Tesla Strategic Analysis

Tesla
STRATEGIC ANALYSIS
Emily Chan, Kylie Chun, Christine Doan,
Katherine Haghverdian, Megan Lee, Ariel Martin,
Kylie Yamamoto and Timothy Yu
Table of Contents
Contents
Executive Summary __________________________________________________________ 1
Recommendations __________________________________________________________ 2
Industry Structure ____________________________________________________________ 3

Overview _________________________________________________________________ 3
Chronology of the Industry ___________________________________________________ 3
Industry Today _____________________________________________________________ 5
Products__________________________________________________________________ 6
Markets __________________________________________________________________ 7
Suppliers _________________________________________________________________ 8
Manufacturing Processes ____________________________________________________ 8
Distribution ________________________________________________________________ 9
Common Financial Arrangements ______________________________________________ 9
Remote Industry Environment _________________________________________________ 11

Social Factors ____________________________________________________________ 11
Political Factors ___________________________________________________________ 12
Economic Factors _________________________________________________________ 14
Technological Factors ______________________________________________________ 16
Resource Factors _________________________________________________________ 16
Market Analysis _____________________________________________________________ 18

Electric Car Market ________________________________________________________ 18
Market Segment Analysis ___________________________________________________ 18
Critical Success Factor Analysis ________________________________________________ 21

Industry Success Factors ___________________________________________________ 21
Teslas Success Factors ____________________________________________________ 23
Failure Analysis ___________________________________________________________ 25
Industry Structural Analysis ____________________________________________________ 29

Threat of Entry: Moderate ___________________________________________________ 29
Threat of Substitutes: Moderate ______________________________________________ 30

Table of Contents
Bargaining Power of Buyers: Moderate to High __________________________________ 31
Bargaining Power of Suppliers: High ___________________________________________ 32
Intensity of Rivalry: Moderate to High __________________________________________ 33
Competitor Analysis: BMW ____________________________________________________ 35

Overview ________________________________________________________________ 35
History __________________________________________________________________ 35
Assumptions _____________________________________________________________ 36
Financial Statement Analysis ________________________________________________ 37
Capabilities ______________________________________________________________ 38
Operations _______________________________________________________________ 42
Suppliers ________________________________________________________________ 45
Core Competencies & Sustainable Competitive Advantages ________________________ 48
Current Strategy & Future Goals ______________________________________________ 49
SWOT Analysis ___________________________________________________________ 51
Competitor Analysis: Mercedes-Benz ____________________________________________ 53

Overview ________________________________________________________________ 53
History __________________________________________________________________ 53
Assumptions _____________________________________________________________ 54
Financial Statement Analysis ________________________________________________ 55
Capabilities ______________________________________________________________ 56
Operations _______________________________________________________________ 57
Product: Mercedes-Benz B-Class _____________________________________________ 58
Manufacturing Process _____________________________________________________ 59
Distribution _______________________________________________________________ 59
Marketing ________________________________________________________________ 59
Human Resources _________________________________________________________ 60
Suppliers ________________________________________________________________ 61
Core Competencies & Sustainable Competitive Advantages ________________________ 61
Current Strategy __________________________________________________________ 62
Future Goals _____________________________________________________________ 63

Table of Contents
SWOT Analysis ___________________________________________________________ 64
Strategic Map ____________________________________________________________ 65
Company Analysis ___________________________________________________________ 66

Overview ________________________________________________________________ 66
History __________________________________________________________________ 66
Assumptions _____________________________________________________________ 67
Financial Statements Analysis _______________________________________________ 67
Suppliers ________________________________________________________________ 70
Capabilities ______________________________________________________________ 71
Operations _______________________________________________________________ 72
Target Market ____________________________________________________________ 73
Marketing ________________________________________________________________ 73
Products_________________________________________________________________ 74
Manufacturing Process _____________________________________________________ 76
Distribution _______________________________________________________________ 77
Human Resources _________________________________________________________ 77
Brand Image _____________________________________________________________ 78
Competitive Advantage & Core Competencies ___________________________________ 79
Cost and Comparison Analysis _______________________________________________ 81
Future Goals _____________________________________________________________ 82
SWOT Analysis ___________________________________________________________ 84
Competitor Comparison & Evaluation __________________________________________ 85
Strategy Formulation _________________________________________________________ 87

Strategy Recommendation __________________________________________________ 87
Appendix A ________________________________________________________________ 91
Appendix B ________________________________________________________________ 92
Endnotes __________________________________________________________________ 93
01 Executive Summary
Executive Summary
Founded in 2003 in San Carlos, California, Tesla was created by a group of engineers. Its
initial mission was to prove that electric cars are better than gas powered cars. Dedicated to
making each new generation of vehicles to be designed with incredible power and zero
emissions, Tesla strives to ultimately transition the entire world towards sustainable transport.
The inventor that the company is inspired after, Nikola Tesla, patented an AC induction motor
in 1888 that the engineers based the Tesla Roadster on in 2008. In 2012, Tesla redefined the
car industry with the first four-door electric sedan with the Model S and continues to spread its
footprint into areas such as the Gigafactory in Nevada that will produce lithium ion battery cells.
There has been an increasingly popular trend towards more sustainable living. This social shift
has led way for many well-established automakers like Mercedes and BMW to enter the
electric vehicle industry, posing potential threats to Tesla. With increasing competition and the
demand of electric vehicles higher than ever, Tesla has the opportunity to capitalize on many
of its strengths: rapid innovation, high performance, disruptive technologies, strong customer
experience, and consistent brand image.
Teslas brand is not just about being an automaker, it also entails a focus on being an
innovator of energy. Its cars are integrated with all-wheel drive configurations, high efficiency
motor, and high speed charging. Because of Teslas ability to be charged at home, Tesla
owners never have to worry about fueling at gas stations. Free charging stations are placed on
popular routes around the world that can replenish a charge by 50% in 20 minutes.
Tesla has been able to capitalize on its core competencies to achieve strong competitive
advantages, ultimately providing high value to its customers. The following table demonstrates
the correlation between the two:
Core Competencies Competitive Advantage
Gigafactory Industry Standard Batteries

Efficient Engineering Supercharger Network
Computer Aid Design Strong Customer service
Innovative Manufacturing Made to Order Purchases
No storage costs Autopilot feature
Direct Dealership
02 Executive Summary
With pressure to stay ahead in the industry and high production goals for the future, Tesla will
need to identify the areas in which it must focus on for the future.
Recommendations
The following recommendations highlight areas for Tesla to continue to stay as a top
competing performer in the electric car industry.
Production
Tesla should focus on increasing automation in its manufacturing processes to ensure that it
will efficiently meet the demands of its existing and future models. While many of its operations
are currently automated, Tesla can stand to invest in this effort more as it is expecting to ramp
up production exponentially with the release of the Model 3. Tesla should also look into
expanding its facilities into the East Coast to boost production volume and make delivery times
faster.
Marketing
Tesla currently does not use traditional advertising methods. Staying true to its current
strategy, Tesla should continue to rely on customers word of mouth and updating their blog
with current and relevant information. Tesla should work to increase its brand visibility through
social media by creating engaging content on Facebook, Instagram, LinkedIn, and Twitter.
They should also expand into other marketing efforts like creating a community group where
other Tesla owners can meet and connect with each other.
Financial
In its current financial state, Tesla is operating at a loss and will not see profitability until 2020.
Tesla should look into alternative ways to raise capital instead of taking on more debt, like a
stock split or dilution. Tesla should work to build more partnerships as well as capitalize on the
Gigafactory to sell its batteries to other companies to raise capital.
03 Industry Structure
Industry Structure
Overview
Electric vehicles are a rising and compelling segment of the automobile manufacturing market
that has continuously been gaining ground in the United States. In the past decade, the electric
vehicle (EV) industry grew from just a few players to a booming and expanding market,
comprised of mostly established automakers and one solely electric-focused carmaker.
Consumers have gravitated towards this alternative drive type over conventional motor
vehicles in recent years to join the movement towards sustainable mobility and long-term
savings. States pushing government incentives to tighten emission norms have also
contributed to the EV growth beyond the consumer level. 1 Electric vehicles present progress in
reducing the worlds carbon footprint of automobiles.
Chronology of the Industry

The electric vehicle industry is relatively young. Although it has been gaining in popularity
today, the electric vehicle has been around since the early 1800s. Since the beginning, the
demand for these vehicles has come in waves.
The Beginning Stages

Between 1832-1839, Robert Anderson of Scotland invented and built the first electric powered
carriage using non-rechargeable primary cells. However, American Thomas Davenport is
credited with building the first electric vehicle to operate on a track in 1834. In 1891, William
Morrison built the first successful electric vehicle in the United States, which could hold six
passengers and travel up to 14 miles per hour. By the very early 1900s, the electric vehicle
had 28 percent of the automobile market share, and according to a survey conducted at the
National Automobile Show in New York, the top choice of automobile was the electric vehicle. 2
The Switch to Gasoline

In 1908, Henry Ford started production of the affordable Model T car, which was powered by
gasoline. In 1912, Charles Kettering invented the practical electric automobile starter which
eliminated the need for the hand crank starter used in gasoline-powered automobiles. This
was the turning point for the automobile industry, and the effects would influence the electric
vehicle sales and market share. The downhill trend felt by the electric vehicle was a result of
shifting consumer demand, which was attributable to cheap gasoline and the improvement of
the internal combustion engine (ICE).
Renewed Interest in the Electric Vehicle

Between 1966 and 1976, a few key incidents sparked a renewed interest in the electric vehicle.
Congress started to pass more regulations because of increased health risks associated with
air pollution, and gas prices began to increase as a result of the 1973 Embargo. In 1976,
Congress passed the Electric and Hybrid Vehicle Research, Development, and Demonstration
Act which supported the research and development of hybrid and electric vehicles. Not only
was Congress taking interest in alternative energy, but so was California. In 1990, the state
passed the Zero Emissions Mandate. The California Air Resources Board required
automakers to manufacture some of its vehicles with zero emissions if the company wanted to
sell cars in California.3
During this time, General Motors (GM) invested in building a practical electric car, and teamed
up with AeroVironment to design the EV-1. Increased regulations pressured automobile
manufactures to comply and start producing electric vehicles. Several thousand electric
vehicles produced by Honda, GM, Nissan, Chevy and Toyota were available to lease.
Although showing a steady demand, the mandate and increasing regulations did not go without
pushback from the automakers and large oil companies.
In 2001, GM, joined by various automakers, led a lawsuit against the California Resources
Board and the mandate of 1990 was repealed. GM did not renew any leases and reclaimed all
of its EV-1s by 2004, and soon after it was discovered that the company crushed these electric
vehicles.
A Growing Market
In 2006, Tesla Motors, a Silicon Valley startup, unveiled its Tesla Roadster which could travel
more than 200 miles on a single charge. With Teslas success, car manufacturers began to
invest into the research and development of electric cars with the government's help.
In 2009, the government allocated $2 billion in the development of electric vehicle technologies
through the American Recovery and Reinvestment Act of 2009. Along with this funding, the
Department of Energy also invested $400 million to finance the infrastructure needed to
support electric vehicles. The Chevy Volt and the Nissan LEAF were released in the United
States in 2010, which was just the beginning of new releases from new car manufacturers.4
This leads into the electric car industry of today. There are more than 234,000 fully electric
vehicles on the market today and this number will continue to grow with new competitors and
new styles of electric vehicles produced.
Industry Today
The electric vehicle industry is still in its budding stages, only a few years since its beneficial
factors were introduced to affect consumer choices. Demand for full hybrids is projected to
surpass 983,000 units in 2018.1 The continued decline in the price premiums of full hybrids will
stimulate demand continuously every year. The United States and Europe are expected to lead
the global EV market in sales because of higher disposable income and more developed EV
infrastructure.5 Currently, around 16 low-end and high-end auto manufacturers are competing
in this market. A few are fully dedicating R&D to this industry in their business models such as
Tesla, while most are entering this industry as an expansion to their conventional gasoline
vehicle line such as Ford, Nissan, and BMW (see Figure 1).
Figure 1: EV Sales by Manufacturer, 2015
Market share is widely represented by Nissan, Tesla, Mitsubishi and VW as the forerunners,
and the rest of the pie is divided into much smaller slices (see Figure 2). This represents the
market accurately with a rising move in established auto manufacturer entrants to compete in
the electric vehicle industry and vary their product portfolio by assimilating to sustainability
shifts. In joining this industry, market participants are required to consistently focus on
innovative mobility technology. Autonomous driving, voice assistance and other enhancements
to the performance of the vehicle that will attract a wider range of consumers are currently in
the process of improvement or development. Regulatory pressures encourage moves towards
electric-powered vehicles and grant tax incentives. 6
Figure 2: EV Market Share by Manufacturer, 2015
Products
Electric vehicles are more energy efficient than their internal combustion engine (ICE)
counterparts, rendering electric vehicles the most optimal and sustainable source of
transportation for the future. Not only are electric vehicles zero-emissions, but the high-tech
technology of the battery-powered electric motor converts all of its fuel energy into usable
power, a stark differentiation from the ICE, which only utilizes 20 percent efficiency. With the
reduction or elimination of transmissions in electric vehicle designs, the overall weight is lighter
and maintenance costs are lower relative to hybrid and ICEs. Due to lower maintenance care
without oil filters, engine valves, consumers no longer must constantly devote these expenses
to their vehicle.
Outer appearances of electric vehicles do not give obvious identifiers that its carbon footprint is
exponentially less than ICEs. The chassis, or body, of electric vehicles are manufactured in the
same process as bodies of ICE vehicles are. The drastic differences are not visible externally
in the styling of the vehicle or in the interior of the vehicle. Rather, the differentiation is
experienced during the drive, distinctive to the battery-powered motor of the electric model.7 To
captivate the consumer weighing the options of a conventional combustion engine vehicle and
an electric vehicle, the EVs must maintain functionality, safety, convenience and sleek design,
while optimizing energy efficiency and performance.8 Figure 3 below illustrates the primary
differences between electric and gasoline vehicles that compare emission, source of power,
driving range, refueling/recharging time, and cost per mile.9
The battery, as the essential component keeping an electrical vehicle running, is refueled by
household wall outlets or at public charging stations. Electric vehicle batteries are typically
composed of lithium-ion that have a higher energy density over lead-acid or nickel-
metalhydride batteries.1 As the premium type of battery for EVs, lithium-ion carries a hefty price
which increases per kilowatt-hour (kWh) incorporated into the battery. Due to lithium-ion
battery price tags, the typical mass market EV holds a range of less than 100 miles. However,
as lithium-ion batteries decline in price, so will the overall EV manufacturing cost. Batteries
require extensive testing and R&D in-house to further improvement and leads in range
technology.
Since the recent surge in electric vehicle offerings released amongst various low and high-end
car manufacturers, the prevalence of public charging stations has increased to respond to this
alternative charging transition. Recharging times vary, depending on the voltage capacity and
battery type of the car.4
Figure 3: Electric vs. Gasoline Vehicles
Markets
Most battery-electric vehicles available today have only been on the market since 2010. Many
established ICE players have ventured into the EV industry due to a shift towards energy
efficiency and sustainable living. Greater demand for EVs is seen in more developed areas,
where there are larger markets, higher levels of disposable income and greater demand for
sustainable mobility.
Because the electric vehicle industry is still in its early stages, market segments have not yet
been fully defined. However, as the industry continues to experience significant growth, the EV
market will likely become segmented by price. The industry will see the EV market roughly
segmented into smaller, mass-produced EVs at affordable prices (under $40,000) and longer-
range, luxury electric EVs at higher prices. The level of disposable income and value placed on
certain EV capabilities will be determinants of consumer interest.1
Suppliers
Even with the replacement of an internal combustion engine with an electric motor, what
accessorizes the internal and external elements of the car are still comprised of many parts.
The extraneous parts that structure a whole car are provided by numerous different suppliers.
Batteries are one of the most crucial components of the electric vehicle. Some automotive
companies have technology and expertise and systems in lithium-ion cells to have proprietary
technology while some continue with lithium-ion cell suppliers. Panasonic, Samsung SDI, and
LG Chem are among the few original equipment manufacturers (OEMs) who dominate the
lithium-ion battery market.5
Manufacturing Processes
An electric vehicle, in some ways, can be seen as a modification of the traditional gasoline-
powered vehicle. Externally, both types of vehicles have similar bodies, but internally, the
components greatly differ. Generally, gasoline-powered vehicles have an internal combustion
engine, transmission, alternator, carburetor, spark plugs, crankshaft, and battery. Production of
an electric vehicle would mean differences in the powertrain and energy storage system. This
would require changing the design of the body to accommodate rechargeable, high-power
batteries and installing the infrastructure to be able to recharge the batteries.
The manufacturing of an EV, not including design considerations, follows the general process
of that of a traditional gasoline-powered vehicle. The process takes place at a manufacturing
facility, where the body of the car is first formed by welding pressed aluminum panels together.
General assembly of the cars operating components is split up into several workstations. Each
workstation is reserved for a specific purpose: installation of complex electronics, assembly of
the cars interior, insertion of the AC/heating system, addition of the battery pack, completion of
the cars exterior and finally, quality inspection.
Typically, EVs are produced in small volumes for most car manufacturers since they represent
a small segment of their predominantly ICE product lines. Therefore, the manufacturers cost
per vehicle remains relatively high. As EV adoption becomes more widespread, they can
become produced in higher volumes in which manufacturers would see larger cost reductions
as economies of scale increase. Manufacturers that have a larger stake in the EV industry,
such as Tesla, produce EVs at higher volume and prove to be more cost-competitive in terms
of the supply base for components.
Distribution
The electric vehicle industrys dealership network is no different than the conventional
automobile industrys in terms of the prominent and vital role it plays in the supply chain. With
the exception of Teslas vertical integration of its distribution centers, franchised car
dealerships are the standard middleman between the auto manufacturer and the consumer.
Generally, these car dealerships are franchised by automotive retailers such as Autonation and
Penske, which are granted franchising rights of the auto manufacturing company to act as an
intermediary for the car companys products. Car dealership businesses will purchase the
vehicles of that specific automotive brand to gain steady inventory in order to meet various
consumer needs and specifications. Prices of the car models and advertising activities are all
set and managed by the company to meet factory prescribed norms, but specific retailers that
own the car dealership franchises will offer varying services per location. 10
Common Financial Arrangements

When it comes to financing a car, there are many ways to get a good deal. Dealers always try
to make money by up-charging the potential customer and a good way to avoid extra fees is to
forgo dealer financing and focus on different outlets. Choosing pre-owned vehicles that come
with manufacturer-backed warranty can be a smart move, considering cars on average lose 18
percent of their value within the first year. Prior to going on the market, they are also inspected
and fixed, just like a new car.
For gas-powered cars, leasing should not be an initial option because the car must eventually
return to the dealer and if bought after the term, its price is usually higher compared to a car of
similar value. However, for electric cars, leasing proves to be a choice that most customers go
for, as 75 percent of the electric car market is leased. This is related to the types of incentives
that are provided on a local, state, and federal level that are incorporated into the price of a
lease. Other factors that lead customers to lease include the battery life of an EV and the fact
that electric cars only retain 30 percent of their value after three years, compared to gas cars
retaining 50 percent (see Figure 4).
Figure 4: EV Value Retained
When it comes to choosing what size the car loan should be, the monthly car payment should
be less than 20 percent of the disposable income. Taxable investments should be considered,
rather than tapping into 401Ks when considering all pools of money. Credit unions or nonprofit
banks hand out loans at a lower cost than traditional banks but looking at the APR, annual
percentage rate, to compare between various lenders.
Timing for when to visit the dealership changes how motivated the salesperson will be in terms
of cutting a deal. The busiest time is on the weekend which means that by starting early in the
week, a salesperson is more inclined to give a customer a good deal. Visiting a dealership at
the end of the month gives more incentive to a salesperson to sell a car since dealers receive
bonuses depending on how many cars leave the lot. The last tip would be to look for older
models since they will sell for less as the car companies try to roll out new versions and get rid
of inventory.
11 Remote Industry Environment
Remote Industry Environment

