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Consumer

Company

Collaborators

Competition

Tesla Pricing Strategy

Competitors as Collaborators

Failures in past collaborations:

  • Daimler and Toyota both sell off stakes
  • Mercedes-Benz – limited test to 500 vehicles

Lack of commitment from standard manufacturers:

  • Vested interest in gas-fueled vehicle market creates a conflict of interest

Efforts for the future:

  • Open up patents in 2014
  • No need for explicit partnerships – just standardizing format

Credibility from Tesla:

  • Signaling Effect:
  • Opening up patents exposes Tesla to harm if they do not intend to cooperate

Collaborators : Competitors as Collaborators

Tesla needs other manufacturers to pursue EV market whole-heartedly

Other manufacturers still have one foot in each camp

Other attempts at cooperation have not been successful

Signaling Effect:

Opening up patents to other manufacturers exposes Tesla to harm if they do not indeed intend to cooperate

http://www.businessinsider.com/tesla-is-opening-up-its-patents-2014-6#ixzz3VimNy2MT

Who is the EV Consumer?

Who is the Tesla Consumer?

  • Young & High income
  • 77% earn over 100K/year
  • Predominantly male – 84%
  • Highly educated
  • Majority live in Cities/Urban areas
  • San Francisco has the highest concentration of Tesla drivers
  • 15.5% of Tesla Model S buyers owned a Toyota-brand vehicle at the time of the purchase
  • 25% including Lexus owners

Collaborators - Government

Collaborators - Charging Stations

  • Urban and Suburban lifestyle
  • Have a home and garage
  • Educated - 43% of users have post grad degree vs. 25% of gen market.
  • Concerned about the environment and effect of fossil fuels
  • Only Drive short distances, less than 100 miles per day
  • 55% of “electric vehicles” sold are plug in electric vehicles
  • High income - Median household income of 108K
  • Car prices range 30 - +70K

Hotels

Restaurants

Customer Incentives:

  • Federal tax credit of $7,500
  • State Tax Credits Varying by State:
  • Colorado $6,000
  • West Virginia $7,500
  • Company actively helping customers lobby for incentives

Company Incentives:

  • Federal:
  • US Department of Energy Loans
  • Zero Emission Vehicle (ZEV) Credits
  • Forbearance on dealership laws
  • State:
  • $1.3 Billion plan for Factory Location
  • Payroll Tax Breaks
  • Sales Tax Breaks
  • Transferrable Credits

Gas

Grocery

Sources: http://www.latimes.com/business/autos/la-fi-hy-who-buys-tesla-model-s-20140210-story.html

http://www.cnbc.com/id/100970641

Sources: Forbes: http://www.forbes.com/sites/jackperkowski/2014/12/12/electric-cars-a-review-of-2014/2/

Deloitte: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCIQFjAA&url=http%3A%2F%2Fwww.deloitte.com.br%2Fpublicacoes%2F2007%2FMFG.Gaining_Traction_customer_view_of_electric_vehicle_mass_adoption.pdf&ei=5GQ9Vc-PAYG-ggS0moDoDw&usg=AFQjCNEBAzv7SEIR06aodSW13MIvxCjarg

Charging Stations - Minneapolis

Charging Stations - Future 2016

Charging Stations - Today

Source: http://www.nationalreview.com/article/397162/tesla-and-its-subsidies-phil-kerpen

http://m.fool.com/investing/general/2015/03/25/elon-musk-tesla-charging-locations-will-be-everywh

Company

Weakness

  • Shortage of Public Charging Stations
  • Lack of Repair Shops
  • No Inventory
  • Inconsistent Car Insurance Quotes

4Cs

Strengths

  • Free Patent Sharing
  • Original Equipment Manufacturer
  • Free Charging Stations with Battery Swap
  • No Car Dealers
  • Word of Mouth Advertising
  • High Price and Warranty
  • Critical Cost

Recommendation

Market Opportunities

Possible Solutions

Option 3

  • Compete in luxury segment only
  • Maintain free charging payment structure
  • Expand into other markets with battery technology
  • Be the leader in charging technology

Option 2

  • Unbundle vehicle and charging expenses for decreased fixed costs, but increased variable costs
  • Monetize charging to increase revenue
  • Franchise Tesla charging stations

Option 1

  • Utilize price skimming strategy: lower price with every new model/generation – bottoming out at competing in the $20-30K small EV market
  • Maintain free charging
  • Expand into other markets with battery technology

Solutions

Compete in luxury segment only:

  • Signal Quality
  • Limited competition
  • Opportunity to expand model offerings
  • Pure Player

