3 pages
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Spring Hill College
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Tesla Value Chain Activities

November 8, 2020
What value chain segments has Tesla chosen to enter and perform internally?
Value chain activities are organized into two major categories: Primary and Supporting. The primary
value chain segments are comprised of activities that secure raw materials, activities that turn the raw
materials into the product, and the activities that get the finished product to the consumer. Supporting
value chain activities include R&D, technology, systems development, HR management, and general
administration. Tesla is engaged in vertical integration in major areas in both primary and supporting
value chain activities. Tesla has entered manufacturing via an alliance with Panasonic to produce
batteries to power its electric cars, which is a primary value chain activity. Tesla builds electric power
train components for its own vehicles as well as for vehicles made by other car manufacturers. Tesla has
distinguished itself as a company by focusing on R&D, technological innovation, and customer
satisfaction, which are all supporting activities. Tesla manufactures and then distributes its cars directly
to consumers, bypassing the traditional dealer network. Tesla repairs its own cars and transmits
software updates directly to vehicles, eliminating third-party upgrades and repairs. In electric cars,
Tesla is highly integratedabout 80% of the value of its cars are produced internally. The 80% of
components produced internally also include seats, among other components and sub-assemblies. In
comparison, Ford’s Focus Electric is heavily outsourced—its entire drive train is supplied by Magna and
its batteries by LG (Grant, 2018).
How has the vertical integration and integration of its ecosystem aided the
organization in building competitive advantage?
Tesla has differentiated its brand and product in the auto industry by focusing on cutting edge
technology, constant innovation, and exceeding customer expectation. As a late entrant into the electric
car market, Tesla has been able to distinguish itself from its competitors by tightly controlling the
technology and innovation by keeping these components in-house and integrating technological
advancements from other companies owned by Tesla’s owner, Elon Musk. Vertical integration has aided
Tesla in building competitive advantage because the organization is able to keep its proprietary
technology private (until the company made them available to competitors). In-house production of
batteries and powertrains have enabled Tesla engineers to avoid time-consuming communication and
coordination with suppliers, thus allowing the company to get products to market quicker. The
elimination of third-party repairs has enabled the company to efficiently rollout product enhancements

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