Social Factors
Consumer Perceptions
In its 10-K report Tesla lists consumers willingness to adopt electric vehicles (EVs) as one of
the most important factors for the companys future growth, which is an element that also
presents a threat to the industry.5 The current eco-friendly trend that has people becoming
more conscious of their environmental impact will help the electric car industry because it
offers consumers a mode of transportation that is both zero-emissions and powered by a
renewable resource. Reductions in the prices of EVs and concerns about volatile gas prices
are expected to increase the demand of hybrid and electric vehicles by 25 percent per year
through 2018.11
Consumer hesitations tend to circulate around issues related to the limited driving range and
convenience of charging electric vehicles, since it can take hours to fully charge the battery
and there is a limited network of charging stations in comparison to the availability of gas
stations. In a recent survey by financial services company UBS, only 43 percent of
respondents said that 200 miles is an acceptable range for an electric car, and 69 percent
considered 300 miles to be acceptable.12 Teslas Model S has a driving range of 219 to 337
miles, depending on the battery type and use conditions. 13 The average American drives
about 37 miles a day and electric vehicles can be charged anywhere an outlet or public
charging station is available, so perhaps manufacturers should do more to drive the message
that EVs are not as much of a hassle as people think.14 However, development of batteries
that charge more quickly and have the capacity to fuel cars for longer distances between
charges would go a long way to dissuade major concerns and improve consumer perceptions
of electric vehicles. The electric car industry has a high potential for growth, but manufacturers
need to stress to consumers the benefits of going electric, including reducing their impact on
the environment, saving money fuel costs and enjoying a smoother, quieter ride. Improving
consumers attitudes towards EVs by alleviating their apprehensions serves as a huge
opportunity for the industry to tap into a large group of potential customers who may be on the
fence about electric vehicles.
Buyer Demographics
Based on 2013 sales, about 55 percent of people who purchased electric vehicles are between
the ages of 36 and 55 years old, which is a younger demographic than most purchasers of
hybrid vehicles. EV buyers also tend to be wealthy; almost 21 percent had household incomes
of $175,000 or greater.15 This customer demographic reflects the higher price point of electric
vehicles and growing popularity of luxury electric cars. Particularly in the luxury electric car
segment, the anticipated entry of BMW, Audi, Porsche and Mercedes threatens to unseat
Tesla as the dominant competitor. A survey revealed that 41 to 52 percent of households
earning $100,000 or more would choose to buy an electric car from an incumbent brand, and
20 to 29 percent would purchase from Tesla.16 The entry of existing luxury car companies may
be beneficial for the electric car market if brand familiarity attracts consumers to purchase an
electric vehicle, especially among the wealthy, who tend to purchase EVs as a secondary or
tertiary car due to their limited range.
Overpopulation
The world population is currently at over 7 billion people. If that number were to grow at an
unexpected rate, especially in heavily populated urban areas, then it may cause a shift in the
modes of transportation preferred and used by consumers. Areas with a very high
concentration of people already experience a ton of traffic on daily commutes, so overcrowding
may render traditional and electric cars impractical to use if there are too many vehicles on the
road.
Political Factors
Government Incentives
Government support of electric vehicles is a reflection of the goal announced in President
Obamas 2011 State of the Union speech to have one million electric vehicles on the road by
2015 as a key pathway for reducing petroleum dependence, enhancing environmental
stewardship and promoting transportation sustainability, while creating high quality jobs and
economic growth.17 Unfortunately, his objective was not met but the electric car industry
benefits from the mechanisms enacted in attempts to reach this goal.
One of the most important political factors affecting the electric car industry is the availability of
government tax credits, which serve as a big incentive for consumers to purchase an electric
car. Currently, buyers of new electric vehicles are eligible for up to $7,500 in credits,
depending on the size of their vehicles battery. The full credit can only be applied if the
buyers income taxes for the year are equal to amount of the credit or more, meaning that the
remaining amount cannot be carried over to the next years taxes or issued as a check.18 The
idea behind the electric vehicle tax credits is that greater economies of scale will contribute to
the ability of manufacturers to eventually lower the high initial costs of new innovations and
technology, eliminating the need to offset the costs with these credits. The government has
already phased out similar plans for hybrids and clean diesel vehicles and plans to do the
same for electric vehicles as each manufacturer hits the mark of 200,000 qualified vehicles
sold. According to the U.S. Department of Energys Office of Energy Efficiency and
Renewable Energy, The credit begins to phase out for vehicles at the beginning of the second
calendar quarter after the manufacturer has sold 200,000 eligible plug-in electric vehicles in the
United States as counted from January 1, 2010 (see Figure 2).19
Figure 5: EV Tax Credit Phase-Out Plan
The tax credits present a current opportunity for electric vehicle companies to use from a
marketing standpoint, but may become a threat to the industry if manufacturers are unable to
lower the costs of batteries and technology to keep their prices affordable for consumers when
the credits are no longer available. The price premium for electric vehicles is one of the
reasons people opt for traditional cars, so it is critical for the EV industry to find a way to reduce
costs and pass those savings on to consumers to make EVs an attractive option.
Investment in Public Transportation

If local and state governments were to make the decision to invest heavily in modes of public
transportation like buses, trains and subways to improve reliability and comfort, then
consumers may choose those methods over traditional cars due to the decrease in perceived
benefit. Upgrades in public transport would cause consumers to reconsider whether owning a
car or using other methods of transportation is more valuable, in terms of cost, time spent
looking for parking or walking to pick-up locations and convenience, which presents a threat to
the electric vehicle industry.
Government Regulations
Increasingly stringent car safety and emissions standards will help push automakers away from
gasoline-powered cars and towards alternative fuel vehicles. The Clean Air Act is a federal law
most recently amended in 1990 that sets standards for air emissions in order to protect the
environment and health of the public from the effects of air pollution. 20 Californias Zero
Emissions Vehicle Mandate requires car manufacturers to sell a certain number of electric
vehicles in proportion to its overall sales within the state. 21 As a result of 2003 legislation
enacted to reduce greenhouse gas emissions to 80 percent below 1990 levels by the year
2050, California is also increasing sales targets for alternative fuel vehicles from about 1
percent today to over 15 percent by 2025. Nine other states (Connecticut, Maine, Maryland,
Massachusetts, New Jersey, New York, Oregon, Rhode Island and Vermont) have also
adopted Californias standards, which are much stricter than federal regulations. 22 The future
implications of these requirements will prompt manufacturers to begin focusing more heavily on
developing alternative fuel vehicles, if they have not already, which will hopefully drive
production costs down and provide consumers with a greater variety of EV choices than are on
the market today. It is also likely that the government will continue to enact even stricter
environmental standards for car manufacturers, which will give another push to increase the
demand for more environmentally friendly vehicles. On the other hand, if government safety
and environmental mandates become too strict, then it may deter new competitors from
entering the electric vehicle industry and inhibit the industrys growth.
Oil Industry Lobbying

Lobbying by the oil and gas industries also presents a threat to the electric vehicle industry.
Groups backed by fossil fuel companies are organizing to advocate against government
subsidies and promote the use of petroleum-based fuels who do not want electric vehicles to
gain popularity and cut into their profits. Koch Industries, an energy corporation with $115
billion in revenues, is working to launch a new pro-petroleum fuels group that will spend about
$10 million a year to advocate fossil fuel use and attack government subsidies for alternative
energy.23 Groups like this one have the support of companies with enormous financial
resources and have the potential to overwhelm the EV industrys progress and the
governments stance of working to phase out fossil fuels. In 2010, Koch Industries, Valero and
Tesoro teamed up to fund a multimillion dollar ballot initiative against California state standards
aimed at reducing carbon emissions. Although the initiative was unsuccessful, the influence of
the oil industry in the political realm is a threat the electric vehicle and alternative energy
industries cannot afford to ignore.
Economic Factors
Economic Conditions
Following the 2008 recession, the unemployment rate in the U.S. has steadily declined each
year since 2009 (see Figure 6). Lower rates of unemployment imply that people have more
disposable income to spend on leisure activities and products, like perhaps purchasing a
second car for the family that is electric. Since electric cars typically sell for a higher price than
traditional internal combustion engine cars, it is less likely for consumers to opt for EVs when
the economy is in a slump.
Approximately 26.4 percent of U.S. households earned more than $100,000 in 2015, which is
roughly constitutes the wealthy demographic that tends to purchase electric cars (see Figure
7). With income inequality on the rise, it is possible that the group of buyers who can afford to
purchase electric vehicles will shrink as the top one percent of the population accumulate more
and more wealth. In 2013 the top one percent earned more than 25 times more than the entire
bottom 99 percent of the population, and the income inequality gap has widened in every state
since the 1970s.24 Future economic upturns and downturns will affect the electric car industry
in the form of consumers ability and willingness to spend the money to cover the upfront cost
of purchasing an EV, despite future savings on fuel costs.
Figure 6: Unemployment Rate Trend, 2006-201625
12.0
10.0
Unemployment Rate (%)
8.0
6.0
4.0
2.0
0.0
2006 2008 2010 2012 2014 2016
Figure 7: Distribution of Household Income, 201526

Oil Prices
There is an income effect tied to the price of gas: lower gas prices correspond to greater levels
of discretionary income, and vice versa.27 According to a consumer price index by AAA, Half
of U.S. adults consider gas prices to be too high when it reaches $3.44 per gallon [and]
roughly two-thirds of Americans (62 percent) are offsetting high gas prices by changing their
driving habits or lifestyle, with 54 percent choosing to do so by driving a more fuel efficient
car.28 When gas prices are high, consumers are more sensitive to the number of miles per
gallon their cars get and search for more fuel-efficient vehicles, increasing demand for more
energy efficient cars like hybrids and EVs. If oil prices were to rise in the future due to
shortages or other unforeseen reasons, it is likely that demand for electric vehicles will
skyrocket.
Technological Factors
Battery Improvements
Improving electric vehicle batteries presents the industry the opportunity to give consumers the
ability to drive farther with less charging, which will increase consumer confidence in EVs. A
breakthrough in battery technology that allowed EVs to be charged faster or less frequently
would greatly benefit the industry because it would reduce the inconvenience of owning an
electric vehicle. The battery is also one of the most expensive parts of an electric vehicle; in
2010 the average battery cost $1,000 per kWh. Fortunately, costs have been falling at a fast
pace, with the average dropping to about $350 per kWh last year. 29 Once battery
manufacturers can reduce the price of batteries to a point where EVs can be priced to compete
with traditional cars, electric vehicle sales are expected to take off to a point where they will
hopefully become mainstream vehicles of choice.
Teslas 10-K states that negative perceptions by the public toward the use of lithium-ion cells
for their battery packs present a risk because in rare occasions, lithium-ion cells can rapidly
release the energy they contain by venting smoke and flames. Safety concerns may dissuade
consumers from purchasing an EV, so it may be beneficial to make also improvements to the
battery packs design.
Resource Factors
Competent Employees
With schools and programs placing a greater emphasis on STEM (Science, Technology,
Engineering and Mathematics) education at an early age, there will most likely be a surge in
students studying subjects that will prepare them to work in high-development sectors like the
electric vehicle industry. With their STEM backgrounds, these new employees present a huge
opportunity because they can contribute greatly to new technology development that will attract
interest and increase the prevalence of EVs in our society. The increasing presence of women
in these fields will also bring a fresh perspective that may lead to breakthroughs in technology
and other design factors.
Availability of Lithium
The U.S. is one of the largest consumers of lithium, which is found in high concentrations in
only a few places. Bolivia, Chile, China, United States and Argentina are known to possess
around 90 percent of the worlds lithium resources, but there are no clear quantifications of the
total amount of lithium resources worldwide. Batteries are expected to become the most
common use of lithium in the future, in applications such as cars, cameras, cell phones and
laptops.30 Experts do not expect there to be a shortage of lithium in the near future, but it is still
possible that estimates of lithium reserves are inaccurate or unexpected circumstances such
as wars, natural disasters or unfavorable political relations with other countries inhibit the ability
of battery manufacturers to acquire lithium. It is also possible for lithium prices to increase due
to shortages or labor costs, which would in turn push the price of lithium batteries and electric
vehicles up and reduce the sales and profit margins of the EV industry.
Charging Station Infrastructure

Government support for expanding the number of charging stations throughout the country will
greatly benefit the EV industry by providing the infrastructure necessary for the industry to grow
to its full potential. These efforts will help to alleviate consumer concerns about getting stuck in
the middle of nowhere with a dead battery because charging stations are not as widely
available as needed.
The Obama administration has planned to establish 48 new electric vehicle charging
corridors in 35 states, covering about 25,000 miles of highways. 31 The charging corridors will
be placed near restaurants and other amenities so drivers can recharge their vehicles when
traveling long distances. Broadening the infrastructure is a necessary step for expanding the
adoption of EVs and making them more practical for everyday and long-distance use.
18 Market Analysis
Market Analysis
Electric Car Market
The electric car market consists of namely Battery Electric Vehicles (BEVs) whereas hybrid
cars are referred to as plug-in hybrid electric vehicles (PHEVs). The future of the automotive
industry lies in electric cars due to its potential for environmental protection and oil crisis. Elon
Musks Tesla Motors commands the green spotlight and is setting the pace for cleaner cars.
Though people are making the shift towards electric cars for its green value, no technology is
100% green.
In terms of competitors, BMW and Mercedes Benz are offering three electric car models this
year. Thirteen car companies in total have at least one electric car option with car sales up
34% with about 17 million vehicles being sold in 2016. Right now, electric vehicles are 1.6% of
the car market but is expected to rise to 6% by 2025. 32
The company applies a differentiation focus strategy based on the uniqueness of its products.
It continues to stay competitive against the competition by integrating advanced
environmentally friendly technology. Market penetration allows Tesla to maximize its revenues
from the market with its current intensive growth strategy. Based on how much market share
Tesla owns, it develops more competitive advantages in relation to its strategy.
Market Segment Analysis

The demographics for electric car buyers skew towards a more young and affluent audience. A
little more than half of that group, 55 percent, are between the ages of 36 and 55. The average
household income for 21
percent of the buyers are
$175,000 or more. About 44
percent mentioned that there
is at least one child living with
them at home. Only 26
percent are people over the
age of 56 with 12 percent
having a household income
greater than $175,000. 33
Considering that Tesla

belongs in the luxury electric
19 Market Analysis
car market, the customers tend to be from affluent backgrounds. Those who are looking to buy
a Tesla must have the necessary infrastructure near their homes; a garage or convenient
access to a proper electrical system for charging purposes. Most of these car buyers are found
in cities along the west coast. Electric cars are offered mainly in California due to state
regulations that require at least one zero emission model be sold by major car companies. The
cities with the most green car buyers are in California and Virginia. San Francisco, Oakland,
and San Jose are tied for first, followed by Charlottesville in second, and Los Angeles in third
place.30
Demand Trends
According to a report done last year, the US electric car market has very strong growth overall
despite the collapse in oil prices which gave consumers the impression that new energy
vehicles were not as economically viable as they once were. Recent pressure that the
government and consumers are facing considering alternative fuel options to limit pollution has
contributed to the growth of the electric car industry. Since buyers are price sensitive, many
manufacturers invested heavily into reducing switching costs as much as possible and building
their brand to weaken the buyer power in a new cars market.
Product Life Cycle

The product life cycle consists of inception, growth, maturity, and decline. For the electric car
market, since it only consists of less than five percent of the overall car market, it is still in its
early stages in growth. At the growth stage of the life cycle, that is where sales are increasing
at its fastest rate after the researching, developing, and launching of the product is finalized.
Teslas main focus lies on early adopters in the high-end market. Tesla has come out with a
few models and other companies are joining in on this trajectory towards building more eco-
friendly electric vehicles. A company reaches the maturity stage once the growth rate starts
winding down and sales near its peak. The decline stage, or final stage, happens when sales
move downward.
34
20 Market Analysis
Customer Analysis
Before the price on electric vehicles can be reduced to satisfy most customer demands, rentals
become a major objective in research. Customer participation, service quality, and customer
value are being analyzed for post purchase intentions. Problems such as difficulty finding
enough charging stations pose as a risk for consumers when comparing between electric and
the more traditional automobile. Nowadays there is the trend of car sharing and that helps
alleviate the purchase price burden of electric cars which is why rental service is key.
Customer satisfaction, as proven in studies on multimedia telecommunication services, heavily
influences post purchase intentions as it is composed of emotional response and consuming
experience. Customer perceived value (CPV) requires extensive research since greater levels
of customer satisfaction leads to stronger competitive position and higher market share.
21 Critical Success Factor Analysis
Critical Success Factor Analysis

Critical success factors, an idea popularized by MITs John F. Rockart, are the few essential
factors that directly impact the competitors in an industry. 35 Companies should strive to
execute activities related to the critical success factors at the highest level to outperform the
competition.
The electric vehicle industry is still relatively new, and analysts do not have a set of established
critical success factors because of its rapidly changing environment. However, by analyzing
the industrys successful companies as well as researching the industry failures, we have
identified five critical success factors for the electric vehicle industry. These factors are access
to capital, government support, battery technology, charging infrastructure and customer
education. We have also identified four critical success factors for Tesla, which are disruptive
technology, customer experience, superchargers and a strong, consistent brand image.
Industry Success Factors

Access to Capital
The most important success factor for developing, producing, and selling an electric car is
capital. Electric vehicles require hefty investments in research and development because the
internal workings of the car (software, battery capability, etc.) are more crucial to the success
of the car than its exterior look. Martin Eberhard and Marc Tarpenning, the original minds
behind Tesla Motors, reached out to family, friends, and smaller VC firms to raise their first
round of money. However, this was not nearly enough to finance company growth, so the two
men set out to find a lead investor. They found it in Elon Musk, co-founder of PayPal and
visionary of Space Ex. Musk led the $7.5 million round. A successful proof of concept was
important to securing more funding, which was led by Valor Equity Partners and Elon Musk of
$13 million.36 The government also helps fund clean energy projects to encourage entry into
this space because without the money, companies would not be able to successfully produce
the new technology or develop completely different cars.
Capital is also necessary for the additional components needed to maintain the success of an
electric vehicle producing company. Money needs to be invested in the charging stations, as
well as repair and maintenance infrastructure and staff. Capital is much easier to come by for
existing automobile manufacturers than smaller start-ups, however, venture capital firms are
taking interest in this growing market which makes it an opportune time for new competitors to
reach out to investors.
Government Support
The governments support is essential to the success of this industry. Government policies
that support the production and manufacturing of electric vehicles will allow this industry to
continue to grow, as more car companies will need to comply with requirements and customers
will have the incentives needed to switch to electric vehicles. There are already some
government programs that have influenced the growth of the industry and are pushing towards
clean energy. The EV Everywhere program, launched by President Obama in 2012, is part of
the Energy Departments Clean Energy Grand Challenge. Secretary Chu describes this
program as, ... advancing electric vehicle technologies and continuing to reduce costs, so that
a decade from [2012], electric vehicles will be more affordable and convenient to own than
todays gasoline-powered vehicles. According to fueleconomy.gov, the official U.S.
government source for fuel economy information, owners who purchase electric and plug-in
hybrid cars after 2010 are eligible to receive a federal income tax credit up to $7,500 under this
program. This does not include the extra incentives that individual states and cities provide to
consumers. For example, in San Jose, California the city is providing free parking for street
parking meters, at regional parks and in four downtown garages. These financial incentives
will provide an additional pull for consumers to purchase electric vehicles. Financial support is
also available to electric car manufacturers in the form of government loans. With heavy
support from the government, the electric vehicle industry can continue to grow and may even
become the vehicle of the future.
Battery Technology
Companies who want to successfully compete in this industry need to continue to innovate in
lithium-ion battery technology. Currently, the energy capacity of the battery is low and it takes
long to charge. Companies need to stay ahead or keep up with the competition in this crucial
area by heavily investing in the research and development of the battery. Whether that is by
investing the money into the company to produce the battery technology itself or partnering
with another company who is solely focused on making the necessary improvements, the
development of the interior parts of electric vehicles at this stage is more critical than the
exterior specs.
Battery efficiency is important to the consumer, and so is the cost. Batteries are still expensive
to produce, and if the cost of battery drops, so will the overall price of the car. According to an
analysis of the electric vehicle market by Bloomberg New Energy Finance, the cost to produce
the lithium-ion battery has fallen 35 percent since last year. Bloomberg New Energy Finance
lead advanced transportation analyst Colin McKerracher has said, Lithium-ion battery costs
have already dropped by 65 percent since 2010, reaching $350 per kWh last year. We expect
EV battery costs to be well below $120 kWh by 2030, and to fall further after that as new
chemistries come in.37
One-third of electric vehicle manufacturing costs are battery-related, and if the projection were
to hold true to the analyst reports, the costs of manufacturing electric vehicles will drop
drastically as improved technology becomes available. The battery efficiency and cost are
differentiating factors of each electric car competitor.
Charging Infrastructure
Convenience and quality of the charging stations available to electric vehicle owners is a
critical success factor because although not a direct component of the car, is necessary for the
continued function of the vehicle. Without chargers in optimal locations, the cars will not be
able to function. To make the move away from gas completely, chargers need to be made
available in locations that are accessible to drivers, meaning that chargers need to be placed in
an appropriate range of proximity, just like gas stations.
To increase the overall size of the industry, the quality of the chargers is also crucial.
Currently, it is inconvenient to recharge the electric vehicle and may take hours to bring the car
back to full power, which is 80 percent.38 Time is precious to consumers, and charging stations
need to be improved if this industry wants to continue its growth.
Customer Education
Educating customers on the financial, economical and environmental benefits and costs of
switching to a fully electric vehicle will lead customers to make a more informed decision when
purchasing or leasing their next car. The industry is relatively new, so shifting consumer
demand is crucial to the success of this industry. As shown in the industry chronology section,
there were periods of time when the electric car may have been sustained its success in the
automobile market. However, there was not enough push from automakers and the
government alike in educating the public, who ultimately determine the demand. Fully electric
vehicles are starting to trend again, but the market for gas alternatives is still relatively small.
Potential customers need to be educated of the benefits of investing in a fully electric car. It is
essential for competitors to market the short and long-term benefits of electric vehicles or
consumers will continue to pick the gas car.
Teslas Success Factors

