A

EXECUTIVE SUMMARY

Regarding PESTEL, it is clear that the EV cars have an advantageous environment

that benefits growth, thanks to governments tax reliefs and the increase awareness
about ecology. Globally, the switch to EV is still slow, mainly due to a poor education
on the topic. The Porter's 5 forces model describes a surge in demand and a low
threat from the suppliers, new entrants and current rivals, making it a perfect
occasion to rule the market.
Internally, the resources play a fundamental role for Tesla, especially the HR and the
financial ones, regarded as the foundation on the company today. Capabilities are
also key, especially the product development, engineering, sales&service and R&D,
which overall combine to create a differentiation-typed competitive advantage. The
linkages in the value chain show similar outcomes to the previous analysis.
During two major PR crises, Tesla overall showed an effective crisis management
planning, despite Musks personal attitude against the issues, suggesting a possible
future separation between ownership and control.
Tesla is mainly pursuing a market development and a diversification strategic
approach, which, in light of the SAF model, implies suitability to the overall strategy,
thus making them feasible from an internal and external point of view.

TABLE OF CONTENTS
EXECUTIVE SUMMARY

1 INTRODUCTION

2 Q1 ANALYSIS OF THE EXTERNAL ENVIRONMENT

2.1 MICRO-ENVIRONMENTAL ANALYSIS

2.2 MICRO-ENVIRONMENTAL ANALYSIS

3 Q2 ANALYSIS OF THE INTERNAL ENVIRONMENT

12

3.1 RESOURCED-BASED VIEW OF THE COMPANY

13

3.2 VALUE CHAIN

16

4 Q3 ANALYSIS OF PR CRISES

16

4.1

19

5 Q4 - STRATEGIC ANALYSIS

21

5.1 BUSINESS LEVEL STRATEGY

22

5.2 CORPORATE STRATEGY

23

5.3 EVALUATION AND STRATEGY SUGGESTED FOR THE FUTURE

24

5.4 IMPLEMENTATION MODES

25

6 CONCLUSION

26

7 REFERENCES

27

8 APPENDICES

33

1 INTRODUCTION

Tesla motors managed to become profitable after 10 years since its founding,
surpassing highly experienced competitors such as Nissan or BMW in the electric
car industry.
The following report represents an independent strategic review on Tesla, and it has
been commissioned to analyse the different elements that shaped the business. This
document will critically evaluate the aspects from the companys macro and micro
environments, down to its internal analysis, along with the main PR events which
endangered Tesla since 2003. Finally, based on the previous sections, there will be
conducted a strategic analysis, both business and corporate level, in order to
evaluate the approaches chosen by the company and suggest the right plans for the
future.
The investigation, supported by strong theoretical foundations, will be based on the
given dossier and further secondary research, from academic journals, books and
online resources. The data collected will mainly deal with the UK market, unless
otherwise expressly stated.

2 Q1 ANALYSIS OF THE EXTERNAL ENVIRONMENT

2.1 MACRO-ENVIRONMENTAL ANALYSIS PESTEL

The following analysis is carried out exclusively relating to the UK electric car
market.
From a political point of view, the UK government favours the adoption of electric
cars, offering tax incentives and grants, also valid for charging station building
(gov.uk, 2015). Moreover, there are local initiatives (Businesslink.gov, 2015), such as
free parking or no congestion taxes (Frost&Sullivan, 2014). On the same level, the
legal impact is although not too strong, but the pollution taxes
(environmentalprotectionuk, 2014) and circulation bans (theguardian, 2014) on
regular cars are a very favourable point to the EV market. This shows a political
pressure to gradually change the citizens transportation behaviour, but there is still a
lack in the educational strength, which makes EVs simple alternatives.
The first economic benefit is the cuts in oil imports (Neslen, 2015). The demand and
sales have seen a surge in 2014 (theguardian.co.uk) but hybrids are still the most
popular vehicles, leaving full EV like Tesla still too avant-garde (Nichols, 2014).
The society has been increasingly involved into ecologic issues management, to
which an EV seems the right step forward (Gorham, Kelly, 2014). The driving culture
is although the hardest point to change: educate the mass is vital, and the shift to a
0-emission car is slow, as shown by the number of hybrids present on the market
(SMMT, 2014), and with an ageing population, it is even more challenging (Cracknell,
2010). Bergers study (2011) although suggests that there will be an emotional shift
towards green transportation means, which would accelerate this transition. In fact,
the progressively decadent ecology status of our planet could make the switch to an
6

