Case Study 2 Tesla Motors Business Model Configuration, Case Re.docx

Case Study 2: Tesla Motors Business Model Configuration,
Case Reference 314-132-1, Institute of Management, University
of St Gallen (2014).
How has Tesla departed from existing auto industry practices?
What made Tesla to be listed ninth among the “most innovative
companies” in a recent global innovation study?
Innovation in the business model provide competitive
advantage compared to process innovation [1]. Strategically
invest in management practices in-line with business model
innovation to have business agility. Tesla implemented business
process innovation to disrupt the automobile industry. The main
value drivers for Tesla was the novelty of a product in
automobile industry. The vision of “Zero Emission Electric
Vehicle” by including the luxury touch was the key success of
Tesla. This vision was beyond the traditional trend of
automobile manufacturing companies. The study provides
support to the argument that company who provides integrated
products were higher performers compared to the company who
provide product varieties [1]. Also, the main value drivers for a
business innovation are novelty of the business, lock-in to
control the customers and complementariness of having
supporting business. In case of Tesla, they manufacture battery,
and implemented the charging station throughout the major
highways and selling the cars directly by the Tesla without
dealers support the whole business ecosystem.
Tesla’s business model very different from the conventional
automobile manufacturing companies. The following are the
core competencies, made Tesla to be the ninth innovative
company during the year 2013 in the world:
Battery technology – Tesla manufacture electronic powertrains
including battery using state of the art technology to have a
long range for mileage and fast changing techniques.
Software technology – Tesla is the first auto manufacturing

company who control the complete function of a car using
software with control mechanism, changing dashboard and
software push technology.
Charging infrastructure – Tesla deployed charging centers along
major traffic area throughout US and Europe. This helped the
customer to drive Tesla with free of tension for a long travel.
Energy Management and Storage: Developed by partnering with
SolarCity small electric storage device using solar energy to
supply power during the peak hours. Along with software Teals
implemented energy saving and management software to control
the energy usage from the grid.
Human resource management – Tesla was very selective in his
resource recruitment process. Tesla recruit very talented and
innovation oriented engineers and other staff members with
good compensation and provide highest importance to human
capital for the company. Compared to other automobile
companies Tesla hold 80% less staff.
The highly dynamic pace creates a business environment in
which sustained competitive advantage is difficult, if not
impossible, to achieve. How do you expect the industry to
evolve? What do you think about the idea that Tesla’s future
portfolio will include low-cost version (Tesla for the masses)?
Tesla differentiated their business by introducing zero emission
electric vehicle in luxury class automobile sector. Competitive
advantage is achieved where a company implementing a value
creating business strategy that simultaneously not available in
the completing firms [3]. Tesla is a winner in that case.
However, the sustainable competitive advantage can be
achieved when a firm identify a value creating business that
rivalry firms didn’t have simultaneously and other firms
couldn’t duplicate this strategy to get benefited. Next, option
available to Tesla is how to segment this market for a large
mass of people those who can afford to busy and concentrate on
the volume of the product selling to make profit and maintain

the sustainable competitive advantage. This can be achieved by
the low-cost version of the vehicle that Tesla planning to
assemble.
The industry should evolve from value creating business model
value drivers [1]:
Novelty – the newness of the product. Example: Zero emission
EV vehicle of Tesla
Lock-in – innovate linked products. Without one other cannot
function. Example: Tesla make the complete eco system for the
EV vehicle, manufacturing, battery, software, over the air
software push for maintenance, selling, Manufacture of
charging devices/stations, charging centers, power storage
devices and solar power based charge station.
Complementariness – business enhancing and profit-making
support services. Example: Tesla sell their battery to other
companies
Efficiencies – Cost saving using value chain mechanism.
Example: Tesla’s, human resource planning, remote software
update.
Then, the following questions to be answered before adopting a
business model innovation [1]
What perceived needs can be satisfied by the new business
model design?
What novel activities are needed to satisfy these perceived
needs?
How could the required activities link each other in a novel
way?
Who should perform each activity that are part of the business
model
How values are created through the novel business process for
each of the participants?
What revenue model fit for the company’s business model to
appropriate part of the total value it helps to create?
This digitization also helps for new opportunities, leverage
strong customer relationship and increase the cross-selling

opportunities. When Tesla plan for the masses the other
infrastructure including charging network along the roads,
technical support and maintenance center, alternative energy
production to charge battery also need to be planned and
installed. This can be established by engaging partners along
their business model.
The business world is increasingly innovating in the digitization
process. The increases in the digitization innovations
challenged the industry for creating new opportunities by
disrupting the existing. In other words, it a business opportunity
for innovations and venturing into new business ventures. It was
estimated next five years 30% of the business is under threat
from digitization disruption [1].
Reflect on the statement of VW CEO Herbert Diess at
https://electrek.co/2017/05/09/vw-ceo-electric-car-tesla-model-
3/ "“We are confident that in this new world we will become a
market leader,” he added. “[Tesla] is a competitor we take
seriously. Tesla comes from a high-priced segment. However,
they are moving down,” Mr. Diess said, referring to the $35,000
Model 3, which enters production this summer. “It’s our
ambition, with our new architecture, to stop them there, to rein
them in.”
This is a very valuable statement and demonstrated that in
future, there will be a high competition among the automobile
companies to manufacture inexpensive vehicle to support mass
crowed economically. At the same time preserving the nature. If
we consider the developing and under developed countries the
current price of EV vehicle cannot make any difference.
However, the business growth is these countries considering the
volume. So, the automobile companies to concentrate
developing a vehicle to make profits based on volume rather per
piece. In that scenario, VW CEO Herbert Diess message was
very promising. These types of market change in the automobile
industries was already witness in other part of the world.
Example: Tata company in India by introducing 2000-dollar car

