Tesla - strategic analysis of a company in transformation
•Download as PPTX, PDF•
0 likes•2,863 views
Tesla was founded in 2003 and has grown from producing luxury electric vehicles to mass market cars. It has over 14,000 employees. Tesla also has investments in batteries, charging networks, and solar. While Tesla has strong brand loyalty, it faces challenges from competition and managing its rapid growth. However, Tesla's vision of accelerating sustainable energy and strategic acquisitions like SolarCity position it for long term success.
More Related Content
What's hot
What's hot (20)
Similar to Tesla - strategic analysis of a company in transformation
Similar to Tesla - strategic analysis of a company in transformation (20)
Recently uploaded
Recently uploaded (20)
Tesla - strategic analysis of a company in transformation
- 1. Tesla Strategic Analysis of a Company in Transformation
- 2. Company Overview, Industry, and History ● Founded by Elon Musk in 2003 as a manufacturer of all-electric vehicles ● Headquartered in Silicon Valley, sells cars internationally ● Publicly traded on NASDAQ in the auto manufacturing category ● Has moved from luxury vehicles to mass-market ● Has also diversified into a conglomerate: batteries, charging networks, solar ● Boasts 14,000 employees today, up from 899 in 2010 when Model S was launched
- 4. Tesla’s Competitive Advantage “Tesla has the ability to leverage what I call ecosystem carryover: using existing positions in existing market spaces to jump-start a winning position in a new market space…. ecosystem carryover was Apple’s secret sauce in entering the then-established market for smartphones and changing the game.” (Adner, 2015)
- 5. Tesla’s Vision: To accelerate the world’s transition to sustainable energy
- 6. Tesla’s Mission: Create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles
- 7. Tesla’s Values: Second place should need a telescope to see us
- 8. SWOT Analysis of Tesla Strengths ● Intense brand affinity in the company’s target markets ● Strong engineering expertise and intellectual property portfolio ● Transformational leader compelling employees and investors to support the company vision Weaknesses ● Financial: High rate of cash burn and debt levels ● Operational: Supply chain and inventory buildup Issues ● Sales/Service: Disappointing pre-order reservations and showroom experiences Opportunities ● Addressing safety issues ● Growing into international markets ● Developing meaningful and highly collaborative partnerships Threats ● Negative investor sentiment - safety issues, questions of Musk’s decisions on spending ● Competition from automakers and ride-sharing companies, releasing new all-electric vehicles, self- driving vehicles, and alternatives to buying a vehicle ● Government intervention both in terms of safety issues but also market-making for competitors
- 9. Internationalization Organizational Growth Strategy The common thread in Tesla’s current growth strategy is the building of its ecosystem for electricity, starting with the electric vehicle, similar to the value network Edison created around the lightbulb - lightbulbs, like EVs, lacking systematic access to electricity are a novelty, with that access, they become world changers (Suskewicz, 2015) Grow government funding Diversification Vertical Integration Increase profitability Conglomerate, unrelated - solar Concentric, related - batteries Backward - electrical supply Forward - consumer utilities
- 10. Retrenchment Strategic Recommendations While facing issues similar to companies needing a Renewal strategy, Tesla is undertaking ‘Progressive Transformation’, as described by McKinsey & Company (Isern, 2009): ● A hybrid of Growth and Renewal strategies ● Moves from good to great performance ● An outcome of strategic planning/ not reactive Reduce risk of M&A failure Concentration Horizontal Integration Enable new teams Product development - solar roofs Market development - industrial auto Protect growth - autopilot Regulatory risk - safety
- 11. Integration Planning Tesla executive team must plan for the new company structure before transaction Transaction Clears SolarCity acquisition approved by regulators and transaction clears for all parties New Team Announced Combined executive team publicly announced Companies Join Tesla and SolarCity begin process of integrating teams Operation Musk’s vision stated in “Master Plan - Part Deux” executed Stage 1 Stage 2 Stage 3 Stage 4 Final Stage Implementation Recommendation 1 Retrenchment Should Result in Restructuring
- 12. Implementation Recommendation 2 Horizontal Integration Should Result in Strategic Partnering Safety Partnering on safety improvements would benefit all stakeholders and reduce regulatory risk Autopilot Dealer Network Partnering on autopilot technology is a necessity given the traction Tesla’s competitors have already gotten in their partnerships Partnering on consumer sales and service would enable Tesla to refocus its energy on industrial vehicle production and SolarCity integration