EV car necessary (Neslen, 2015) and soon (Sales, 2011), making it the most
important external factor to create an electric car usage increase.
Technology is intrinsic in EV, from the launch of an OS for cars (nextgreencar.com,
2015), to the increase safety and user friendliness (KPMG, 2014). The new
amelioration in battery engineer have also positively impacted the value chain of
these cars, promising a continuous improvement in efficiency and size (Edwards,
2015).

2.1.1 Global trends

Society around the globe is emotionally inclined to do switch to eco-friendlier cars:

according to the Theory of Planned Behaviour, Emotions and attitude towards the
electric car are the strongest determinants of usage intention (Moons, Pelsmacker,
2012).
On the other side, as the PESTEL suggests, the user adoption can be slow, with the
prioritization of personal mobility needs over environmental benefits (GrahamRowe et al, 2011), studies suggesting a very minimal CO2 save (Steinhilber et al,
2013), or economy and infrastructure seen as unready to assimilate EV (Lamble,
2011), along with an overall business model that is not seen as possible to innovate
over time (Teece, 2010).
Overall, based on the PESTEL, the macro-environment is regarded as favourable for
electric cars sales.

2.2 MICRO-ENVIRONMENTAL ANALYSIS PORTERS 5 FORCES

The market is hard to penetrate, setting the threat for new entrance to a medium
level: capital and high technological knowledge is needed (Wesoff, 2012), although
economy of scale can help. The segment is very attractive, but with the major car
brand active in their R&D for years (Bailey, 2011), a new company would start in an
unfair position.
The danger for substitutes is very high. An EV is averagely priced 10,000 more than
a fuel car (Prudhomme, Koning, 2012), and the range is very wide, from gas to
hybrid, making EV not the only eco-friendly option. Additionally, the education on the
EV topic is weak, reinforcing the customers' tendency to adopt a substitute.
Buyers have a great influence. The price sensitivity is high, and although there is an
eco-trend, dictated by increase awareness (Moons, Pelsmacker, 2012) and
monetary benefits, the purchase of an EV is not compulsory. Within the eco-friendly
industry however, the demand is surging, exceeding the supply, thus giving car
companies the control.
Suppliers power is low, since EV cars' core parts are in-house made, such as the
technology (Van De Steen, 2014). The battery although, is often bought from an
external dealer, and it being the fundamental part of the vehicle, would make any
company vulnerable for price swings or contract termination. On the same threat
level, are input materials and computer chips, the first tending to increase its buying
price progressively, and the second risking a worldwide shortage (GlobalData, 2012).

The rivalry for EVs is yet to develop, with consumers just starting to understand the
concept (Van De Steen, 2014). The industry is in a growing phase, which makes the
future uncertain: the big brands will come up with better models, trying to eliminate
any competitive advantages of the opponents, and this, combined with an access to
large funds destined to advertising and a large sales network, could become a
threat.
In conclusion, based on the previous analysis, the industry is assessed as fairly
attractive, but only if investors are secured and technology and engineering skills are
mastered before entering the market.

10

2.2.1 Industrial Life Cycle

The graph below shows the estimated position of Tesla in the ILC (Klepper, 1997).

Introduction
Growth
Maturity
Decline

The company will keep making profit, but the risks are higher, due to the increased
number of competitors, which will consequently drain funds through marketing
expenditure. It is important to expand the market share, maintaining a strong
position: the way to achieve this goal, is by sustaining the competitive advantage
through innovation, since the technology is wide-accessible, and the competition
may start to imitate the winners.