Disruptive Technology
Disruptive technology, a term coined by Harvard Business School Professor Clayton
Christensen, is technology that changes an industry. The disruptive technology of efficiently
powering a high-performing car with lithium-ion batteries drives Tesla to the innovative forefront
of the electric vehicle industry. Its initial plan of producing a high-performing sports car that
was both environmentally friendly and highly efficient led the company to its success today. 39
The company has only improved the technology since the release of its first car, The Roadster,
and continues to dominate the industry. According to fortune.com, Teslas new Model S
P100D has a range of 315 miles and is the third fastest accelerating production car produced,
comparing gas-powered and electric vehicles alike.40
Tesla continues to develop new technology that will once again change the automobile industry
in general, and especially the electric vehicle industry. Tesla is broadening its scope to include
autonomous driving. And if successfully executed, this will change how people travel to and
from their destinations. Tesla stays ahead by disrupting the industry and pushing the limits of
technology. Its continued investment in technological advancement is the result of innovative,
forward thinking leadership.
Customer Experience
Tesla management made an early decision to eliminate the middleman and not sell its cars in
the traditional dealership route. Tesla, unlike its other automakers, sells its cars in its own
showroom. Delivery of the vehicles takes longer, however, this is because each car is
customizable and made to order. In Teslas showrooms, customers are educated about both
Tesla vehicles and the electric vehicle industry in general. Customers are not yet fully
knowledgeable about this new type of technology, and Tesla provides customers with
representatives who are willing to take the time to educate customers on the pros and cons of
their potential car purchases. Unlike in the traditional dealerships, the Tesla representatives do
not work on commission.41 With these showrooms, Tesla has its cars and its customers on its
mind, and the level of individual service that Tesla provides sets it apart from its competitors
who use dealerships to sell both electric and gas powered cars.42
Superchargers
According to Teslas website, Teslas Superchargers are The Worlds Fastest Charging
Station.43 The Superchargers are strategically placed along highways, city centers, and the
company even partners with specific destinations to provide a Tesla Wall Connector at the
location. There are 735 Supercharger stations with 4,625 Superchargers available for Tesla
owners use, and the Superchargers are easily located on the vehicle's interior screen. Tesla is
currently building more Supercharger Stations to increase accessibility. Tesla owners are able
to use both Teslas Superchargers and public charging stations, while other electric vehicles
are only built for the generic station.
Tesla's superchargers are more efficient than most of the other charging stations already in
place. The Tesla Superchargers charge its car in minutes rather than the other publicly
available charger which normally takes hours. The 40A High Voltage Outlet provides 14 miles
of range after a half hour charge while the Tesla Supercharger will provide 170 miles in the
same amount of time.44 The Supercharger compliments the design of the battery to provide
the user with the most efficient charging stations in the world. This significantly decreases the
amount of time customers spend charging their cars while increasing the distance the car can
travel. Teslas Supercharging technology coupled with its unique battery differentiates Tesla
from its competitors.
Strong, Consistent Brand Image

Tesla has built itself a remarkable brand and reputation not only in the electric vehicle industry,
but also in the automobile industry in general. The company has coupled its commitment to
sustainable energy with a unique, attractive car design. Tesla has created significant demand
for its cars in the industry and has successfully delivered on its promise of producing sleek,
sporty looking cars that consistently outperform its competition in numerous ways. The Model
S has achieved the best safety rating in history from the National Highway Traffic Safety
Administration (NHSTA), and it was also awarded with Motor Trends 2013 Car of the Year
award.45 The young company is world renown in the electric vehicle industry, and Tesla
needs to find ways to maintain and grow its strong brand image. The company is not without
issues. It has pushed back car release dates, and it has had fatal issues with its autonomous
driving aspects. However, Tesla has been able to overcome its obstacles, and continues to
push out high performing cars. Resilience will be essential in maintaining and improving
Teslas strong brand image moving forward, which will eventually attract new customers and
maintain its existing customer base.
Failure Analysis
General Motors
In 1988, General Motors first teamed up with the California company AeroVironment to build a
practical electric car. This prototype, Impact, eventually evolved into the General Motors
electric vehicle, EV-1. The EV-1 was fast, quiet and well-liked by those who leased the
car. However, the future success of this vehicle was bleak. General Motors produced this
vehicle, but many believe the company did not fully support the development of this product
due to multiple factors. At best, it was designed as a commuter car and marketed as an
alternative second car.46 According to consumer interviews in the documentary Who Killed
the Electric Car? people were cautious about the electric car. They wanted strong,
dependable cars, and addressed concerns about the battery life and charging infrastructure
availability. The consumer was focused on getting the best automobile for their buck, but was
not educated on the other nonfinancial benefits of electric vehicles. GM did not combat against
consumer fears because of external and internal pressures.
Because the electric vehicles were not mass produced like the gas powered cars, GM argued
that it was costly to manufacture. And although California passed its Zero Emissions Vehicle
Mandate in 1990, there was no significant government support at the time to help with
improving the technology of the electric vehicles. Many auto manufacturers, including GM,
believed that this mandate was too strict and the California Air Resources Board faced
significant backlash of its mandate from automakers, oil companies, and small advocate
groups who opposed utility companies.47
California was forced to work with the auto manufacturers to negotiate flexibility in the
mandate, which would eventually require automakers to build and market the electric vehicles
in accordance with demand. Those who supported the electric vehicle movement within GM
tried to convince management that there was significant demand for the vehicle. GM, still
convinced that the electric vehicle would eventually die, argued against its own sales
people. Presented with a list of 4000 people on a waitlist, management concluded that only 50
people would have signed up for the vehicle. 48 Even with celebrity endorsements, and the
governmental push towards a cleaner environment, GM was still not convinced that this
investment was worthwhile.
General Motors undermined the success of its EV-1 by leading a lawsuit against the mandate,
which GM eventually won. As a result, General Motors quickly stopped renewal of EV-1
leases, and took back the cars. Although informing the public that it would recycle the parts, it
was soon discovered that the EV-1s were crushed and disposed of in the dumps.
The company was at fault for the failure of its own electric vehicle. It did not invest in
increasing the battery charge from 120 miles, and it did not push hard enough for consumer
education.
Fisker Automotives
Fisker Automotives, named after the co-founder and Aston Martin designer Henrik Fisker,
failed to sustain its electric car, the Fisker Karma which was unveiled in 2008. Fisker
Automotive was a startup that focused on innovative technology, similar to Tesla. Fisker had a
sleek design, also similar to Tesla. But what lacked in this automotive company was its
inability to design, implement and sustain the new technology. Theoretically, the Fisker Karma
had a vehicle that would run smoothly and revolutionize the car industry. However, after a
while, the company and the public realized that the technology was not up to par and the
Fisker Karma was still at a prototype level.
There were many issues that Fisker faced, especially as a startup. The Department of Energy
set aside $25 billion to fund the production of clean-energy vehicles, and Fisker received over
$500 million of that government funding.49 With the generous amount of financial support from
the government also came increased pressure to produce.
The added pressure from the government led to the release of the Fisker Karma before it was
ready. Unlike Tesla, Fisker outsourced its car components, including its batteries. Its battery
supplier, A123 System, produced some faulty batteries which hurt the reputation of the Fisker
name.50 Suppliers were short on supplies, and with all of this outsourcing, quality control
became an additional issue that Fisker had to deal with. Fisker Karma car owners paid over
$100,000 for their cars, but were issued vehicles with software bugs and expensive repair
jobs.51
As a result of increased repair expenses and recalls, Fisker faced financial issues. It was soon
unable to pay back the government loans, and eventually, government funding and support
eventually stopped. Without financial backing or a working battery supplier, one of the most
important aspects of the electric car, the car manufacturer had no other choice but to look at
bankruptcy options and layoffs.
Fisker had looked promising to many, especially the government and consumers. However, it
could not deliver on its platform to produce an innovative car of the future because it was more
focused on the sleek exterior than the necessary, working internal systems that are essential to
the success of the electric vehicle.
Aptera Motors
Company founder Steve Fambro and CEO Paul Wilbur set out on a great endeavor with Aptera
Motors. The then car company was focused on developing an electric three wheeled
vehicle. The company was faced with financing issues, and looked toward the Department of
Energy loan program for assistance. The issues with this type of funding came early on. The
funding program was focused on Advanced Technology Vehicles. However, Apteras first loan
request was rejected because the government did not define a three-wheeled vehicle as a
car. During this time, Tesla and Fisker were both awarded millions of dollars ($465 million and
$529 million respectively) to develop their electric vehicles.52 Aptera decided to change its
approach and apply for government funding for both its three-wheeler model and to a four
door, four seater vehicle. The application was once again denied because the Department of
Energy believed that Aptera would be unable to pay back the loan under the current sales
projections. Once again, the company changes its strategy and requests money from the
Department of Energy to fund only its four door, four seater electric vehicle. This request was
met with a conditional letter from the Department of Energy which stated that the company
would receive $150 million if the company was able to raise $80 million from private
investors. Aptera was unable to do so, and three months later in December of 2011, the
company shut down.53
Many of the issues that the company faced stemmed from the financial issues. Aptera wanted
to create a vehicle that would revolutionize the way cars operated and looked. However,
because the company was so focused on the three-wheeled design, which lacked support from
its biggest potential funder (Department of Energy), the company was unable to move forward
with not only product designs, but system innovations, too. Without the access to capital and a
lack of government support, the company was unable to move forward with its idea and this put
an end to Aptera Motors.
29 Industry Structural Analysis
Industry Structural Analysis

The electric car industry is still an emerging industry so there are many unknowns and
complexities. Tesla is the only automobile company that exclusively produces electric cars.
Other automobile companies are primarily focused on gasoline cars and electric car models
are their secondary focus. Moreover, many automobile companies havent been producing
100% pure electric cars yet; they have only produced plug-in hybrids or hybrid electric cars.
Exploring Porters Five Forces of the electric car industry can hopefully clarify the forces driving
the electric car industrys competition.
Threat of Entry: Moderate

The threat of entry for the electric car industry is moderate because barriers to entry are high
for new companies, but are significantly lower for existing automobile companies that are
beginning to invest in electric cars because they are more established and have the necessary
financial resources to fund the research and development of electric cars. It took Tesla eight
years of research, engineering and development to produce the worlds first premium electric,
zero-emissions sedan.54 Producing an electric car is a capital intensive and time consuming
process that takes years of designing, engineering, testing, and manufacturing. Some of the
major sources of barriers to entry are economies of scale, product differentiation, capital
requirements, and government policies.
Dominant industry leaders benefit from economies of scale with lower unit costs and higher
barriers to entry against newcomers. For example, Teslas Gigafactory, which is a partnership
with Panasonic, aims to reduce the costs of lithium-ion battery packs.55 Lithium-ion is one of
the most commonly used type of battery for electric cars. This joint venture will considerably
lower unit costs for Tesla and deter entrants because entrants must accept a cost
disadvantage or take a risk and enter with a larger scale.
Product differentiation builds a barrier that forces new entrants to formulate their own and
unique identification. Product differences, customer service, branding, and customer loyalty are
factors that help differentiate between different electric cars. Product differentiation is crucial for
the emerging electric car industry because it will build customer loyalty and help establish its
position in the industry. Luxury cars differentiate themselves primarily through brand name,
quality, customer loyalty and excellent customer service. By being the first entrant and securing
a niche market, Tesla has created strong product differentiation and prides themselves for their
quality, innovation, brand and customer service.
Capital requirements for manufacturing an electric car are high due to the upfront costs of R&D
along with manufacturing, advertising, and establishing infrastructure. During BMWs early
experimentation with electric cars, BMW unsuccessfully tried to replace gas components of a
Mini Cooper with electric components in an effort to reduce costs.56 The build and design of
electric cars are different from traditional gasoline cars. Thus, building an electric car is not
simple and the knowledge of building a traditional gas car isnt necessarily transferable to
building an electric car. The capital requirement to build an electric car is high due to the
intensive R&D, design process and safety testing that is required.
Switching costs are moderate for new entrants because existing automobile companies would
need to bear the cost of retraining employees, investing in new equipment, and testing new
vehicles. Employees would need to be retrained with the specific knowledge regarding electric
vehicles since the mechanics and the engineering of electric cars are different from traditional
gas cars. Companies will also have to invest in new equipment to be compatible and efficient
to produce new vehicles. It is also a timely and costly process to research, test and produce a
new vehicle.
Government policies may also deter new entrants from entering the electric car industry. There
are many laws and regulations that automobile manufacturers must follow, including vehicle
safety regulations, battery safety regulations and automobile manufacturer and dealership
regulations. Cars need to be in compliance with National Highway Traffic Safety Administration
(NHTSA) requirements, United States Federal Motor Vehicle Safety Standards (FMVSS)
requirements, as well as many other laws and regulations. 57 Government policies create a
barrier for prospective new entrants seeking to enter the electric car industry.
Threat of Substitutes: Moderate

The threat of substitute products in the electric car industry is moderate because there are a
variety of vehicles for consumers to choose from. Aside from electric cars, alternative forms of
transportation include traditional gas cars, hybrid cars, plug-in hybrid cars, fuel cell cars,
bicycles, electric bikes, public transportation and more. However, the most direct substitute to
electric cars are hybrid cars because both electric and hybrid cars are environmentally-friendly
and sustainable vehicles, both striving to be alternatives to gas cars.
One of the most notable hybrids in the auto industry is the Toyota Prius, which is one of the
best-selling hybrids to date with cumulative global sales of around 9 million vehicles.58 Toyota
holds more than half of the hybrid electric vehicle market share. The Toyota Prius was the
most popular hybrid in America in 2014 and is considered to be the best-selling hybrid in
America in 2015. The Toyota Prius is successful because of its quality, reliability, price, fuel
efficiency and mileage. Moreover, in 2017, Toyota will be releasing their all-new Prius Prime, a
plug-in hybrid, which combines electric and hybrid power and averages over 600 miles in
range.
Another rising substitute is the hydrogen fuel cell car. Hydrogen cars are a cleaner and greener
form of transportation because the only byproduct that leaves the tailpipe is water. 59 Hydrogen
is also the most abundant element in the universe, so there will not be any shortages, unlike
traditional fossil fuels. Hydrogen fuel cells have been used to power other machineries and
buildings like generators, submarines and even spaceships. 60 Hydrogen fuel cells are a reliable
source of energy but have yet to be adopted by the mass market because hydrogen fuel cell
stations are limited and need to be expanded in order to be competitive against traditional
fossil fuel and electric vehicles.
Bargaining Power of Buyers: Moderate to High

The bargaining power of buyers is moderate. There is only a modest concentration of buyers
since the electric car industry is still relatively new. For example, Teslas customers have no
negotiation power because they buy directly from Tesla at specified prices. 61 Moreover, Teslas
cars have unique features that other cars do not have, such as advanced autonomous driving
capabilities, top-notch software, supercharging stations, premium quality, sleek design and
long driving ranges. Consumers are left with few alternatives if they want to purchase an
electric car that has such a wide range of features. BMW is also adopting set-price strategy for
their electric car line.62 This limits the buyer's bargaining power and influence to drive prices
down. Contrastingly, other automobile companies utilize dealerships and still allow for
negotiations.
Tesla was the leading seller of electric cars in 2015 and sold 25,700 units of the Model S,
compared to Nissan Leaf sales of 17,269 units. 63 The top two sellers of electric cars, Tesla,
which provides a premium electric car, and Nissan, which has a more economical electric
option, shows that the electric car industry has two completely different buyers. When looking
exclusively at Tesla, Tesla was the top seller in 2015 indicating that many buyers of electric
cars were not concerned about price but rather quality and branding. According to Akshay
Aghakar, a sales specialist and a top seller at Tesla, about 45 percent of people who buy
Teslas Model S have not previously bought a car more expensive than $35,000. This means
that consumers are choosing to buy a Tesla as their first luxury car and price is not an issue.
Also, the volume of demand for Tesla is higher than its ability to produce, which further lowers
the buyers bargaining power. Tesla is a unique electric car that is distinctly different from other
electric cars, from its exterior and interior design to the technological advancement, enhancing
the value of their cars. There is currently no electric car like Tesla and buyers are willing to pay
more for this premium product.
On the other hand, more price sensitive buyers may look into government incentives. There
are government tax credits when buying hybrids or zero-emission vehicles, and the different
amounts might influence decisions on which vehicle to purchase. In California, the Clean
Vehicle Rebate Project (CVRP) offers up to $7,000 in electric vehicle rebates for the purchase
or lease of new, eligible zero-emissions and plug-in hybrid vehicles.64 The rebate amount in
California for zero-emission electric vehicles is $2,500. In addition to the state rebate, there is
also a federal tax credit of up to $7,500. As there are increasingly more electric car options and
when price is an important factor for buyers, buyers will have more bargaining power.
Additionally, there are low switching costs when the buyer is switching from one companys
product to anothers. All electric cars are generally very similar when it comes to driving the car
and charging the car. There are little differences when you switch from one companys electric
car to another companys electric car. With low switching costs, buyers will have more
bargaining power.
Bargaining Power of Suppliers: High

Supplier power is high because there are only a few suppliers to many electric car companies.
Tesla uses over 3,000 purchased parts which are sourced globally from over 350 suppliers. 65
The bargaining power of suppliers who supply raw materials, like steel and aluminum, and
other components of the car is lower because they provide commodity items for which there
are substitutes, and automakers tend to buy these items in high volume. The most important
element of an electric car is the battery, which determines the range, longevity and charging
abilities of the car. The major providers for batteries are LG Chem, Samsung SDI, and
Panasonic Corporation, and top automakers are increasingly choosing these three companies
as their suppliers.66 There are only a handful of battery suppliers while the electric car industry
is expanding rapidly and these suppliers provide an essential input for electric cars. With
technology changing so rapidly, automakers are not willing to take the risk of producing their
own battery and few battery companies can meet the challenging demand to build innovative
batteries with costs, quality, size, and weight that automakers request. Also, there are no
available substitutes and to change from one supplier to the next would be difficult due to
contract and commitment bounds. Therefore the bargaining power of battery suppliers are
high.
Tesla is vertically integrating because aside from manufacturing and directly selling their cars,
Tesla has built their own Gigafactory, which supplies their batteries. Tesla also recently bought
SolarCity, which manufactures solar panels. Tesla is producing its own batteries when most
automakers are outsourcing to other companies. Tesla also plans to sell solar panels which will
power homes and charge the electric cars in those homes. So since Tesla is their own supplier
for batteries, they have control over pricing and they can significantly lower their battery prices
as well as their overall cars.
Intensity of Rivalry: Moderate to High

The intensity of rivalry in the electric car industry is moderate to high because currently, there
are several distinctive industry leaders but as more automobile firms enter the electric car
industry, the intensity of rivalry will inevitably rise. The electric car industry is an appealing and
expanding industry with many major automobile firms releasing their own electric car within the
next few years.
Major industry leaders in the electric car industry includes Tesla, Nissan, BMW, Fiat,
Volkswagen and Kia. Cumulatively since 2010, Nissan Leaf (97,513 units) is the best-selling all
electric car followed closely by Tesla Model S (80,461 units) and then BMW i3 (22,488 units). 67
Since all electric cars are somewhat similar as it provides a mean of transportation, automobile
firms utilizes distinctive branding. For example, Tesla is known for their luxury design,
advanced innovation, and high performance, displaying their vehicles in showrooms/galleries,
which is unique and different from traditional car dealerships. Contrastingly, Nissan Leaf
appeals to a demographic who are seeking for a greener vehicle but are also more price
sensitive. There are diverse competitors where different companies are targeting different
target markets as well as offering different innovative designs and technologies. Also, there is
low switching cost to switch from one company to another, which contributes to the intensity of
rivalry to be higher.
Threat of Entry:
Moderate
- High barriers to
entry
- High capital
requirement
- Established auto
companies have
an advantage
Bargaining Power of Intensity of Rivalry:

