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Strategic Analysis of TeslaTerm Paper

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Tesla's Strategic Management Analysis

Overview of Tesla Motors

Tesla Motors Inc. is an American automobile company established by a group of innovative and brilliant Silicon Valley engineers in 2003. Tesla is the first company in the United States and globally to design, develop, manufacture and commercialize high performance and advance electric vehicles. Typically, Tesla engineers prove to the world that electric vehicles can be a substitute to the traditional gasoline cars. Apart from designing electric cars for commercial production, Tesla also delivers advance components of electric power train vehicles to other automakers that include Toyota and Daimler. Headquarter located in Palo Alto, California, the company has more than 2000 employees with 31 service locations and stores spread globally. In 2012, the company entered the Canadian market by opening its first store in Toronto. The goal of Tesla is to produce an affordable, electrically powered and high- performance vehicle to consumer. The company gained a widespread recognition when it produced the Roadster, which was sole electric powered car in 2008. Few years after, Tesla expanded its innovative and technological advantages by developing Model S, a sustainable, zero emission luxury sedan introduced into the auto-market in 2012. (Mangram, 2012). Despite Tesla's technological strides in the auto industry, the company is still relatively young compared to many 150-year-old gasoline and combustive vehicle automakers. Not surprisingly, the research and literatures that focus on the auto-electric industry is limited. This study attempts to fill the gap in the literatures for the auto-electric industry focusing on the Tesla's strategic management analysis.

Current Financial performance

Tesla is a publicly traded company listed on the NASDAQ stock market. The Table 1 reveals the company annual revenue between 2012 and 2014. The data reveal that Tesla has recorded a net loss between 2012 and 2014. The company recorded a significant loss because it invested close to $709.2 million in cash operations in 2012. In the same year, the company recorded a net loss of $396 Million. In 2013, Tesla's net loss reduced to $74 Million. However, at the end of 2014 fiscal year, the net loss of Tesla increases to $294 million. (Tesla, 2014). As being revealed in the table 1, the company gross profits increase yearly; however, the company still records a net loss between 2012 and 2014. Major reason that makes Tesla recording losses is a constant increase in the operating expenses. The total operating expenses increased from $424 million in 2012 to $1.06 billion at the end of 2014 fiscal year. Typically, the company is facing challenges in reducing its operating expenses, which makes Tesla to record a net loss yearly.

Table 1: Tesla Motors Inc. Income Statement ($ Million)

2014

2013

% change

2012

% change

Revenues

Automotive sales

$3,193

$1,998

$59.81

$385.7

$417.96

Development services

5.6

15.7

(64.14)

27.6

(42.99)

Total revenues

3,198

2,013

58.84

Cost of revenues

Automotive sales

2,31

1,544

49.62

Development services

6.7

13.4

(50.02)

11.5

15.82

Total cost of revenues

2,317

1,557

48.76

Gross profit

93.23

30.1

Operating expenses

Research & development

(15.33)

General, Selling, & administrative

89.9

Total operating expenses

1,068

21.96

Loss from operations

(186.7)

(61.3)

(204.63)

(394.3)

84.45

Interest income

1.1

0.2

0.3

(34.37)

Interest expense

(100.9)

(32.9)

(0.3)

Net Other income (expense)

1.8

22.6

(91.97)

(1.8)

Loss before taxes (income)

(284.6)

(71.4)

(298.5)

(396.1)

81.96

Provision for taxes (income)

(9.4)

(2.6)

(0.1)

Net loss

(294.0)

(74.0)

(297.27)

(396.2)

81.31

Table 2: Key Financial Ratio

TTM

2014

2013

2012

2011

2010

2009

Net Margin (%)

-9.19

-9.19

-3.68

-95.88

-124.5

-132

-49.7

Asset Turnover (Average)

0.77

0.77

1.14

0.45

0.37

0.45

1.23

Return on Assets (%)

-7.11

-7.11

-4.19

-43.36

-46.28

-59.7

-61.2

Financial Leverage

6.42

6.42

3.62

8.94

3.18

1.86

Return on Equity ( %)

-37.2

-37.2

-18.6

-227.2

-118.0

Return on Invested Capital %

-8.41

-8.41

-4.53

-72.28

-64.90

Gross Margin (%)

27.6

27.6

22.7

7.3

30.2

26.3

8.5

Operating Margin (%)

-5.8

-5.8

-3.0

-95.4

-123.1

-126

-46.4

EBT Margin

-8.90

-8.90

-3.55

-95.84

-124.3

-132

-49.7

As being revealed in Table 2, Tesla recorded negative performances in all its financial ratios in the last 6 years. Apart from gross margin and asset turnover where company has recorded positive performances, Tesla has recorded negative performances in all the key financial ratios. (Appendix 1 reveals a Tesla's comprehensive financial data).