- 13. Implementation Recommendation 3 Concentration Should Come from Merger-Acquisition With SolarCity Integrated solar roofs enable vehicles to become mobile power generators rather than solely power consumers With OpenAI Artificial intelligence would enable autopilot mode to be 10x safer than manual driving With SpaceX Aerospace and the Hyperloop commuter tubes could then be autopiloted and leverage clean solar power
- 14. References ● Adner, R. (2015). What Tesla and Apple Both Know About Entering New Markets. Retrieved from: https://hbr.org/2015/05/what- tesla-and-apple-both-know-about-entering-new-markets ● Bailetti, T. (2010). Blueprint and Approach to Grow Revenue in Small Technology Companies. Retrieved from: http://timreview.ca/article/355 ● InsideEVs. (2016). Monthly Plug-In Sales Scorecard. Retrieved from: http://insideevs.com/monthly-plug-in-sales-scorecard/ ● Isern, J., Meaney, M., Wilson, S. (2009). Corporate transformation under pressure. Retrieved from: http://www.mckinsey.com/business-functions/organization/our-insights/corporate-transformation-under-pressure ● Suskewicz, J. (2015). Tesla’s New Strategy Is Over 100 Years Old. Retrieved from: https://hbr.org/2015/05/teslas-new-strategy- is-over-100-years-old ● Tesla. (2016a). About Tesla. Retrieved from: https://www.teslamotors.com/about ● Tesla. (2011). Tesla Motors Company Overview. Retrieved from: http://files.shareholder.com/downloads/ABEA- 4CW8X0/0x0x494001/dd297293-ec2d-4dc5-8db4-63d491fb6bd0/Company_Overview_Q3_2011.pdf
Editor's Notes
- This is a presentation and report prepared at the request of Strategic Management Consultants.. It provides research into Tesla Motors’ strategy and organization. It includes recommendations on additional strategies, along with the implementation for these strategies, that the organization should consider.
- Tesla was founded by Elon Musk in 2003 as a manufacturer of all-electric vehicles. It’s headquartered in Silicon Valley, sells its cars in over 30 countries, and publicly traded on the NASDAQ in the automotive manufacturing category. Since its founding, the company has moved from luxury offering to offering its first true mass-market vehicle, the upcoming Model 3 sedan. In addition to growing its core automotive business through product development, it has also diversified to become an energy conglomerate producing batteries, operating a nationwide charging network, and now solar services as we will cover more in an upcoming slide. As a function of this growth, the company now has 14,000 employees whereas they were less than 1,000 employees just six years ago when they launched their second vehicle, the Model S.
- Even at 14,000 employees, Tesla is small in comparison to some of its direct and indirect competitors - like Ford with nearly 200,000 and Apple at more than 100,000. Regarding competitors, because of Tesla’s aforementioned ventures into industries beyond automaking and Musk’s strategy of starting with luxury and moving to mass market, the company’s direct and indirect automaking competitors can’t be identified simply. The most effective way to identify Tesla’s strategic group of direct competitors is to compare Tesla’s total electric vehicle car sales by its closest competitors in its primary market, North America. According to a recent report by InsideEVs.com, Tesla’s Model S is the single best selling electric vehicle against all other competitors, and sales data for the first six months of 2016 show Tesla Model S and Model X having sold 19,185 units, the Chevy Volt and Spark at 11,480 units, the Ford Fusion and C-Max Energi at 10,560 (InsideEVs, 2016). In the luxury all-electric category, BMW and Mercedes are distant fourth and fifth places with under 7,000 units on a combined basis (InsideEVs, 2016). Internationally where Tesla has also begun to compete, Chinese automaker BYD sells more electric cars than BMW, GM, Nissan, Renault, or even Tesla (Voelcker, 2016). In terms of indirect competitors to Tesla’s automaking business, the primary alternative technologies to electric vehicles include hydrogen cell and more fuel-efficient, ‘traditional’ petroleum based vehicle applications including diesel, natural gas, ethanol-blended gasoline, and hybrids (Voelcker, 2011). In these cases of indirect automaking competition, the most relevant in the luxury vehicle category Tesla faces is BMW with its upcoming Hydrogen 7 series (BMW, 2016) and Mercedes-Benz with its BlueTEC Clean Diesel product line (Mercedes, 2016). With respect to Tesla's mass market Model 3, the competition is substantial from GM with Toyota’s Prius hybrid, as well as Ford’s Fusion and Focus hybrids (InsideEVs, 2016). Blurring the lines further with respect to indirect competition is Apple and Google/Alphabet, and Samsung. Apple’s car project has not been officially announced by the company, but rumors are that the car will be fully electric (DeBoard, 2016). Google’s car project is public