(gasoline fuel based). The quote from the article [1] “when you
innovate, look at the forest, not the tree”. This quote explains
the depth and width of an innovation to make differences in the
society.
Reference:
Raphael Amit and Christoph Zott (2012), “Creating Value
Through Business Model Innovation” is an article published in
the MIT Sloan Management Review, summer 2012
Pete Weill and Stephanie L Woerner “Thriving in an
increasingly Digital Ecosystem” is an article published in MIT
Sloan Management Review, summer 2015
O’Shannassy (2008), "Sustainable Competitive Advantage or
Temporary Competitive Advantage", Journal of Strategy and
Management, 1(2).
‘We Can Stop Tesla’
Volkswagen AG’s Electric Vehicles Strategy
Case Study
This case was written by Rajan Shah and reviewed by K.
Bhagyalakshmi, Amity Research
Centers Headquarter, Bangalore. It is intended to be used as the
basis for class discussion
rather than to illustrate either effective or ineffective handling

of a management situation. The
case was compiled from published sources.
© 2018, Amity Research Centers Headquarter, Bangalore.
Website: www.amity.edu/casestudies/
No part of this publication may be copied, stored, transmitted,
reproduced or distributed in
any form or medium whatsoever without the permission of the
copyright owner.
Distributed by The Case Centre North America Rest of the
world
www.thecasecentre.org t +1 781 239 5884 t +44 (0)1234 750903
All rights reserved e [email protected] e [email protected]
centre
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6
‘We Can Stop Tesla’: Volkswagen AG’s Electric Vehicles
Strategy
Page – 1
Author: Rajan Shah
Strategy
Abstract: Tesla Motors (Tesla), the pioneer electric car maker,
with its vision to ‘develop and
produce all-electric, zero-emission car with incredible power’
had threatened the traditional
German automakers. Being a disruptor, Tesla enjoyed the first
mover advantage, thanks to its
brand power, unique growth profile, extensive supercharger
network, direct selling model and
most importantly well-established battery supply chain.

Meanwhile in mid-2017, faced with
‘existential challenge’ in the electric car market, Volkswagen
AG, aimed to ‘leapfrog’ Tesla
through its ‘e-mobility’ strategy, and decided to manufacture 1
million electric cars annually by
2020. In order to support this initiative, Volkswagen announced
a ‘Roadmap E’ strategy, with a
total investment of €72 billion by 2022. Volkswagen decided to
add 16 production sites by the
end of 2022 for manufacturing electric vehicles dedicatedly. At
the same time, the company
had also finalised battery supply deals in China and Europe
amounting to €20 billion. According
to industry observers, the competitive advantage of Volkswagen
included cost advantage,
car-building architecture, millions of loyal customers and brand
value. Moreover, the industry
observers opined that Tesla lacked a sharp technological edge
and the company’s business was
not ‘cash generative’. With Volkswagen attempting to challenge
Tesla in the electric car
market, the industry observers pondered whether it was easier
for Volkswagen to scale up,
overcoming the tough competition from the industry pioneer
Tesla, which had established a
cult status in the EV industry?
Case Study
“In The Old World It Is Toyota, Hyundai, And The French
Carmakers. In The New World It Is
Tesla.”1
– Herbert Diess, CEO, Volkswagen Passenger Cars

s more and more countries were coming forward to phase out
the combustion engine
technology, German auto makers including Volkswagen AG
(Volkswagen), BMW, Daimler
AG (Daimler) were ‘struggling to adapt to the advent of the
electric car, held back by
conservatism and internal challenges.’ In due course, the
German automakers witnessed an
emerging competition from Tesla Motors (Tesla), an American
electric car maker. Karl-Thomas
Neumann, the former Opel CEO, mentioned, “Tesla now has a
cult status that other brands can
only dream of.” However, Simon Hage (Simon), Editor at ‘Der
Spiegel’, a German weekly news
magazine published in Hamburg, opined, “The U.S. company
still isn't making a profit on its
1
Stumpf Rob, “Volkswagen Identifies Tesla as its Biggest
Competitor”,
http://www.thedrive.com/sheetmetal/13244/volkswagen-
identifies-tesla-as-its-biggest-competitor,
August 6
th
2017
“© 2018, Amity Research Centers HQ, Bangalore. All rights
reserved.”
A

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Strategy
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electric vehicles, but unlike the German automakers, Tesla does
not have to worry about a
massive existing car business. This helps explain Tesla's
aggressive approach to marketing,
which makes it seem like the company is less interested in
selling cars than in changing the
way the world uses energy.”
Drawing a parallel instance, Simon, highlighted, “Ten years
ago, another technology sector
made the mistake of underestimating its challenger: the mobile
communications industry.
Manufacturers like Nokia and Blackberry had long been the
undisputed market leaders, but
success made them sluggish. New, more innovative competitors
had hardly appeared on the
scene before the former pioneers were forced from the
market.”2
The Global Electric-Vehicle Market: An Overview
The ‘Paris Agreement’ or ‘Paris Climate Agreement’, which was
announced in December 2015
and came into enforcement in November 2016, was able to draw
consensus among almost 200
countries across the world to cut Greenhouse Gas Emissions
(GHEs). Experts hailed such
development as ‘first time in the history’; a single agreement
dealing with the climate change
united all worlds’ nations. Among all, the key element of the
accord was ‘to keep global
temperatures “well below” 2.0C (3.6F) above pre-industrial
times and “endeavour to limit”
them even more, to 1.5C.’ Welcoming this development as
‘remarkable’, Dr. Bill Hare, CEO of

