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CASE 30
Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
I. CASE ABSTRACT
Tesla Motors, Inc. is in the business of developing, manufacturing, and
selling technology for high–performance electric automotives and power train
components. Hoping to develop a greater worldwide acceptance of electric
vehicles as an alternative to the traditional internal combustion, petroleum
based vehicles that dominate the market, Telsa is the first company that
commercially produced a federally compliant electric vehicle with the design
styling, and performance characteristics of a high–end performance
automobile. Telsa currently offers one vehicle, the Roadster, for sale, as
well as supplying electric power train components to Daimler for use in its
Smart EV automobile. Additionally, Tesla has a partnership with Toyota Motors
to develop and supply an electric power train for Toyota’s Rav4 SUV.
Decision Date: 2011 FY Sales: $116 millions
FY Net Loss: ($154,328) millions
II. CASE SUBJECTS AND ISSUES
Industry Analysis
Strategy Formulation Competitive Advantage
Strategy Implementation New Product Development
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IV. CASE OBJECTIVES
1. To discuss product innovation: all electric automobiles.
2. To discuss new product development.
V. SUGGESTED CLASSROOM APPROACHES TO THE CASE
1. This is an excellent case for instructor–led discussion.
2. This is an excellent case for an exam or written case analysis.
VI. DISCUSSION QUESTIONS
1. How effective is Tesla’s direct sales model?
2. Should Tesla consider other channels of distribution?
3. Should Tesla focus on domestic or international growth?
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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
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VII. CASE AUTHOR’S TEACHING NOTE—Not Available
VIII. STUDENT STRATEGIC AUDIT
I. Current Situation
A. Current Performance
Founded by Martin Eberhard and Marc Tarpenning in 2003, Tesla went
public in June 2010 with IPO at $17 a share, raised $226.1 million in
its first stock debut. Since Elon Musk took over as the CEO, Tesla has
been one of the most innovative automotive producers in the world,
earning recognition through the Global Sustainability Innovation Award
in 2009. Tesla purchased former NUMMI factory in Fremont, California,
the most advanced and cleanest automotive production plant in the
B. Strategic Posture
1. Tesla’s current mission, objectives, strategies, and policies are
both clearly stated and can be seen from its performance.
2. Tesla is in the electric automobile business. Its mission is “to
develop alternative energy vehicles for people who love to
3. The corporate, business, and functional objectives are to 1)
4. The corporate, business, and functional strategies are to pursue
1) growth through innovation and increased product offerings with
development and sale of the Model S is to create higher demand
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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
performance cars; 5) highly integrated marketing, sales, and
distribution efforts through its Tesla stores; and 6) increase
international market share through its international expansion.
These strategies are consistent with its strategic postures
5. The policies are to focus on utilizing green energy and
technology, and on producing luxurious, high performing EV. Tesla
II. Corporate Governance
A. Board of Directors
1. The eight members of BOD are Elon Musk, Brad Buss, Ira
Ehrenpreis, Antonio Gracias, Steve Jurvetson, Prof. Dr. Herbert
2. In total, the BODs own less than 10 percent shares of stock.
3. The stock is publicly traded.
4. The directors have diverse work experiences in industries such as
B. Top Management
1. The top management consists of Elon Musk (Chairman, Product
Architect and CEO), JB Straubel (CTO), Deepak Ahuja (CFO), Franz
Von Holzhausen (Chief Designer), George Blankenship (VP, Sales
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2. The eleven executives have diverse work experiences, with
backgrounds in different industries including technology,
3. The top management has been responsible for Tesla’s performance
4. It has established a systematic approach to strategic management
5. The executives have been heavily involved in the strategic
management process.
6. N/A
7. Strategic decisions are made ethically in a socially responsible
III. External Environment (EFAS refer Exhibit 1)
A. Societal Environment (PESTEL Analysis)
1. Economy
a. Competing in an industry that is expanding (O).
i. Absolut market share is less relevant than how fast it is growing its
market share.
b. Massive budget deficit (T).
i. Members of Republican Party have focused their demands for budget cuts
c. The economic recovery has created more demand for higher priced, luxury
vehicles (O).
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e. EVs cost significantly more than traditional vehicles of similar style and
performance (T).
2. Technological
a. Industry–related technology is always advancing in EV industry (O).
