Assignment:
Case study 1: Tesla
You are asked to response three questions about Tesla:
1. Conduct a PORTER'S FIVE FORCES Analysis to identify the forces affecting car manufacturing of alternate energy vehicles.
2. Conduct a PESTEL Analysis to assess the overall external situation under which Tesla and its competitors operate.
3. Conduct a SWOT analysis to analyze internal and external conditions Tesla must consider going forward.
Information about Tesla and the industry of alternate energy vehicles
You are encouraged and required to do your own research from various sources. Remember to reference your data sources.
Here is some additional information and sources to get you started:
Elon Musk is a serial entrepreneur who previously founded Zip2 (an online software provider, sold to Compaq) and PayPal (an online payment processor, sold to eBay). He is now a portfolio entrepreneur with a stake in three Silicon Valley firms: SolarCity (solar panel manufacturer), SpaceX (satellite space exploration), and Tesla Motors (electric car maker). Musk has been lauded for his ability to bring good ideas to life but criticized for his lack of staying power, and the case suggests he sees Tesla as an opportunity to leave a legacy.
The history of Tesla Motors: Tesla was founded by Martin Eberhard and Mark Tarpenning in 2003, with Elon Musk as one of the first investors. Musk took over the lead engineering and managerial roles after discovering that Tesla was losing $50,000 on each Roadster (its electric sports car model) it sold in December 2006. The redesigned Roadster then sold for $109,000 before it was later discontinued in favor of the Roadster 2 and Roadster Sport, as well as designs targeted at larger markets. The Model S (family sedan) prototype was unveiled in 2009, and it received over 2,000 orders, with customers putting down a minimum $5,000 down payment. The Model S received approximately 12,000 orders by 2012 when deliveries began. It is manufactured in a California factory purchased from Toyota. The Model X (family SUV) is planned for release in 2014. An IPO in 2010 that involved a strategic partnership with Toyota (3% stake) helped provide needed cash, but Tesla did not become profitable until 2013.
While it is beginning to expand internationally, Tesla largely competes in the U.S. where the automotive industry has historically been dominated by GM, Ford, and Chrysler. In 2009, the market share of the "Big Three" dropped below 50 percent for the first time as a result of increased competition from German, Japanese, and Korean auto manufacturers. U.S. automakers profited during the "SUV craze" of the 1990s, but were slow to adapt to shifting customer preferences for less expensive, more fuel-efficient vehicles in the 2000s. Their financial troubles were further compounded by high fixed costs for unionized labor, with the result that both GM and Chrysler declared bankruptcy following the 2008 financial crisis. GM has largely recovered, but a failed merger with Daimler led to a restructuring, where 25% of the company is now owned by Italian carmaker Fiat, and GM's pension fund has majority ownership. Ford avoided the need for a government bailout by mortgaging almost all of its assets, including its blue oval trademark that it regained control of in 2012.
Today, the U.S. automotive market has significant competition from foreign firms that began following the oil price shock in 1973-74. Competition largely resulted from German, Japanese, and Korean firms that offered higher quality and better fuel efficiency. From Japan, Toyota, and Honda have a large part of the U.S. market and produce vehicles in the U.S. following voluntary export restraints (VERs) established in 1981. Producing cars in the U.S. helped decrease the liability of foreignness. The three largest German auto manufacturers are Daimler, BMW, and Volkswagen, and they are noted for superior engineering and design. Korean manufacturers, such as Kia and Hyundai, are gaining increased acceptance as lower-cost alternatives that provide fuel-efficiency.
The history of alternative propulsion systems: The U.S. "Big Three" have not been at the forefront of the search for more fuel-efficient and environmentally friendly engines. Rather, they respond when necessary due to changing consumer demands (for example, the oil embargos of the 1970s) or the passage of new legislation (for instance, California's zero-emission vehicle [ZEV] mandate in the 1990s). The ZEV mandate is credited with stimulating early research into electric-car prototypes, but these models were quickly abandoned once automakers defeated the mandate in federal court. Environmental concerns and rising gas prices have increased interest in alternative energy, and a competition for establishing a new standard appears to be emerging among several technologies, including:
• Pure battery electric vehicles (e.g., Nissan Leaf, Mitsubishi i-MiEV, and Tesla's cars)
o Advantages include low noise, no exhaust gases, lower maintenance, and high torque over a larger range of speeds.
o Disadvantages include battery weight and expense, long charging times, and limited range per charge.
• Hybrid gas/electric vehicles (e.g., Toyota Prius, Honda Insight, and Chevy Volt)
o Advantages include those of pure electric vehicles without range restriction.
o Disadvantages include weight, cost, and technological complexity.
• Biofuels and natural gas (generally existing models are converted to use these fuels)
o Derived from natural products and do not contribute to CO2 emissions.
o Contribute to increased food prices, farming process uses carbon-based fuels, and governmental subsidies skew prices.
• Hydrogen and fuel cells (largely limited to prototypes)
o May work through combustion or fuel-cell conversion.
o Lack of infrastructure to support refueling.
For electric vehicles, batteries are the "#1 constraint." Several corporations are investing in battery technology, and no clear standard exists. Initial efforts targeted nickel-metal hydride (NiMH) batteries, but their high weight has shifted attention to lithium-ion batteries that provide longer ranges. Still, lithium-ion batteries have safety concerns related to high heat that can lead to fires (e.g., Dell laptops, Boeing 787). Elon Musk is a strong opponent of hybrid vehicles and criticizes the added complexity and weight dedicated to both electric and gas.
The discussion of alternate technologies also identifies two emerging competitors to Tesla. First, is BYD motors of China, which offers electric vehicles and also is investing in battery technology, and boasts Warren Buffett as an investor. Second, Quantum Technologies and Fisker Coachbuild are producing the Fisker Karma, a luxury hybrid.
The lack of a clear standard has hindered the development of needed infrastructure to support alternative-energy vehicles. The U.S. government offers incentives for electric vehicles and recognizes infrastructure is needed to increase adoption by developing a smart grid. Better Place, a California startup, offered another approach whereby consumers buy battery-charged minutes at service stations. The stations provided too many restrictions on design, and the company went bankrupt in 2013. Another idea was to replace the electrolyte in batteries in a format similar to existing stations. In advancing its design as the standard, Tesla has begun a network of service stations that allow customers of its Model S vehicles to charge batteries or have fully charged batteries swapped into their vehicles.
Tesla's current challenges and strategic choices: Additional alliances with other automotive firms and new alliances with battery manufacturers represent a valid consideration. Additionally, electric vehicles face price and performance pressure from consumers, who expect similar cost and performance to gas vehicles. This has led to Tesla moving from outsourced production of the Roadster to internal manufacturing of the Model S and Model X in its California plant where production has ramped up from only 5 vehicles a month to over 500 vehicles a month in under a year. The expansion of capacity is further constrained by high expectations for quality in Tesla's vehicles. Increased attention of Tesla vehicles following the Model S being named "car of the year" by Motor Trend was followed by negative articles recounting the difficulty of taking a road trip in a Model S.