This document summarizes a consulting project report on Tesla. It identifies Tesla's strategic issues as the lack of charging infrastructure making long distance travel inconvenient and the high price of its vehicles limiting its market. Recommendations include cutting costs through economies of scale, creating state incentive programs, partnering to increase charging infrastructure, and increasing lobbying spending to allow direct sales.

1. CONSULTING PROJECT
Alex Field, Thomas Claes Johnson, Mac McGuire, Parker Powell, Sindy Wang

2. o Tesla History: Key Events
o Industry S-Curves: Car & Automobile Manufacturing
o Tesla as a Disruptive Technology
o Tesla: Sources of Attractiveness
o How Do Innovations Diffuse? A Look into Tesla
o Issue: Too Expensive
o Recommendation: Cut Costs
o Tesla’s Efforts in Cost Cutting
o Recommendation: Create State Incentive Programs
o Issue: Insufficient Infrastructure
o Recommendation: Increase Infrastructure
o Issue: Straight-to-Consumer Retail Model Blocked by Lobbyists
o Recommendation: Increase Spending on Lobbying
o Conclusion

3. 2003
2006
2009
2010
2012
20142013
2015
Tesla Motors is
incorporated
Begins production
of the Roadster
Model S unveiled
$465m loan from
Department of
Energy
Daimler
investment
subsidiary buys
19.1m shares of
convertible
preferred stock
TSLA IPO launched
Panasonic purchases
1.4m shares
Toyota purchases
2.9m shares
Announced
partnership to
develop powertrain
system with Toyota
RAV4
Started building
Supercharger
Network across
America
Unveiled designs
and plans for Model
X
ExtremeTech “Best
Selling Luxury Car
Gigafactory announcement
200th Tesla Charging Station
opened (2 months later,
300th opened)
Musk announces anyone can
use their patent in good faith
Consumers report “Best
Overall Car”
400th Tesla charging station
- 1st solar powered charging
station
Model 3 announcement
- Before incentives: $35k
- After incentives: ~$25k
Tesla History: Key Events

4. Industry S-Curves
Car & Automobile Manufacturing
Time
EV
Hybrid
Performance
Internal
Combustion
Fuel Cell

5. Diminishing
returns on
R&D?
Exceeding
market
needs?
New S-curve
close to
inflection
point?
Identified
market
segment of
early
adopters?
Enter market
Market
research
R&D
partnership
Marker on
strategic
game board
Status Quo
Disruptive
Technology
NO
NO
NO
NO
YES
YES
YES
YES

6. • First developed in 1860, the internal combustion engine has long been our
most commonly used source of power to move automobiles
• At max efficiency, our most modern engine operates at a maximum thermal
efficiency of 25-30%
• 70% of the thermal energy released by consumed gasoline is wasted
“We are currently in a stage at which improvements in internal combustion
engines are running into diminishing returns”
Tesla: Disruptive Technology
Diminishing Returns to R&D

7. • Development of Tesla batteries currently at inflection point
• Current Tesla estimates place battery at $30k-40k
• Industry-wide cost estimates declined by 14% annually between 2007 and 2014
• $1,000 per kWh to around $300 for market leaders, including Tesla
• Battery costs will reach $230 per kWh by 2018
• Estimated further cost reduction if production doubled: 6%-9% per battery
• Batteries are a major cost driver for fully electric vehicles
• As they cheapen, so will total ownership cost
Tesla: Disruptive Technology
New S-Curve Close to Inflection Point

8. Tesla: Disruptive Technology
New S-Curve Close to Inflection Point

9. Consumer Appeal
• Sleek design
• Quiet in drive
• 0 to 60mph in under 4
seconds
• No traditional fuel costs
Environmental Appeal
• Zero emissions
• Sustainable energy
source
Sources of Attractiveness

10. A Look Into Tesla
Relative Advantage
Is it better than the product it replaces?
• More environmentally friendly, cheaper in the long run
• BUT it is too expensive
Compatibility
Is it consistent with existing value and experiences?
• You drive it as you would any other car
• BUT charging stations are not widely available
Complexity
Is it difficult to understand and use?
• You drive it as you would any other car
• Could carry perception of being technologically complex
Trialability
Can the product be experimented with on a limited basis?
• Test drives can be requested online or through retail stores
• VIP test drives
Observability
Are product usage and impact visible to others?
• Highly visible in news, social media
• BUT not many people own it in real life