Implementation Plan

  • Broaden offers in luxury segment
  • Mental Accounting: Utilize government incentives to reduce price (TU = PREF – AP)
  • Lobby for increase adoption of showrooms and galleries

Luxury Car sales are up 11% while Luxury SUV sales are down 1% in 2014 vs. 2008

Luxury SUV is 6th in search, but this is across all consumers

Already fulfilled Midsize Car and Midsize Crossover SUV

Not recommending Compact Vehicles

Direct Competition – Luxury

Competition

MKTG 6075 Pricing Strategy

Julian Bartholow

Stacy Ritchie

Stu Naas

Steve Doyscher

David Baxter

Erik Elmer

Scott Hawes

Main competitors outside of Gasoline offer the following types of technology:

Tesla competes in the luxury green vehicle segment, direct competitors are:

  • BMW – i3 and i8 (EV, Hybrid)
  • Mercedes – B-Class (EV)
  • Lexus – GSh, LSh (Hybrid)
  • Cadillac – ELR (Hybrid)
  • Porsche – Panamera (Hybrid)

Tesla’s mission is to accelerate the world’s transition to sustainable transport.

Central Issues

Agenda

  • Company & Industry Background
  • Central Issues
  • Consumer
  • Company
  • Collaborators
  • Competitors
  • Possible Solutions

Central Issues

Current Position

  • Premium Pricing
  • Free Charging at Supercharger Stations
  • Subsidizing the cost of the vehicle with Federal and State tax incentives and estimated fuel savings over life of vehicle

What are the challenges facing Tesla?

  • Grow profitability
  • Align with mission of making sustainable transport possible for everyone
  • Expand EV market
  • Protect Tesla’s reputation for quality
  • Avoid brand degradation

Questions

Tesla Showrooms

Initial design: Sports car powertrain built around an AC induction motor patented by Nikola Tesla in 1888

Company & Industry

  • All car brands have dealerships that serve as a networked sales force
  • Tesla does not have dealerships
  • No large sales force
  • No capital tied up in inventory
  • Minimizes employees and overhead costs
  • Tesla has turned showrooms into dealerships
  • Controls the brand experience
  • Tailor experience to premium customer
  • Provide Individual and unique service
  • Build to order vehicles provide custom made experience
  • Just in time inventory

Each Tesla includes free long distance travel using Tesla’s Supercharger network and an 8 year, infinite mile battery and drive warranty

  • Founded in 2003 by Silicon Valley engineers Martin Eberhard and Marc Tarpenning
  • Company mission: To accelerate the world’s transition to sustainable transport
  • Tesla has claimed it will make each generation of vehicle more affordable; simultaneously proving the superiority of electric vehicles and working towards their mission
  • Elon Musk took over as Chairman in 2004; became CEO and Product Architect in 2008
  • Early investors include:
  • Compass Technology Partners, SDL Ventures, Google co-founders Larry Page and Sergey Brin, and former e-Bay President Jeff Skoll
  • Previous auto partnerships include:
  • Daimler AG acquired equity stake of less than 10% in 200
  • May of 2010 – announced strategic partnership with Toyota to collaborate on development of electric vehicles, parts, production systems and engineering support

Model 3 (expected in 2017)

Source: http://www.dailyfinance.com/2014/11/07/tesla-disrupts-car-dealerships/

Tesla Showrooms

  • Certain States not allowing Tesla showrooms
  • Texas and New Jersey

  • Tesla utilizing customers to help challenge state regulators

  • Links on website to help connect customers with state representatives

Industry Background

Consumer decision drivers:

  • Price
  • Size/space
  • Fuel economy
  • Reliability
  • Technology
  • Environmental impact
  • Prestige

Electronic Vehicle Segment:

  • At the end of 2012, approx. 180,000 passenger car EVs had been sold worldwide
  • EVs represented only 0.02% of total passenger car stock at the end of 2012
  • Electronic Vehicle Initiative sales and stock targets for 2020:
  • 7.2 million vehicles in EV sales
  • 24 million in EV stock

Source: http://www.autoalliance.org/auto-marketplace/sales-data

https://www.iea.org/publications/globalevoutlook_2013.pdf

Tesla's Place in the Auto Industry

  • Niche market within the Industry – Luxury Electric Vehicles
  • Tesla is expected to account for 4.5% of total (US) market share in 2015
  • Expected to generate $4.9 billion in revenue from US operations in 2015
  • Although market share now is minimal, expected to grow due to anticipated upward sales trend as recharging stations become increasingly popular across US
  • Market share slightly inflated due to all manufacturing operations being located domestically
  • Criticism of Evs due to lack of current infrastructure, will be overcome by expanding infrastructure
  • Loyalty is high despite criticism
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