The technologies can be used to improve the EVs. They are related to
3. Political—Legal
a. Various federal and state governmental agencies are currently supporting
loan programs through the Department of Energy and the California Zero
Emission Vehicle (ZEV) program (O).
b. Focus on decreasing the U.S. dependence on petroleum products (O).
c. Global economic policies supporting usage of environmentally sustainable
products such as EVs (O).
d. Many regulations compliance required to develop EV (T).
i. Numerous safety requirements governed by the National Highway Traffic
4. Sociocultural
a. Continuous shift towards green energy (O).
i. President Obama committed to funding “green“ initiatives through
various vehicles.
ii. Setting a goal of getting 1 million electric cars on the road by 2015.
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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
ii. Limit EV driving range.
iii. Negative impact on the image of EV.
All these forces are different in other regions of the world. The US being
B. Task Environment
1. Threat of New Entrants: Low
a. Hybrid technology is well understood by major automobile companies.
i. They developed and marketed their own version of electric/gasoline
hybrid vehicles.
2. Bargaining Power of Buyers: Moderate
a. Fragmented industry, customers are highly influenced by trend.
b. Target market are people that make over $75,000 a year that are sensitive
to environmental change.
3. Threat of Substitute Products: Low
a. Substitutes are traditional cars, train, bus, bicycle,and motorcycle.
4. Bargaining Power of Suppliers: Moderate
a. Parts are sourced from many suppliers that often are the single source of
vendor.
5. Rivalry Among Competing Firms: High
a. Primary competitors are Mitsubishi i–MiEV, Nissan LEAF, Chevy Volt, Toyota
Prius, BMW Hydrogen 7, Honda Clarity.
6. Power of Other Stakeholders: Moderate
a. Environmentalists typically have certain degree of influence in the
government. Especially as the new Presidential election is coming up.
C. Summary of External Factors
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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
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the current part delays, and to keep up with intense competitive rivalry,
Tesla has to try pushing down its fixed cost as low as possible. Tesla has to
find ways to be less dependent on its vendors and accelerate its parts
production. As the industry is in growth stage, Tesla also has to find ways
to differentiate and reduce costs of its EV so that it would perfectly meet
consumers’ demand in different parts of the world. Satisfied consumers will
lead to long–lasting brand loyalty, and this will ensure that Tesla will
maintain its position as one of the most innovative EV producers in the
world.
IV. Internal Environment (IFAS refer Exhibit 2)
A. Corporate Structure
1. Tesla’s current corporate structure is centralized, with all the
decisions made in the HQ. Tesla also relies heavily on its
2. The structure is clearly understood by everyone in the
corporation (implied by case).
B. Corporate Culture
1. There is a shared belief of employing innovation in works, its
environment is fast–paced and culturally unstructured (S).
2. The culture of innovation is consistent with its corporate
strategies (S).
C. Corporate Resources
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a. Tesla’s brand is heavily tied to the environment or green
movement, generating a lot of free media publicity. The promotion
strategy is a clear strength for Tesla, especially considering
b. Tesla’s current marketing outreach is limited due to its
infancy and lack of resources. The marketing mix (4Ps) is
targeted at the luxury vehicle markets. Tesla focuses on a very
narrow segment of early adopters and environmentalists that have
i. Trends emerge as that customers are becoming more
sensitive to green technologies and aware about energy
conservation due to rise in oil prices.
ii. The trend has significantly impacted past performance
and will definitely boost future performance.
c. Tesla’s marketing performance compared to other corporations
is not as advanced and rigorous. Tesla is much smaller than other
EV producers that are part of larger automotive corporations.
However, being one of the first to market high–performance EV,
Tesla has a first–mover advantage in branding and customer
experience.
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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
2. Finance
a. Main objectives are to increase growth in profits and sales by
creating and selling new models, in addition to their only model
that is currently being sold, the Roadster, as well as providing
technology leadership with its innovative electric batteries and
related products. The next model is a four–door sedan, named the
i. The objectives are clearly stated. Tesla is building a new factory with a
capacity of 20,000 cars per year to be ready to build the new Model S.
Their proprietary technology includes thirty–five issued patents and 280
patents pending and the new Model S will have three battery options with
different mileage ranges and prices.
ii. The objectives are consistent with their goals of building alternative
energy vehicles. Tesla is tied to the environmental movement, which has
given them free publicity due to their leadership status in the industry.
b. Tesla’s cash position isn’t ideal. They were able to raise
$226 million in an IPO in June 2010. They received a loan from
the US Department of Energy of $465 million in 2010. The company
ii. N/A
iii. Tesla has suffered a net loss each year and has mostly negative
profitability ratios due to the company and industry still being in its
infancy and with the new technology, which brings uncertain demand and
risk for the future. Tesla’s future financial success and possibly their
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c. Tesla’s financial performance is comparable to other young
companies with new technologies. It takes time to build up
economies of scale to become profitable in a brand new industry.