11. Price & Cost
per unit
Industry
Average
Competitor
Margin
Costs
Costs
Margin
Priceavg
Costavg
$32,000
$28,160
$100,000
50,000
0
Issue: Too Expensive
Price/Cost Comparison

12. Cut Costs
• Decrease cost per unit of batteries and production process through
economies of scale by doubling current production
• Estimated 8% decrease
• Continue to partner with companies that can utilize lower capital cost
to make car more affordable
• US Bank does not operate on East Coast, find regional partners

13. Cost Cutting
Estimated production costs per battery:
- Market Average: $400/kWh
- Tesla: $300/kWh
“If batteries fall as low as $150/kWh could lead to paradigm shift in vehicle tech”
• At current rate, a conservative estimate by 2018 is $230/kWh
Gigafactory currently under construction
• Instrumental to dramatically reducing cost per unit and increasing supply of tech
• Will decrease cost of Tesla battery by more than 30% by 2020
• Will be able to meet estimated world demand in 2020 but must avoid pitfalls of
low utilization if demand does not meet expectations
Bay Area factory cost < one third of US average cost ($1b)
• Focused attempt to lower costs in order to compete with conventional car models
2014 Partnership with US Bank
• Decreases leasing cost by 25%

14. • 37/50 states have incentive programs to promote purchase of hybrid or EV cars
•In addition to existing Federal Tax exemption of $7,500
•Target remaining 13 states
• The Northeast presents a major market for Tesla
• Highly educated/environmentally aware market
• BUT most of it has no current state incentives
• Tesla lobbying headquarters are in Carson City, California due to gigafactory
lobbying efforts, but it is no longer a strategically positioned office
• The West Coast has adopted technology well
• Focus lobbying efforts on NE
Create State Incentive Programs

15. • 400 Supercharger stations vs. 168,000 retail fuel locations for internal
combustion engines
• Supercharger  30 minute charge = 170 miles
• Regular charging stations  outdated, 1 hour charge = 30-60 miles
Issue: Insufficient Infrastructure
US Supercharger Locations

16. Increase Infrastructure
Partner with regional utility providers
• Existing grid has enough excess capacity to support over 150 million electric cars
(75% of all cars driven in USA)
Why would utility providers partner with us?
• SolarCity (founded by Elon Musk) has ability to underprice current providers
by reselling stored energy back into grid
• This would allow Tesla/SolarCity to leverage their threat to industry and
gain favorable deal
• More outlets = more revenue
Convenience of charging locations will help in the diffusion of EV technology:
• Increased compatibility resulting in higher observability
• Increased value of product, stimulating revenues

17. Issue: Dealership PACs Preventing Straight-to-Consumer
Retail Model
Lobbyists/Tesla Political Contributions
0
0.5
1
1.5
2
2.5
3
3.5
New Jersey (2014) Texas (2013)
PoliticalContributions($)
Millions
Lobbyists
Tesla

18. • Tesla lost against Car Dealership PAC group in both New Jersey and Texas,
preventing their ability to sell directly to customers
• Between 2003 and 2012 Car Dealership PACS spent $140m,compared to Tesla’s
$500k
• Average annual expenditure difference of $15,611,111 vs. $55,555
Loss in NJ stats
•2nd Most liquid millionaires as % of population in America
•456,949 millionaires
•Unable to meet large possible customer base
• Inability to retail in both Texas and NJ creates loss of ability to target 700,000
millionaires
•0.25% of this group = 17,500 cars
•17,500 purchases  15% margin (25% actual)  increase of $262m in NI
Issue: Dealership PACs Preventing Straight-to-Consumer
Retail Model
Implications

19. • Current Dealership PACs are preventing Tesla from selling
• Tesla should increase lobbying expenditures to counter Dealership PACs
and to gain state acceptance
•4x-6x current expenditures
•Increasing total to approximately $4m-$6m
Increase Spending on Lobbying