Climate Analytics3 mentioned, “It is a victory for the most
vulnerable countries, the small
islands, the least developed countries and all those with the
most to lose, who came to Paris
and said they didn't want sympathy, they wanted action.” In
addition, John Schellnhuber,
Director of the Potsdam Institute for Climate Impact Research,
noted, “If agreed and
implemented, this means bringing down greenhouse-gas
emissions to net zero within a few
decades. It is in line with the scientific evidence we
presented.”4
International Energy Agency (IEA), an autonomous agency,
working ‘to promote energy
security amongst its member countries’ identified that ‘the
electrification of transport’ would
play a crucial role in achieving the ‘decarbonisation of the
energy systems’. At the same time,
the electrification of short distance vehicles (including two and
three wheelers) and public
transport vehicles (including freight delivery vehicles) was
considered to play an important
role. According to IEA, “Electrifying road transportation has
multiple benefits, including the
reduction of emissions of local pollutants and noise and the
promotion of energy security and
decarbonisation through increased energy efficiency and
diversification. If transport
electrification goes hand-in-hand with the decarbonisation of
the electricity supply, it will also
be effective for significantly reducing GHG emissions.”5
Meanwhile, in order to foster the electrification strategy for
road transport, an Electric

Vehicles Initiative (EVI) was launched in 2010 as part of the
‘Clean Energy Ministerial (CEM)’,
which was ‘a high-level dialogue among Energy Ministers from
the world’s major economies’.
EVI was ‘a multi-government policy forum dedicated to
accelerating the introduction and
adoption of electric vehicles worldwide’. IEA was designated as
the ‘EVI Co-ordinator’ for the
2
Hage Simon, “The Arrival of Tesla – German Auto Giants Face
an Existential Challenge”,
http://www.spiegel.de/international/business/tesla-german-auto-
giants-face-a-new-electric-rival-a-
1167633.html, September 15
th
2017
3
A not-for-profit climate science and policy institute based in
Berlin, Germany.
4
Briggs Helen, “What is in the Paris climate agreement?”,
http://www.bbc.com/news/science-environment-35073297, May
31
st
2017
5
“Global EV Outlook 2017: Two Million and Counting”,

https://www.iea.org/publications/freepublications/publication/G
lobalEVOutlook2017.pdf, 2017
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member countries which included ‘Canada, China, Finland,
France, Germany, India, Japan,
Mexico, the Netherlands, Norway, Sweden, the United Kingdom
and the United States’.6
According to Frost and Sullivan (F&S), nearly 1.6 million
Electric Vehicles (EVs) were likely to be
sold globally. In its report titled ‘Global Electric Vehicle
Market Outlook, 2018’, published on
March 27th 2018, F&S mentioned, “The electric vehicle market
reached the 1.2-million sales
mark for the first time, with more than 165 models available for
sale. China is leading the
market with 48% market share followed by Europe with 26%.”
The report further highlighted,
“Based on the announcements, EVs now have a market potential
of about 25 million units that
will be sold by 2025; more than 400 models will be made
available...11 OEMs have announced
EV milestones and targets. If all the announcements made so far
were to come true, there will
be about 25 million EVs sold by 2025 or 20% of all cars sold
would be EVs. Energy and
petrochemical companies have started investing heavily in
establishing electric vehicle
charging stations, as they are likely to be the biggest
beneficiaries of the electric vehicle
market.”7
Various categories of EVs, such as Electric Cars (segmented as
battery-electric vehicles (BEVs),
plug-in hybrid electric vehicles (PHEVs) and fuel cell electric
vehicles (FCEVs)), reported record
sales of 750 thousand units worldwide in 2016. According to the

IEA, “With a 29% market
share, Norway has incontestably achieved the most successful
deployment of electric cars in
terms of market share, globally. It is followed by the
Netherlands, with a 6.4% electric car
market share, and Sweden with 3.4%. China, France and the
United Kingdom all have electric
car market shares close to 1.5%. In 2016, China was by far the
largest electric car market,
accounting for more than 40% of the electric cars sold in the
world and more than double the
amount sold in the United States.” (Exhibit I).
Exhibit I
Global Electric Car Stock
Source: “Global EV Outlook 2017: Two Million and Counting”,
Further, IEA report highlighted that, “China was by far the
largest electric car market in 2016,
with 336 thousand new electric cars registered. Electric car
sales in China were more than
double the amount in the United States, where 2016 electric car
registrations rebounded to
160 thousand units after a slight drop in the previous
year...European countries accounted for
6
“Electric Vehicles Initiative (EVI)”,

https://www.iea.org/topics/transport/evi/
7
“Global Electric Vehicle Market Outlook, 2018”,
http://www.frost.com/sublib/display-report.do?id=MDAB-01-
00-00-
00&bdata=bnVsbEB%2BQEJhY2tAfkAxNTIyOTAyNDQ2MTcy
, March 27
th
2018
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215 thousand electric car sales. Both globally and in the
European Union, the electric car
market is still concentrated in a limited number of countries. In
Europe, most of the electric
cars sold in 2016 were registered in just six countries: Norway,
the United Kingdom, France,
Germany, the Netherlands and Sweden. Globally, 95% of
electric car sales are taking place in
just ten countries: China, the United States, Japan, Canada and
the six leading European
countries.”8
Experts opined that ‘market attractiveness’ played a major role
in the growth momentum of
electric cars. In a broader sense, the market attractiveness of
EVs was defined as “the degree
to which – from a customer perspective – the purchase of an EV
instead of a conventional
vehicle is a more attractive option, in both monetary and non-
monetary terms.” Further, the
market attractiveness was dependent on ‘market-specific’ and
‘non-market-specific’ attributes.
According to Accenture, a leading global professional services
company, in its report titled,