Bargaining Power of
Suppliers: High Moderate/High
Buyers: Moderate/High
- Three major - Few major
battery suppliers competitors - Low switching
- No available - Lack of switching costs
substitute costs - Price sensitivity
- Diverse customers
competitors - Luxury car buyers
Threat of Substitute
Products: Moderate
- Hybrid vehicles
- Hydrogen fuel cell
vehicles
35 Competitor Analysis: BMW
Competitor Analysis: BMW

Overview
Bayerische Motoren Werke, better known as BMW, is a German
based automobile manufacturing company. The BMW Group AG
serves as the parent company of BMW, MINI, and Rolls-Royce.
Known for its unparalleled combination of high performance and
comfort of luxury, BMW is among the top ten automakers in the world.
With recent social and technological changes towards more
sustainable ways of transportation, BMW has created a series of
environmentally sustainable cars for the mass market. This would be the BMWi series, which
currently provides the i3 and i8 as options. Through BMWs four company pillars: growth,
shaping the future, profitability, and access to technology and customers, BMW will be able to
excel and achieve their stated goals. BMW continues to demonstrate their ambition for
excellence through the multiple awards they receive every year. This would include The World
Green Car of the Year in both 2014 and 2015 for the BMW i3 and BMW i8, respectively. In
addition, the BMW i3 also won World Car Design of the Year in 2014. 68 Their mission
statement up to 2020 is to be the worlds leading provider of premium products and premium
services for individual mobility.69
History
In 1916, Gustav Otto (pictured on the right) founded BMW, to
manufacture aircraft engines. This is where the inspiration for
their logo came from, which is supposed to be a white-and-blue
propeller. Production of aircrafts came to a halt in 1923 because
of the Treaty of Versailles, which banned Germany from
producing aircrafts. This political and legal change forced BMW to
improvise and look towards ground transportation.
In the 1930s BMW soon realized that automobiles would become

the preeminent mode of transportation, replacing motorcycles.
They established themselves by acquiring British Austin model, and not long after did it start to
drawing its expertise in high-performance engines and aerodynamic designs. These would
later lead to manufacturing of world-class automobiles such as, the legendary BMW 328 sports
car from 1936. However, even with all the engineering triumphs, BMW remained a niche player
in the luxury car market. There were multiple times during history where BMW faced weak
financial positioning and threat of takeover by Mercedes-Benz, however in 1959 the firm was
rescued by Herbert Quandt, a wealthy German and reclusive industrialist. BMW didnt really
establish itself as what we see today until the 1960s when the company found its stride when
it combined its high-performance sports car engineering with the comfort of luxurious cars.70
This would move the company standing from 69th to 11th among Germanys top corporations.
By the 1990s BMW grew exponentially, employing more than 116,000 people worldwide and
located in 140 nations. In 1997, there was a 10% increase in deliveries of new cars over the
past year worldwide. BMW growth led to a higher customer demand for more choices. Cars
manufacturers were forced to respond with an acceleration of new model development and
increase in model variation. This example demonstrates consumers high buyer power and
BMWs shift towards a mass market product. However, this also led to more opportunities for
other automakers such as Japan, Korea, and U.S. to enter the market once the European
market barriers fell. BMW views itself as a manufacturer of unique automobiles for a clearly
defined, exclusive and demanding clientele all over the world.71
Assumptions
BMW assumes that they will continue to excel at producing efficient and high performance
cars. Throughout the 100 years that BMW has survived as a company they have been able to
establish a reputable brand that consumers seek to buy. With BMW being a mass marketed
product, the consumer market has set standards that BMW must exceed each year. In order to
stay ahead of the curve, BMW is constantly innovating. We assume that BMW will also
continue to pursue their goals of becoming sustainably efficient and producing little to no
carbon dioxide emissions. In the automotive industry, many people are focusing of the social
and global issues that we are facing with climate change. In order to achieve their goals of
sustainability, BMW assume that the company will expand their alternative energy fleet and
slowly phase-out their gas cars.
Financial Statement Analysis

Ratios
Derived from the BMW Annual Report 2015:
ROCE 16.34%
ROA 6.17%
ROIC 10.73%
ROE 15.38%
Net Profit 6.02%
Asset Turnover 1.03
Current Ratio 1.22
Debt Ratio 0.60
Debt to Equity Ratio 1.49
There are three financial measures that BMW should focus on: increasing return on capital
employed, increasing sales volume, and increasing revenue. Increasing return on capital
employed is a key performance indicator used in the automotive segment. BMWs strategic
target for their automotive segments RoCE is 26%. The higher the ratio, the more favorable it
is for the company because it means that there are more dollars being generated by each
dollar of capital employed. In 2014 BMW forecasted that there would be a moderate decrease
in RoCE, however there was actually significant increase of 10.5 % pts. Another important
financial measure would be sales volume. The 2014 annual report forecasted that there would
be a solid increase in units from 2014-2015. There was a 6.1% increase, totaling of 2,247,485
units. However, BMWi only totalled at 1.5% of BMWs total sales volume. Lastly, it is important
that there is an increase in revenue. BMW forecasted to have a solid increase, which was later
that there was a significant increase, specifically in Q1. Overall there was a 13.8% increase in
revenue with the actual outcome of 85,536 Million Euros, or about 79,465 Million USD. During
2015, the U.S. dollar had an average exchange rate of 1.1 to the Euro. This was because of
the monetary policy the European Central Bank and the US Federal bank caused the U.S.
dollar to appreciate in value against the Euro. 72 A 2017 BMW i3 has an MSRP starting from
$42,400 versus a 2016 Tesla Model S which has an MSRP starting at $66,000. Any additional
cost will be from added features because, both BMWi and Tesla have set prices that are non-
negotiable.
Finance
The 2015 stock market year was very volatile, with the Chinese economy, the weakness of the
Euro, the Greek debt crisis, and many more political and economic events. Especially with the
loss in value of the euro against the U.S. dollar, provided a boost for European exports and
contributed to a more amenable stock market climate.73 In addition, the news of other diesel
competitor manipulation caused a negative effect on investor sentiment. BMWs common stock
in 2015, was 601,995 (number of shares in 1,000) which has stayed the same since 2011.
BMWs Preferred stock in 2015 had 54,809 (number of shares in the 1,000) which was a slight
increased from 2014s 54,500 (number of shares in 1,000). 74
Capabilities
Organizational Structure: Supervisory Board
Management at BMW Group is devised of two main boards, the supervisory board and the
management board. The supervisory board serves a variety of duties for the company, many of
which are to manage and supervise the management board. In general, the supervisory board
closely monitors BMWs business performance and macroeconomic developments in the
market. Supporting the board of management by advising them on significant projects and
plans, as well as managerial changes. The supervisory board makes the rules and insures that
everything the board of management is doing is within the laws and rules of BMW and the
countries they work in. The Chairman of the supervisory board is Norbert Reithofer, who was
previously the Chairman of the board of management. In addition to the chairman of the board,
there are also four deputy chairmen and multiple members that evaluate the actions of the
board of management.
Chairman, Dr. Norbert Reithofer
Reithofer was previously the Chairman of the Board of

Management, so he would not only provide insight into what
the new Chairman of the Board of Management is thinking,
but he would also have a greater understanding of what his
new job requires. He has been working at BMW since 1991,
which means he has a well-rounded understanding of how
the company operates, as well as its strategies and goals.
Deputy Chairman, Manfred Schoch
Schoch was born in 1955 and studied industrial engineering

at Karlsruhe Technical University. He would later join BMW
AG in 1980 where he now sits on multiple committees. He is Chairman of the Works Council in
Munich, BMW AG, and the European Works Council. His work experience demonstrates that
he has a great understanding of how to advise people and what would be best of the situation.
Deputy Chairman, Dr. Jur. Karl-Ludwig Kley
Kley was born in 1951 and received an industrial business apprenticeship at Siemens AG. He
went on to study law at Ludwig Maximilians University in Munich and practical training in law in
Hamburg and Johannesburg, South Africa. He served as a member of the executive boards of
multiple companies, generally with an emphasis on finance. His well-rounded background
would give him a better understanding of the legality of the projects the Board of Management
proposes.
Deputy Chairman, Stefan Schmid
Schmid was born in 1965. He started out with an apprenticeship in power plant electronics as a
metalworking foreman. He later joined BMW AG in 1985 and became a member of the
Chairman of the Works Council in Dingolfing. In addition, since 2004 Schmid became the
Deputy Chairman of the General Works Council. Schmids background gives him indepth
knowledge of the process of manufacturing and how operations are handled.
Deputy Chairman, Stefan Quandt
Quandt, was born in 1966, the youngest of the Deputy Chairmans. He received his degree in
industrial engineering from Karlsruhe Technical University, just like Schoch. Since 1996,
Quandt has worked as an independent entrepreneur. His father was Herbert Quandt, the
wealthy industrialist, who helped save BMW from bankruptcy in 1959. He is a large
shareholder, therefore his decisions can be influenced by self-interest.
Organizational Structure: Board of Management

The management board is the equivalent to Americas C-suite. The management board
specifically focuses on topics regarding economic development and the prospects of key world
regions. There is constant and close collaboration with the board of management and the
supervisory board. Informing each other of the status of projects and acquisitions on a regular
basis. This can be seen through their regular reports on current sales and workforce figures, as
well as the discussions on the economic developments and performance around the world.
Chairman, Harald Kruger
Krger was born in 1965 and joined BMW in 1992. He slowly worked his way up from project
engineer at the Spartanburg plant to a Member of the Board of Management responsible for
Human Resources, then the After Sales of BMW group and Production. Finally in 2015, when
Reithofer was picked for the Chairman of the Supervisory Board, Krger was picked as
Chairman of the Board of Management. Krger was an obvious choice because of his vast
knowledge of the company and its inner workings within different departments and sections.
Human Resources, Milagros Caina Carreiro-Andree
She was born in 1962 in Boboras, Spain. She trained as an industrial representative and had
her start at Vossloh Aktiengesellschaft, Werdohl in 1984. From 2006-2012 she held many
executive positions and was a member of the Management Board of responsible for HR at
Schenker Logistics AG. In July 2012, Carreiro-Andree became a member of the Board of
Management of BMW AG, specifically responsible for HR.
Recently, both the supervisory board and the board of management have been moving
towards a generational change. This shift towards younger board members would ensure
personnel continuity and help shape BMWs future strategy. This can be seen through the
recent managerial changes in 2015. Before the shift towards a younger board, the Chairman of
the supervisory board was Professor Joachim Milberg, who was 72 years old at the time. The
Chairman of the board of management was Norbert Reithofer, who was 59 years old.
Therefore, Harold Kruger (pictured on the right) would replace Reithofer as the Chairman of the
board of management, who was only 50 years old.75
Figure 8: BMWs Company Structure76
The composition of corporate structure greatly affects a companys corporate culture and plays
a key role in how the company operates. However, all of these are even further impacted by
country culture. BMW being a German company can be described by Hofstedes six
characteristics: Power Distance, Individualism, Masculinity, Uncertainty Avoidance, Long Term
Orientation, and Indulgence. The chart shows that Germany has high uncertainty avoidance,
high masculinity, high individualism, low power distance and low long term orientation. This is
clearly shown through BMWs corporate culture and structure. Germany is considered to have
low power distance and high individualism, meaning that they encourage the ability to be
independent and self-reliant, as well as, emphasizing the importance of co-determination and
direct and participative communication. This is characterized through BMWs clear
responsibility, mutual respect, and trust for each other. However, Germany also has a strong
aversion towards uncertainty and the unpredictability of things. This is highlighted in one of
BWMs primary goals to avoid risk which could jeopardize the trust our customers,
shareholders, business partners and the general public place in BMW Group.77 Their high
masculinity demonstrates that the culture is really driven by competition, achievement, and
success. Which is evident of BMWs constant need to innovate and cater to the evolving needs
of their customers. Germany is also more inclined towards long term orientation which
indicates that they are a pragmatic country, with people who can adapt easily in changing
conditions and persevere to achieve results. 78
Operations
The company operates in more than 140 countries and has 30 production and assembly
facilities in over 14 countries. They are constantly innovating new products through their 12
research and development centers around the world. These centers are located in countries
like Austria, Germany, the United States, Japan, and China. These locations make sense,
since about half of BMWs revenue comes from inside Europe, whereas the rest is mostly split
between the United States, and China.79
Operations management, if done well, can reduce cost of products and services by being
efficient, as well as increase revenue through increased customer satisfaction in producing
quality goods and services. BMW is able to be efficient because of their effective team
management and support for cross-functional teams. Utilizing these diverse set of people can
help solve problems more efficiently and effectively. 80 In addition, BMW has created a great
structure of easy change management. BMW research and development is continuously
looking for efficient and effective ways of building sustainable cars that their customers would
like.
A great example of this is the production of the BMW i3, though it took longer to get on the
market compared to the low end electric cars, it wanted to maintain its premium brand and
quality. Quality management is very important to BMW. It is key to have continuous progress
and improvements that match the needs of the consumers. This can be done through
implementing operation management such as, total quality management, reengineering and/or
outsourcing. If done productively, operations management can reduce ROCE by being
effective and innovative in creating a solid base of operations and knowledge.
Product
The focus of this competitive analysis is on the BMW i3, which is their first all-electric car. This
automobile provides all the best qualities of BMW, by still focusing on high performance
engines and the design importance of the automobile, as well as sustainability. The 2017 BMW
i3 has an MSRP of $42,400, which would be considered cheaper than most of the other
automobiles that BMW provides, such as the BMW i8 hybrid, which has an MSRP of
$140,70081 BMW i3s target market would consist of people with an average annual income of
$77,000 to $199,000. Therefore, you see a variety of people buying this car, from young adults
to the aging baby boomers. The BMW i3 is targeted towards customers that appreciate
environment-friendly, cost-saving improvements. However, with an all-electric BMW the
consumer doesnt have to give up the comfort, performance, and driving dynamics that they
would associate with BMW.
Manufacturing Process
Specifically, for the BMWi3, the BMW Leipzig factory in Germany would be considered the
epicenter of i3 production. The steps below are still relevant to the manufacturing of BMW i3,
however they are oriented towards the manufacturing of BMWs core automobiles.
The manufacturing process has four main steps of production. The first step of the production
is the press shop. This happens at the stamping plant, which provides the sheets of metal for
the bodywork of the car. The process begins with extremely heavy rolls of steel and aluminum
coils. From there they are taken to the coil system where they are initially cut to form boards
and then pulled with fully automated high-speed servo presses. This process results in molded
parts like the side frames, doors, hoods, and roofs. BMW is continuously looking for higher
strength materials that will complement their unique design and extremely rigid, but lightweight
bodies.
The second step of the process is the body shop. This is where the assembly of several
hundred individual parts are made of steel and aluminum. Each part depends on the vehicle
requirements, for example the BMW i3 uses carbon-fiber which is incorporated in their stitched
nonwoven materials, which are molded into the rear seat structure and roof sections. Many of
these parts require a high degree of technical knowledge about welding, and joining
techniques. However, most car manufacturing plants have modern autonomous robots that
perform these important and difficult steps with maximum precision.
Next is the painting step of the process. The paint color on a car serves two main purposes, to
protect and preserve the value of the automobile. The materials produced in the above steps
create the body of the car which is then cleaned and coated in a zinc phosphate layer. This
layer creates a lasting corrosion protection, which is then followed by four coats of paint.
Lastly, is the mounting and final assembly of the automobile. This step includes putting the
engine, transmission, axles and exhaust system with the corresponding body. The wheels are
added and the engine is started for the first time.82 Since customers are allowed customization
of their car, BMW expects extreme attentiveness of their employees.
Distribution
The BMW i3 is distributed through BMWs existing channels. Such as dealerships, like the one
located on Stevens Creek. However, to differentiate its separate brand they have created a
building separate from the main lobby that focuses just on the BMWi series. This building
structure, as well as their employees are similar to those of Teslas. The separate building is
used as a showroom for the BMW i3. Embracing technology companies like Apple and
Microsoft, BMW implemented the Genius position. They are available to offer their knowledge
and assistance before and after sale. Currently there are 500 BMW Geniuses at dealers and
there will be about 750 by the end of the year. Similarly, to Tesla, BMWi Genius are not
allowed to bargain with the customer, creating fixed price products. In addition, BMW plans to
have about 100 new stores that will be completed at the end of this year specifically catered to
the BMWi series. By 2019, BMW hopes to have 95% of its network transformed, with $30
billion investment and 30% increase in showroom capacity. 83
Marketing
It has been three years since BMW first came out with their BMW i3. The BMWi series have
become a very well-established brand under the BMW name. It is considered one of the best-
selling frontrunners of the electric car industry. The BMW i3 has gained widespread
acceptance with over 80% of BMWi buyers are first-time customers.84 BMWi also provides
the option of a Mobile Sales Advisor, this employee would offer potential customers the option
of a one-on-one consultancy for a BMWi product. This alternatives has become an integral part
of the BMWi sales model in multiple markets. In addition, with their partnership with
ChargeNow, BMW is able to provide their customers a simple and transparent option of
charging their electric vehicles. ChargeNow stations can be found in most major cities across
the country. Since, a car is an experiential product, BMW will need to appeal to both the
rational and emotional side of the consumer so that the product is truly memorable. It is
important for BMW to strive for repeat customers because making new customers is much
more difficult than keeping them. In addition, BMW should look into social bonding activities
which can build their community. Doing so opens up the possibility for creating a community
like the Harley Owners Group (H.O.G.) of Harley Davidson. If effectively instituted, it could
further the company into cross-marketing, creating a more loyal customer base and increase
brand equity.
Human Resources
BMW Group is the leading manufacturer of premium automobiles, with more than 115,000
employees in over 140 countries worldwide with 115 unique nationalities working together in
Germany. To ensure quality products for their customers, prospective employees have to meet
higher standards. They want to attract potential employees who are driven and perform their
work with enthusiasm. This standard of hiring provides the infrastructure for personal and
business success within the company. 85 They have a variety of jobs that they offer, whether it
be technical engineering, or sales management. There is always room for career development,
because BMW focuses on internal promotion. BMW employees are also well-paid, with above-
average wages which include social benefits, as well as health and accident insurance. This
translates into high levels of employee satisfaction which can lead to high levels of customer
satisfaction. In addition, to good pay and structure, BMW also offers employees to constantly
develop their skills through training. BMW explains that they believe that well-trained
employees are the most valuable asset a company can have because development of skills
and promoting employees strengths is an investment in BMWs future. 86 In addition, BMW has
added their BMWi Geniuses, who give consumers consultations on any BMWi series. The
BMWi Geniuses deliver a pressure-free product consultation for the consumers, instead of your
stereotypical pushy salesman.87
Suppliers
BMWs 2015 annual report states that there are three major categories they plan to focus on.
The first is creating an ideal balance between quality, innovation, flexibility, and cost. This
objective would ensure that BMW would be able to easily react to the fluctuating demand of a
volatile market environment, in regards to production materials, raw materials, service and
capital goods. BMW must also focus on the increasing pace of globalization and how the
interconnected nature of supplier markets means that the distribution of purchase volumes will
be continuously changing. This is especially evident in the NAFTA region which has become a
focus of growth in the coming years. This is because BMW plans to increase production
volume at the Spartanburg plant in South Carolina. In addition, there is a new plant that is
scheduled to open for production in San Luis Potosi, Mexico in 2019. This strategy would
further enhance BMWs goals of achieving globally balanced growth in terms of sales,
production and purchase volumes. Lastly, it is also important to understand that the purchasing
and supplier network is also responsible for component production at BMW. They are
continuously investing in state of the art manufacturing facilities to guarantee efficient
structures that increase the competitiveness of in-house production. For example, the
Landshut plant that will focus on a new lightweight design for future cars. This plant houses
160 engineers who will be testing and researching innovative materials, construction concepts
and new manufacturing processes.88
Batteries
In July of 2014, BMW announced that they would expand their partnership with Samsung SDI
by signing a memorandum of understanding for delivery of further battery cells.89 These battery
cells would be used for the BMW i3, BMW i8, and other hybrid models in the coming years. Dr.
Klaus Draeger, member of the Board of Management of BMW stated that Our partnership with
Samsung SDI is a good example of successful Korean-German cooperation on innovative
technologies explaining that BMW feels that they have chosen the supplier that offers the
best-available technology. Though Samsung SDI is known for supplying batteries for Apple
Inc., this partnership will allow them to expand into their automotive business. 90 The battery is
the most important part of an electric car. And the sales of hybrid and electric vehicles are
projected to grow steadily to reach 5.2 million units by 2020 according to the 2010 report by
J.D. Power.91 This deal is mutually beneficial because Samsung SDI gets a larger presence as
a high quality and efficient electric car battery maker, and BMW is able to expand into the
electric car market with a long-lasting car battery.
Charging Stations
Another important component to an electric car is the
charging stations. BMW has partnered with ChargeNow, in
cooperation with ChargePoint, the biggest provider of
electric-vehicle recharging stations.92 With more than
18,000 publicly accessible charging locations. This
partnership is mutually beneficial to both companies. With a
BMW i3 you can easily find the nearest public charging
stations through the use of the ConnectedDrive, via the in-
vehicle navigation, or by using My BMWi Remote app. 93
BMWi owners are provided with two complimentary
ChargeNow cards which they can link to their ChargeNow
account and easily add their credit card information.
Chargepoint provides three different types of charging

stations. The DC Fast charging station (pictured at right), the fastest of all three, can charge 80
percent of a BMW i3 in 45 minutes.94 Any BMW i3 2015 or newer is eligible to enjoy 24 months
of no cost charging.
The second type of charging station is commonly found at local malls or places of business. It
doesnt charge as fast the DC Fast charging station, but it is a great way to charge a car while
running errands or while at work. Many local companies like Google, Cisco, and Netflix have
installed these stations.95 It called a Level 2 charge station, which can fully charge most cars in
less than four hours. Level 2s are the most common type of port that is non-residential. Lastly,
there is the Level 1 port, which is a grounded receptacle or a standard household outlet. This
type of charging is done using your own cable, which is usually provided with the vehicle. 96
This partnership has created an opportunity for big automakers to close Teslas competitive
advantage gap. Teslas Supercharger network is seen as a big competitive advantage, but they
only recharge Teslas. With the introduction of the DC Fast charging stations, ChargePoint has
an opportunity to lessen the cap. Especially since there was a recent announcement that the
Tesla charging stations will no longer by free. Creating more equal ground to compete between
ChargePoint DC Fast and Teslas Supercharger.
Carbon Fiber-Reinforced Polymers (CFRP)