20. Issues
• Too expensive
• Insufficient infrastructure
• Dealership PACs are preventing straight-to-consumer retail
model
Recommendations
1. Cut costs:
- Decrease cost per unit
- Create state incentive programs with a focus on the Northeast
2. Increase infrastructure:
- Partner with regional utility providers
3. Lobby:
- Increase lobbying expenditures

21. o PEST: Key Trends
o Industry: Car & Automobile Manufacturing
o Five Forces Structural Analysis
o Industry: Trends & Dynamics
o Analysis of Strategic Effectiveness
o Key Competitor Analysis
o Strategic Positioning of Industry Firms
o Sources of Competitive Advantage
o Tesla: Key Activities
o Tesla’s Strategic Issues

22. Key Trends
Car & Automobile Manufacturing
P
E
S
T
● Government Regulation: Increased environmental standards for global supply
chain, factory emissions, car emissions in CAFE, and general safety standards
● US gov’t has subsidized Tesla R&D: Department of Energy’s Advanced Tech
Vehicle Manufacturing Loan Program. $7,500 Federal Tax credit for purchasing
car
● Economy coming out of recession and showing strong growth
● Increasing consumer spending power over last few years
● “Stakeholder” not just “shareholder” model becoming popular
● Increasing volatility and destabilization in middle east→ greater foreign oil
uncertainty
● Increasing awareness of Global Climate Change and impact of vehicle
emissions
● Greater need for energy efficiency in vehicles to “support your mother earth”
● Millennial generation not as car crazy as baby boomers
● Diminishing returns to investment with Internal Combustion Engine
● Tesla battery reaching inflection point on S-Curve
● Decreasing costs per unit for rechargeable car battery
● Ability for current grid to support mass shift to electric vehicles

23. Industry
Car & Automobile Manufacturing
oThreat of New Entrants: Low
oThreat of Substitutes: Medium-Low
oPower of Suppliers: Medium-Low
oPower of Buyers: Medium-Low
oIndustry Rivalry: Medium-High
Overall, the car and automobile manufacturing industry is
dominated by a handful of large firms. The large firms tend to
have cars at numerous price points. Brand recognition is strong
and there are low switching costs.
Unfavorable

24. MEDIUM-HIGH
• GM, BMW, Ford, Fiat Chrysler, Tesla
• Buyer propensity to switch car brands
• Low product differentiation
• High exit barriers – car value goes way
down after driving it off the lot
• Customer loyalty to specific brands
• Huge advertising and marketing costs
• Non-luxury vehicle cost is major
determinant for buyer due to lack of
differentiation
• 6 firms have 68% of market
• Firms compete on price, fuel economy,
reliability, styling and utility
MEDIUM-LOW
• Consumers and dealerships are
major buyers
• The market (mostly made up of
individual consumers) determines
consumers’ WTP
• Price sensitive buyers
• Increasing availability of
information
• Medium brand loyalty
• Buyers cannot backwards integrate
• Industry has ability to forward
integrate (eg. Tesla)
• Buyer concentration much lower
than industry
MEDIUM-LOW
• Willing to compromise prices to form
partnerships with automobile firms
• Diversity of firms the supplier sells its
products to (usually 1 or 2)
• Additional factors affecting entry
include large capital investment in
human resources and equipment to
produce automotive parts
• Automotive firms can threaten to
switch providers
• Suppliers unlikely to drive average
industry profits down unless they all
agree to increase prices/switching
costs
RIVALRY
POWER OF
BUYERS
POWER OF
SUPPLIERS
LOW
• Very capital intensive industry
• Large investments required to achieve sustainable economies of scale
• Without economies of scale, extremely difficult to achieve profitability
• Cost of distribution is high, must establish dealership network and licensing
• Threat of retaliation from large firms if challenge their market segment
• High regulatory costs associated with manufacturing, inputs and outputs
• Cost of compliance with environmental benchmarks can be expensive for small firms
THREAT OF NEW ENTRANTS
MEDIUM-LOW
• Developed public transportation in urban areas
• Threat is lower in rural where subways and bus systems are not prevalent
• Low switching costs in urban areas, similar value, lower costs to participate
• Rural areas have few substitutes, high switching costs and dissimilar value proposition
• Public transportation tends to be irregular and stiff with locations served
• Cannot access reasonable substitutes outside of developed urban areas with public transit
THREAT OF SUBSTITUTES