‘Electric Vehicle Market Attractiveness: Unraveling Challenges
and Opportunities’, highlighted,
“Despite the current low oil price, global EV sales figures have
been growing rapidly: from
36,000 units sold in 2011 to more than 270,000 four years later.
However, the market share of
EVs as a percentage of the global automotive market in 2015
was only 0.3 percent. An increase
to just 3 percent would equate to 2.7 million EVs.” Further, the
report added, “One of the
biggest and strongest catalysts for EV Market Attractiveness is
the presence of monetary and
non-monetary government subsidies.”9 (Exhibit II).
Exhibit II
Market Attractiveness Factors for EVs
Source: “Electric Vehicle Market Attractiveness: Unraveling
Challenges and Opportunities”,
https://www.accenture.com/t00010101T000000__w__/gb-
en/_acnmedia/PDF-37/accenture-electric-
vehicle-market-attractiveness.pdf, 2016
Fostered by such favorable environment, by the end of
December 2017, global auto
manufacturers had invested nearly $90 billion for the rollout of
various EVs. The investment by
the automakers in terms of geographical spread stood at $19
billion in the US, $21 billion in
China and $52 billion in Germany. According to Dieter Zetsche,
Daimler AG’s (Daimler) Chief
Executive, “We will see whether demand will drive our (electric

vehicle) sales or whether we
will all be trying to catch the last customer out there.
Ultimately, the customer will decide.” At
the same time, Jim Lentz, Chief Executive of Toyota Motor
Corp’s (Toyota) North American
8
“Global EV Outlook 2017: Two Million and Counting”, op.cit.
9
“Electric Vehicle Market Attractiveness: Unraveling
Challenges and Opportunities”,
https://www.accenture.com/t00010101T000000__w__/gb-
en/_acnmedia/PDF-37/accenture-electric-vehicle-
market-attractiveness.pdf, 2016
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operations, opined, “It took Toyota 18 years for sales of hybrid
vehicles to reach 3 percent
share of the total market. And hybrids are less costly, do not
require new charging
infrastructure and are not burdened by the range limits of
battery electric vehicles. What’s it
going to take to get to 4 to 5 percent. It’s going to be longer.”10
In the due course, Ford Motor Co. (Ford) announced that the
company had planned to invest
nearly $11 billion by 2022 in EVs. According to Jim Hackett,
Ford’s Chief Executive, “The
automaker would slash $14 billion in costs over the next five
years and shift capital investment
away from sedans and internal combustion engines to develop
more trucks and electric and
hybrid cars.” Moreover, on Ford’s EVs’ strategy, Bill Ford,
Chairman of Ford, mentioned,
“We’re all in on this and we’re taking our mainstream vehicles,

our most iconic vehicles, and
we’re electrifying them. If we want to be successful with
electrification, we have to do it with
vehicles that are already popular.” Mary Barra, Chief Executive
of General Motors (GM) had
also ensured investors that by 2021; the company determined to
register earnings from the
sales of electric cars.11 (Exhibit III).
Exhibit III
OEMs’ Electric Car Ambitions
Source: “Global EV Outlook 2017: Two Million and Counting”,
Among various players, Tesla Motors (Tesla) which was co-
founded by Elon Musk (Elon) and
group of engineers, had a clear goal for the company to
‘Develop and produce all-electric,
zero-emission car with incredible power, torque whilst not
compromising the range.’12 In 2008,
Tesla launched its first car named ‘Tesla Roadster’ with some
grave features such as ‘3.7
seconds to 60mph, 245 miles range and went for the price tag of
$110,000.’ Moving on, in
2012, Tesla launched ‘Model S’, the company’s ‘first premium
electric sedan’ by ‘redefining the
usual sedans that everyone has ever known before.’ In 2015,
Tesla came out with ‘Model X’, an
SUV with ‘Falcon Wing doors and a lot room that allows for
cars utilization in, nearly, any

10
Lienert Paul, “Global carmakers to invest at least $90 billion in
electric vehicles”,
https://in.reuters.com/article/autoshow-detroit-electric/global-
carmakers-to-invest-at-least-90-billion-in-
electric-vehicles-idINKBN1F505K, January 16
th
2018
11
“Ford Plans to Invest $11 Billion to Electrify Its 'Most Iconic'
Vehicles”,
http://fortune.com/2018/01/14/ford-11-billion-electric-car-
investment/, January 15
th
2018
12
“Background of Tesla Motors”,
http://mixcsy.wixsite.com/teslaensi313
318-0178-1
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scenario.’ By 2020, the company planned to make its ‘Model 3’
as a mass market electric car.13
(Annexure I–A & I–B).
With such vision and business strategy, by July 2017, Tesla was
acknowledged by Bloomberg
New Energy Finance, a research organisation, popularly known
as BNEF as a clear winner as far
as the US electric car market was concerned. According to
BNEF’s ‘Long-Term Electric Vehicle

Outlook’, by 2021, the cumulative deliveries of Tesla would
stand at 0.7 million vehicles. BNEF,
in its report noted that “Tesla will be able to distance itself
from established automakers and
dominate many of the world’s biggest markets for battery-
powered vehicles.”14 (Exhibit IV).
Identifying Tesla as a disruptive company, Toni Sacconaghi, IT
Hardware and Electric Vehicles
Analyst at Bernstein Research, mentioned, “Tesla is indeed
disruptive. This will happen quickly
because EV (electric vehicle) adoption will be huge. Tesla’s
first mover advantage and brand
power should enable it to gain market share.” He further added,
“Tesla will be much more
profitable than traditional auto manufacturers. Tesla has a
unique growth profile and has
reasonable valuation in light of its tremendous option value.”15
Exhibit IV
Tesla – Leading the Way for Electric Cars
Source: Ballentine Claire, “Tesla Projected to Win U.S.
Electric-Car Race”,
https://www.bloomberg.com/news/articles/2017-07-06/tesla-
seen-pulling-away-from-gm-for-clear-
u-s-electric-car-lead, July 7
th
2017
Along with the first mover advantage and brand power, ‘Great