11

3 Q2 ANALYSIS OF THE INTERNAL ENVIRONMENT

12

3.1 RESOURCED-BASED VIEW OF THE COMPANY

According to Wernerfelt, from the Strategic Management Journal (1984), a

companys internal environment can be analysed through the identification and
assessment of its resources and capabilities. Following, the application on Tesla
Motors.
The company is still recent, meaning that the tangible resources are few but very
important, mostly high in durability and difficult to duplicate. It has one production
base, whose fabrication output is still not fully exploited, but may still not support a
mass-produced model. The equipment is particularly valuable due to the machinery
used, which made 90% of the car in-house. Location also plays a big role since the
made-in-US is a synonym of quality, but also in the view of the cuts to all the import
time waste and taxes, delivering a product faster, with higher flexibility. Stores and
charging stations are under development, and will play a big role in educating the
masses.
The brand is young, but based on the ILC, it is expected to grow, helped by
substantial marketing efforts (Mangram, 2012). Tesla has been well-covered by the
press throughout the years, reinforcing its image and increasing its value. It has
been praised on how it simplified and improved the way distribution is set and on the
strategic relationships built with Smart and Toyota. The intangible resources are not
especially durable, but are very hard to imitate or duplicate.
Human resources were the foundation of the company. The team assembled, ranged
from car specialists to technology gurus, who helped Tesla cars become

13

technologically advanced in compare to the competition. Despite having high

transparency, these resources are challenging to clone.
The initial capital allowed Tesla to negatively operate for the first years, driving to
their first profitable quarter 10 years later (Van Den Steen, 2014). The revenue saw a
surge in 2011 by 74% (GlobalData, 2012) and still kept growing. ROE and ROC are
still both negative, -4.94% and -37.25% respectively (Bloomberg, 2014). The
company is able to fulfil its short-term obligation, with a current ratio of 1.5x, and has
an EBITDA of 0.99%, still lower than industry average, as some of its other financial
indicators (Bloomberg, 2014). Overall, Tesla has a Total Debt/Equity ratio of 278.65%
and total liabilities/total assets ratio of 84.41%, suggesting a financial risk for longterm obligation (Bloomberg, 2014).
The main capabilities showed by Tesla were Product Development, Engineering and
Sales & Service, which are problematic for the competition to imitate, but have a low
durability, requiring constant innovation. The company managed to deliver to the
market exactly what the trends were requiring, overall stimulating the demand and
shaking the conventional car market. Both the Model S and Roadster are a toptechnological products, build from scratch, with features never seen before in a
vehicle. Furthermore, Tesla changed the car dealership structure, conducting sales
through own retailers, and offering service operations independently from its sales
network. In addition, R&D has also been a key activity, revolutionary in its simplicity,
with the car parts being almost entirely designed and produced in-house. Finally, the
management style and leadership skills of Musk, made sure to direct the company to
the right direction, surpassing any crisis, creating a can-do culture.

14

Regarding the concept above, Tesla has established a power culture (Harrison,
1972) where decisions are made quickly and by expert- and referent-powerful people
(French and Raven, 1959), based on a rational model (Buchanan & Huczynski,
2003) with the additional help of some political tactics such as coalition with powerful
allies e.g. Toyoda (Kinicki and Kreitner, 2006).
The following tables summarize and assess the previously mention information,
based on the value they add to the company through high durability, and low
transferability and duplicability. Transparency is unfortunately high.

Resources/Capabilities
R1: Plant and Equipment
R2: Location
R3: Retailers
R4: Brand
R5: Relationships
R6: Team
R7: Distribution
R8: Finance
C1: Product Development
C2: Engineering
C3: Marketing & Service
C4: R&D
C5: Management Style
C6: Culture

Importance
8
5
7
7
6
7
7
6
8
7
8
8
7
6

Teslas relative strength

6
8
7
8
8
9
7
6
9
8
7
9
9
9

Following, a matrix for a critical view of the key strategic resources, which shows the
core competences of Tesla:

15

In conclusion, based on previous analysis, and Porters generic strategies (1980),

the company has built a competitive advantage through differentiation.

16

3.2 VALUE CHAIN

Following, a practical assessment of how much value is added by each section of

Teslas value chain, from the highest rate, in a stronger colour, to the lowest. It is
based on the Porters model (1985) that allows to explore the linkages between
primary and supporting activities, identifying key capabilities and the competitive
advantage that they built.