Situation Analysis

Tesla develops designs and manufactures high performance and advanced electric vehicles. The company also sells Lithium-ion battery packs. Tesla produced Roadster in 2008, which was an electric sport vehicle that used lithium-ion battery. Typically, the vehicle is able to accelerate from 0 to 60 mph within four seconds. (Tesla Motor, 2014). The company also produces Model S. sedan with a price of between $42,500 and $55,250. Unlike other automobile makers that sell their vehicles through franchises, Tesla sells its vehicles through the internet and sales stores scattered around the globe. Moreover, the company has established a network of service centers and sales to accelerate the adoption of electric vehicles across the United States and globally. (Eberhard, & Tarpenning, 2006).

Despite the innovative stride that Tesla has adopted in the development of BEVs (battery electric vehicles), the company is facing challenges in keeping the costs of battery down. Typically, the high costs of battery are one of problems that Tesla is facing. The cost of battery replacement is estimated to be approximately $15,000. Despite the innovative breakthrough in the BEV, the costs of battery replacement are still very expensive. (Ramsey, 2010).

Current Business Strategy

Tesla's current strategy is by focusing on product differentiation, and presently, the company has assumed a leadership position in electric vehicle power technology. Competencies in software, electronic engineering and control have assisted the company to dominate the market of electric powered vehicles. The competitive market advantages that Tesla has assumed in electric vehicles make Tesla to focus on the U.S. domestic market, however, the company is gradually expanding into global markets. (Hardester, 2010).

Tesla corporate strategy is by forming strategic alliance with many firms for the development of innovative products. For example, the company forms a partnership with Panasonic to develop an efficient battery pack for its various brands. The agreement is that Panasonic will supply 1.8 billion lithium-ions between 2014 and 2014. Moreover, Tesla forms a strategic alliance with Toyota in order to source for engineering expertise and parts for the Model S. More importantly, Tesla forms an alliance with Daimler to supply vehicles' parts. (Aden & Barray, 2008). Tesla has also formed partnerships with dozens of suppliers in order to supply various parts that include carbon fiber panels manufactured by Sotira.

Product design strategy is another core competency of Tesla. In the contemporary competitive business environment, efficient product design is an effective method that an organization can employ to differentiate its position in a competitive business environment. (Kotler, & Keller, 2009). The Tesla's Model S. is a ground breaking electric vehicle in terms of technology and design. The Model S. is designed with seats that occupy 7 people and their luggage. Typically, the car is extremely functional, environmental friendly and attractive. (Holzhausen, 2009). Model S. delivers a zero emission and the vehicle is integrated with the 17-inch touch screen technology. A fully charged battery can accelerate the vehicle for up to 300 miles before it is recharged, and the battery useful life can last for 7 years.

Sales Strategy

Tesla departs itself from the tradition auto maker sales strategies by selling directly to customer in order to reduce price of the vehicles. Tesla offers its vehicles for sale online, over the telephone and in-person at the company headquarter. Tesla locates all its stores at highly outlets across the cities in the United States, which include Chicago, Los Angeles, New York, and Miami. The company also opened its retail outlets in other countries in Asia and Europe. Tesla has also opened show rooms that feature free coffee bars, snacks, and high-speed internet access.

Mission Statement

To accelerate the development of sustainable transport by bringing a mass market electric vehicles to consumer.

Tesla's goal is to accelerate the global transition from combustive vehicles to affordable electric vehicle. Tesla also aims to improve its battery technologies by developing more stations across the world.

Industry Environment

Porter five Forces

This section uses Porter's five forces to analyze the industry environment that Tesla operates.

Power of Suppliers

The bargaining of suppliers for electric vehicles parts is high. The electric vehicles are innovative technology that currently has few suppliers. Although, Tesla management claims that they have over 350 suppliers that provide parts for the electric vehicles, however, in reality, Tesla can only boast of 33 major suppliers that are ready to invest in Tesla Model. In essence, electric vehicles production requires dependable suppliers that are technological innovative. Scarcity of required suppliers who can meet specific demand of the company can make the suppliers to set prices to satisfy their advantages without considering Tesla's financial interests.

Power of Buyers

Power of buyers is low for consumer interested in buying electric vehicles since Tesla is the… [END OF PREVIEW]

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