Speculations’, a contributor
group devoted to investing ideas at Forbes noted, “Tesla has a
competitive edge in this market
given its supercharger network and direct selling model...Tesla's
supercharger network which
hosts more than 3,000 superchargers in the U.S. providing
convenient charging options to its
car users, definitely gives it a competitive edge, given that no
other player has been able to
replicate this kind of network so far.” The group further noted,
“Competing with Tesla on the
charging network might be tough for other auto makers, given
its first mover's advantage.
13
“Company Profile”,
http://mixcsy.wixsite.com/teslaensi313/company-profile
14
Ballentine Claire, “Tesla Projected to Win U.S. Electric-Car
Race”,
https://www.bloomberg.com/news/articles/2017-07-06/tesla-
seen-pulling-away-from-gm-for-clear-u-s-electric-
car-lead, July 7
th
2017
15
Winton Neil, “Is Tesla The Big Disruptor Or A Minor Irritant?
Take Your Pick”,
https://www.forbes.com/sites/neilwinton/2017/06/08/tesla-the-
big-disruptor-or-minor-irritant-take-your-

pick/#6d3176fe7b78, June 8
th
2017
318-0178-1
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Tesla is the only automaker exclusively developing electric cars
on a significant scale and this
gives it an edge over other automakers that also need to focus
on their traditional models.”16
Moreover, in addition to the supercharger network and direct
selling model, Tesla was able to
build its own battery supply chain. According to Zach, Director
of CleanTechnica17 and
Planetsave18, “Tesla’s battery packs are routinely estimated to
be a good tier cheaper than
other EV batteries. Part of that is thanks to the quality of
Panasonic’s cells, but part of that is
also Tesla’s continual improvement of the packs and the battery
chemistries. Tesla’s constant
work to improve its batteries is one side of the cost-cutting
calculus, but another important
side is simply scale. Scaling up production results in greater
manufacturing efficiencies,
manufacturing improvements, and cost reductions.” The
electronics and software used in the
electric cars was another area which offered competitive
advantage to Tesla. According to
Zach, “Tesla’s approach to software is a tier (or more) above
the competition. It used to be
that cars were big machines with small computers in them. In
the future, cars are going to be
computers on wheels, and Tesla is leading us there. Its software
team rolls out over-the-air
updates like we get on our smartphones, tablets, and computers,
continuously improving
owner vehicles.” He further added, “With an electric car, the

improvement capabilities that
come from better software are beyond imagine. I think it’s safe
to say that cars of 2025 and
2035 will be very different animals than cars of 2015. If I were
to put my money on who most
leads us to those computers on wheels, I’d put it on Tesla.”
Along with the tangible factors, Tesla was successful in
building the ‘intangible’ strengths. On
such aspect, Zach highlighted, “One is that it has developed a
reputation for producing superb
products. The Tesla Roadster transformed the image of electric
cars from small, slow vehicles
to blindingly fast vehicles of desire.” He further added, “As if
that wasn’t enough, Tesla
produced the cheaper Model S sedan that ended up winning just
about every big auto award.
After some updates, it also set the record for quickest
production sedan in history, with a 0 to
60 (mph) acceleration that beats even some supercars. It’s
simply on another level.”19
Meanwhile, according to the analysis of Trefis, a dedicated
research firm, “Tesla has ambitious
plans for the future, looking to shift from a niche producer of
electric sports cars to an
established volume automobile manufacturer.” But, “Tesla's
value depends on its future
electric vehicle sales, which, in turn, depends upon the potential
size of the market. There are
various factors that could affect the potential size of the market,
such as the price of oil, fuel
efficiency improvements in its internal combustion engine cars,
the cost of batteries,
recharging infrastructure, and government incentives”, the
analysis further highlighted.20

However, Brian Johnson, an Analyst at Barclays Plc., opined,
“Tesla will face intense
competition by next decade from legacy OEMs who are
expanding their electric options. We’ve
long argued that Tesla as an EV company is not truly disruptive,
in that legacy OEMs will
eventually wake up and offer fully electric vehicles by the early
2020s.”21
16
“Should Tesla Be Worried About Competition?”,
https://www.forbes.com/sites/greatspeculations/2016/01/04/shou
ld-tesla-be-worried-of-
competition/#4d4a56a94ebe, June 4
th
2016
17
The most popular clean-tech focused website in the world.
18
A world-leading green and science news site.
19
Zach, “Tesla’s Competitive Advantages- 5 Big Ones”,
https://evobsession.com/tesla-competitive-advantage-5-big-
ones/, April 29
th
2015
20

“Tesla (TSLA)”,
https://www.trefis.com/stock/tsla/model/trefis?easyAccessToke
n=PROVIDER_fdb11db659bd1a59ae20da362d0
b1971a252c2be#, August 17
th
2017
21
“Tesla Projected to Win U.S. Electric-Car Race”, op.cit.
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Volkswagen AG: Challenging Tesla’s Supremacy
In late 2016, Volkswagen AG (Volkswagen) decided to
completely reposition itself in the
market under its ‘TRANSFORM 2025+’ strategy. Dr. Herbert
Diess22 (Diess) said, “Our goals are
high and our strategy is very ambitious. We want to benefit
from change and to take
Volkswagen into the lead in the new automobile industry with
determination. Over the next
few years, Volkswagen will change radically. Very few things
will stay as they are. In the final
resort, the new strategy is a major transformation program.” At
the same time, highlighting
the company’s ‘e-mobility’ strategy, he opined, “From 2020, we
will be launching our major e-
mobility offensive. As a volume manufacturer, we intend to
play a key role in the breakthrough
of the electric car. We are not aiming for niche products but for
the heart of the automobile
market. By 2025, we want to sell a million electric cars per year
and to be the world market
leader in e-mobility. Our future electric cars will be the new
trademark of Volkswagen.”23