HR is fundamental to the efficiency of the company: the carefully selected team has
been able to optimize the operations, develop the technology and finally create a
solid network of sales dealerships. It shows how the unit is in fact a core resource
that was an essential part in the growth of the company, allowing Tesla to fulfil its
plan, and ultimately contributing to build a differentiation competitive advance, trough
the tech and engineering expertise.
17

Telsas technology development favours an optimization in the inbound logistics and

the operations. It lets Tesla producing most of the car in-house, not only making the
most of the plant purchased, but most importantly, allowing a flexibility the
competitors do not possess. This situation crafts another two important key
capabilities: the engineering, through the car manufacturing, and the overall product
development, through the avant-garde features of the vehicles, which contribute to
create a differentiation.
The operations, are also supported by the risk management style from the firm
infrastructure. From the starting idea, through the first logistics problems, this
strategic technique has been critical to make Tesla surpass its crises, hence making
it one of its most precious capabilities. Additionally, stretching the finances helped to
run the company since 2003 on a regular loss base, also making it a core resource,
that was essential to keep Tesla go, allowing it to finally see the first profit in 2013.
The distribution and dealer management, part of the outbound logistics, is supported
by the customer focused approach of the firm infrastructures supporting activities. It
is fully integrated in the value chain, resulting in a network of private retailers which
can assure a full-immersion in the world of Tesla, for each client that walks in.
The linkages analysis above shows similar outcomes to the resourced-based view,
also concluding that Tesla has indeed a differentiation approach, which is the core of
its competitive advantage.

18

4 Q3 ANALYSIS OF PR CRISES

19

BATTERY PERFORMANCES IN COLD CLIMATE

In early 2013, the NYtimes posted an article about a battery failure due to cold
weather on a test drive of the Tesla Model S (Broader, 2013), spreading the panic
about the inefficiency of lithium-ion batteries in weathers below 30 F. Shares closed
down 2% (Woolley, Steverman, 2013).
Musk did not appreciate the comments, hitting Twitter, TV and writing a blog post
(Woolley, Steverman, 2013). This crisis, despite being a sudden type (James, 2008),
could have been expected through a crisis planning model, as below, or a

Trivial

Minor

Moderate

Major

Extreme

Very Likely

Probability

contingency plan (Swanson et al, 2010).

Likely
Moderate
Unlikely
Very
unlikely
According to Herrero and Pratts Crisis management model (1996), the first step
would be the diagnosis of an impending trouble, which thanks to theImpact
advanced
technology and wireless control of the cars system from the headquarters, could
have been done before the actual problem, with data collection and analysis

20

The lack of planning (Smith, 1990) brought Musk to answer very fast but without an
actual full-though strategy. The rational-planning model by Robbins and Judge
(2007), explored the ideal mind process which can deliver the best strategy to handle
a crisis, and it is not the offensive strategy used (Simon, 1955).
According Berle and Means (1930), without the separation of ownership and control,
there is no effective way to check managerial work. Even though Musk retains part of
the company, his behaviour followed the Agency theory (Bebchuck, Fried, 2004),
which would explain why it was suggested on multiple occasion to let someone else
handle the communication crises of the company (Quinn, 2013). Tirole (1996)
explains how an enterprise is damaged by the reputation of their members, on a
long-term, even if the member would not be part of the party anymore.
The blog entry written as a response (Musk, 2013) showed that the problem was
taken on a personal level, while it should have been dealt focusing on displaying
Tesla as a company that despite the issue, was respecting their ethical and legal
responsibility from CSR (Wood, 1991) and also was facing the problem putting the
stakeholder at the centre of their attention (Freeman, 1994). The final result was a
media battle between the author of the article and Musk, which kept damaging Tesla
tweet after tweet, especially when the NYtimes was answering with compelling
proofs on the car's performance, suggesting a real problem for any Tesla cars owner.

