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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
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derived from their HRM. The way in which Tesla recruits, retains, and
allows its employees to work creates an environment that fosters
creativity and innovation. In order to create breakthrough products and
V. Analysis of Strategic Factors (SWOT)
A. Situational Analysis (SFAS refer Exhibit 3)
One of Tesla’s internal strategic factors that provide great strength
for the company is the collaborative corporate environment that they
have created. In any company that relies heavily on innovation, it is
important to be able to collaborate across functional silos in order to
work toward a common goal.
Another strength that Tesla possesses is its autonomy. Most of Tesla’s
A huge weakness for Tesla is their narrow niche of customers that they
currently appeal to. The price tag alone significantly limits the
number of people capable and willing to foot the bill. The release of
the model S will help expand the company’s customer base; however, at
close to $60,000, it is still extremely high.
A final internal weakness that poses a significant threat is the
limited physical presence that Tesla has outside of California. Aside
One of the major external strategic factors is the threat or
opportunity to the future of Tesla is the upcoming election. If Barack
Obama remains in office, Tesla will continue to benefit from government
subsidies and regulations that will aid in their success. However, if
CASE 30
Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
A critical factor that Tesla must guard against is the threat that
internal combustion vehicles are becoming more efficient and
affordable. EVs cost significantly more than internal combustion cars
of similar style and performance. A pivotal aspect of Tesla strategy
will be to lower the costs associated with electric vehicles or to
B. Review of Mission and Objectives
1. The current mission at Tesla is “to develop alternative energy
electric vehicles for people who love to drive“ (Hoffman, 2011).
This mission fits well with the key strategic factors and
problems as they stand currently; however, if government
subsidies and grants cease to exist following the presidential
election, it may be difficult to continue to operate under this
industry.
2. The mission and objectives should only be changed if the
country experiences drastic policy changes with regards to “green
energy.“ If this happens, it would create near insurmountable
obstacles for a company already struggling to turn a profit.
Under such circumstances, it would be advantageous for Tesla to
3. This shift in strategy would have a significant effect on
Tesla because this would change them from a car manufacturer to
purely a supplier. Under this new model, Tesla could attempt to
partner with Lotus to develop a Tesla model under the Lotus name,
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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
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VI. Strategic Alternatives and Recommended Strategy
A. Strategic Alternatives
1. The current objectives of Tesla can be met if the company
continues to focus on a collaborative work environment that
emphasizes creativity. As oil prices continue to climb and demand
2. The major alternative strategy that is available to Tesla is
to transform into more of a collaborator than a vehicle
manufacturer. Under this strategy, different manufacturers could
co–brand with Tesla to produce long range, high–performance
models of their cars. This strategy would significantly reduce
costs to Tesla. While the company would not recognize the same
scale of profits, this would be a feasible alternative.
a) Cost leadership would be a difficult strategy for Tesla
to implement due to the high costs associated with
improving EV technologies. Additionally, the mission of
Tesla is to “create alternative energy electric vehicles
b) It would be difficult for Tesla to adopt a stability
corporate strategy because the last thing they want is to
remain stagnant. Of the three corporate strategies, this
seems to be the least applicable to Tesla because it limits
their ability to expand revenues and develop economies of
scale. A horizontal growth strategy is the best option for
Tesla because now that they have multiple products that
CASE 30
Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
30–19
c) A clear functional strategy that would fit well with
current business and corporate level strategies at Tesla
would be a technological leader R&D strategy. This strategy
focuses funds on developing innovative new ideas so that
the company can stay ahead of its competition. This is the
type of strategy that Tesla is attempting to utilize. A
marketing strategy could also suit Tesla well. This type of
strategy focuses heavily on how the product itself is
marketed, in an attempt to generate hype and demand.
B. Recommended Strategy
1. We believe that Tesla should pursue a differentiation business
level strategy. This strategy allows Tesla to break away from
what its competitors are doing in order to create a high–quality
2. The differentiation strategy at Tesla is made possible because
of the strategic factors relating to their autonomy and the
external opportunity of green energy subsidies. These two factors
allow Tesla to put as much of their capital in R&D as needed and
CASE 30
Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
30–20
the future due to their ability to “cast a wide net.“ Finally,
the technological leaders functional strategy mitigates the
effect that petroleum based cars are becoming more fuel–efficient
and affordable. Improving the effectiveness and range of EVs will
have a long–term impact on the sales and adoption of EVs
throughout the US and the globe. If Tesla is able to develop a
great leap forward, the adoption of EVs will skyrocket.
3. The way that the company is shaped currently is mostly in line
with the strategic direction we would like to continue to see
them follow. However, a major policy change that would help Tesla
4. The proposed revised strategies would coincide well with the
existing corporate environment and distinctive competencies. The
VII. Implementation
A. N/A
B. With the current sources of funding and government subsidies,
increased focus on R&D is feasible. The horizontal growth strategy
will be much less capital–intensive than building a network of
C. A major operating procedure that will need to be developed will be
creating a systematic training program to train partnered
dealerships on how to market and sell Tesla cars. Due to the type of
customer that Tesla sells to, the program will need to train sales
VIII. Evaluation and Control
A. N/A the case does not discuss information systems at Tesla.
N/A
CASE 30
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Exhibit 1—External Factor Analysis Summary (EFAS)
Key External
Factor
Weight
Rating
Weighted
Score
Comments
Opportunities
Expanding EV
Market
0.15
3
0.75
Tesla will be getting a larger
portion of market share in EV
industry.