Multiple research and development companies have identified carbon fiber as a key means to
lightweight production passenger vehicles. However, there is a lot of tension amongst EV
discussion boards about the commercial capacity of carbon fiber and the pricing of it. Though
there was some hesitation, it was obvious that the greatest sales potential was in high-volume
automotive applications. This can be clearly seen through the production and use in the BMW
i3 and i8 automobiles. BMW partnered with SGL Automotive Carbon Fibers which collects
weaving and preform-kitting scraps for production of the BMWi vehicles.97 Though the carbon
fiber was light and efficient BMW decided to scale back the quantity of RCF in each car
because of the expensiveness of the material. They responded to the problem by combining
the carbon fiber with other lightweight materials such as aluminum and steel in order to avoid
making the car too expensive.
In addition, Oliver Zipse, BMWs production chief explains that the lighter you can make the
car, lessens the need for a large battery to power it. 98 Since carbon-fiber is a upcoming and
popular new material to use, several carmakers have entered into cooperation deals with
specialist companies to advance carbon manufacturing. BMW gets their carbon fiber from SGL
Carbon, whereas General Motors with Teijin, and Daimler with Japans Toray Industries.
Core Competencies & Sustainable Competitive Advantages
Core Competencies Sustainable Competitive Advantages
Strength of premium brand Premium brand

Strives for globally balanced distribution of Innovative technology
value creation Battery unit
Consistent positive sales development Superior customer service
Continues to fascinate their customers Corporate social responsibility
with new models and technologies Sustainable company
Strategic acquisitions
Research and development
Highly motivated associates
Core Competencies
BMWs strong core competencies have allowed the company to last for the last 100 years.
They are great at reiterating the strength of their premium brand through its marketing as a
luxury performance brand. In addition, BMW does not cease to fascinate their customers with
new models and technologies which they create through their research and development
process. This core competencies leads to their consistently positive sales development, which
are reflected in their key financials. Furthermore, BMW strategically acquires and/or invests in
companies that will benefit them in the long run. Lastly, BMW has highly motivated associates
who provide great customer service. Happy associate leads to happy consumers, and happy
consumers possibly leads to loyalty or repeat buying.
Competitive Advantages
Customers appreciate these environment-friendly, cost-saving improvements, which allow
them to enjoy the benefits without foregoing any of the comfort, performance and driving
dynamics they are accustomed to with a BWM. All these advantages are possible because of
BMWs strong branding. Strong branding leads to revolutionary product design, high
performance corporate culture, customized brand experience, and cutting-edge technology.
This gives the BMW Group a clear competitive edge, which they continue to build with new
innovative technology and having a unique understanding of their customers. For instance,
BMWs efficient battery unit. In the interview with Steve, he explained that unlike Teslas single
battery unit, the i3 is made of up eight smaller units (pictured on the right). Steve expresses
that replacing one small unit instead of the entire battery unit is more efficient and sustainable.
In addition, since BMW is a premium brand they focus solely on providing premium products
and services to their customers. This can
be demonstrated through their superior
customer service, specifically the BMWi
Geniuses, who focus on consultation
rather than selling. Going hand in hand
with their sustainability strategy, BMW
practices corporate social responsibility
through practicing sustainable
manufacturing, but also funding and
supporting organizations that promote
preservation of ecosystems and wildlife,
such as Nature Conservancy, Palmetto
Conservation Foundation, South Carolina Wildlife Federation, and many more. 99
Current Strategy & Future Goals

Current Strategy
BMWs ONE strategy is an initiative for individual mobility of the future that began in 2007 that
continues today. The BMW strategy focuses on providing a premium product that focuses on
design and digitization. This is achieved through their constant research and development,
innovation, and their younger and more ambitious board of management. Some of BMWs
goals include boosting profitability, enabling expansion of global production and sales
networks, and changing the environment. As shown in BMWs income statement they have
been consistently profitable. In addition, from 2007-2014, the company had expanded from 23
production facilities to 30. Strategy ONE, focused on being profitable and enchaining long-term
value in times of change. In addition, through strategy ONE, BMW applied technology,
structural as well as cultural aspects of their company. 100 With the changing environment, BMW
needs to devise a strategic plan that can adapt and embrace digitization. One way to do this is
through BMWi Ventures, which invests in startups and growing companies that concentrate on
mobility requirements in large urban areas. BMWi Ventures, currently comprises of 14
investments.
Their future goals and strategies include their idea of NUMBER ONE > NEXT, which is the
concept of expanding the BMWi product range with the new BMW iNEXT. This new product
would set new standards for future technology and a leading role in automated driving.
Combining the future of the automotive industry, electric mobility, and autonomous driving
capability. 101 Steve, BMWi Genius, also explains that eventually BMW plans to phase out all
their gas-powered cars and switch to sustainable power only. Though this phase is still a long
way from now, it is important to take into account that this assumes BMW will be able to
sustain its competitive advantage. Therefore, BMW will be looking into other alternative forms
of energy, such as hydrogen fuel cells, instead of exclusively electric. In addition, they plan to
perfect the autonomous driving aspect through their partnership with Mobileye and Intel.
Future Goals
BMW is actively trying to reduce their carbon emissions through the implementation of
sustainability initiatives. This is seen throughout their manufacturing process and the materials
they use to produce the car. In the 2015 annual report BMW, had forecasted in 2014 that there
would be a slight decrease in their fleet emissions and they were successful in decreasing it by
2.3 %.102 This decrease in gCO2/km was made possible because BMW strives to reduce fuel
consumption and carbon emissions by using innovative technology in conjunction with their
Efficient Dynamics strategy.
The Efficient Dynamic strategy is based on BMWs four pillars to promote sustainability. First,
is focused on optimization of diesel engines and optimize lightweight construction,
aerodynamics and energy management. The other three pillars are hybridization and
electrification of vehicle power, as well as long-term use of regenerative hydrogen as a source
of fuel.103 Some of the ways they implemented this strategy was by investing in developing
technologies that would support vehicle efficiency and reduce carbon dioxide emissions. In
addition, in the interview with Steven, a BMWi Genius, he had mentioned multiple ways that
BWM actively tried to lessen their carbon footprint. He talked about how the manufacturing
factories were powered by alternative fuels, such as hydroelectric and wind turbines. Most raw
materials used in the manufacturing process were locally sourced near the factory. Such as,
the factory that make the leather interior is naturally tanned and is sourced from local cows. In
addition, the wood components of the car are made with eucalyptus tree, because it is an
invasive species which kills other trees. This ensures that BMW is not mowing down an entire
forest, but rather picking specific trees and using the entire tree in the process.104 BMWs end
goal is to decrease their carbon dioxide emissions, and in the long run they hope to improve
their idea of sustainable mobility. This is further reiterated through their Clean Production
philosophy which states that their goal is to minimize their environmental impact and resource
consumption.105
SWOT Analysis
Strengths Weaknesses
Established brand High Production Cost
Current alliances with Intel and Mobileye EV only 1.5% of Sales
(Autonomous driving) Expensive Spare Parts
Co-operates on open platform Recent Recall
Pre-existing co-operation with Toyota on
fuel cells and batteries
BMWi series
Partnership with ChargePoint
Sustainability
Opportunities Threats
More partnerships to increase resources Other competitors providing similar
A shared standard and engineering criteria products (i.e. Tesla)
for autonomous driving Possible backlash from Samsung batteries
Increased gas prices Political and global economic risk
Strategic and sector risk
Risk in Sales and Marketing
Financial risk of raw materials
BMWs strengths include their established brand. This is important because unlike Tesla, they
already have established channels, customers, factories, and capital. Granted there are
differences between diesel car channels, customers, and factories, compared to the electric
car industry, but it only requires slight modification on BMWs part. In addition, as an
established brand coming up with capital is not as difficult because the company has proven
itself successful through previous car models. In addition, their alliance with Intel and Mobileye
to work on autonomous driving will keep them competitive with other car companies that are
pursuing autonomous driving as well. Another important strength of BMW is their BMWi series
and how it focuses on their goal of creating sustainable mobility. This is further strengthened
through their partnership with ChargePoint, and creating the ChargeNow stations.
Unfortunately, producing cars is really expensive and spare parts for cars are just additional
cost to consumers. BMW produced the BMW i3 in order to stay competitive in the car market,
but also start their move towards production of sustainable cars. However, BMWs i3 and i8
only account for 1.5% of BMWs overall sales. This can be contributed to that fact that the
electric car industry is still very new and that BMW focuses more on producing diesel cars. In
addition, BMW had to recently recall over 154,000 vehicles in the United States because of
faulty fuel pump module. With Volkswagens recent emission scandal, this recall might not look
so great for BMW and may cause loss of trust among the customer base. 106
Some opportunities that BMW should pursue include making more strategic partnerships to
increase their resources. In addition, the Chairman of the Board of Management thinks that the
industry as a whole should come together and establish a shared standard and engineering
criteria for autonomous driving. This will create a safe and efficient way for the industry to
introduce autonomous driving. Furthermore, increased gas prices give BMW the opportunity to
create a more sustainable fleet of cars.
Though there are some opportunities for BMW to pursue, there are also threats that they have
to be aware of. BMW has to be attentive to the idea that there are other competitors, like Tesla,
who are providing similar products. As well as, the political and economic risk that the industry
faces when entering a new market. BMW also faces the threat of financial risk of raw materials,
such as carbon fiber, that are very expensive and need to be used in limited quantity. Also, to
keep in mind is the possible backlash that they may experience with their partnership with
Samsung SDI providing the car battery. There havent been any adverse reactions, however
with Samsungs recent recall of their Galaxy Note 7s, there is the possibility of negative press
on the subject.
53 Competitor Analysis: Mercedes-Benz
Competitor Analysis: Mercedes-Benz

Overview
Mercedes-Benz (Daimler AG) is a global premium
automotive brand, competing directly against Tesla in
the luxury car market. Mercedes-Benz is the most
valuable, key brand under the Daimler Group of parent
company Daimler AG, headquartered in Stuttgart,
Germany. Daimler Group is one of the largest and
renowned premium vehicle manufacturing companies in
the world. With divisions such as Mercedes-Benz cars,
vans, and Daimler trucks and buses, the Mercedes-
Benz brand is widely recognized and successful in nearly every country they do business in.107
Their slogan The best or nothing reflects their business core model to deliver the highest
quality, highest performance, and the safest vehicles to consumers that will anchor them to be
at the forefront of the industry. In response to the ever-changing economy and views of
sustainability, Mercedes-Benz strives to continually invest in innovative and green technologies
that can be incorporated alongside their flagship diesel models into alternative drive systems
such as hybrid and electric vehicles.108 Mercedes-Benz has been named one of the top 100
Best Companies to Work For by Fortune Magazine for the fifth consecutive year and is the
only automaker to have such a title in that time period. Mercedes-Benz also holds the title as
#20 Worlds Most Valuable Brand.109
History
Mercedes-Benz dates back its inception to the first engine-driven
automobile invented in 1886 by German racer Carl Benz, which is
now the birth certificate of the automobile, bearing the name
Patent Motor Car. From initiative of converting the horse-
powered stagecoach into a petrol-driven one, German racer
Gottlieb Daimler and German engineer Wilhelm Maybach founded
Daimler-Motoren-Gesellschaft (DMG) and pioneered the first
Mercedes automobile in 1901. Introduction of Austrian
businessman, Emil Jellinek, into DMG yielded the trademark of the
name Mercedes, taken after his daughter, for the 1901 automobile model. In June 1909, the
world-famous three-pointed star trademark logo was brought to life, commemorating Gottlieb
Daimlers use of stars for a symbol in his prior work. In order to maintain financial stability
following World War I, competitors DMG and Benz & Cie. entered into a joint merger in 1924.
Daimler-Benz AG was established in 1926 and introduced the first jointly developed Mercedes-
Benz brand name vehicle models thereafter. During the Second World War, Mercedes-Benz
was criticized for alleged forced employment and violation of human rights. However, since
then, the company has been successful in expanding its product variety and focusing on
delivering top quality and engineering to the luxury car market.110
Mercedes-Benz did not reach the United States until 1957, when it entered into a distribution
agreement with Studebaker-Packard Corporation. The company parted away from the
agreement in 1965 and thus formed Mercedes-Benz USA as a subsidiary of Daimler AG.111
Assumptions
It can be assumed that Mercedes-Benz will follow premium brand automakers to expand their
battery electric vehicle line outside of the current B-class electric drive. Mercedes-Benz has
been envisioning their Mercedes-Benz 2020 strategy since 2015, which includes the addition
of more full-electric vehicles to their product portfolio. It is also expected that Daimler will
continue to be a primary conventional gasoline-fueled automaker, while expanding their R&D
investment into the electric vehicle market. As of now, they are in the higher league of electric
vehicles in the industry and it is expected that they will continue to compete against other
luxury carmakers, as they have been with their gasoline-powered models.
Financial Statement Analysis

Ratios
Derived from the Daimler Annual Report 2015:
ROCE 15.68%
ROA 8.19%
ROIC 9.09%
ROE 17.08%
Net Profit 5.86%
Asset Turnover 1.3987224
Current Ratio 4.3315618
Debt Ratio 0.5203584
Debt to Equity Ratio 1.0848900
In 2015, Mercedes-Benz sold roughly 1.87 million vehicles worldwide and has been achieving
record-breaking sales for five consecutive years. Mercedes-Benzs 2015 annual report showed
revenues of $91,007.35 million for Mercedes-Benz cars, which is a growth of 13.90% from the
previous year. Net profit in 2015 for all Mercedes-Benz automobiles was $8,299.45 million,
which grew 19.29% from 2014. There is a positive growth trend, indicating stronger sales and
returns.109
Further analysis of financial ratios reveals that return on capital equity employed (ROCE) is
15.68%, which measures performance, profitability, and the efficiency of capital employed by
the company. A higher ROCE can be a sign of effective growth. The return on equity (ROE) for
Mercedes-Benz is 17.08%, which measures the profitability in regards to shareholders
investment. Given that the auto industrys average ROE is 12.40%, Mercedes-Benz has a
higher profitability ratio compared to other auto companies.112
Another important aspect of financial ratios to analyze are debt ratios. Debt ratios generally
examine the financial risks of a company. Mercedes-Benzs debt ratio is 0.52 and debt-to-
equity ratio is 1.08. A debt ratio of 0.52 can be inevitably risky because it indicates a large
amount of liabilities in proportion to assets; however, since the industry is relatively stable, the
debt ratio does not impose too much risk. As for the debt-to-equity ratio, 1.08 is not too
concerning because it is quite low. Investors will start to worry about the debt-to-equity ratio
once it surpasses 5.109
Overall, Mercedes-Benzs financial ratios indicates a stable company who manages their
finance well. Mercedes-Benz has growth in sales volume, revenue, and net profit but there is
always room for improvement. In order to stay in the industry, Mercedes-Benz must keep up
with the innovation and new technology that are constantly changing, which includes
engineering sustainable vehicles.
Finance
Despite the Greek debt crisis and Chinas stock market turbulence in 2015, which affected the
worlds stock market, Mercedes-Benz hold a strong financial position because their parent
company, Daimler has several other world renowned brands which helps the group of
companies to minimize their operational cost by using shared resources.
Mercedes-Benz Daimler AG (DAI) is traded on Frankfurt and Stuttgart. Daimler AG is owned

69.9% by institutional investors, 20.2% by private investors, 6.8% by Kuwait, 1.54% by Renault
and 1.54% by Nissan.113 Recently Mercedes-Benz stock price has been inclining due to the
development of new cars being positively received by investors. At the end of the third quarter,
the share price was 62.71 euros and had an increase of 17% higher than the Dow Jones
STOXX Auto Index.114 In Daimler AGs 2015 Annual Report, their stock price was $84.24, net
profit of $8.54, and a dividend of $3.54. Mercedes-Benz had a 2% market share in the United
States. So despite the 2015 stock markets turbulences, Mercedes-Benz was still able to
generate a profit and pay out dividends, demonstrating a more stable and robust company who
is prepared for difficult times. Daimler AG get their funding needs by means of bonds,
commercial paper, bank loans, customer deposits in the direct banking business and the
securitization of receivables in the financial services business; the focus will be on bonds and
loans from globally and locally active banks.109
Capabilities
Organizational Structure
Chairman of the Board of Management, Head of Mercedes-Benz Cars: Dieter Zetsche
Mercedes-Benz USA & NAFTA CEO: Dietmar Exler
Mercedes-Benz USA CFO/VP: Harald Henn
Mercedes-Benz USA CTO: Norbert Litzkow
Mercedes-Benz Cars Marketing & Sales: Ola Kallenius
Human Resources and Director of Labor Relations: Wilfried Porth
Finance & Controlling/ Daimler Financial Uebber: Bodo Uebber
At the top of the board of management of

Daimler AG is Dieter Zetsche, Chairman of the
Board of Management of Daimler AG and Head
of Mercedes-Benz Cars. His contribution as a
member of the Board of Management since 1998
and Chairman of the Board of Management of
Daimler AG since 2006 proves his dedication
and expertise to Daimlers overall strategy
striving towards innovation and digitization. The Board of Management positions are all crucial
positions required to focus on the companys overall capabilities to run under substantial terms
such as financing, marketing, and human resources. Daimler AG Board of Management sits in
Germany and consists of eight heads overseeing all management activities on a global scale.
There exists a Supervisory Board that communicates extensively with the Board of
Management on key financials and corporate planning. Mercedes-Benz USA operates as a
subsidiary of Daimler AG and is comprised of key figures, such as the CEO, CFO, and CTO to
operate activities in the United States.109
Operations
Daimler AG is compartmentalized by five divisions: Mercedes-Benz Cars, Daimler Trucks,
Mercedes-Benz Vans, Daimler Buses, and Daimler Financial Services. Each division is
managed by a head of the Board of Management. As of 2015, the Daimler Group has
production facilities in 19 countries in Europe, North and South America, Asia, and Africa and
has more than 8,500 sales center globally that employ a workforce of 284,015 people.109
Mercedes-Benz USA employs 1,600 people and has 368 associated dealerships that employ
over 22,000 people themselves. Mercedes-Benz USA was founded in 1965 and is
headquartered in Montvale, New Jersey and houses another office in Long Beach, California.
On a dealership and collision center level, there exists managers, sales associates, and
service employees.115
Product: Mercedes-Benz B-Class