21

4.1 MODEL S IS ON FIRE

In October 2013, a Tesla model S went up in flames, and despite no injuries, the
video became immediately viral, causing a drop in the companys stock price
(Peckham 2013).
James (2008) would categorize this as a smouldering crisis, due to the initial signal
detection, with the first car on fire, but the too slow preparation and prevention, which
led to other similar episodes (Nelson, 2014). Herrero and Pratt (1996) crisis
management model shows how Tesla was although following the right protocol, first
with a diagnosis and later creating a turnaround strategy. The company immediately
contacted the car owner, apologised and kept him update with the positive results of
their investigation. It could be argued that the slow response was a consequence of
the lack of a crisis management planning (Smith, 1990) or contingency plan
(Swanson et al, 2010), but overall, based on CSR concept, Tesla immediately
recognised ethical and legal obligations, to the car owner and the public.
Hilburg (2014) and James (2008) define a crisis also as an opportunity to showcase
an institutions character, which was exactly Teslas plan, and the unfortunate car
owner was so impressed that wrote an article on how satisfied he was with Teslas
crisis management and product safety (Shibayama, 2013).
Hearit (2008) defines apology as a valuable crisis management tool. Tesla after the
first accident, issued an online statement for the public (Popp, 2013), apologising for
the inconvenience and assuring the safety for the other products. The blog entry

22

though, raised more questions, about lithium-ion battery safety. As shown in the

Probability

reputation risk matrix below:

Trivial

Minor

Moderate

Major

Extreme

Very Likely
Likely
Moderate
Unlikely
Very
unlikely
Impact

A crisis like a battery that spontaneously combust, has a moderate probability and a
major impact is a medium-level threat, which is expect to produce a flow of online
reactions, sometimes unfounded, and therefore has to be carefully controlled and
managed (Davies, Miles, 1998).
The NHTSA declared that the car did not have a defection trend, thus being safe.
Tesla although, added additional armour (Musk, 2013) in the hope of eliminating any
remained doubts around costumers and potential consumers, showing again a great
deal of respect to its stakeholders (Freeman, 1994) and finally archiving this crisis.

23

5 Q4 - STRATEGIC ANALYSIS

24

5.1 BUSINESS LEVEL STRATEGY

In section 3 of the report, after an analysis of the functional level in Teslas strategy,
the key resources and competences were identified, based on their high durability,
transparency, low transferability and duplicability. From these, it was concluded that
Teslas competitive advantage is of a differentiation type, as summarised in the
Porters generic strategy model below (1985).

Industry wide

Low cost

Single Segment/s

Competitive Scope

Source of competitive advantage

Differentiation

Cost Leadership

Differentiation

Focus

Tesla also adopts a focus approach, converging their resources and attention a few
specific segments (Liu et al, 2014).
The previous data can also be analysed trough Bowmans strategy clock model
(1997), which gives a more detailed insight about the companys generic strategy.
25

Tesla possesses products of high perceived value with high prices, surviving on
highly targeted markets and high profit margins.

High

Hybrid

Differentiation

Focused

Perceived value for

Differentiation

Risky High

Low Price

Margins

Low price/ Low

added value

Monopoly Pricing
Loss of Market Share

Low

Price

High

26

5.2 CORPORATE STRATEGY

Based on Hitts (et al, 2007) definition of corporate strategy, Tesla can be linked to a
growth-type generic corporate strategy (Chafee, 1985). The Ansoff matrix (1957)
further develops this concept, exploring the aspects of the game-plan.

Product

Existing

Existing

Product
Development

New

Market

Market
Penetration

New

Market
Development

Diversification

Teslas introduction of the Roadster into the premium market is regarded as a

related-diversification tactic, due to both the new product and the new market. The
following models, follows the same path, as yet again, a different type of car is
produced, marketed for another segment. Market development is also pursued, with
the launch of the model S in a new market, China (Young, 2015).

27

Additionally, the company can boast a successful vertical integration strategy, like
Ford Motor did (The Economist, 2009). Tesla, in fact, designs its car parts, produces
up to 90% of them, along with the technology, and personally owns the retail stores,
rather than using a common car dealer, receiving valuable insights on the clients
behaviours.
Based on the strategic gameboard (Kerin et al, 1990):

Niche
Entire Market

Where to Compete?

Focusing

Innovation in
niche Market

Superior,

Reconfiguration of

comprehensive

rules of

market coverage

competition

Same game

New Game

How to Compete?

Tesla initially possessed a new-game, also called Blue Ocean strategy (Kim,
Mauborgne, 2005), since the first Roadster model combined attributes of the green
vehicles with those of premium sports car. The company raced past the competition
with a superior hyper-dimensionalized feature set, creating a new green performance
vehicle market space (Halle, 2009). This approach was later abandoned for a more
collaborative one, which would stimulate market growth, offering a wider choice to
28

the consumers, thus going toward the goal of building an affordable EV (Van De
Steen, 2014).

