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Tesla Motors: Will Sparks fly in the Automobile Industry?
Transcript of Tesla Motors: Will Sparks fly in the Automobile Industry?
"Tesla’s mission is to accelerate the world’s transition to sustainable transport.”
Tesla Motors: Will Sparks fly in the Automobile Industry?
Major competitors include GM, Ford, Chrysler, Toyota, Honda and other large automotive companies
Market Share: As of March 2015 the market share among all automotive companies is 0.1%. Tesla Model S sales account for 13% of all electric car sales in the U.S. to date.
Company size: 5,859 employees as of May 2014 (source: Forbes)
Market Capitalization: $26.73 Billion
Porter's 5 Force Analysis
The Threat from New Entrants
The threat is very high. When Tesla entered the electric automotive industry in 2003, it faced many financial challenges as a start up. Established manufacturers, however, have considerable economic power to enter this market and economies of scale.
The Bargaining Power of Buyers
Overall bargaining power of buyers is moderate.Tesla relies on their relationship with Daimler and Toyota because supplying these companies constitutes the high share of their profit. However, they also sell their cars to individual customers, and government incentives give potential customers tax credit deduction.
Threat of Substitution
The threat of substitutes is considerably low in automotive industry, because there are few choices in the substitution of car. Substitutes include walking, biking and public transit but many people find these options inconvenient.
Porter's 5 Force Analysis Cont.
The Bargaining Power of Suppliers
The power of suppliers is very high because Tesla is highly dependent on these suppliers and any problems with components will result in production disruption. Tesla purchases components from over 200 suppliers over the world.
The Intensity of Rivalry in the Industry
The rivalry in the automotive industry is very competitive. In the electric vehicle market, the rivalry is modest because of the small number of competitors. This market is very attractive though and it’s expanding fast. Every company is trying to capitalize on the many alternatives in term of environmentally friendly cars thus, in future, the rivalry will be more intense.
Selling cars in 17 countries in North America, Western Europe and Asia Tesla Motors has to deal with unique political patterns influencing business operations. Environmental protection laws also play a critical role.
Tesla Motors offers an array of electric vehicles and services related to such vehicles.
CEO: Elon Musk
Outline of presentation:
-Major competitors, Market Share, Company size…
-Trends/Five force analysis
-Opportunities and Threats
“Our goal when we created Tesla a decade ago was the same as it is today: to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.” – Elon Musk, CEO
Economic factors include economic growth in the alternative energy industries and increase in the cost of using the cars due to fluctuations in fuel prices. Demand for more efficient cars is
higher than before.
An increase in environmental concerns, attitudes and emphasis on eco-friendly products is growing the market. Buyers are losing faith in gasoline fuel because of uncertainty in prices.
PESTEL Analysis cont.
Technological advancement, rapid globalization and Internet impact have had a huge effect on the automotive industry. The introduction of fully electrical cars and computerization of cars has led to more variety and more improvements in safety and convenience of cars in the future.
Car manufacturers have faced the competitive pressure to produce eco-friendly or fuel-efficient vehicles. Increasing awareness of climate change has led to changes in operations and companies‘ products and services.
Energy loan programs and pressure on production of eco-friendly cars have resulted in increased carbon taxation. Another major concern is franchise laws in US that protect car dealers and creates challenge to Tesla selling its car directly to consumers.
One of the most significant opportunities is an increase in customer awareness about the benefits of having electrical cars such as environmental protection and tax incentives. In addition, the company is in a market segment, which is largely untouched and rapidly growing in terms of demand.
The main threat is manufacturers entering the market with greater economies of scale capabilities and higher expertise in automobile market, which will position their car within lower prices, and thus, take away potential customers.
Financial Ratio Analysis
Tesla is still considered to be a growth stock, which is a commonly used argument to justify lofty valuations. At current price levels, PE ratio on estimated 2013 earnings is about 290, while in 2014 estimated PE ratio is about 96.
Another metric with which the valuation of car makers can be compared is the Enterprise Value/Revenue multiple.
As shown in the table above, EV/Revenue multiples range from about 1 (although General Motors stands out at the lower end with a value of 0.32, which might be an indication of undervaluation) to about 1.4 . Tesla's figures are 9.6, based on the 2013 annual revenue forecast, and 7.1, based on the 2014 annual revenue forecast. That is about 7 times and 5 times the metric of BMW or Toyota , respectively.
Financial Ratio Analysis cont.
Tesla's stock performance compared to other peer firms in 2013. Tesla Motors hit a value of $20 billion, about 42% of GM’s $47.7 billion and about 31% of Ford’s $65 billion.
Stock Performance cont.
Tesla's past and current market performance of 2013.
Board of Directors
- Chief Executive Officer, Product Architect and Chairman
Mr. Musk possesses specific attributes that qualify him to serve as a member of Board of Directors, including the perspective and experience he brings as Chief Executive Officer,
one of the founders and largest stockholder, which brings historic knowledge, operational expertise and continuity to the Board of Directors.