With a strong such ‘e-mobility’ strategy, in May 2017,
Volkswagen was confident to ‘leapfrog’
Tesla, which manufactured 80,000 electric cars in 2016 and plan
to manufacture 1 million
electric cars per year by 2020. On this, Diess mentioned,
“Anything Tesla can do, we can
surpass.” He further opined, “What Tesla will achieve in the
premium market, VW will achieve
in the volume market. We are confident that in this new world
we will become a market
leader.”
With Volkswagen planning to take over Tesla in the electric car
market, the industry observers
raised an important question – “is it easier for a start-up with
proven technology to scale up, or
for a traditional carmaker with scale to transform its
operations?” Detailing about the
advantages to Volkswagen in such move, Diess mentioned that,
“VW will have ‘leapfrogging
cost advantages’ thanks a wider rollout of its “MQB” platform,
or car-building architecture,
which helps the different VW brands to share parts, technology
and assembly sequences.” He
further added that, “[Tesla] is a competitor we take seriously.
Tesla comes from a high-priced
segment, however they are moving down. It’s our ambition,
with our new architecture, to stop
them there, to rein them in.” However, the big challenge for
Volkswagen in its electric cars’
strategy was the need for massive investments in both
combustion engine technology and
electric mobility, and maintaining focus on the overall cost
cutting. On this, Arno Antlitz,
Member, Board of Management, Volkswagen Brand, with
responsibility for Controlling and

Accounting, mentioned, “We foresee substantial financial
burdens looming... The increased
capital spending would be ‘overcompensated’ by savings from
the ‘future pact’.”24
However, the German analysts opined that Tesla would win the
electric cars race as the
traditional auto makers were ‘complacent’ in their approach
towards the electric cars. They
further added that the ‘upstart will win a near monopoly of the
market’. Analysing Tesla’s
readiness for the competition, Alexander Haissl (Haissl),
Analyst at Berenberg Bank based in
Germany, opined, “Tesla is out investing the competition, which
hampers itself by seeking to
save money by building on legacy engineering rather than
developing new and focused
technology.” He further added, “[Manufacturer] complacency
about electric vehicle (EV)
22
He is Chairman of Volkswagen Brand Board of Management of
the Volkswagen Passenger Cars Brand &
Member of Board of Management, Volkswagen AG.
23
“TRANSFORM 2025+ Volkswagen presents its strategy for the
next decade”,
https://www.volkswagen-media-services.com/en/detailpage/-
/detail/TRANSFORM-2025-Volkswagen-presents-
its-strategy-for-the-next-
decade/view/4257735/7a5bbec13158edd433c6630f5ac445da,
November 22

nd
2016
24
McGee Patrick, “Volkswagen plans to ‘leapfrog’ Tesla in
electric car race”,
https://www.ft.com/content/a43ac2ce-3198-11e7-9555-
23ef563ecf9a, May 7
th
2017
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technology is worse than perceived. Despite more talk of
developing EVs for mass-market
adoption, a lack of real action and strategic commitments betray
their underlying conviction,
with no clear pathway to high-volume EV production before the
mid-2020s.” In his research,
Haissl mentioned that the traditional auto manufacturers were
not able to showcase clear
vision for next 20 years and at the same time their efforts were
concentrated on bringing down
the costs and integrating their existing production. They lacked
dedicated focus for ‘high-
volume production of new electric vehicles.’
Praising Tesla’s commitment, Haissl opined, “To contrast Tesla
with even the most forward
looking (manufacturers), we estimate Tesla will invest $32.7
billion over the next 5 years –
roughly 40% more than Daimler and Volkswagen combined
have committed for their EV
projects.” He further added, “Tesla/Panasonic continue to
exhibit a clear advantage on cell and
pack technology compared to all peers, on chemistry, cooling
and cost. Clear visibility about

high-volume cell-sourcing strategies continue to elude
traditional manufacturers.” At the same
time, analysing Volkswagen’s move, Haissl, opined, “Larger
investments into battery capacity
could be necessary. To supply its electric fleet by 2025, VW
needs about 150 gigawatt hours of
battery capacity a year and capacity planned so far isn’t enough.
One major advantage for VW
is its huge scale for better economics.” Identifying a clear
competitive advantage for Tesla,
Dr. Dean Dauger25 mentioned, “Tesla will win a long period of
ascendancy mainly because of its
decision to make its own batteries...The Germans have no way
of getting their competitive
electric vehicles before 2025 at the earliest in any great
numbers because they simply won't
have access to enough batteries at competitive prices.”26
In due course, Diess also acknowledged, “Tesla belongs among
the competitors which has
abilities that we currently do not have... Tesla has good electric
motors, a fast charging
network, autonomous driving technology, internet connectivity,
and a new approach toward
vehicle distribution.” He further added, “This shows that we
need to significantly improve. We
can do this. We measure ourselves against Tesla quite
deliberately. Our goal: Using our abilities
not just to catch up, but even to overtake.”27
In order to strengthen its electric mobility initiative, in
September 2017, Volkswagen
announced ‘Roadmap E’, ‘the most comprehensive
electrification initiative in the global
automotive industry’. On such move, Matthias Müller (Müller),
Chairman of the Board of

