Analyzing the value chain of Tesla

Introducti on
The value chain is a set of operati ons that take place from the conceptualizati on of a
product to its distributi on to clients. In other words, they are the acti ons that
transform basic materials into a product by adding value to it in order to earn profi t.
In this secti on, we will examine the Tesla value chain analysis in depth in order to
grasp the idea and functi oning of value chain analysis in a real-world business model.

Background of Tesla
Tesla is a forward-thinking automobile manufacturer that specialises in electric
vehicles. It was created in 2003 in California, USA, by engineers Marti n Eberhard and
Marc Tarpenning. The name is a tribute to Nikola Tesla, a 19th-century inventor who
specialised in the phenomena of spinning electromagneti c fi elds.

Tesla then broadened its product line and began developing solar energy devices.
Tesla released a batt ery line in 2015 to store electric power generated by solar energy
for usage in homes and businesses. Tesla Motors later changed their name to Tesla,
Inc. to indicate that they are more than just a vehicle manufacturer; they have
expanded their product line.

Primary Acti viti es in Tesla Value Chain Analysis

Tesla's value chain analysis is based on fi ve major and four support operati ons that
work together to give the company a competi ti ve advantage.

Inbound Logisti cs:

Tesla is a manufacturing enterprise, hence a diverse range of raw materials is required

to make the goods. Inbound logisti cs entails receiving raw materials, storing inputs,
and internally distributi ng raw materials and components to begin manufacturing.

Tesla requires a diverse spectrum of raw materials, parti cularly precious resources,
due to its unique product line. As a result, Tesla has a vast number of suppliers all
over the world. All inputs must be properly recorded, stored, and moved internally via
incoming logisti cs.

Operati ons:
Tesla has producti on faciliti es in Fremont, California, Lathrop, California, Tilburg,
Netherlands, and Shanghai, China. As a result, they require both in-house operati ons
management and coordinati on across various working groups. The operati ons may be
separated into two groups depending on two disti nct product lines.

• Automoti ve, which includes the design, development, manufacture, and sale of
electric cars; and

• Energy generati on and storage, which includes the design, manufacture, installati on,
and sale of energy storage items and solar energy systems.

Outbound Logisti cs:

Handling, warehousing, scheduling, order processing, transportati on, and delivery to
the desti nati on are all part of outbound logisti cs. Tesla's value chain must prioriti se
cost and ti me effi ciency while delivering goods and ensuring customer reliability.
Customer sati sfacti on must be prioriti sed in outbound logisti cs, and it must be
ensured through ti mely and eff ecti ve shipping and delivery. This has the potenti al to
be a good source of added value.

With its online sales, Tesla has revoluti onised the motor call sales environment.
Instead of the traditi onal dealership, Tesla Motors developed a multi -channel strategy
for acquiring automobiles. Tesla's business plan incorporates online storefronts and
physical outlets similar to those seen in Apple stores.

Marketi ng and Sales:

The value chain analysis of Tesla Motors reveals that the fi rm follows the "Zero Dollar
Marketi ng" philosophy. Tesla's marketi ng and sales rely on an unorthodox model and
word-of-mouth referrals from delighted consumers. Tesla receives global media
att enti on due to its excellent quality and unique product characteristi cs.

Service:

Tesla's service faciliti es off er aft er-sales support. Aside from that, Tesla's value chain
analysis will now incorporate on-demand service vans around the country to provide
fast service.

Support Acti viti es in Tesla Value Chain Analysis

Infrastructure:

Tesla is divided into two major groups depending on product categories. As a result,
there are two infrastructural parts. Both parts, though, eventually came under the
directi on of CEO Elon Musk. Quality management, legal issues, accounti ng, fi nancing,
planning, and strategic management are all covered by infrastructure. A solid
infrastructure also aids in cost control.
According to Tesla's value chain analysis, the fi rm derives a competi ti ve advantage by
developing massive databases to support infrastructure and powerful arti fi cial
intelligence-based informati on systems to acquire deeper consumer insights.

Human Resource Management:

Tesla must sustain its competi ti ve edge with a talent workforce that is unique to the
fi rm and its inventi ve product line. The human resource management department is
responsible for hiring, training, and retaining people.

Technology Development:

Because of its groundbreaking motor car technology, Tesla has gained a unique
positi on in the automobile business. As a result, the basis of Tesla Motors' value chain
analysis is technological development. This is why the corporati on invested USD 1.46
billion in research and development. Tesla relies on product design innovati on and
unique technologies to provide novel product features. This technological inventi on is
the cornerstone of Tesla Motors' unique positi on in the vehicle business.

Procurement:

The procurement and storage of essenti al raw materials is the lifeblood of Tesla's
manufacturing process. Tesla's value chain analysis includes the acquisiti on of
thousands of parts from a variety of sources. Maintaining communicati on and
operati ons with all of these suppliers is crucial for the Tesla supply chain.

Strategies to enhance tesla’s value chain in the current scenario.

Mergers and Acquisiti ons

The company says this dry electrode technology, which can be applied to batt eries of
varying chemistries, boosts performance and is more cost-eff ecti ve than the more
commonly used wet electrode technology. Maxwell Technologies primary focus has
been on ultracapacitors like energy storage devices that can charge and discharge
rapidly, perform at a wider angle of temperatures and have high power density and
long operati onal life. The US$2.6 billion deal unites two of Elon Musk’s companies,
enabling the billionaires to sell both electric cars and solar roofs to his customers
under one corporate brand. Tesla obtained the energy storage company in an all-stock
deal valued at US$218 million.