Mercedes-Benzs sole fully electric
vehicle out in the market is the B-
Class Electric Drive. The B-Class
competes directly with the BMW i3
and Teslas Model S. The styling
details of the B-Class drive are no
different from the other lines of the
brand; the familiar star emblem,
sleek creases around the body, and
wrap-around headlights identify this
vehicle as an authentic Mercedes.
However, it is the smallest vehicle they have available, a foot shorter than the CLA luxury
compact. Although well-designed, its hatchback style offers a deviation from the usual size and
shape released from Mercedes. The only indication that this vehicle is a battery-electric model
is its Electric Drive badging near the bottom of the back door.
The B-Class is one of the fastest electric cars in the market, delivering an estimated zero-to-
sixty speed of 7.9 seconds. The powertrain, the main component that generates power from
the original source to the roads surface, is supplied by Tesla Motors, but is still not as fast as
the Tesla Model S. The model has a 28 kilowatt-hour battery pack that allows for 98 miles if
driven at 3.5 miles per kWh, which is much more than BMWs 22 kWh i3. This impressive
driving range puts Mercedes electric vehicle at an advantage over competitors, except for the
Tesla Model S again. Although the propulsion system is supplied by Tesla, the Mercedes B-
Class will be limited in using the Tesla supercharging stations. An empty-to-full charge takes
four to five hours as a quick charge port is not incorporated into the fueling system.
Unlike the BMW i3, the B-Class electric is able to seat five passengers. Despite compactness,
the Mercedes EV was meant for comfortable commuting, not long-distance highway drives.
The base price of the vehicle is $41,450, only a $100 higher difference than BMWs electric
model, making the drive range availability and styling preferences the main buying factors
against one another. However, compared to the Tesla Model S, the price of both the BMW i3
and the Mercedes-Benz B-Class are exponentially lower, targeting a lower average income
shopper for the same luxury brand group.116
Customers can select a vehicle at the dealerships current inventory or place an unique order
customized from the available options. Mercedes-Benz passenger cars are produced and
manufactured in Europe while other product lines are built in Alabama. Models produced in
Europe are shipped to the United States through the German port of Bremerhaven on vessels
that hold up to 6,500 vehicles. The vehicles are then received into three US ports, Baltimore,
MD, Brunswick, GA, and Long Beach, CA. The estimated transit time is around 12-30 days
from Europe to the named US ports. The vehicles are then inspected and quality-controlled in
the vehicle preparation centers. The vehicles undergo another round of inspections once
accessories are installed and repairs are concluded. The finished products are then ready to
be carried to the dealership for sale.117
Distribution
Mercedes-Benz dealerships serve
clients with premium customer
service and assist in leasing,
purchasing, and servicing a
Mercedes-Benz vehicle. These
dealership centers usually include
sales offices, repair and service
centers, and stocks of readily
available cars for purchase.118
These dealerships, as mentioned
in the industry overview, are not owned by Mercedes-Benz, but franchised by automotive
retailers. For instance, Mercedes-Benz dealerships in San Jose are owned by AutoNation.119
Mercedes-Benz USA is in the process of building a regional parts distribution center and
training facility in Grapevine, Texas that is expected to open in 2017. This opens job
opportunities for community members and provides training of Mercedes-Benz dealership
technicians.120
Marketing
From its established prestige as a quality-centered brand for over a hundred years, they reap
the benefits of a recognized and reputable brand. Mercedes-Benz has started to increase
communication with its target market by online advertising, establishing outstanding customer
service, and social media. These techniques reach beyond the niche market of older, high
disposable income consumers to younger consumers.121 Another effective in-person strategy

includes the extensive presence at auto shows. Auto shows attract the most car aficionados
and are the best place to expose a new product. Mercedes-Benz also sponsor major athletic
tournaments, such as the tennis grand slam
tournament, Wimbledon British Open and the
German National Football Team. 122
The Best Customer Experience marketing

and sales strategy focuses directly on the
customer's needs and expectations. It
incorporates the new Mercedes me service
brand, a digital platform directed for the
consumer to have hands-on access when purchasing, financing, or servicing vehicles.
Mercedes-Benz is consistently implementing convenient solutions to aid consumers into
choosing their product over a competitors.109
Human Resources
Daimler AG proposes to offer more than just a job. Working as an employee for Daimler AG
suggests that it will open doors to a successful future. Mercedes Benz USA employs 1,600
people and has 368 associated dealerships that employ 22,000 people.76 Both commercial and
technical jobs are available at Daimler. Commercial openings include sales and marketing,
procurement, logistics, finance, and human resources. Technical openings apply for
development, manufacturing, and service departments. Interested candidates apply online
through the Daimler Career Portal on their website. Employment options are not limited to
corporate or technical positions, but also reach out to dealership positions, often third-party
affiliated.
The company offers programs and developmental measures to hone and foster professional
growth prior to full employment. Once the application is submitted for vocational training, an
initial online test will be sent via email that will dictate whether an on-site test will be forwarded
to the prospective applicant. This training then determines if an interview will be granted for the
applicant to move onto the next step. The technical traineeships provide practical experience,
expertise, and access to new and upcoming technologies. At the end of the traineeship, an
examination deciphers which occupation is best suited for the trainees full-time position.81
Suppliers
Daimlers success depends on their suppliers faithful and trusting cooperation to the
companys Supplier Sustainability Standards. Daimler requests proof of certified environmental
management from suppliers to ensure environmental standards in their supply chain. Their
target for reaching 70 percent supplier certificates of these standards by 2018 has already
been met by 45 percent at the end of 2015. 123 Mercedes-Benz is the first automotive
manufacturer to use renewable raw materials both for exterior and the interior of the products.
By doing so, they eliminate 60% less energy in the manufacturing process. The chassis of
electric vehicles are manufactured almost identically to gasoline-powered vehicles, using the
same materials from German-specific suppliers.85
The B-Class Electric Drives entire drivetrain system was supplied by Tesla Motors. 124 Daimler
and Tesla have had a relationship since 2009, when Tesla was in a precarious starting stage.
Daimler bought 10 percent stake in Tesla in exchange for a battery supply partnership,
benefitting both parties with much needed resources at the time.125 The partnership claimed
successful for both companies: Daimler, an early and important investor in Tesla, and Tesla
providing one of the main components for functionality of the Mercedes B-Class. However after
seven years, news in March 2016 released that Tesla would no longer provide the powertrain
for the next generation B-Class Electric Drive, as they planned to move production and
development in-house. According to Harald Kroeger, head of electric car technology at
Daimler, $550 million has newly been invested in technology to develop its own powertrain and
battery for Mercedes vehicles.126
Core Competencies & Sustainable Competitive Advantages
Competitive Advantages Core Competencies
Pioneer in safety assistances Technical feasibility

Advanced technology High value of brand
Brand reliability Continuously innovative
Excellent customer service Skilled, knowledgeable employees
Corporate social responsibility Increasing annual vehicle sales
High performing and top-notch designed R&D
vehicles
Core Competencies
The basis for their highly advanced safety measures is associated with their long-run technical
feasibility. Their technical knowledge dates back to the 1800s and has been one of their
leading reasons for drawing such strong competitive advantages. Their continuous innovation
would not be achieved if not for their skilled personnel stationed globally. The loyal and
committed employee base make up the future stance of the company. Mercedes product
portfolio across all four divisions create increased annual sales that enables the company to
strive and stretch to allocate more into an already intensive R&D department. Their specialized
R&D provides a strong foundation for their innovation to soar and captivate larger target
markets.127
Mercedes-Benz demonstrates several competitive advantages that provide value to consumers
of the auto market. Their pioneering expertise in safety protocols communicates their deep
understanding and value of quality control measures engraved in their service. Their vehicles
have been the benchmark premium in vehicle safety due to their selective crash tests and
corresponding driving tests for all vehicles. Safety assistances will continue to be heavily
invested in to stay ahead. Their advanced technology has allowed them to retain brand
reliability and withhold a credible reputation for their high performing and top-notch designed
products for decades. Their impeccable and constantly improving customer service remains as
an advantage as they ensure a customer relationship throughout the whole selection process.
Mercedes-Benz relays their attentiveness to their customers through these competitive
advantages that are specifically unique to their brand. 128
Current Strategy
Mercedes-Benzs current strategy is to achieve sustainable, profit growth to increase the value
of Daimler Group through cutting-edge technologies leading to outstanding products.
Mercedes-Benz strives to attain their current objectives by strengthening their core business,
growing globally, leading in technology, and driving ahead with digitalization. Mercedes-Benz
set standards in technologies and innovation, from perfecting autonomous passenger vehicles
to sustainable technologies. By utilizing research and shared systems across divisions,
Daimler AG optimizes their potential to improve technologies in all products. For customers,
they aim to top the rankings in customer satisfaction and impress through first-class quality.
Daimler takes pride in their employees who follow the four corporate values- Passion, Respect,
Integrity, and Discipline in their daily business activities. In instilling these corporate values into
the core business model, Daimler hopes to gain excellent teams that will fuel a diverse mix.
Financially, they set a goal of achieving an average return on sales of 9% spreading across all
of the Daimler divisions and specifically 10% for Mercedes-Benz Cars.129
Future Goals
The Mercedes-Benz 2020 strategy formulated in 2015 addresses customers on an individual
basis and expects to expand new concepts into its vehicles. All sales, service, and financial
service activities will be tailored to each unique customer relationship duration.109 This strategy
is also tailored towards women to view Mercedes-Benz as the most attractive luxury
automobile brand by increasing the proportion of female customers and employees. This
initiative, called Shes Mercedes, is a platform dedicated to empowering women through
networking events and creating dialogue through their digital hub. 130 Mercedes-Benz is
initiating various strategies to target specific groups, such as women and now those who
support sustainable mobility.
The framework of the Mercedes-Benz 2020 growth strategy outlines a goal to produce 30 more
new car models by the end of 2020. Mercedes states they will strengthen their position as the
pioneer in safety technology and autonomous driving. Their feat in being the first automaker to
receive official permission to test autonomous driving vehicles on public roads in California
positions them ahead of other automakers along their way of developing that technology.
The new passenger vehicle

models they attest to
delivering by the end of the
decade, also includes the
introduction of more than 10
all-electric vehicles by 2025.
These electric models will fall
under a new product brand,
called EQ, Electric
Intelligence. The new
generation EVs will exhibit two electric motors, an extended range of 500 km, and typical
Mercedes strengths of safety, comfort, functionality, and connectivity. The closest to
production concept vehicle, Generation EQ, was unveiled at the 2016 Paris Motor Show in
September 2016. The projected first EQ model will be the Generation EQ SUV intended to
release by 2020. In expanding their portfolio in line with and beyond customer expectations,
they are accomplishing their sales and marketing strategy Best Customer Experience.131
SWOT Analysis
Strong brand value and global leader High production costs
No capital constraints Expensive spare parts
Leader in innovation EV only small line of car division and
Lots of capital dedicated to R&D sales
Patents on safety features
Increasing demand for fuel efficient Intense competition
vehicles Government policies and regulations
Fast growing luxury automobile market
and disposable income
Increased fuel prices can broaden EV
market
Mercedes-Benz Daimler exhibits advantageous strengths to contribute to their market success.

Their strong brand value and global leadership stance is among the highest of automakers
since their evolution over 100 years ago. Due to their high reputation and longevity in the
automobile market, there is no foresight of capital constraints, which segways into a larger cap
for research and development, especially for the electric car market. Their establishment
proves Daimler as a constant leader in innovation, conscientious of the future economy and
projected demands. Their movement towards heightened and enforced vehicle safety controls
have allowed them to patent their safety features as a Daimler initiative.
The accelerating growth of the EV market presents an opportunity for Mercedes-Benz to

contribute to the demand towards an energy efficient economy. Also as the economy steadies
and does better, there will be a larger pool of consumers with disposable income to invest in a
luxury electric vehicle.
Mercedes-Benzs weaknesses are attributed to high production costs, expensive spare parts,
and the minimal flow of sales from their B-Class Electric Drive line. The German auto parts
come with a high price tag, which is then reflected in their production. From their single B-Class
Electric, their expenditure is not highly allocated to this new branch of the Mercedes car
division. Thus, the sales of the B-Class is nowhere near that of their gasoline-powered
vehicles. Although increased fuel prices can be perceived as a threat to the gasoline-powered
vehicles, this turns into an opportunity for a broader EV market with price as a determining
factor.
Intense competition from those EV makers who have been in the playing field and the EV
makers projected to enter the market will pose as the biggest threat to Mercedes-Benz.
Government policies and regulations will continue to enforce limitations of fuel emissions to
auto manufacturers.132
Strategic Map
The strategic map is comparing the 2017 MSRP of major electric car manufacturers and the
length of one charge. In addition, the bubble size is a reference to the companys market
capitalization. We must take into account that the market capitalization is for the entire
company, and not specific to electric cars. As shown on the map, Tesla is both the leader in
price and battery charge, setting themselves as the leading pioneer in the electric car industry.
The next bubbles being BMW and Mercedes, Teslas biggest competitors. The strategic map
shows a gap between Tesla and the rest of the group, therefore it shows that there is an
opportunity for a new competitor to fill that spot. This would require the company to produce
and sell an electric car between $50,000 to $70,000 with a battery charge of higher that 114
miles and less than 265 miles.
66 Company Analysis
Company Analysis
Overview
Tesla Motors, headquartered in Palo Alto, California, is an American automobile manufacturer
that specializes in the design, development, and sale of high-performing electric cars and
energy storage products.133 When the company first started in 2003, it wanted to prove that
electric cars were better than the traditional gasoline-powered cars in terms of emissions,
power, and performance. The companys mission statement is to accelerate the worlds
transition to sustainable energy.134 Without any capital or economies of scale, and only one
design, Tesla showed little potential for growth as an automaker. But with subsequent social
and technological advances moving toward sustainable ways of transportation, Tesla has been
able to use these efforts to grow and to attempt to sell their cars to the mass market. Now, with
more than 200 stores operating globally, Tesla provides three fully electric cars: the Model S
sedan, the Model X SUV, and the Model 3 sedan coming out in 2018.
History
Tesla Motors was co-founded in 2003 by Martin Eberhard, Marc Tarpenning, JB Straubel, Elon
Musk, and Ian Wright. Martin Eberhard and Marc Tarpenning, the original engineers of Tesla,
wanted to show the world that they can build an electric car that was better than a gasoline-
powered car. But with no capital and no economies of scale, they believed that building a
sports car for the luxury car market would be the best way to start out. Using the AC induction
motor, patented by Nikola Tesla in 1888, they developed the Tesla Roadster in 2008. This
sports car could accelerate from 0 to 60 mph in 3.7 seconds and offered a range of 245 miles
on a full charge.135 The idea of a fully electric engine was not unheard of at the time, but the
unique design of the Tesla Roadster engine, which was based off a lithium-ion battery, showed
the world that the car can produce zero emissions while providing superior performance. The
Roadster eventually became critical for the success of Tesla as it showed potential growth for
investors and showed the company how it could improve.
As Tesla was reaching its last round of funding, the company found itself in financial struggle.
In order to help Tesla avoid bankruptcy, two of the biggest automakers, Daimler AG and
Toyota funded Tesla with $100 million, which eventually became the funding that helped
develop the Model S. 136 Toyota sold Tesla the New United Motor Manufacturing, Inc. (NUMMI)
plant in Fremont, California for $42 million, which allowed Tesla to operate at a higher capacity
and is still its primary manufacturing facility to date. In addition to support from Daimler and
Toyota, Panasonic also invested $30 million and reached a deal to develop batteries for Tesla.
67 Company Analysis
The company issued its IPO on the NASDAQ Stock Exchange on June 29th, 2010. Two years
later, Tesla came out with the Model S sedan, a more commercial car, which was more
efficient and offered a stunning range of 275 miles per charge. The cost of developing the
Roadster and the Model S was $140 million and $650 million, respectively. Tesla was able to
produce high-performance electric cars with reasonable costs, especially in comparison to
General Motors $1 billion investment into EV1, its first electric vehicle. 137
Three years later, on September 2015, Tesla introduced the Model X SUV. Tesla has always
been built around the idea of its mission statement: to accelerate the worlds transition to
sustainable energy. In order to do so, one of Teslas main goals is to provide their cars to the
mass market as quickly as possible.138 But, due to the nature of the developing industry, it was
difficult to start out that way. In 2018, Tesla will be producing and delivering their first affordable
electric car, the Model 3. It will be interesting to see how the company plans to achieve their
goals with their brand built on the idea of luxury.
Assumptions
Tesla assumes, with the release of the Model 3 sedan and the development of the Gigafactory,
they will continue to be the industry standard in high performance electric cars. The results of
the Model 3 will determine whether the company is able to sell their cars in the mass market.
The problem right now is with production in the Gigafactory. Since there are no storage costs,
Tesla waits until release before production starts. But another problem is not producing enough
lithium-ion batteries. The company fears that Panasonic will not be able to provide the
increasingly high demand for a Tesla Model 3. But the company assumes that they will be able
to provide in both aspects without incurring additional costs. Jumping from 80,000 cars per
year to 500,000 will be an obstacle for the company.
Financial Statements Analysis