29

5.3 SUGGESTED STRATEGIC APPROACH

Based on the previous data, it is suggested to develop both the differentiation and
vertical integration existing strategies. Davis (2010) describes the EV marketplace as
crowded in a near future, due to big-league manufacturers. Tesla would need to grow
and keep innovating, and to make this happen, scale is essential (Davis, 2010),
which also makes Market development an important focus for the future. The latter
should although be fully developed, to avoid disappointing results such as the
Chinese market (Young, 2015).

30

5.4 STRATEGIES EVALUATION

This section will deal with the evaluation of the market development and
diversification strategies through the SAF model suitability, acceptability, feasibility
(Johnson et al, 1998).

Feasibility
Suitability
Acceptability

The diversification strategy is highly favourable as the PESTEL and Porters models
show in section 2, displaying a standard car market in decline and a demand for ecofriendly vehicles. The strategy appears consistent, with Tesla using its own core
competences in new areas which can lead to better returns at higher risks. Market
development is also supported by the macro-environmental analysis, which shows a
global trend for eco-friendly cars. Tesla, at a medium risk, can obtain high returns
31

supplying its core product in the new segments, still being consistent with its overall
strategy.

The ROCE shows the profitability analysis, based on previous Tesla performances.
Both the strategies would require a financial risk at different levels, but Tesla already
showed in the past its enormous potential for both innovation and actual profits
(Gurufocus, 2014).

32

According to the Cost-Benefit analysis, even though the expenditure might be high
due to R&D, the plans would also be beneficial for the intangible assets.
Lastly, below is the Real Options framework (Luehrman, 1998). Both the scenarios
pursued are assessed as predominantly positive, due to the high value in respect to
cost and a mid-volatility, but clearly the market development strategy shows the most
optimistic results, due to the lower level of exposure.

33

Regarding risks, the development of new products negatively impacts the liquidity of
the company, thus the adoption of the sensitivity analysis, taking into considerations
three assumptions which assure a positive outcome to these strategic decisions:
demand growth, fund availability, purchasing power. Being a diversification plan, a
slower growth in the demand is not scary, but liquidity might be. In the latter case,
Tesla would need to raise money from new investors or privately, and due to the
brand image and the mission statement, this should not present a problem, making
the strategy feasible, thanks to Teslas capabilities. On the other side, regarding the
market development strategy, a drop in the demand and the purchasing power could

34

seriously jeopardize the profit, along with tight liquidity, but based on the expected
market trend forecasts, this unfortunate scenario would most probably not happen.

35

5.5 IMPLEMENTATION MODES OF SUGGESTED STRATEGIES

In order to entry the new markets, Tesla should choose the franchising method,
giving the company a firm control over the marketing and sales. To implement the
plan, the company must focus its attention on building brand awareness, a solid
sales network, and acquiring a new plant in a strategic location which can easily
serve the new geographical segments easily and cheaply.
The implementation of the diversification strategy would consist of increase
expenditure on R&D, focusing on new product development through joint alliances,
which would accelerate market growth and stimulate competition. This practice
should be then terminated to avoid giving up on its own competitive advantage,
which would leave the company without strengths to fight in the future market.

36

6 CONCLUSION

Tesla lives in a highly favourable environment, both at a macro and micro level,
which allowed the company the reach its first milestone, becoming profitable in 2013
(Van De Steen, 2014). The strong capabilities build throughout the time unified with
the powerful resources has led the company to launch very successful products,
effectively competing with the big brands. Strategy has been perfectly chosen at the
start, with their Blue Ocean game-changer, and it has maturely evolved into a
progressively vertical integration along with a kept diversification approach, and a
market development. Tesla has chosen to collaborate with the competition in order to
grow the EV market, stimulating a shift to more eco-friendly cars, having as a goal
purely the benefits of the consumers. Tesla is projected to keep its competitive
advantage strong and alive, but the joint alliance will need to be ended in a near
future in order to survive in a progressively-crowded market.

37

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8 APPENDICES

48