and known to focus squarely on the feature of autonomous, self-driving capabilities (Bergen, 2016). And Samsung has very recently entered the electric car market by investing $450 million USD in BYD (Yu, 2016). These technology giants don't have any history in automaking, but each, like Tesla, are multiple-business organizations because each competes in more than one industry (Coulter, 2013). Likewise, each of these technology-based competitors has become a critical partner to the auto industry whether through in-console software applications like Apple CarPlay (DeBoard, 2016) and Google’s Android Auto (Bergen, 2016), or Samsung’s core automobile technology for EV batteries, parking cameras, and parking sensors (Yu, 2016). Likewise, Google, Ford, and Uber have developed a partnership to further self-driving cars, while Uber’s competitor in the ride sharing space, Lyft, has partnered with Volvo on self-driving cars. Even without this investment in self-driving technology, Lyft and Uber are indirect competitors to Tesla as well, because ride sharing reduces the need for vehicle purchasing. In many ways, these partnerships are the foundation of what can be referred to as an “ecosystem”...
- A definition of a business ecosystem provided by the Technology Innovation Management Review at Carleton University is: a community of companies, organizations and individuals that: share a desire for achieving high-impact, system-level results; deliver benefit to their customers, partners and community members from their interactions using a multi-sided platform; contribute to maintaining the health of their community. (Bailetti, 2010) In Tesla’s case, it creates what Ron Adner, professor of strategy and entrepreneurship at Dartmouth is a competitive advantage. As quoted here, Adner argues that Tesla has the ability to leverage ‘ecosystem carryover - using existing positions in existing market spaces to jump-start a winning position in a new market space…. Just like Apple did in entering the then-established market for smartphones and changing the game. In Tesla’s case, as demonstrated in this diagram, Tesla has vertically integrated to produce its batteries for both home (as shown in the lower left corner) and its vehicles (shown on the right and lower right) through its Gigafactory in Nevada. Additionally, it has invested in developing a nationwide electric charging station network in the US. And it is on the cusp of acquiring a solar network, SolarCity, which will install solar in home, businesses, it's charging network, and more, -- all of this resulting in Tesla becoming more like an energy conglomerate rather than just an automaker.
- To that point, in researching Tesla’s stated vision, it was difficult to find anything published by Elon Musk, other than what he’s referred to as Tesla’s Missions or elements of what he’s called his “Master Plan.” According to a recent puclic statement that Musk published on Tesla’s website, he said it was “to accelerate the world’s transition to sustainable energy.” It is worth noting the absence of any mention of automaking in this statement - this omission is significant as we will explore more in this report. In his original Master Plan published 10 years ago, Musk’s missions were: Create a low volume car, which would necessarily be expensive Use that money to develop a medium volume car at a lower price Use that money to create an affordable, high volume car Provide solar power -- he jokingly stated in his recent updates to his first master plan, “ No kidding, this has literally been on our website for 10 years.”
- Regarding the company’s mission, and there are a few mission statements Musk provided as part of his recently revised Master Plan, there is more specificity about the automobile business, and this makes sense. Mission statements are frequently set at the business unit level, and for some companies there may be more than one mission statement. In a 2011 investor presentation - which was before the buildout of Tesla’s Gigafactory or charging station network, Musk stated clearly that the Tesla Is “Creating the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.” Musk is clearly stating what the company is doing and what it must accomplish. In his recently released “Master Plan Part Deux” Musk updated his prior missions to include: Create stunning solar roofs with seamlessly integrated battery storage Expand the electric vehicle product line to address all major segments Enable your car to make money for you when you aren't using it Develop a self-driving capability that is 10X safer than manual via massive fleet learning -- this last mission is particularly important to this author as it is a response to recent safety issues encountered with the car. Sadly a driver was killed when the autopilot mode in the vehicle failed. Taken without that context, one might assume that this is a general statement about corporate social responsibility, which takes us to Tesla’s value statements.
