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TESLA - Strategic and Financial Analysis, Harvard

Article · June 2018

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Rakesh Naga Naidu Chinta

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 Strategic Analysis of Tesla

Tesla can be broken into 2 segments. Auto Industry and Battery Industry. Their batteries
are designed for the auto industry but having a battery division, with the most advanced
batteries in the world, allows Tesla to work with the other manufactures; supplying them
batteries for their electric vehicles. Recently, Toyota and Mercedes implemented Tesla’s
battery into the Rav4 and Mercedes B-Class. Also, they are currently in the process of
building a massive 5 billion dollar battery factory that will produce more lithium-ion batteries
in 2020 than all of the world’s combined output today. The market of the Li-Ion batteries is
given by Exhibit 4.It has a variable cost described in Exhibit 5.The cost of The plant is
scheduled to open next year and will be running at full capacity by 2020. Economies of
scale dictate this will dramatically decrease their cost
Financial Analysis:

From Tesla’s financial analysis given in Exhibit 12:

2013-2014: ​Tesla was off to a great start in 2013. In the first half of 2013, it sold 10,500
model S cars and was expanding sales to Europe. Musk said that Tesla planned to be
shipping 40,000 Model S per year by the end of 2014.99 Tesla had been profitable in the
first half of 2013 and by September its market cap was about a quarter of that of BMW.

2014-2015:​With only a margin near 50,000 in vehicle sales, Tesla still needed to capture
its market- leadership through disruption. Even with these sales in the figure, Tesla has
managed to yield a 43.76% change within the year of 2014-2015. It has managed to beat
other fierce auto-manufacturing companies namely Audi, BMW, Mercedes, etc.

Competitive Sales and Market Share:

Being that the Tesla S has a range of nearly 300 miles and the number is only expected to
increase; the manufacturers I would place in its strategic group are BMW, Mercedes,
Renault, and BYD. The BMW I3 is reported to get over 100 miles in range with certain
functions like heat and A/C turned t energy-saving mode. Mercedes has also come out with
a B-Class with an expected range of 85 miles. Both these models are cheaper than the
Tesla by $15,000 to $20,000. The I3 would be placed in the Small Premium Vehicles row
and the B-Class in the Premium Vehicles row. These cars are much cheaper, yet they still
fall way short of the range Tesla Models put out. Renault having an expected range of 130
miles. In its first year on the European market in 2013, it sold over 10,000 models, making
up 40% of the European electric vehicle market (8). Lastly, BYD is the top Chinese
manufacturer of electric vehicles. The e6, boosts a range of 122 miles, making it the runner
up in range while offering the vehicle for about $35,000 before any incentives. In the world’s
largest auto market, according to estimates; they managed to sell over 18,400 cars, holding
31% of the total market share. Other car companies notably: Volkswagen, Kia, Ford,
Toyota, Smart, Chevy, and Nissan all have electric vehicles or plug-in hybrids but their
unappealing style, focuses on gas engines, and low range provides a clear mobility barrier
between the two groups.

Potential International Market Analysis of Tesla:

In attempts to expand into emerging markets, Tesla started selling its cars to the Chinese
market in August of 2013. According to China Daily, the MIIT reported sales of 83,900
electric vehicles in 2011. According to Exhibit 3, which displays the auto sales in China
shows that sales total 60,000, but Tesla did not meet their 5000 estimate. The cars were
not delivered until the middle of 2014. Unfortunately, due to China’s 25% import tariff rate,
transportation costs, and other taxes, the vehicles starting price increased from $71,000 to
$121,000. Even though China has a larger market, the Infrastructure of Europe makes it a
more promising market in the near future. With the number of free charging stations
growing in Europe, Tesla could attract more of the market share. Inflation will continue to
rise in the U.S. as long as the Federal Reserve continues to print off $80 billion a month.
This also negatively impacts our exchange rate. In an effort to expand globally, Tesla has
announced plans to start production of cars in China in the next few years. This will help
lower the cost of their vehicles by avoiding the import tariff and help reduce the risk of
exchange rate fluctuations.

Partnerships and Co-operative decisions:

Tesla also sold electric powertrains to other car manufacturers and provided design
services
for electric powertrains. It had developed and was producing powertrains for the Toyota
Rav4 EV, in a deal that was expected to generate about $100 million between 2012 and
2014.97 A similar deal with Daimler might be worth almost $300 million.98

Cooperation and Merger with SolarCity:

Tesla Motors will be co-marketing sustainable energy products from other companies along
with the car. For example, among other choices, we will be offering a modestly sized and
priced solar panel from SolarCity. This system can be installed on your roof in an out of the
way location, because of its small size, or set up as a carport and will generate about 50
miles per day of electricity.

Battery Environment:
Tesla Motors Lithium-Ion cells are not classified as hazardous and are landfill safe. Since
the battery pack can be sold to recycling companies (unsubsidized) at the end of its greater
than 100,000-mile design life. Moreover, the battery isn’t dead at that point, it just has less
Range.

Power Plant Emissions:

A common rebuttal to electric vehicles as a solution to carbon emissions is that they simply
transfer the CO2 emissions to the power plant. The obvious counter is that one can develop
grid electric power from a variety of means many of which, like hydro, wind, geothermal,
nuclear, solar, etc. involve no CO2 emissions.

Customer perspective/issues and views of the current EV market:

The first were issues related to EVs being a new technology with considerable uncertainty
about longevity, resale value, and safety. The second were different sources of “range
anxiety,” and the early lack of charging stations. The latter issue was being resolved, as
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many companies and public entities started offering both private and public charging
stations. Tesla also operated a network of more than 15 Supercharger stations where
customers could charge their cars for free. It also introduced a battery swapping service that
could exchange a depleted battery for a charged one in about 90 seconds.

Competitive sales growth and potential product growth:

And indeed, on May 8, Tesla announced a net income of more than $10mln on $560 million
in sales. Tesla had outsold both Nissan and GM in electric cars in the U.S. Its Model S had
sold more than the BMW 7 and Audi A8 combined. The sales comparison of these
companies is given in Exhibit 9. Over this period, its stock price almost tripled. Recently,
Elon Musk announced that reservations for the new battery system called power wall could
be a game-changer. They are meant to be paired with solar panels and can store large
amounts of power for only $3,000 to $3,500. Tesla has already received reservations for
nearly $800 million in power walks. The pilot study they ran in California has shown that
electric bills were reduced by 20-30%. Plus, they are guaranteed to last 10 years, This
could make tesla a market leader in mass-consumer based solar panels.