Management of Volkswagen, mentioned, “With ‘Roadmap E’,
we are opening up a new
chapter in our Group’s history. And setting the scene for e-
mobility’s final breakthrough. Then
it is up to customers to decide how fast it will gain widespread
acceptance.” As a part of the
initiative, an official announcement of the company noted, “The
Group will need more than
150 gigawatt hours of battery capacity annually by 2025 for its
own e-fleet alone. This is
equivalent to at least four gigafactories for battery cells. To
meet this demand, the Company
has put one of the largest procurement volumes in the industry’s
history out to tender: over
€50 billion.” “In order to meet this huge requirement, a tender
process has been initiated with
regard to long-term strategic partnerships for China, Europe and
North America. The
procurement project is one of the largest in the history of the
automotive industry, with a total
order volume of over €50 billion just for the Group’s future
volume vehicles based on the
25
He is computational physicist and President of Dauger
Research Inc., Huntingdon Beach, California.
26
Winton Neil, “Tesla's Focus Means Victory Versus Complacent
Mainstream In Electric Cars, Analyst Says”,
https://www.forbes.com/sites/neilwinton/2017/06/29/tesla-
focus-means-victory-versus-complacent-
mainstream-in-electric-car-market-report/#43409dc577e7, June
29

th
2017
27
“Volkswagen brand CEO says Tesla has abilities Volkswagen
lacks”,
https://www.reuters.com/article/us-volkswagen-tesla-
diess/volkswagen-brand-ceo-says-tesla-has-abilities-
volkswagen-lacks-idUSKBN1AK261, August 4
th
2017
318-0178-1
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Modular Electrification Toolkit. That will meet the Group’s
needs for the first wave of e-
mobility. Looking further ahead, Volkswagen is already gearing
up for the next generation:
solid-state batteries. The Group also plans to bring this forward-
looking technology to market
maturity together with partners,” the announcement further
noted.
Highlighting the proposed development as crucial, Müller
explained, “For us, the
transformation of transportation and the energy transition are
inseparable. And creating a
comprehensive charging infrastructure rapidly – in cities and on
highways – will be critical to
success. In Europe, and particularly in the automotive
stronghold of Germany, much more
needs to be done. Only then will customers’ trust grow. And
only then will electric cars come
out of the niche – and achieve relevant market share in years to
come. I’m convinced this will
succeed if politicians, the energy industry and automakers work

in harness.” With ‘Roadmap E’
initiative, Volkswagen aimed to electrify its entire fleet of 300
models across brands and
markets, by 2030.28
In due course, in November 2017, Volkswagen approved €34
billion ($40 billion) spending plan
‘to become a global leader in electric cars.’ On this, Müller
said, “With the planning round now
approved, we are laying the foundation for making Volkswagen
the world’s No. 1 player in
electric mobility by 2025.” At the same time, the total
investment committed by Volkswagen
stood at €72 billion by 2022.29
Subsequently, in the early 2018, Volkswagen announced
expansion plans for the production of
electric vehicles. The company decided to add 16 production
sites by the end of 2022 for the
production of electric vehicles in addition to its existing three
sites. At the same time, the
company had finalised battery supply deals in China and Europe
amounting to €20 billion. On
such aspects, Müller mentioned, “Over the last few months, we
have pulled out all the stops to
implement ‘Roadmap E’ with the necessary speed and
determination. Things are really
moving. A change of course for the Volkswagen super tanker –
full speed ahead to the future!”
He further added, “We are systematically addressing the issue
of safeguarding supplies of raw
materials. We expect to make significant progress with regard
to energy density, and therefore
range, as well as reducing the amount of cobalt.”30 (Exhibit V).
Panos Mourdoukoutas, (Panos), Professor and Chair of the

Department of Economics at LIU
Post in New York opined, “Volkswagen had the scale and the
scope to take on and beat
pioneer electric car maker Tesla.” He further opined that with
Volkswagen jumping ‘on the
electric car bandwagon with its own line of battery and hybrid
cars’, it would certainly throw a
tough competition for Tesla, driving prices of electric vehicles
lower and eroding profit
margins. “Volkswagen has the scale and the scope to beat Tesla
at its own game...Try $280.8
billion in revenues…from a broad portfolio of several well-
known models and brands, which
includes VW, Porsche, Audi, Skoda, Lamborghini and Bentley.”
He further added, “Tesla by
contrast is a small new automaker with roughly $12 billion in
sales coming from a narrow
portfolio of sedans and sport utility vehicles. That’s a
significant competitive advantage for
Volkswagen,” added Panos (Annexure II).
28
“The Volkswagen Group launches the most comprehensive
electrification initiative in the automotive industry
with ‘Roadmap E’”,
https://www.volkswagenag.com/en/news/2017/09/Roadmap_E.ht
ml#, September 11
th
2017
29
Cremer Andreas and Schwartz Jan, “Volkswagen accelerates
push into electric cars with $40 billion spending

plan”, https://in.reuters.com/article/us-volkswagen-investment-
electric/volkswagen-accelerates-push-into-
electric-cars-with-40-billion-spending-plan-idINKBN1DH1M8,
November 17
th
2017
30
Lindland Rebecca, “VW Details Aggressive Push To Expand
Electric Vehicle Production”,
https://www.forbes.com/sites/rebeccalindland/2018/03/13/vw-
continues-to-rebuild-expanding-its-roadmap-e-
at-2018-annual-press-conference/#2bf673c694b3, March 13
th
2018
318-0178-1
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Page – 11
Exhibit V
Volkswagen Vs Tesla
Source: Chris Reiter and Christoph Rauwald, “VW Just Gave
Tesla a $25 Billion Battery Shock”,
https://www.bloomberg.com/news/articles/2018-03-13/vw-
secures-25-billion-battery-supplies-in-
electric-car-surge, March 13
th
2018
In addition, Mario A. Gonzalez-Corzo, Lecturer, Columbia