Ratios
Current Ratio: 2,791,568/2,816,274 = 0.99123
The current ratio is the companys current assets over its current liabilities. This is to see how
capable the company is at paying off its most current debts. With their current assets as
$2,791,568 and their current liabilities as $2,816,274, this gives us a ratio of 0.99 meaning that
the company has almost enough to pay of its current debt. 139 A ratio of 1 or higher means
shows sufficiency.
68 Company Analysis
Return on Assets: -888663/8092460 = -0.10981
Return on Assets is a financial measure that measures the how much of the profit comes from
the companys assets alone. If the company is heavily dependent on capital, then this measure
is a very accurate measure on its performance. Since the return in negative, it means that the
company is losing money through its assets.
Return on Equity: -888663/1088944 = -0.81608
Return on Equity is another financial measure that measures the amount of net income
returned through a percentage of shareholders equity. This measure shows that there is a
great negative return on shareholders equity.
These financial measures are the key ratios for Tesla because of many factors, including its
industry, how it operates, and how it finances. Since an automobile company is dependent on
high capital, it becomes important to see how much return it gets from it. Since the company
focuses on equity financing, it is also important to see the return on that as well. Tesla is a
company that is currently incurring a lot of debt. It becomes important to see how quickly and
able the company is at paying off its debts.
Finance
As the company reached the end of their 3rd quarter at the end of September 2016, Tesla
announced that their Q3 sales were more than double a year ago.140 This brings their total car
deliveries this quarter to 24,500. This is good for the company as it exceeded analysts
expectations, which drove Teslas stock price up. Even though sales are improving every
69 Company Analysis
quarter, it will be difficult to predict how Tesla will perform with more acquisitions and the
development of the Gigafactory.
Tesla Motors currently sells cars in three models: the Model S sedan, the Model X SUV, and
the Model 3 sedan beginning production in 2017. The Model 3 coming out in 2017 becomes a
significant milestone in Tesla in that it is their first economical car. Pre-orders are set for
400,000+ cars with a base price of 35,000 dollars. To prepare for the upcoming production
needs, Tesla began production for the Gigafactory and was finished in 2016. The cost of the
Gigafactory is around 5 billion dollars with some of the money coming from other companies.
As of November 2016, Tesla has finished its acquisition deal with SolarCity for 2.6 billion
dollars.141 With 2017 right around the corner, Tesla would need more cash to begin production
of the Model 3 sedans. This puts the company in a tight financial position since Tesla continues
to incur costs and debts without much show for profitability yet. If all goes well, Tesla expects
the company to reach profitability by 2020.142
Standard & Poors, an institutional credit rating agency, gave Tesla a credit rating of B-,
classifying it as a speculative bond, or junk bond. 143 This sort of credit rating makes it difficult
for the company to issue corporate bonds, a way of financing through debt. Corporate bonds
are usually more appealing than bank loans in that the company gets better interest rates. But
since it was given such a low rating, investors will not want to invest. So, it becomes easier for
the company to finance their projects through equity.
As of right now, by looking at their financial statements and ratios, we can see that the
company can barely pay off its debts with the assets that it has. With the company running
under a net loss while still acquiring more assets, it is difficult to see what the plans are for the
company and how they are going to perform in the future. Since equity financing is one of their
own choices right now, Tesla needs to utilize and maintain that as an option. Even though the
company plans to reach profitability by 2020, it is still a long time before we can see those
results.
70 Company Analysis
Suppliers
As of April 16th, it has been made known that Tesla gets its materials from 33 different
vendors, with 40 percent residing in the United States and 30 percent residing in Switzerland,
China, and Japan.144 Panasonic provides the car batteries, Magna International is responsible
for the design of the exterior and powertrain, Shiloh Industries provides the aluminum,
magnesium, and steel, A. Schulman offers plastics and colors, and AK Steel Holding
Corporation is responsible for electrical and stainless steel. But with the development of the
Gigafactory, Tesla is planning to produce most of everything in house, integrating their entire
company vertically. In Teslas 10-K, which ended on December 31st, 2015, there were three
things that Tesla stated that it was going to focus on: batteries, energy storage, and lightweight
material.
Batteries
Teslas batteries are very unique since they provide a mile range better than any other electric
car in the market. Tesla used to source its batteries from Panasonic, a Japanese electronics
company, as a third party supplier. However, with the recent development of the Gigafactory,
Tesla will now be making all of their batteries in-house with the help of Panasonic as its
strategic partner. The massive Gigafactory venture comes in response to the companys
search for more lithium-ion battery options to supply the demand for the upcoming Model 3
sedan. Tesla will utilize Panasonics battery cell technology to create energy efficient and cost
effective batteries that will go into the newer models. The raw materials needed for Teslas new
battery cells are graphite, cobalt, and lithium. These materials are mostly sourced from
different parts of the world - with graphite coming from Japan and parts of Europe, cobalt
acquired by Sumitomo Metal Mining in the Philippines, and lithium extracted from mines in
Chile. With the introduction of the Gigafactory, Tesla is hoping to source its raw materials from
71 Company Analysis
North America to reduce the costs of acquiring resources internationally, establish a localized
supply chain, and minimize the companys environmental impact.145
Energy Storage
With the recent acquisition of SolarCity, a company that focuses on solar panels and
sustainable energy, Tesla plans to enter a market that focuses around their Powerwall and
energy storage. As for their cars, Tesla plans to use this new technology for their battery
charging to create a more integrated system.
Lightweight Material
Tesla talks very briefly on providing more lightweight materials and applying them in their future
cars.146 Since the batterys mile range is dependent on the cars weight, Tesla plans to
research more durable and lightweight materials, such as carbon fiber that it could possibly
apply to its automobiles. Considering how Tesla works with Shiloh Industries in providing
aluminum and other metals for their cars, it is possible that we will see a more direct
partnership with them in the future.
Capabilities
Organizational Structure
Teslas organizational structure in Tesla is split up into two main groups: Board of Management
and Board of Directors. In the Management board, we have the Elon Musk as CEO, JB
Straubel as CTO, and Jason Wheeler as CFO. In the Board of Directors, we have Elon Musk
as Chairman and a total of six directors, five independent directors and one director with
affiliations with the company.
Teslas CEO Elon Musk has been instrumental to the companys success. Twenty five years
ago, Elon Musk listed five areas that he thought would affect the future of humanity the most
and now he has already tackled three of them so far ; space exploration, sustainable energy,
and the internet. His commercial space exploration company, SpaceX, might be putting people
on Mars within the next fifteen years and never stops envisioning what is next.147 He has been
dedicating his life work to making the world a better place and continues to strive for greater
collective enlightenment. Driven with a purpose, Musk accomplishes whatever he sets his mind
to and that is why he remains as a vital part to the strategy and structure of the organization.
His expertise and intelligence pushes forward refusing to be constrained by limitations of
whatever lies in his path.
In Teslas Board of Directors bylaws, you can purchase enough shares to be placed in the
Board of Directors. But there will always be more independent directors required by law. All of
72 Company Analysis
the elections and nominations are governed by Teslas Nominating and Corporate Governance
Committee.148
Board of Management
Chief Executive Officer: Elon Musk
Chief Technical Officer: JB Straubel
Chief Financial Officer: Jason Wheeler
Board of Directors
Chairman: Elon Musk
Lead Independent Director: Antonio J. Gracias
Independent Director: Brad W. Buss
Independent Director: Ira Ehrenpreis
Independent Director: Steve Jurvetson
Independent Director: Kimbal Musk
Director: Robyn M. Denholm
Operations
Unlike many companies in the automobile industry, Teslas operations are about 80% vertically
integrated.149 The companys focus is to minimize outsourcing as the majority of its processes
are done in-house at Teslas state-of-the-art manufacturing plant. The flagship factory is
located in Fremont, California and operates at full capacity in the 5.3 million square feet space,
producing over 100,000 cars annually.150 The facility houses 160 specialized robots with
advanced capabilities, which demonstrates Teslas emphasis on utilizing automation to the
fullest extent to improve process efficiency. 151
Tesla has recently built the Tesla Gigafactory in Nevada dedicated solely to producing lithium-
ion batteries. Expecting to reach full capacity in 2018, the 13.6 million square feet facility was
built to accommodate the increased volume of Tesla vehicles expected to be produced,
especially on the heels of a new model release.152 The Gigafactory will bring Teslas vertical
integration to the next level, as production of the lithium-ion batteries are no longer being
outsourced to their supplier Panasonic. Instead, Tesla will partner with Panasonic to help
oversee battery cell production within its own factory. The ultimate goal is to optimize quality
73 Company Analysis
while reducing the production cost of a battery pack by 30%. The target cost is $100 USD per
kWh of energy storage by 2020 as opposed to its current cost of under $190 USD per kWh. In
the future, Tesla has plans for annual battery production capacity of 50 GWh once at full
capacity, enabling the company to produce 1,500,000 cars annually. 153 Reaching these goals
will solidify Tesla position outside of the niche market and make them extremely competitive
with traditional internal combustion engine vehicles.
In addition to these facilities, Tesla has an assembly facility in Tilburg, the Netherlands as well
as a specialized production plant in Lathrop, California. 154 With future projections of higher
sales volume, Teslas expansion of manufacturing facilities will likely continue.
Target Market
Tesla markets its cars as premium electric sedans and SUVS. Because its products are
considered luxury, premium-brand vehicles and have a higher price point, Teslas target
market can be seen as consumers with higher annual income of over $100,000. However,
since its initial introduction to the market, Teslas cars have transitioned from an indication of
socioeconomic status to a statement about sustainable living. Teslas target market are
consumers who, still wanting a high-performance car, are concerned with being
environmentally friendly and are willing to invest in a higher end vehicle to produce greater
returns in the long run.
Marketing
Teslas marketing strategy is different in that it does not allocate for marketing; costs are
expensed as they are incurred. The 2015 annual report shows that Tesla spent a total of $58.3
million on advertising, promotion, and marketing expenses a small portion of its $4 billion
generated revenue in that same year. 155
74 Company Analysis
With no major marketing campaigns or traditional advertising efforts, Tesla relies on media
coverage and word-of-mouth to build brand awareness and generate demand. Because of its
innovative technology and unique product line, the companys every move is highlighted and
documented by the likes of news outlets, business journals, online blogs, etc. CEO Elon
Musks presence in the public eye as a visionary further drives media coverage, especially
when there are major announcements or product reveals. The company has a fascinating story
to tell, as it resonates with consumers because of the value that it offers to the industry.
Another primary driver of marketing is Teslas direct sales model. Instead of traditional
franchised car dealerships, Teslas company-owned network consists of retail stores and
galleries located in premium outlets in metropolitan areas. Teslas stores bring visibility to the
brand because they welcome potential customers to learn more about the cars with the help of
Tesla-employed staff. In-store interaction also encourages people to provide feedback about
the products and input about the product development process. This creates a unique
relationship between the company and its consumers, differentiating the buying experience
and allowing consumers to learn about the brand in a pressure-free environment.
Products
Tesla designs, develops, manufactures, and sells electric vehicles and energy storage
products. Teslas cars are characterized by their sleek, innovative design and high
performance unparalleled by other electric vehicles. The use of an electric powertrain allows
the vehicles to be energy efficient and mechanically simpler than traditional vehicles on the
market using internal combustion engine vehicles. Simpler mechanical design allows for lower
maintenance costs.
Currently, Tesla has two electric vehicle models on

the market, the Model S sedan and the Model X
SUV. The Model S, launched in 2012, is their classic
four-door car that combines both functionality and
luxury style. With a base price of $66,000, it has a
218-mile range from a single charge and is available
with premium features like the autopilot system and
a 17-inch touch screen interface with corresponding
software.156 If a customer is looking beyond the
standard 60 kWh battery, the Model S has the capacity to go all the way up to a 100 kWh
battery pack with a 315-mile range and a $134,500 price tag.
75 Company Analysis
The Model S has been named the best-selling luxury sedan in the United States, even beating
out competitors in the traditional automobile industry. It has also received the highest
consumer satisfaction rating of 98% in a survey conducted by Consumer Reports. Factors that
were considered include drive, style, features, comfort, fuel economy, value, repair cost, and
cargo space - all of which received either an excellent or very good rating.157 In addition to
high consumer ratings, The Model S was awarded five stars from the National Highway Traffic
Safety Administration for its safety track record. Tesla prides itself on safety technologies which
include electronic stability control, traction
control, adaptive lighting, bio-weapon defense
mode, and plenty more. The Model S has
proven to be Teslas most successful model to
date, surpassing the satisfaction rate of both
plug-in and conventional cars, and helping the
company to fully penetrate the market.
The next model currently on the market is the

Model X, which was introduced as Teslas sport utility vehicle. Its base price starts at $88,800
and offers more space and passenger seating. Following the companys commitment to high
performance and design, the Model X starts at a 237-mile range with its 75 kWh battery and
has a falcon wing door system.158 It can reach a 289-mile range with a 100 kWh battery pack,
priced at $138,800. Like the Model S, the Model X offers technological features such as over-
the-air software updates, Autopilot hardware, and navigation system with real time traffic
information.
In addition to these two models, Tesla has plans to produce a third generation of compact,
affordable vehicles starting at $35,000 called the
Model 3. The Model 3 can be seen as Teslas foray
into the mass market, as its current models are priced
a bit higher. In preparation to meet the models high
demand, Tesla has built the Gigafactory to supply the
hundreds of thousands of batteries as well as
increased the working capacity at its current facilities.
Production and delivery is slated to take place in late 2017.159
Tesla aims to create value that extends beyond its electric vehicles. The companys ultimate
goal is to create a more sustainable world. With the two existing models and the third being
released soon to the mass market, Tesla is working to ensure the universal adoption of electric
vehicles.
76 Company Analysis
The process of transforming raw materials to finished goods takes about 3-5 days and occurs
at the Fremont facility. The body of the Model S, Teslas most popular car to date, is 98%
aluminum. The factory operates massive stamping presses, taking 50 to 60 coils of aluminum
per car to create stamping panels for various parts. Those aluminum parts are transported to
the central location of the body center, where robots perform assembly on the shell of the car
using adhesives, self-piercing rivets, cold metal transfer, and welding. A robot will then lift the
body shell onto a conveyer leading to the paint shop; once painted, the car is ready for general
assembly. Smart carts move the body as well as other parts throughout the factory by
following a magnetic strip on the floor of the factory. This allows for quicker transport and
efficiency in operations as the interior of the car is built. Design engineers and factory workers
are present to inspect the quality and the production process.160 However, the majority of the
factorys functions are completed through automation and have a relatively small margin of
error.
77 Company Analysis
Distribution
Tesla has a direct-to-consumer sales model that allows the company to exercise complete
control over its sales and services. Rather than following the standard, independently owned
dealership model, Tesla uses its corporate-owned model to its advantage. Currently, there are
99 retails stores and galleries across the U.S. and over 120 stores worldwide, with imminent
plans to add more.161 The stores are located in prime, high-traffic locations to attract an optimal
amount of people. They act as showrooms where customers can see sample models, interact
with product specialists, learn more about the implications of purchasing an electric vehicle,
and potentially place their orders. In addition to the retail stores, Tesla also utilizes an online
sales model that allows customers to directly order their model through the Tesla website.
All cars are custom-built and made-to-order in the Fremont factory. Once an order is placed, it
takes about 1 week for the order to be submitted to the factory. Customers within close
proximity can pick up their vehicle on site within 6-8 weeks, while customers located further
away receive their delivery within 8-10 weeks.162
Teslas deviation from the traditional sales model carries a strategic purpose. CEO Elon Musk
stated that, Our technology is different, our car is different, and, as a result, our stores are
intentionally different.163 The companys distribution channel is controlled internally, therefore
reducing selling costs as well as inventory holding costs.
Human Resources
Arnnon Geshuri is Teslas Vice President of Human Resources. Having previously worked at
Google as Senior Director of Human Resources and Staffing during a pivotal time of growth,
Geshuri possesses the expertise to guide Tesla in the right direction. Since taking on the
position, Geshuri has helped the fast-growing company hire top-notch employees, including
executive staff, engineers and other key employees.
At its IPO in 2010, Tesla had an estimated 650 employees. 164 In its 2015 10-K filing, Tesla
reported 13,058 full-time employees, a number that is expected to increase significantly within
the next year. The company offers jobs in a multitude of business areas and are divided into
over 20 generalized teams. Technical job openings include - but are not limited to -
engineering, R&D, manufacturing, and IT. Non-technical, business-related job openings
include communications, marketing, HR, sales, retail development, finance, etc. 165 Interested
candidates can apply to open positions through Teslas online Career Portal.
Attracting the right talent is extremely important for a company whose standards are as high as
Teslas. The company values agility, efficiency, and excellence in all of its workers. To
78 Company Analysis
encourage this, Tesla names employee engagement as part of its core strategy. A presentation
by Teslas Head of Global Employee Engagement Louis Efron and HR Business Partner
Juliana Bednarski outlined how Tesla turns employee engagement into accelerated business
results.166 The company aims to attract qualified talent, foster exceptional leadership, instill
purpose, and drive innovative results. The idea is that employee engagement equally impacts
customer engagement.
To help understand the needs of its employees, Tesla launched a company-wide survey to
gauge its current employee engagement and strengthen its overall employee relations. The
Tesla360 survey had a 91% participation rate and enabled employees to make comments and
suggestions. The results were released within 2 weeks of the survey close, allowing for
transparent communication from the top down. Based on the results, there was a call to action
for each team and progress for those stated goals were tracked over time. 167 These efforts
place importance on the people that make up the company, and not just the products. With
high employee engagement, there is 15% more profitability, 30% more productivity, and 12%
higher customer engagement a clear indication that a company is most successful when it
values its employees.
Brand Image
Tesla began as a small startup with a big vision in 2013. Since then, the company has proven
to be a force in the automobile industry. Having made Interbrands Best Global Brands list in
2016, Tesla has positioned itself as an exceptional brand with a promising future. 168
A large part of this can be attributed to Teslas innovative efforts. As seen in each of its models,
Tesla has revolutionized the concept of the electric vehicle with cutting-edge technology and
sleek design. Teslas brand image is not only reliant on its high-quality products, but also the
direction of the company in the future. The strength of its brand lies in the public perception
that Tesla is constantly creating and reinventing ways to live sustainably without compromising
aspects valuable to consumers like high performance and style.
Teslas relatively quick trajectory into one of the worlds top brands can also be attributed to its
customer loyalty. The company values customer engagement and enables this through its
service offerings, such as alerting customers when a check-up is needed or being able to call
upon a service ranger when in need. Tesla also holds customer events to showcase new
technological developments and updates to its vehicles. Although it is a newer brand in
comparison to other automakers, Tesla has secured a loyal customer base through its
emphasis on building strong customer relationships.
79 Company Analysis
Competitive Advantage & Core Competencies
Competitive Advantage Core Competencies
Industry Standard Batteries Gigafactory

Supercharger Network Efficient Engineering
Before January 2017: Free Computer Aid Design
After January 2017: Costs money Innovative Manufacturing
Strong Customer service No storage costs
Made to Order Purchases Direct Dealership
Autopilot feature
Tesla demonstrates their competitive advantages through the quality and flexibility of their
automobiles and through the strength and responsiveness of their salesforce and customer
service. Teslas batteries, when compared to the electric cars of both BMW and Mercedes
Benz, have a higher mile range than its competitors. This means that the cars can travel a
greater distance before it has to charge again.
As for their Supercharger Station Network, Tesla owners who buys their car before January
2017 can receive a lifetime supply of charging. The Supercharger Network boasts 744 stations
with 4,703 Superchargers across the world with superior charging capabilities. The
Superchargers, exclusive to Tesla owners, can charge up to 120 kWh in as little as 30 minutes,
providing 170 miles of range.169 This becomes important because Teslas Superchargers can
charge faster than any other charger in the market. With Teslas expansion and development
of their Superchargers, Tesla drivers can travel greater distances than they could have before.
This creates value for the customers because now they have the same capabilities as a
traditional gasoline-powered car but at a lower cost.
Another competitive advantage is Teslas Autopilot system.170 This system gives the customer
the ability for the car to essentially drive itself through a series of radar technology. This is a
strong competitive advantage as Tesla is the only automaker of the sort that has been able to
develop this technology successfully for the consumer market. This is another example of
Teslas innovation that separates them from other automobile manufacturers.
Not only do the features of Teslas electric car bring value to the customer, but it is also the
process of purchasing it as well. Teslas business model capitalizes on the made-to-order
customer experience, offering a great range of product features. The unique aspects of the
80 Company Analysis
purchasing a Tesla automobile is how the customer is able to customize it in a way that fits
them best and how effectively the companys customer service is able to ensure that the
customers needs are met. By optimizing these competitive advantages, Tesla generates a
better brand image of themselves based on care, quality, and customer loyalty.
Core Competencies
In terms of production and manufacturing, the core competencies of Tesla are exemplified
through its innovative manufacturing and efficient engineering.171 Tesla has always been built
around the idea of innovation. Tesla began selling electric cars when electric cars were barely
known or understood to the public, which is what essentially makes them different and more
premium than the other brands; their ability to continually innovate and provide value to the
customer will be the aspect that progresses them into the future. Another unique core
competency is how all their cars are made to order. These cars are customizable and built
according to the specific wants and needs of the customer. Since all automobiles are made to
order, it puts pressure on the company to manufacture and deliver the car as quickly as
possible. Using this method also means that the company does not incur storage costs, which
is unique in their industry. Through its efficient engineering computer aid design, Tesla expects
to decrease product development times, which will become essential as the demand for Tesla
cars grows while the means to produce them do not. For this reason, the Gigafactory will
become one of the most important core competencies for Tesla.
Through the Gigafactory, Tesla moves most of its production in-house, especially the batteries.
Since Tesla purchases their lithium-ion batteries from Panasonic, making the batteries in-
house reduces costs for the company to buy and transport the batteries. 172 It also gives them
more control over the development of the battery architecture, bringing more value to the
company in terms of proprietary technology. Tesla has huge production goals for the future
with high expectations on the quality of the battery pack. The Gigafactory will help meet those
goals to create exceptional batteries in terms of range and performance value. In terms of
retail, however, the direct dealership allows Tesla to reduce its retail costs since the cars do
not have to go through a third-party dealer in order to sell. This gives them more control over
their prices and less flexibility on negotiation.
81 Company Analysis
Cost and Comparison Analysis

Company Mercedes Benz BMW i3 Tesla Model S
B-Class
Battery 85 mi 114 mi 265 mi

Range/Charge
MSRP $41,450 $42,400 $66,000+ (non-

negotiable)
Battery Capacity 28 kWh 22 kWh 100 kWh
Battery Life 5-10 years 5-7 years 10-12 years
Number of 9,758 (US, 9,758 (US, 9,758 (US,

Charging Stations Common) Common) Common)
4,703 (US,
Supercharger)
Annual charging Home: $600 Home: $400 Home: $550

cost
(Avg 12,000 miles Chargepoint Chargepoint Superchargers

per year) (2016): $1,934.52 (2016): $1,131.90 (2016): Free
When compared to the Mercedes Benz B-Class and the BMW i3, the Tesla Model S comes out
to be superior in terms of battery mile range, battery size, battery life, and annual charging
costs. The only downside to Tesla Model S is the non-negotiable $66,000 in comparison to the
negotiable $42,000 that of BMW and Mercedes Benz. Although it is more expensive to
purchase a Tesla Model S, the features of the Model S in terms of battery and charging
stations show that, in the long-term, provide more value to the customer at a lower cost. Under
an assumption of an average of 12,000 miles a year and an average electricity cost of $0.12
per kWh, it only costs $400 a year for the consumer to charge at home for BMW while it costs
$550 a year for Tesla.173 This is because the battery capacity is more demanding for the Tesla
than it is for the BMW.
Although there are a lot of other charging stations, Chargepoint is more common and prevalent
in the US. Depending on the area and the type of membership the driver has with the
company, charging prices can range from $0.35-$0.79/kWh.174 But, in Silicon Valley, prices
average about $0.49/kWh. The prices under Mercedes Benz and BMW show the annual cost
of charging solely via Chargepoint. Even though Tesla automobiles can use Chargepoint as a
charging station, Tesla has its own charging stations, or Supercharger stations. There are
82 Company Analysis
thousands of Superchargers available to Tesla owners, demonstrating great reach and

accessibility to its customers. The Supercharger station is unique to any car in that it is free to
any Tesla customer and it charges the car halfway in 15 minutes. This provides value for a
Tesla customer in that they would not have to incur more costs in owning a Tesla automobile.
Current Strategy
Teslas strategy is to deliver a high performance electric vehicle that appeals to the mass
market. To achieve this, the company is pursuing to provide value to the customer at an
affordable cost. They are increasing the appeal of electric vehicles by upgrading their top
speed, range, technology, safety, aesthetics, and ergonomics. In doing so, they hope to
increase competition and encourage the worlds transition to sustainable energy. Teslas
strategic framework is to deliver a high-priced car at low volume (Tesla Roadster), a medium
priced car at medium volume (Model S), and a low priced car at high volume (Model 3). The
company has chosen to focus on innovation and sustainability efforts over profitability.
Constantly striving to stay ahead of the curve, Tesla keeps its customers happy by providing
ever-changing software updates, self-driving technology and a constantly expanding charging
network.
As a leader in innovation, a common thread between Teslas current strategy and future goals
is the companys growth and expansion.
Future Goals
The companys goals for the future have been outlined by CEO Elon Musk and align with its
commitment to transitioning the world to sustainable energy. The major goals as it pertains to
Tesla and its electric vehicles are:
Integration of Energy Generation and Storage

