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Business Policy Final

Project Report

Submitted to: Dr. Zahid

Submitted by:
Abeera Allahwasaya
Aima Amir
Alizah Majeed
Saba Naseer
Waleed Qaiser
Zainab Haider
Zumaika Iftikhar
Tesla, Inc.

Table of Contents
Executive Summary .................................................................................................................................... 2
Background ................................................................................................................................................. 4
Statement of strategic issues/problems including current strategic posture of the firm ...................... 4
Corporate Governance ............................................................................................................................... 6
Analysis of the external environment ........................................................................................................ 9
The Porter’s Five Forces Analysis ......................................................................................................... 9
PEST Analysis ....................................................................................................................................... 10
Analysis of Internal environment ............................................................................................................ 12
Tesla Core Competencies ..................................................................................................................... 12
Analysis of Strategic Factors.................................................................................................................... 13
Business level strategy .......................................................................................................................... 13
Corporate level strategy ....................................................................................................................... 14
Functional level Strategy ...................................................................................................................... 15
Analysis of Strategic Factors, Strategic Alliance and Recommendation ............................................. 15
Implementation, Evaluation and Control ........................................................................................... 17
References .................................................................................................................................................. 18
Appendices ................................................................................................................................................. 19

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Tesla, Inc.

Executive Summary

Tesla Motors is an energy company with a core objective to be the catalyst for

renewable energy products in today’s consumer marketplace .Tesla had been seen to

have adopted the differentiation strategy from the very beginning. Tesla Motors Inc.

manufactures and sells 100% electric cars and advanced electric vehicle components. The

company produced the first car to integrate zero petroleum consumption, high-energy

efficiency and great driving performance. Tesla is still planning on producing different

models of cars in the future. The company has released the roadster and Model S. These

two cars have made waves in the car industry. Elon Musk, who is the CEO, owns Tesla.

However, the company also has shareholders who are partly owners of the company. Tesla

motors have different board of directors and committee structures that help in the

effective running of the business. Tesla is an ethical and social responsible company that

sees to the proper functioning of the environment. It produces cars with zero emission of

gas. It also produces batteries that are no toxic and easily recyclable. Tesla Motors is a

well-known company that has a global presence. It products are highly demanded around

the world. Tesla has it strengths, which it uses as a competitive advantage over it

competitors. It has weaknesses and also opportunities it can invest in. The company also

has it threats, which come from its competitors. Lastly, Tesla performs its functions of

management effectively. It has solid organization structure thatbrings employees together.

It also has an effective communication channel. Tesla’s leadership style is very effective.

It motives and inspires everyone to work hard and accomplish the company’s goal. Tesla

also uses effect strategic and tactical plans to achieve its mission and vision efficiently.

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Tesla, Inc.

Tesla measures the performance of the organization effectively by comparing its output to

the objectives set by the organization. It should work on installing energy generation

solar roofs and storage products in homes, tapping into new markets, Improving their

autonomous driving software and developing a teals share fleet and app to customers’

cars can make money for their owners while they are not in use. However, Tesla needs

improvement on its controlling and planning process because it’s lacking in some areas.

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Tesla, Inc.

Background

Tesla was founded in 2003, shortly after GM destroyed the prototypes for its electric vehicle, the

EV-1. In 2004, Elon Musk came to the fledgling company and provided much of the initial

capital support to run it. It was founded with the idea to create effective electric cars and sell

them to the masses. To do so, it created a 3 tiered strategy. The first phase was to release a sports

car, which was then the only effective type of electric vehicle in terms of return on investment. It

would be followed by a $60,000 sedan, and eventually a $30,000 sedan, sold to the masses.

Statement of strategic issues/problems including current strategic posture of the


firm

Tesla has faced a number of challenges this year, including concerns over its finances, ability to

build cars at scale, and public comments attributed to Musk and Tesla. Now, the company is at

an inflection point.

1. Balancing Production with Demand

It was a painful production ramp-up for the Model 3, Tesla's first vehicle aimed at the mass

market. Famously described as "production hell" by CEO Elon Musk, the company's heavy lift to

attain a production rate of 5,000 Model 3s per week involved such drastic measures as

assembling cars in a makeshift tent. At the end of the third quarter, Tesla reported that it

produced 5,300 of the vehicles in the last week of the quarter, and the company has said that it

hopes to produce 7,000 per week by the end of this year.