University opined, “The problem for
Tesla investors is profitability rather than sales. Tesla’s
‘profitability problem’ is evidenced by
the fact that, despite reporting notable increases in sales since
its IPO in 2010, its key
profitability ratios (e.g., gross profit margin, operating profit
margin, net profit margin, ROA,
and ROE) remain in negative territory.” He further added,
“Now, with automobile giants like
Volkswagen joining the electric car race and competition
heating up, things are expected to get
worse.”31
Meanwhile, Max Warburton (Warburton), Analyst with
Bernstein Research opined, “Tesla is
not a disruptive company. It has not significantly impacted the
conventional auto industry, it is
not moving fast enough to pressure incumbents, and it has not
invented a product that is cost-
competitive with typical automobiles.” He further added,
“Tesla’s core business is not cash
generative...Tesla has no clear technology edge in batteries or
autonomous driving. It is about
to face multiple EV competitors from Europe for the Model S
and Model X... Model 3 will be
late and won’t be profitable.” Dedicatedly on the financial
front, Warburton commented, “Just
looking at its (Tesla) financials and cost of doing business – I
think it’s pretty terrifying, and I
struggle profoundly to understand Tesla’s valuation and what
people are expecting this
company to be. I simply struggle to see how making EVs is a
commercially attractive activity.”
(Annexure III).
At the same time, on Tesla’s most ambitious ‘Model 3’,

Warburton opined, “If the Model 3
does sell in big numbers, this will put huge pressure on an
already tottering service network, if
the British operation is typical.” He further added, “The sales
and service network, at least in
the U.K., cannot deal with the current cars (Model S and Model
X) because they have so many
problems. I do not have any idea how Tesla is going to deal
with rolling out Model 3 and
frankly, everyone I’ve spoken to at Tesla in the U.K. has no
idea how they’re going to deal with
it either. In fact, lots of them are going to leave before Model 3
launches because it’s just too
stressful working there. If Model 3 quality is as poor, the
service network is going to face major
problems.”
31
Mourdoukoutas Panos, “Volkswagen Is Taking on Tesla”,
https://www.forbes.com/sites/panosmourdoukoutas/2018/03/14/
volkswagen-is-taking-on-
tesla/2/#10d762e95121, March 14
th
2018
318-0178-1
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Strategy
Page – 12
In spite of the challenges faced by Tesla, Ferdinand
Dudenhoeffer, Professor and Director of
the University of Duisberg-Essen’s Center for Automotive
Research, highlighted, “Tesla will be
the greatest success story in automotive history...Tesla’s lead in
EVs and autonomous cars will
provide dynamic growth and he is also ahead with the charging
network, batteries and also
modernizing the retail system. I’m pretty sure model 3 will be a

success and with Model Y in 5
to 7 years Tesla will have annual sales of 1 million or more.”32
Meanwhile, Brian Obudho, Writer at HotCars, ‘the World's
Most Entertaining Car Site’, opined,
“VW is a major brand with years of experience and millions of
loyal customers, and this alone
should make Tesla panic. Worse, VW wants to make these cars
for the volume market–not for
the premium market like Tesla does. While this is still
something debatable, the reality is that
VW is a reputable carmaker–with scale–that wants to transform
its operations, while Tesla is a
startup that's trying to scale up. VW has numerous cost
advantages, among other perks, and
the odds will be in its favor.” (Annexure IV). He further added,
“There have been major
concerns over the wide demand-supply gap because Tesla has
consistently failed to deliver as
promised...Tesla may, over the next few years, still not be able
to add assembly lines fast
enough to keep up with the competition. This only means that
Tesla won’t have the capacity to
dominate in the grand scheme of things.”33
Amidst such scenario, Diess ambitiously opined, “We see
Volkswagen as the company that can
stop Tesla, because we have abilities Tesla doesn’t have today.”
At the same time, he also
mentioned, “We have to watch out, because we have a lot of
work in front of us, and the
challenges that lie ahead are enormous.”34

32
“Is Tesla The Big Disruptor Or A Minor Irritant? Take Your
Pick”, op.cit.
33
Obudho Brian, “20 Reasons Why Tesla Will Lose The EV
Race”, https://www.hotcars.com/20-reasons-why-
tesla-will-lose-the-electric-vehicles-race/, February 5
th
2018
34
Rauwald Christoph, “Late to the Battery-Car Race, VW Says It
Can Still Blunt Tesla”,
https://www.bloomberg.com/news/articles/2017-07-07/late-to-
the-battery-car-race-vw-says-it-can-still-blunt-
tesla, July 7
th
2017
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Page – 13
Annexure I–A
Tesla’s Product Offerings
Source: “Tesla’s Product Line”,
http://mixcsy.wixsite.com/teslaensi313
Annexure I–B
Tesla’s ‘Model 3’ (Features and Specifications)

Source: “Tesla vs. GM, Ford, BMW, Toyota, Volkswagen
[INFOGRAPHIC]”,
https://www.valuewalk.com/2017/07/tesla-vs-gm-ford-bmw-
toyota-volkswagen/, July 13
th
2017
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Page – 14
Annexure II
Key Financials*
Company Revenues Profit Margin
Volkswagen Euro 280.8 billion 3.15%
Fiat Chrysler $131.96 billion 2.50%
Tesla $11.76 billion -16.68
*as of March 14
th
2018
Source: Panos Mourdoukoutas, “Volkswagen Is Taking on
Tesla”,
https://www.forbes.com/sites/panosmourdoukoutas/2018/03/14/
volkswagen-is-taking-on-
tesla/2/#10d762e95121, March 14
th
2018

Annexure III
Market Share of Major Players
Vehicles Produced (in 2016)
Market Capitalisation
(% Change – Q1 2015 to Q1 2017)
Source: “Tesla vs. GM, Ford, BMW, Toyota, Volkswagen
[INFOGRAPHIC]”,
https://www.valuewalk.com/2017/07/tesla-vs-gm-ford-bmw-
toyota-volkswagen/, July 13
th
2017
318-0178-1
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Page – 15
Annexure IV
‘Roadmap E’ of Volkswagen
Source: Lima Pedro, “Volkswagen expects to become global
leader in e-mobility by 2025”,
https://pushevs.com/2017/10/14/volkswagen-expects-become-
global-leader-e-mobility-2025/,
October 14
th

2017
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