- Interestingly, and perhaps tellingly, Tesla’s vision statement does not follow the model wherein traditionally a company will speak not only to a future state but also to its core values and beliefs. While those core values and beliefs don’t necessarily need to fit into corporate social responsibility, a statement of values would typically speak to the company’s stakeholders - it's customers, the larger community etc. In my research, the closest values statement I could find from Musk was a quote in the investor presentation mentioned earlier. In the presentation Musk stated very clearly that “second place should need a telescope to see us.” While a culture of winning, as suggested by this statement, can create a strength for the company in the form of motivation and focus, it can also represent the seeds of potential threats to the organization as well...
- In terms of an internal analysis of the company’s strengths and weaknesses, and an external analysis of opportunities and threats, I’ve prepared the following SWOT analysis. Again speaking to strengths musk is a transformational leader who in turn has activated investors, customers, and employees who value the engineering expertise and intellectual property the company developed in its early days. But as mentioned, these strengths are paired with weaknesses on the operational, financial, and sales/services front. In each, similar to the lack of stakeholder awareness in Tesla’s value statements, customers may be losing enthusiasm for the company when considering a not-very-friendly sales and reservation experience, along with delays in shipping vehicles on time due to supply chain problems. Furthermore, in Musk’s quest to transformation the company from a pure automaker to an energy conglomerate, he has taken on more and more debt, which has turned into a major threat for the organization… Negative investor sentiment is setting in, including on por duct safety issues which have drawn the attention of government regulators. And those same US government regulators are also creating markets for Tesla’s competitors like those we mentioned earlier in terms of incentives and support of some of those automakers long-standing attention to safety. But while these are threats, they also represent opportunities for the company in terms of addressing the safety issues, expanding into international markets to diffuse competitor, governmental, and investor threats at home, and in pushing abroad, developing partnerships with local governments, investors, and suppliers to set up for the company’s next stage of transformation and growth.
- Regarding growth, the common thread in Tesla’s current strategy is the build of the energy ecosystem we discussed in an earlier slide. Musk started with a single product, similar to how Edison began with the electric lightbulb, and then systematically moved into building an entire network to make that -product truly valuable to the whole world. Regarding the specific growth strategies this author sees Tesla undertaking are Internationalization, which is tightly tied to diversification, which is also tied to Vertical integration. Starting with Vertical integration, which we have covered previously, Tesla has undertaken building its battery Gigafactories for car and home, it's network of vehicle charging stations, and its acquisition of SolarCity - all of which represent backward integration into the realm of electric supply. As part of its acquisition of SolarCity, Tesla will be able to forward integrate as well -- offering consumers energy utilities in the form of solar power that can store excess energy at home to use for car charging or general electrical power -- or those consumers could add excess energy back into the grid to support their local municipalities. This last opportunity with respect to SolarCity in particular clearly represents how Tesla has diversified not just on a concentric basis with batteries to power cars, but into unrelated markets in the form of consumer-facing solar utilities that ultimately have nothing to do with buying a Tesla vehicle. The genius of this current strategy is when we consider Tesla’s opportunity international expansion. Not only can it offer foreign governments and markets new factories to build cars, but it can offer energy utility jobs, infrastructure and revenue sources with respect to its solar business. These international investment opportunities should also enable Tesla to increase profitability by pursing opportunities such as joint ventures, licensing, or franchising (in the case of the solar business).
- Beyond growth, there are three specific recommendations this author would provide that address both the issues and the opportunities alluded to earlier. Squarely founded on the notion that Tesla is successfully building an ecosystem, the recommendations that Tesla should pursue in terms of Retrenchment, Concentration, and Horizontal integration all fall within the framework of corporate “Progressive Transformation” as put forward by McKinsey and Company. The core of McKinsey’s recommendation is that a company proactively embracEs change before it has to. The recommendation blends elements of both growth and renewal strategies. Companies transforming themselves take it on as a means to go from good to great performance as the result of long-view strategic planning, not merely reacting to the factors in the market. In terms of the three specific strategic recommendations, this means that in addition to Vertical Integration, Tesla must think bigger and actively pursue Horizontal integration. In the same way that its automotive competitors have joined forces with companies like uber and lyft to pursue autopilot technology, especially with an eye towards reducing regulatory risk, Tesla must quickly find former competitors that it can now collaborate with. As an energy company, it has more to gain by cultivating government and investor favor by addressing this safety issue than risk losing a more tactical battle with its automaking competitors. This also helps in the concentration strategy that Tesla is taking on as part of Musk’s recently updated Master Plan - Part Deux in which he stated he wanted to pursue product development of solar roofs integrated into cars as well as the manufacture of industrial vehicles like buses. Without the cooperation of regulators, Tesla would have a difficult time introducing buses into municipalities, especially if those are self-driving buses. And as for solar roof integration into its vehicles, Tesla must also Retrench and reorganize its teams. A product that integrates solar manufacturing with auto manufacturing will require a new, cross-functional working model. And that cross-functional working model will be a key part to ensuring the success of the M&A process with SolarCity. With historically high rates of M&A failure, a retrenchment strategy in which Musk and the executive team focus on building a culture of collaboration will be essential.