Brad W. Buss
Mr. Buss possesses specific attributes that qualify him to serve as a member of Board of Directors and to serve as chair of the Audit Committee, i
ncluding his executive experience and his financial and accounting expertise with both public and private companies.
Mr. Ehrenpreis possesses specific attributes that qualify him to serve as a member of Board of Directors and to serve as chair of our Nominating and Corporate Governance Committee and chair of Compensation Committee,
including his experience in the Cleantech and venture capital industries.
Stephen T. Jurvetson
Mr. Jurvetson possesses specific attributes that qualify him to serve as a member of Board of Directors, i
ncluding his experience in the venture capital industry and his years of business and leadership experience
Mr. Musk has been a director of the Los Angeles Fund for Public Education, an organization
dedicated to driving positive change
in the Los Angeles Unified School District since July 2012.
Board of Directors cont.
(Does the structure match its strategy?)
Tesla Motors uses a functional structure which is when employees are placed into groups based on their specialties. The head, or manager, of the different functional areas reports back to the CEO, who in this case is Elon Musk. A functional structure enables the company to obtain a higher degree of specialization which leads to a higher productivity rate.
Tesla utilizes a differentiation
strategy which is when a company is solely focused on producing highly sought after products, and offering such products to market segments which contain capable buyers. While Tesla’s products are offered at a higher value than competitors, it still maintains control over costs. Tesla manufactures their electronic vehicles, which contain powertrain parts that produce numbers way beyond any other electronic vehicle on the market. By offering these specialized, highly valuable parts and EV’s, Tesla’s target market segments become specialized as well.
Value chain analysis
i. The discontinuation of the Roadster and the “stock” version of the Model S help by increasing productivity.
ii. Tesla needs to reduce the cost of producing a vehicle by either:
1. Moving some of their manufacturing overseas where there is new markers and low labor costs
2. Sharing parts with other car manufacturers rather than building their own custom parts
1. Instead of providing their vehicles to franchised dealers, Tesla manages all sales and services in-house. Also a subsidiary was created called Tesla Motors Leasing Inc. that provides customers with the option to lease a Tesla EV rather than buy one. The subsidiaries are spread across the globe in areas where money is very prevalent. The USA and Canada combined have 24 of these subsidiaries, Europe has 13, and Asia has 3.
Other support activities
1. By completing it’s IPO in 2010:
a. Tesla brought Panasonic on board of the company, which in return results in an even more extensive development of their electronic vehicles and their parts.
b. Toyota bought give or take 3% of Tesla which resulted in Tesla receiving ownership of the New United Motor Manufacturing, Inc. which is an automotive factory.
c. Daimler, which is an automotive engineering force in Germany, purchased 10% equity stake in Tesla. Tesla in return promised to produce a Daimler smart car that would be all electronic.
d. Tesla’s horizontal organizational structure made decision making faster, and communication better.
i. Tesla is the only manufacturer of an EV that has a single battery life of 300 miles. This is due to the highly advanced powertrain products Tesla creates for their EV’s.
i. With companies like Toyota, Daimler, and Panasonic buying into Tesla, and using Tesla’s parts, the automobile industries greenhorn gains credibility and certainty. This adds value to the EV’s Tesla offers and also increases share value.
Costly to imitate
i. While other EV are made by companies across the globe, not one has the efficiency and performance provided by Tesla EV’s.
i. Even though many other companies offer EV’s, Tesla is the only company to produce one that is able to achieve such range (300mi on one battery)
a. Lean management simplifies their decision processes
b. By outsourcing secondary components, Tesla decreases it’s costs, increases its productivity, and increases its research and development
c. Well established investors(Toyota, Panasonic)
d. Distribute through their own stores
e. Contains parts no one else has
a. Tesla has little to none liquidity due to the amount of money spent on production and the slow rate of cars being purchased
b. Lack brand recognition because they are so new in the industry
c. Tesla is a new company so they have a small operation background to prove they are bound for success
d. As new models get introduced, manufacturing becomes more complex and more expensive
e. Due to the high prices associated with the production of Tesla’s EV’s, there are not enough models made available to the public.
Business Level Strategy
o Tesla’s customers are mainly from middle and upper income levels. Also, Tesla focuses on
performance and creative electric cars.
Corporate Level Strategy
o Tesla’s goal is to enhance their influence on the current markets with their current products.
Furthermore, Tesla also markets their electric powertrain components to other automakers.
International Level Strategy
o Tesla focuses on the domestic markets but is also continuously expanding their
global markets. They are seeking to achieve both goal efficiency and local responsiveness.
Maintain a niche market for car models (like the roadster) and create a new range of less expensive cars in order to enter mass market (like some versions of Model S).
Leverages product portfolio.
Wealth generated from niche segment
can be invested in mass-market segment.
Leads to increase of market share in EV segment.
Investigate the feasibility for customizing the powertrain components or applications in other industries.
Explores the potential for expansion into new untapped markets.
Explores new potential business-to-business buyers for powertrain components.
The 5 strategic issues
Innovation would keep Tesla a liable company competitor
Tesla competitive advantage is what sets the company apart from other companies.
Using tools such as the SWOT analysis would help them strategize better.