3. Research and Development (R&D)
a. Tesla is focused on continuing to improve on their existing
electric battery technology and will offer three different
battery options with varying mile ranges in the new Model S. They
continue to purchase patents to protect their unique technology
(S).
i. The R&D objectives are implied by the business they
operate in (their proprietary software) and their
financials with the operating expenses heavily weighted to
R&D.
iv. Yes, they are focused on technology innovation and
education and put the appropriate resources toward that
objective.
b. They are earning revenues from the sales of the cars
(currently the Roadster) and through sales of their electric
power train components. Tesla is also partnering with other
automakers such as Toyota and Mercedes–Benz to help them build
electric vehicles with Tesla’s technologies for a fee (S).
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c. Tesla believes in teamwork and wants employees from all
departments to work together to share knowledge and ideas.
4. Operations and Logistics
a. In order to produce the new Model S debuting in 2012, Tesla is
building a new factory that will have a production capacity of
20,000 cars. Their main operating strength is in the company’s
intellectual property and patents. Their software is designed to
i. They are clearly stated in the case.
ii. Yes, Tesla wants to build their brand, in addition to
creating the new electric vehicle technologies, so they
don’t want to be associated with other automakers by having
them sell their cars (S).
b. As stated, the company prefers to keep its distribution in
house but needs to rely on over 150 suppliers for more than 2,000
parts. Many of the vendors are a single source which limits the
company’s flexibility and increases supply chain risk (S/W).
i. Tesla is building a new factory to meet production needs
of the new Model S car.
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d. N/A
e. Tesla’s costs are higher than its competitors in the
automotive industry because the company hasn’t reached economies
of scale. Service costs are high due to their lack of dealerships
(W).
i. Tesla needs to increase production or sales of the
Roadster and new Model S cars to reach economies of scale
and lower costs. Adding service facilities will increase
costs in the beginning but save costs later on and into the
future.
f. Tesla’s software was created to be easy to update and the
architecture of the company’s vehicles was built to be
transferable to future models (S).
5. Human Resources Management (HRM)
a. Tesla operates similarly to a software company. The executive
team is comprised of people that are a mix of technology and
business savvy. Employees are encouraged to think creatively and
challenge the status quo. The company operates collaboratively
with all departments working together, often in one open room.
Tesla attempts to hire and retain top talent through competitive
salaries, benefits, and a comfortable working environment (S).
i. The HRM objectives and strategies are clearly stated in the
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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
b. Tesla maintains an aesthetically pleasing office space and hires
employees that are innovative thinkers to create their next great
product. The company does all it can retain its top employees (S).
i. Tesla operates similarly to Google and other software
companies in how it hires and retains employees as well as
the culture, which is fast passed and innovative.
ii. The corporation’s HRM practices have led to Tesla
becoming a leader in the electric vehicle industry and
c. N/A
d. Yes, Tesla is looking to hire more graduating engineering
students and sales staff with a focus on those that already have
hands–on experience to help grow the company (S).
6. Information Systems and Technology
a. The case does not describe the role of the Information System
as a whole; however, it does describe different ways that the
company has used aspects of its IS to add value to the customer
experience (S).
i. The goals of the IS are vaguely implied through the
different applications described in the case. The main use
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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
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ii. The use of their Information System fits well with the
strategic direction of the company because they are
focusing on providing “technological leadership in the
field of electric vehicles“ (Hoffman, 2011). Accordingly,
the demographic that they are targeting tends to both value
b. N/A
i. N/A
ii. N/A
iii. N/A
iv. From the information provided in the case, it does not
c. The performance of the IS overall is not nearly as well
developed as the other companies within the car industry. Tesla
is still in the early stages of development compared to other car
companies so it has not had the capital to invest in a strong IS.
Tesla has utilized the Internet in effective ways; however, and
is attempting to broaden the scope of its customer base through
their presence on the web (W).
D. Summary of Internal Factors
Currently, R&D is Tesla’s core competency. Within the burgeoning
industry of electric vehicles, it is important to continue to fund and
develop technologies that will give the company an edge over the