Under the primary goal of sustainable energy, Tesla has invested in the integration of a solar
roof with powerful battery storage. The concept involves a well-designed roof with individual
solar tiles that collects solar energy for use or storage. The Powerwall battery then stores any
excess solar energy and supplies clean electricity when needed. 175 Through this, the individual
becomes his or her own utility. Teslas electric vehicles can be charged at home using only
solar energy from the solar roof or battery, ultimately creating a fully sustainable and zero-
emissions way of life.
83 Company Analysis
Expansion to Cover Major Forms of Terrestrial Transport

Tesla has plans to penetrate more market segments to address the needs of consumers
beyond their current models in the premium sedan and SUV segments, as well as their
anticipated models in the compact sedan and pickup truck segments.
In the coming years, Tesla expects to expand its product line into heavy-duty trucks and urban
transport. The Tesla Semi trucks will bring increased safety measures and cost reductions in
cargo transport, while the passenger-dense buses will improve traffic congestion and transform
the role of the bus driver.176 Moving into these segments demonstrates Teslas mission to
extend the notion of sustainability to all people. With heavy consideration on what consumers
need in the future, Tesla will make a significant impact on society as it moves towards
decreasing the carbon footprint of the population.
Autonomous Driving
The Autopilot feature on all current Tesla models allow for partial autonomy. Using sensors,
radars, cameras, and digitally controlled brakes, the feature enables vehicles to manage its
own speed, steer, and self-park. Tesla is working to improve its system, with a goal of being 10
times safer than the U.S. vehicle average. 177
Graduating from Autopilot, the companys ultimate goal is to deploy vehicles with full self-
driving capabilities with a fail-operational capability. The computing hardware necessary to do
so already exists in its vehicles, but the software is still being refined. Tesla has collected 1.3
billion miles of Autopilot data to date to develop the software and improve the advanced neural
maps of its artificial intelligence unit. Tesla expects to deploy fully autonomous vehicles by Q4
of 2017.178
Sharing
Once fully autonomous vehicles are approved by regulators, Tesla will create its own network
in which owners will have the option to add their own vehicles to a shared fleet. The Tesla
phone app will enable customers to summon Tesla vehicles while car owners are busy at work
or on vacation. The rationale is that most cars are in use 5% to 10% of the day; owners who
lend their vehicles to the fleet will generate income that could potentially exceed the monthly
cost of the car itself. This service will increase the vehicle's economic utility while offering
convenience through an online transportation network.
84 Company Analysis
SWOT Analysis
Unique market position Limited cash funds
Strong relationships with partners High debt load
Leader in innovation, technology, and Current lack of economies of scale
design
Proprietary technology
Supercharger infrastructure
Increasing awareness and concern of Government policies and regulations
environmental impacts Meeting production demands
Appeal of Model 3 to the mass market (manufacturing capacity)
Innovation of battery technology Increasing competition in the
automobile and EV market
Established competitors
Tesla demonstrates great strengths that contribute to its success in the electric vehicle market.
As the first car manufacturer to offer luxury, long-range electric vehicles with supporting
infrastructure, Tesla has solidified its unique position in the market with a strong brand image
emphasizing high quality, functionality, performance, and design. Their high innovation
premium through proprietary technology and advancements in groundbreaking self-driving
technology prove that they are leaders in the market. Their willingness to share patents with
other auto manufacturers contributes to a greater vision of the widespread adoption of electric
vehicles, as well as creating greater economies of scale. Tesla maintains strong strategic
partnerships with companies like NVIDIA, who provide the AI car computer for self-driving
vehicles, and Panasonic, who help to oversee battery development and production at the
Gigafactory.179 These strong partnerships have allowed Tesla to continue to push its
innovative efforts in creating products to meet the demands of the future.
Increasing concern surrounding the environmental impact of automobiles have created

opportunities for Tesla to contribute to the trend towards an energy efficient economy. In
response to this growing demand, Tesla is planning a highly-anticipated release of the Model 3
compact sedan. With over 400,000 reservations before its release, Tesla will be able to reach
the mass market, compete with lower end electric vehicle manufacturers, experience
exponential sales growth, and finally reach profitability.180 With the Model S and Model X, Tesla
produces low-volume, premium vehicles with higher costs. With plans for a high-volume
vehicle like the Model 3, the cost per unit will substantially decrease and employ economies of
85 Company Analysis
scale that is currently lacking. Additionally, efforts in battery technology innovation at the
Gigafactory will likely present Tesla as driver in the industry.
Teslas weaknesses can be attributed to significant investments in R&D as well as rapid

expansion. Tesla has made strategic acquisitions in companies like SolarCity and Grohmann
Engineering as well as heavy investments in the construction of its $5 billion Gigafactory. 181
Although this allows them to make great strides in transformative technology and innovation,
limited cash funds are available to the company. Due to this, negative cash flows and earnings
have been reported in consecutive years, leading to long term debt of $2.5 billion compared to
its $1.4 billion of cash on hand.
Competition from automakers entering the EV market is expected to pose a huge threat to
Tesla, especially from established competitors with access to larger amounts of capital to
dedicate to R&D and manufacturing. With Tesla preparing to ramp up production for the Model
3, limitations of the facility's limited manufacturing capacity may impede on its ability to meet
production demands. Teslas goal of manufacturing 500,000 electric vehicles annually by 2018,
in comparison to its current number of 50,000, presents substantial threats to the companys
market success.182
Competitor Comparison & Evaluation

Teslas competitors pose great threats to the companys position in the electric vehicle
industry. Its competitors Mercedes and BMW are much larger, well-established automakers
that have dominated the automobile industry for close to a century. In comparison to Tesla,
they offer wider-ranging product lines and have greater reach across the globe. As social
trends move towards more sustainable living, the industry is experiencing increasing growth
with companies like Mercedes and BMW introducing their own electric vehicles. A major
distinction to note is that Tesla is primarily an electric vehicle manufacturer, whereas its
competitors are traditional automobile manufacturers moving into what they might consider to
be a niche market. These prominent brands have more capital and resources that allow them
to closely rival Teslas efforts.
In response to this inherent disadvantage, Tesla will have to continue to build and strengthen
its brand. Tesla will need to capitalize on its unique, direct-to-consumer business model in
order to differentiate itself from its competitors. This includes increasing the number of retail
stores in the United States as well as other major countries to increase its overall reach. More
retail stores will allow Tesla to educate more people on the benefits of driving an electric
vehicle as well as facilitate more sales. In doing so, Tesla will generate more brand awareness
and become visible to a greater amount and wider range of customers, ultimately aligning with
86 Company Analysis
the companys goals of reaching the mass market. Tesla has the opportunity to dominate the
industry against Mercedes and BMW, since electric vehicles are only small segment of their
product lines and do not appear to be the primary focus for those companies.
Both Mercedes and BMW are industry leaders in innovation. They are constantly investing in
new technologies to provide a greater edge in all of their products. Because they are very well
established, they have the resources and capital to support those newer developments. Amid
this competitive landscape, Tesla can stay ahead by continuing to outperform its competitors
with its disruptive technologies and superior processes. Although it is a relatively newer entrant
to the market, Tesla has managed to revolutionize the way electric vehicles are designed,
developed, and produced. With ambitious plans for the future like the Gigafactory and fully
autonomous car, Tesla has created a new standard for the industry that will challenge many of
its competitors.
While Teslas competitors have strengths in their premium brands, Tesla has been able to
surpass its competitors with a vision that resonates with a wider variety of people. Tesla is
committed to its mission of accelerating the worlds transition to sustainable energy. In order to
maintain its position in the electric vehicle industry, Tesla should focus on reaching a wider
demographic, growing its brand visibility in other geographic areas, and continuing to innovate
new technologies.
87 Strategy Formulation
Strategy Formulation
Current Strategy
Tesla aims to design and manufacture exceptional electric vehicles geared towards the mass
market under the overarching goal of sustainable transportation. The companys strategy
involves using a unique business model to deliver electric vehicles characterized by high
quality, performance, and design to drive the world towards a more sustainable future.
There are currently over 200 Tesla retail stores worldwide, mostly located in metropolitan,
densely-populated areas to attract the optimal number of customers. All stores are corporate-
owned and staffed with knowledgeable product specialists to better educate those who are
potentially interested in purchasing a Tesla. Teslas business model relies on a straight-to-
consumer strategy, eliminating price mark-ups typical of third-party dealerships enlisted by
most other car companies. The purpose of the retail stores is to create Teslas own distribution
channel and generate brand awareness, cutting down costs of independent dealerships as well
as marketing efforts. As it works to expand its presence geographically, Tesla will be able to
broaden its reach to the mass market.
Tesla leads the industry with a heavy focus on innovation, as demonstrated by its integration of
emerging technologies in its electric vehicles. Many of Teslas vehicles utilize software and
connectivity to provide features such as automatic software updates, remote repairs and
partially autonomous driving.105 Its vehicles contain large touch-screen dashboards which
enable customer interaction and connectivity. In addition to this, Tesla is continually forward-
looking. Tesla has been ambitious about its venture into fully autonomous, self-driving vehicles
to revolutionize not only sustainable vehicles, but transportation itself.
Teslas innovation-centric strategy allows the company to direct its resources and capital
towards R&D and expansionary efforts rather than marketing and promotions. With the
construction of the 13 million square foot Gigafactory, Tesla has taken a stake in the
development and large-scale production of lithium-ion batteries to enable a longer range and
higher performance in its anticipated lower-priced Model 3 sedan. The Gigafactory is expected
to be able to supply batteries for the projected production of 500,000 Model 3 vehicles by
2018.110 Tesla is building the factory to move efforts in-house to support the significant ramp-up
in production once the Model 3 is released. In doing so, Tesla is creating economies of scale
and is on the trajectory of achieving its goal of its very own mass market electric vehicle.
Strategy Recommendation
Tesla has plans for expansion and recently shifted its focus to becoming an all-encompassing
energy company. The company just acquired SolarCity, and wants to lead the world into
sustainable energy. Elon Musk's vision is to revolutionize the world; however, we feel that in
order for Tesla to continue to successfully compete and dominate in the electric vehicle
industry, the company must have a strong corporate structure that will be able to solely focus
on the vehicle aspect of its new vision. We recommend that Tesla Motors split into two
different subsidiaries under a parent company called Tesla Group. These two subsidiaries will
be called Tesla Motors, Inc. and Tesla Energy, Inc. Tesla Motors and Tesla Energy will be led
by two separate senior executives, with Elon Musk at the top of the parent company with
ultimate control over both subsidiaries. Tesla began as Tesla Motors, solely focused on
producing electric vehicles. To be the leading brand and drive growth within the industry, the
company should stay focused on its original mission. It needs to grow the electric vehicle
industry to accomplish its overarching goal of a sustainable world, and will need to have a
dedicated executive team that will not be distracted by Teslas other strategic energy moves.
With Elon Musk at the top of the parent company and with Tesla Motors continuing its focus on
growing in the electric vehicle industry, it will still be able to support Elon Musk's overall energy
goal in a more organized, structured way.
In addition to this split, we recommend that the motors division of Tesla do the following.
Production
Tesla is putting is putting many of its resources towards expansion and is currently getting
ready to release the Model 3. It has expanded its Fremont manufacturing site, and has plans
to operate at a higher capacity. The company currently operates on a made-to-order model,
which has proven successful. However, Tesla is exploring unknown territory by entering the
mass market. Manufacturing the cars at a much higher volume will need to be executed
efficiently. To increase the efficiency of production, the company should increase automation in
the factory. Pushing out cars in a timely manner, and with little to no issues will help keep
Teslas reputation strong.
With increased production volume, Tesla should also consider building another manufacturing
factory on the East Coast to decrease delivery times to those customers on that side of the
country. The demand for Tesla vehicles is growing, and the company needs to find ways to
accommodate that surge. Another possible solution to this issue may be for the company to
consider storing cars like other car manufacturing companies. This will detract from the made
to order business model, but when the demand for electric cars increases, Tesla will need to
find ways to match its competitors who have readily available cars in inventory.
Marketing
Tesla should continue its strong presence and activity on its various social media accounts like
Instagram, Facebook, and LinkedIn. Using these social media accounts, Tesla should track the
engagement of their followers. Likes and hearts are one type of measure, however it does not
tell Tesla how memorable and engaging their content is. Tesla can achieve this by promoting
conversation and education about topics that are relevant to the company and its followers.
This could be demonstrated through engaging videos that spark dialogue. In addition, Tesla
could look into online advertisements and pay-per-click ads, which would give them an idea of
who is looking at their content and show any possible new segments they can target.
Up until now, the company relied on the recommendations of its satisfied customers to spread
the word of Tesla but going forward, it should not depend solely on word of mouth. Another
way of getting more potential customers is to educate them on how environmentally friendly the
cars are, considering it is a zero emissions car. The Model S, for example, features an air
filtration system that removes almost 100% of allergens and exhaust pollution. Knowledge
surrounding the powerful and smart performance of the car can also attract customers. Tesla
strives to create its vehicles with safe design capabilities with a bio-weapon defense mode that
protects occupants.
Marketing can be done through multiple mediums, such as social media, billboards, or even
traditional channels like newspapers. Teslas brand image is well known in high-tech areas like
Silicon Valley, however it may not be as well known in a state like Oklahoma. Therefore, it will
become important for Tesla to build a community for their customers. Tesla could host
members-only events that would bring people with similar interests together. In addition, it
would also be important to build and advocate for sustainable organizations because it is
important to give back to the community through corporate social responsibility.
Financial
Tesla needs to closely watch their finances because their financials indicate a lot of volatility
and risk. Tesla has negative cash flows and negative financial ratios. Teslas current ratio is
0.99 and anything under 1 means that the companys liabilities are greater than its assets and
if liquidation occurs, they would not be able to repay debtholders and other liability obligations.
From a financial standpoint, it looks like Tesla is being overly aggressive its spending,
investments, and expanding too fast. Tesla has negative net income growth but does not
expect to be profitable until 2020. However, in the meantime, this can become problematic
because shareholders and investors want to see growth and profitability.
Tesla should look into alternative ways of raising capital besides taking on more debt. A stock
split or a dilution is a less costly method to raise capital. However, stockholders may not be too
happy with a split or dilution because there tends to be an initial dip in the stock prices when
these methods are used. Another suggestion for Tesla is to build partnerships with companies
that have not released an electric vehicle because Tesla can provide their expertise and
knowledge of electric cars as a service to companies that are in need of guidance. Selling
consulting services can help generate more revenue, which can be used to further invest in
R&D and expansion. Another option is to sell batteries to other automobile companies, which
would also help to generate additional revenue and pay off the investment to build the
Gigafactory more quickly. As the automobile industry shifts towards electric cars, Tesla would
have a competitive advantage by producing and selling its own batteries. Selling batteries can
give more stability to Tesla by providing an additional and constant source of revenue.
91 Appendix A
Appendix A
Tesla Income Statement, 2015
92 Appendix B
Appendix B
Tesla Consolidated Balance Sheet, 2015
93 Endnotes
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97 Endnotes
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145 Cole, Jay. "Tesla To Use All North American Resources For Planned Gigafactory." Inside EVs. N.p.,
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147 Delosa, Jack. "The making of Elon Musk - How he's becoming the most influential person in history."
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152 Musk, Elon. "Tesla Gigafactory." Tesla Gigafactory | Tesla. Tesla Motors, n.d. Web. 26 Nov. 2016.
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154
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169 Lambert, Fred. "Tesla Quietly Upgraded Its Superchargers for Faster Charging, Now Capable of 145
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98 Endnotes
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178 Lambert, Frederic. "Elon Musk on Tesla Fully Autonomous Car: What Weve Got Will Blow Peoples
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179 "The Tesla Motors and NVIDIA DRIVE Partnership." NVIDIA, n.d. Web. 26 Nov. 2016.
180 Fehrenbacher, Katie. "Teslas Model 3 Reservations Rise to Almost 400,000." Fortune. N.p., 14 Apr.
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181 Ohnsman, Alan. "Tesla Buying Germany's Grohmann Engineering To Automate, Accelerate
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182 Musk, Elon, and Jason Wheeler. "Tesla First Quarter 2016 Update." Letter to Customers and
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Tesla Strategic Analysis

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Tesla

Industry Structure ____________________________________________________________ 3

Chronology of the Industry ___________________________________________________ 3

Industry Today _____________________________________________________________ 5

Manufacturing Processes ____________________________________________________ 8

Common Financial Arrangements ______________________________________________ 9

Remote Industry Environment _________________________________________________ 11

Political Factors ___________________________________________________________ 12

Economic Factors _________________________________________________________ 14

Technological Factors ______________________________________________________ 16

Resource Factors _________________________________________________________ 16

Market Analysis _____________________________________________________________ 18

Market Segment Analysis ___________________________________________________ 18

Critical Success Factor Analysis ________________________________________________ 21

Teslas Success Factors ____________________________________________________ 23

Failure Analysis ___________________________________________________________ 25

Industry Structural Analysis ____________________________________________________ 29

Threat of Substitutes: Moderate ______________________________________________ 30

Bargaining Power of Buyers: Moderate to High __________________________________ 31

Bargaining Power of Suppliers: High ___________________________________________ 32

Intensity of Rivalry: Moderate to High __________________________________________ 33

Competitor Analysis: BMW ____________________________________________________ 35

Financial Statement Analysis ________________________________________________ 37

Core Competencies & Sustainable Competitive Advantages ________________________ 48

Current Strategy & Future Goals ______________________________________________ 49

SWOT Analysis ___________________________________________________________ 51

Competitor Analysis: Mercedes-Benz ____________________________________________ 53

Financial Statement Analysis ________________________________________________ 55

Product: Mercedes-Benz B-Class _____________________________________________ 58

Manufacturing Process _____________________________________________________ 59

Human Resources _________________________________________________________ 60

Core Competencies & Sustainable Competitive Advantages ________________________ 61

Current Strategy __________________________________________________________ 62

Future Goals _____________________________________________________________ 63

SWOT Analysis ___________________________________________________________ 64

Strategic Map ____________________________________________________________ 65

Company Analysis ___________________________________________________________ 66

Financial Statements Analysis _______________________________________________ 67

Target Market ____________________________________________________________ 73

Manufacturing Process _____________________________________________________ 76

Human Resources _________________________________________________________ 77

Brand Image _____________________________________________________________ 78

Competitive Advantage & Core Competencies ___________________________________ 79

Cost and Comparison Analysis _______________________________________________ 81

Current Strategy __________________________________________________________ 82

Future Goals _____________________________________________________________ 82

SWOT Analysis ___________________________________________________________ 84

Competitor Comparison & Evaluation __________________________________________ 85

Strategy Formulation _________________________________________________________ 87

Strategy Recommendation __________________________________________________ 87

Core Competencies Competitive Advantage

Gigafactory Industry Standard Batteries

Chronology of the Industry

The Beginning Stages

The Switch to Gasoline

Renewed Interest in the Electric Vehicle

Figure 1: EV Sales by Manufacturer, 2015

Figure 2: EV Market Share by Manufacturer, 2015

Figure 3: Electric vs. Gasoline Vehicles

Common Financial Arrangements

Figure 4: EV Value Retained

Remote Industry Environment

Figure 5: EV Tax Credit Phase-Out Plan