Earlier reports suggest that Tesla acquired Hibar Systems, a small Canadian
engineering company specializing in batt ery manufacturing and DeepScale, an
Arti fi cial Intelligence (AI) start-up. The deal was aimed at helping the electric
automaker improve its batt eries and lower costs as more competi tors are entering
into the market. DeepScale appears to be mostly what people call ‘acqui-hire,’ and the
people who join Tesla probably got a bunch of shares. Another acquisiti on in 2016 was
Germany’s Grohmann Engineering, which develops automated manufacturing systems
for batt eries and fuel-cells. The deal was based to help Tesla ramp up electric car
producti on. Another reason behind the purchase is Maxwell’s dry electrode
technology which is used to make the ultracapacitors.

Research and Development

Tesla’s development strategy for 2020 comes in two primary categories: Headline-
grabbing moves like launching the cybertruck or the Roadster 2.0, which the company
claims that it accelerates faster than any producti on car ever made and big bets are
being made on its core vehicles, the Models S, X, 3 and Y.

Tesla reported in 2019 that the company is planning to convert a building currently
used as a warehouse in Fremont into a major new vehicle R&D lab, a ‘Future Energy
Reliability Lab,’ and a vehicle testi ng facility focused on improving reliability. The
vehicle testi ng facility was to take a bulk space of 165,500 square feet with a crash
track, a crash sledge, test chamber, vehicle lift s and labs. The ‘Future Energy
Reliability Lab’ was planned at a smaller 8,500 square feet space with test chambers, a
workshop and solar energy product testi ng equipments.

Tesla saw a strong price soaring by close to 35% in 2019 driven by the growing
revenues and bett er cost management. The company’s Research & Development
expenses grew from US$0.7 billion in 2015 to about US$1.5 billion in 2018.

New Product Development

However, in 2020, Tesla said that the company is planning to start the producti on of
an electric truck with limited volumes in 2020. Currently, the automaker is working on
introducing its new ‘Plaid tri-motor powertrain,’ as the company might be planning to
release both the performance improvements and the new interior at the same ti me.

Tesla CEO Elon Musk in August 2020 announced that the company will focus on new
product development and product scaling and not Formula E racing. Aft er the
company has established robust producti on of all available models, Tesla will begin
developing new models that should be even more aff ordable.

Tesla had a successful year in 2019 with a signifi cant increase in producti on and
several new product launches. The volume producti on for the electric crossover was
planned for mid-2020 which was likely to start in early 2020.

Tesla Semi- Tesla announced its all-electric heavy-duty truck, the Tesla Semi in 2017
which was planned to be released in 2019. The company’s initi al product was the Tesla
Roadster, a high-performance sports electric vehicle. But since then, the company has
delayed all-electric trucks despite having taken thousands of reservati ons with
deposits worth between US$5,000 and US$20,000 each. The company plans to scale
the producti on of aff ordable models such as Model 3 and The company ended up
focusing on the Model 3 ramp-up and bringing Model Y to producti on. Batt ery- Elon
Musk has announced that Tesla has a new batt ery coming up next year, that will last a
million miles.
Geographic Expansion

Tesla also planned to shift producti on of its solar roof to its new Gigafactory 2 plant in
Buff alo, New York, during the fourth quarter of 2017, which will help the company
increase installati ons signifi cantly in 2018. Rather than simply buying an existi ng
factory in Europe, Musk has opted to build a brand new one in an already saturated
market; an act that will take Tesla’s competi tors on directly and cost the company $4
billion. The company’s domesti c market has renewed eff orts to expand internati onally,
aiming to tap rising transnati onal demand for electric vehicles (EVs).

Tesla Motors’ CEO Elon Musk, revealed the company’s plan to expand its market
beyond North America, China, and Europe in 2018. Unti l 2019, China required foreign
carmakers to link up with domesti c ones to manufacture in the country, making Tesla
the fi rst company to take advantage of this, while also avoiding a 25% import duty.
With Tesla sales in China up to more than 175% on last year, it looks as if Musk is in a
good positi on to shore up the company’s status in the much-sought-aft er market of
China. The company aims to begin producing its cars in a new factory in the country.

Tesla CEO Elon Musk had announced a two-year plan for the company. However, the
electric carmaker looked at entering the Indian market in 2017 but plans were pushed
forward. On top of this, China announced back in August that it would exempt Tesla
Model 3, Model S and Model X cars from its proposed auto tariff s, which will resume
in December if a trade deal is not met between the U.S. and China. Tesla started 2017
with about 5,000 superchargers around the world which spiked to 7,000 by September
the same year.

Key Takeaways

 The fi rst takeaway from Tesla's value chain analysis is that innovati on can make
a brand the leading factor in the competi ti ve world.

 Partnership with the suppliers to maintain inventory of the best raw material is
criti cal for all the acti viti es in the Tesla value chain to operate at the highest
level.

 Sati sfi ed customers are the best and the most reliable form of marketi ng.

 Even when you are a leader in one market, diversifying your product line in
diff erent markets expands your portf olio.