25. Industry
Car & Automobile Manufacturing: Trends & Dynamics
Trend 1: Tech Development
o Cheaper development of Tesla battery will
cause fundamental shift in industry
o Less demand for internal combustion,
consumer will place greater value in the
cheaper (per mile) alternative
o Firms will need to invest heavily in R&D or
license tech from Tesla
Impact on 5 Forces
Trend 2: Environment
o Consumer preferences shifting towards
“green” option will further decrease
demand for pure internal combustion
powered vehicles
o Increased desire for hybrid/electric vehicles
o Need for traditional companies to change
public image
Total Impact
on Industry Π
BTE
Rivalry
Substitutes
Rivalry
Supplier
Power

26. Analysis of Financial Performance
Economic
Average
Industry
Influence
Strategy
Influence
-7.1%
Company’s
Profitability
3.1%
Industry
Profitability
4% -0.9%
Car & Automobile Manufacturing Industry
o Firms in this industry are engaged in the manufacturing of cars in the United States. Their finished
products are hybrid, fully electric, and internal combustion engine powered cars.
Industry Firms
o General Motors, Toyota, Ford, Fiat Chrysler
Industry: Good or Bad?
o Tesla is in a highly cyclical industry. The ROA for this industry is less than the economic average,
however this is to be expected because the industry is very asset intensive. This industry has a
negative influence on profits.
Outperforming or underperforming the industry average?
o Tesla is underperforming the industry. According to this graphic, our strategic influence is -10%.
The combination of negative strategy and industry influence places us at 11.1%, below economic
average ROA.
Analysis of Strategic Effectiveness
-10%

27. Key Competitor Analysis
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
Tesla GM Toyota Ford Fiat
ReturnonAssets(%)3yravg.
* We compared profitability using ROA because the manufacturing of vehicles is asset intensive,
and we believe this best reflects firm efficiency.

28. Cost Leadership Differentiation
Broad
Narrow
Scope
Source of Strategic Advantage
IndustryASP
Strategic Positioning of Industry Firms
Toyota
VW
BMW
M.
Benz
GM
Ford
Fiat
Chrysle
r

29. Consumer Appeal
• Sleek design
• Quiet in drive
• 0 to 60mph in under 4
seconds
• No traditional fuel costs
Environmental Appeal
• Zero emissions
• Sustainable energy source
Strong Partnership Value
• Mercedes, Toyota,
Panasonic
Sources of Competitive Advantage

30. Effective
procurement of
components
Premium
distribution
Operational
Effectiveness
No traditional
marketing
expenditures
After-sale
support
In-house
manufacturing of
most important
components
Short-term
agreements
with numerous
suppliers
Production
based on
demand
Highly
innovated,
automated
manufacturing
process
Network of own
retailers in high
foot traffic
locations
Timely
delivery of
components
Easily
reprogrammed
multi-function
robots
Educating
customers about
benefits of
electric cars
Online
reservations
Showrooms
Celebrity Tesla
owners (free
advertising)
Web-based
short films
Own service
centers in
Europe,
Asia, North
America
Super-fast free
charging station
network
50,000
mile
warranty
policyGood relationship
with strategic
suppliers
YouTube ad
campaigns
Cost
reduction
All free
money
invested in
R&D
Constant
innovation
New
gigafactory
Tesla: Key Themes & Activities

31. Tesla’s Strategic Issues
o Key issues facing industry: Low interest rates and economic growth will continue to boost this
industry, a raise in rates or economic slowdown will threaten revenue growth
o Key issues for Tesla
▪ Lack of charging stations makes long distance travel an inconvenience
▪ High price of product, only current offering is luxury vehicle, limits market based on WTP
o What more information do you need to fully understand these issues?
▪ Cost to produce a Tesla battery
▪ Can Tesla utilize economies of scale to further drive down product cost
o What are the firm’s prospects for long-term competitive advantage?
▪ Decreased product price and increased concentration of charging stations will help make EV
close to standard car convenience
▪ Increasing environmental awareness will help create a sustainable advantage over standard
car manufacturers
o What kind of recommendations can you make to the firm to help it become more profitable in the
future?
▪ Infrastructure development to support ease of charging
▪ Lobby states to incentivize alternative energy and electric vehicles

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