2019). Tesla's move to online sales gives customers what they want: No car salesman. [online] CNBC. Available at: https://www.cnbc.com/2019/04/05/tesla-online-sales-gives-customers-what-they-want-no-car-salesman.html [Accessed 5 Nov. 2019].

Pressman, M. (2019). Tesla Model 3 profit target is 5x higher than the average vehicle from Ford. [online] Evannex.com. Available at: https://evannex.com/blogs/news/tesla-model-3-profit-target-is-5x-higher-than-the-average-vehicle-from-ford [Accessed 5 Nov. 2019].


Shahan, Z. and Shahan, Z. (2019). Teslas = 77.7% of US Electric Vehicle Sales | CleanTechnica. [online] CleanTechnica. Available at: https://cleantechnica.com/2019/11/10/teslas-77-7-of-us-electric-vehicle-sales/ [Accessed 13 Nov. 2019].


Benjamin, J. (2019). Tesla’s Competitive Advantages (& What it has in common with Apple). [online] Medium. Available at: https://medium.com/@jawadbhm/teslas-competitive-advantages-what-it-has-in-common-with-apple-799eff0f20af [Accessed 13 Nov. 2019].


Wesoff, E. (2019). Tesla’s Gigafactory Supply Chain Vertical Integration - Supply Chain 24/7. [online] Supplychain247.com. Available at: https://www.supplychain247.com/article/telsas_gigafactory_supply_chain_vertical_integration [Accessed 18 Nov. 2019].


Richter, F. (2019). Infographic: Electric Vehicle Buyers Have the Agony of Choice. [online] Statista Infographics. Available at: https://www.statista.com/chart/13465/electric-vehicle-models-available-in-north-america/ [Accessed 19 Nov. 2019].

 
 
 

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