- This brings us to the three implementation paths Tesla must take as part of its Transformation. First, its Retrenchment strategy should be executed as part of a well designed and carefully orchestrated and multi staged restructuring plan. In stage one, there should be integratio Planning -the executive team must plan for the new company structure before the transaction. In stage 2, the transaction clears -- the SolarCity acquisition is approved by regulators and the transaction is cleared to move forward for all parties. In stage 3, the new team is announced, and integrated excutive team Isä annoucned to the public and the employees. In stage 4, the companies begin the process of joinING their respective operations. And in the final stage, after the respective employee bases have become one, the new integrated company can move into operation, and get on with finishing the realization of Musk’s master plan part Deux. The reason this restructuring framework is important is that it will set the platform for Tesla’s next wave of transformation as part of the Solar City acquisition and how it approaches its Concentration and Horizontal Integration strategies….
- And in terms of horizontal integration, Tesla must look to strategic partnering. To ensure the M&A process is successful with SolarCity and building these cross-functional teams, Tesla will need to embrace partnerships to help continue improving its existing consumer automotive business if it hopes to simultaneously stay competitive without derailing its transformation to an energy company with SolarCity. In terms of safety, it must partner with ecosystem competitors and stakeholders. This collaboration would have the additional effect of reducing regulatory risk against the company and the industry as a whole. Regarding autopilot, which is closely tied the question of safety, a partnership is essential to tesla given the progress its competitors have made with their respective ecosystem partners like uber, lift, google, and apple, which we alluded to earlier in this presentation. In terms of a dealer network, while it is laudable the the company has wanted to control the message and consumer relationship, if it has any hope of transforming itself into an energy Conglomerate, it must fine partners to who it could at least franchise or at best establish deeply integrated sales and marketing relationships to sell its cars. PAtnering would simultaneously allow Tesla to address customer service iossues, assuming it selects the right partners and trains them, while also enabling it to refocus its own energies on integrating SolarCity and scaling its industrial vehicle production. This brings us to the final implementation recommendation
- With respect to the SolarCity acquisition, this author contends that once Musk has retrenched and had one successful M&A integration, Musk should pursue similar, additional pportuniities to drive his Concentration strategy. This can only happen once the core automobile business is leveraging strategic partnerships that will help decrease internal operational complexity and help profitability, which should encourage investors to support future M&A. After getting solar roofs integrated into cars with SolarCity’s team and his core automaking team, Musk must also adress some of his other goals around making autopilot mode much safer. To do so, he will leverage partnerships, as we spoke to earlier, but it’s likely he would look also to leverage his co-chair position in the non-profit company openAI. Like his chairmanship in SolarCity, pursing M&A with openAI would enable Tesla to bring on the core staff who maintain the open-source project attempting to build next generation artifical intelligence technology. That kind of technology is essential to make self-driving cars possible, and having that team in house means that Tesla is able to maintain its leverage against its ecosystem competitors and their respective partnerships. After OpenAI, and this maybe a bit harder to envision, Musk might pursue a merger or acquisition with SpaceX which is a company he also founded a few years ago. SpaceX is developing aerospace delivery and transportation technology as well as high-speed commuter tubes. One could imagine as a company focused on accelerating the world’s transition to sustainable energy that musk extends his development in industrial vehicles beyond municipal buses to high-speed, solar powered, intercity commuter trains, or autopiloted rockets that send and bring back suppliers between our planet and others. While one might wonder how aerospace transportaion vehicles fit a concentration strategy for Tesla, remember that Musk has made very clear Tesla is no longer just an consume automaker, but a full-scale conglomerate with its sights set on moving the world to sustainable energy. WhiLe not enitrely clear to this author, perhaps space is the next great frontier in Musk’s plan for delivering sustainable energy solutions to planet Earth.