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Tesla, Inc.

2. More Competition on the Horizon

Tesla isn't the only game in town in the electric vehicle market, and that will be even more true

next year. Competition is poised to heat up in EVs soon, with higher-end models from Porsche

and Mercedes coming to market in 2019. At the lower end of the market, Volkswagen is

releasing a new electric model starting at $27,000.

3. The China X Factor

When the White House announced a trade truce in early December, Tesla was seen by investors

as a beneficiary of potentially improved trade relations between the U.S. and China. That's

because China could serve as both a manufacturing base and a key consumer market for Tesla.

Tesla could be looking to ramp up even sooner than in China, with one recent report suggesting

that a planned Gigafactory in Shanghai could start producing cars by the latter half of 2019.

4. Legal Issues and Leadership Concerns

It's hard to believe it's only been two months since Elon Musk settled with the SEC over the "go-

private" fiasco on Twitter that led to charges of fraud against the volatile executive. In that time,

Tesla appointed a new board chair, Robyn Denholm, but Musk has continued to needle

regulators, saying recently that he "does not respect the SEC", among other remarks implying

that he may not intend to fully comply with the terms of his settlement with the agency.

Musk and Tesla aren't completely out of the woods, however. Aside from Tesla's entanglement

with the SEC, a Department of Justice criminal investigation is underway exploring fraudulent

claims concerning Model 3 production in 2018. Adding to a string of executive departures at the

carmaker, Tesla's longtime general counsel left the firm weeks ago and was replaced by Dane

Butswinkas, a top trial lawyer experienced in handling fraud claims which could be a sign of

things to come.

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Tesla, Inc.

Corporate Governance

Tesla’s Board of Directors consists of 11 people. First there is Elon Musk who is the Founder,

CEO and Director. Then there is Robyn Denholm who is the chairman of the board. The rest of

the nine board members include Ira Ehrenpreis, Antonio Gracias, Kimbal Musk, Stephen

Jurvetson, Brad Buss, Linda Johnson Rice, James Murdoch, Lawrence Ellison and Kathleen

Wilson Thompson. (Bloomberg, 2019)

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Tesla, Inc.

For years, Tesla's board remained almost invisible, staying behind the curtain as superstar

Chairman and CEO Elon Musk guided the electric car maker to huge stock price increases. Now,

given Musk's recent questionable behavior, experts say it's time for the board to step onstage and

take action on the company's leadership. (Tesla's Board Problem, 2018)

The list of Musk's offenses include berating Wall Street analysts on a conference call and

labeling as a pedophile via Twitter a British diver involved in the cave rescue of trapped Thai

soccer players.Add to that his abrupt Twitter announcement of a plan to take the company

private even though funding hasn't been solidified, as well as confessing to being overwhelmed

with job stress in a recent interview, and it's likely that most other company boards in a similar

position would have taken action, corporate governance experts say.Yet Tesla's nine-member

board, which includes Musk and his brother, Kimbal, has largely been silent, save for forming a

three-member committee to decide on the go-private plan that has already drawn scrutiny from

U.S. securities regulators. (Tesla's Board Problem, 2018)

At least five of the company's eight non-executive directors have strong ties to Musk or one of

his other companies, throwing their independence into question. (Tesla's Board Problem, 2018)

"I believe Elon Musk is a genius and he needs to be admired and encouraged, but this board of

directors has to do more management oversight of the company. The board of directors is not

meant to be a cheering committee," said William Klepper, a professor at Columbia Business

School and an expert on corporate governance issues. (Tesla's Board Problem, 2018)

Kimbal Musk is among the five directors with ties to Musk. Lead director Antonio Gracias

founded a private equity firm and also is a director of SpaceX, Musk's privately held rocket

company. Director Steve Jurvetson is also a SpaceX director. He's been on leave from his

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Tesla, Inc.

venture capital firm since allegations of sexual misconduct appeared last year. (Tesla's Board

Problem, 2018)