Threats
Budget
Deficit
High
Production
Costs
0.05
0.15
0.1
1
3
5
0.05
0.45
0.5
Massive budget deficit could lead to
decrease in spending by the target
market.
EVs are much more expensive to
produce due to lack of economies of
scale, standardization, and large R&D
investments.
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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
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CASE 30
Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
Exhibit 2—Internal Factor Analysis Summary (IFAS)
Key Internal
Factor
Weight
Rating
Comments
Strengths
Centralized
Corporate
Structure
Focus R&D
Solely on
Development of
EVs
Collaboration,
Innovation–
0.05
0.15
0.15
3
4
5
Tesla’s strategic
decision–making is handled
by executives that truly
understand the industry.
Tesla is putting all of
its resources to
development and
improvement of its EVS,
unlike other companies.
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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
30–25
Weaknesses
Limited
Presence
Outside
California
Narrow Target
Market
Deficit in
0.1
0.05
0.15
2
3
4
Tesla’s product
recognition may be
hindered by lack of
presence outside
California.
Limited potential revenue
due to narrow target
market. Tesla is trying to
widen its customer based
through its stores
nationwide and globally.
Exhibit 3—Strategic Factor Analysis Summary (SFAS)
Key Strategic
Factors
Weight
Rating
Weighted
Score
Duration
Comments
Short
Int
er
Long
External Environment
Expanding Industry
(O)
0.08
3
0.24
x
As demand
increases
for EVs,
Tesla will
be well
positioned
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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
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Massive Budget
Deficit (T)
0.08
1
0.08
x
Economic Recovery
(O)
0.02
2
0.04
x
The (slow)
economic
recovery
means that
consumers
will have
additional
discretion
ary
income.
Stable Electricity
Costs (O)
0.11
4
0.44
x
Costs of
electricit
y are
significan
tly less
volatile
than oil
prices.
High Cost of EVs
0.06
3
0.18
x
Due to
vehicles
0.08
5
x
CASE 30
Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
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0.03
4
0.12
x
companies.
Customer Perceptions
of EVs (T)
0.08
4
0.32
x
Customers
still
perceive
electric
vehicles
as clunky
and
unreliable
.
Absence of Public
Infrastructure (T)
1
x
Internal Environment
Centralized C
Structure (S)
0.01
3
0.03
x
Decision–
making is
in the
hands of
visionarie
s that
have a
good sense
of what
will
benefit
the
company.
CASE 30
Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
30–28
0.03
4
0.12
x
0.1
5
0.5
x
This collaborative
Diverse and
Valuable
Employee
Backgrounds
(S)
0.03
4
0.12
x
Diverse employee
background allows the
company to leverage
different
perspectives of
employees.
Limited
Presence
Outside
California
(W)
0.1
2
0.2
x
This limits the
physical presence
that Tesla has and
impedes product
recognition.
0.09
3
0.27
x
3.16
CASE 30
Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
30–29
Exhibit 4—Financial Ratios
Financial Ratio Analysis
December 31,
2011
December 31,
2010
December 31,
2009
Liquidity Ratios
Current Ratio
1.95
2.76
1.75
Quick Ratio
1.69
2.23
1.35
0.28
0.30
0.54
Cash Ratio
1.46
2.02
1.21
Profitability Ratios
Net Profit Margin
–124.56%
–132.19%
–49.79%
Gross Profit Margin
30.16%
26.32%
Return on Investment (ROI)
–35.66%
–39.97%
–42.74%
Return on Equity (ROE)
–113.55%
–74.54%
21.99%
Earnings per Share (EPS)
–2.53
–3.04
–7.94
Activity Ratios
Inventory Turnover
4.08
2.58
4.82
Days of Inventory
128.15
191.73
82.77
Net Working Capital
Turnover
1.13
0.78
2.60
Asset Turnover
0.29
0.30
0.86
Fixed Asset Turnover
0.60
0.78
3.75
Average Collection Period
N/A
N/A
Accounts Payable Period
N/A
N/A
Days of Cash
Leverage Ratios
Debt to Asset Ratio
68.60%
46.37%
49.62%
Debt to Equity Ratio
218.44%
86.47%
–25.53%
121.03%
34.93%
–0.32%
Times Interest Earned
–5904.16
–154.40
–21.01
Coverage of Fixed Charges
–63.45
–86.24
–14.39
85.40%
41.33%
–22.68%
Long–Term Debt to Capital
Other Ratios
Price/Earnings Ratio
–11.29
–8.76
N/A
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Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956
30–30
Dividend Payout Ratio
N/A
N/A
N/A
N/A
N/A
N/A