One of the five, New York City Comptroller Scott Stringer, who manages investments in Tesla,

said in a statement Monday that it's time for the board "to take a hard look at Tesla's governance

and compensation structures to ensure that there are proper processes in place for strong board

independence and oversight." (Tesla's Board Problem, 2018)

Columbia's Klepper said Tesla didn't need more board members; it needed assertive ones. "They

need to make some hard choices about the existing board members and decide whether their

expertise really fits with Tesla's mission," Klepper said.(Tesla's Board Problem, 2018)

Two major firms that specialize in corporate governance issues advised Tesla shareholders to

shake up the company's board earlier this year, citing troubling conflicts of interest and decisions

that raised questions about the directors' links with Musk. (Tesla's Board Problem, 2018)

Tesla's stock has been on a roller-coaster since Musk used Twitter on Aug. 7 to say he was

considering taking the publicly traded company private. Even though Musk said funding had

been secured for what could be at least a $20 billion deal, the company later disclosed that it

wasn't. On the day of the announcement, shares rose 11 percent but since have fallen almost 19

percent, closing Monday at $308.44.Experts say under more normal circumstances, the board

committee would have evaluated the plan before it was made public, a sign that Tesla's directors

aren't taking an active role in running the company. (Tesla's Board Problem, 2018).

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Tesla, Inc.

Analysis of the external environment

The Porter’s Five Forces Analysis

The threat of new entry

In the case of TESLA, the threat of new entry is low. This is because there are less number of

competitors who have their own niches. Apart from that, entrants would require large

investments to enter the industry.

Bargaining power of buyers

The bargaining power of buyers is moderate since it is a premium product it is catering to a niche

segment hence the bargaining power with the buyers would be low

The threat of substitutes

The threat of substitutes in an automated car industry is considerably high because there are so

many brands like Audi and BMW present in the market who areworking hard to improve

themselves every day. Customers have large choices available in the premium car industry who

offer similar prices and hence they can be a substitute of Tesla

The bargaining power of suppliers

The bargaining power of suppliers is very high. This is mainly because TESLA is very reliant on

their suppliers because TESLA purchases mechanisms from over 200 suppliers all over the

world and despite of building close partnerships with their main suppliers working together on

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Tesla, Inc.

replacing Lotus supplier’s chassis with trading by themselves and developing the new battery

cells, suppliers stay single source of components used in their cars.

The intensity of rivalry in the industry

The rivalry in the automated car industry is very competitive. Companies have been trying to

generate their own niches by developing alternatives like environmental friendly cars such as

hybrid cars. Companies have to become more intensive and will need to keep improving and

generating better cars because in the future, rivalry will be more demanding.

Competitors:

1. Jaguar i-pace

2. Porsche Taycan cross Turismo

3. Audi e-Tron

4. Mercedes-BenzEQC

5. BMW i4

6. Hyundai Kona

7. The hybrids

PEST Analysis

Political

Trading cars in 17 countries of North America, one of the foremost political factor which are

affecting the TESLA industry is the Environmental Protection laws to make more environmental

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Tesla, Inc.

cars to meet strict emission levels. Another essential factor is the US government energy loan

programs for development and research of new car technologies.

Economic

Economic factors involve economic growth in the alternative energy industries and increase in

the cost of using the cars mainly due to the rise in fuel prices in the short period. Thus, the

demand for more-efficient cars has become higher. The recovery of GDP and inflation rate in

most of the developed countries from the declining period in 2008/2009 has a major impact on

the consumer purchase power.

Social

Social factors are concerned about increasing environmental concerns. Consumers are losing

trust in gasoline fuel and associated cost in production trying to help the environment. Another

social aspect is that increasing in ageing population with most wealth and savings, consumers

like to spend more money on quality electric cars.

Technological

Improving technology, rapid globalization has a major effect on the automotive car industries.

There has been much technology advancement within the industry such as the introduction of

fully electrical cars and computerization of cars that allow automotive car driving and avoid

accidents. In future, this will lead to improvements in safety and convenience of cars.

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Tesla, Inc.

S Innovative Innovative Differences, Openness/ friendliness


Analysis technology tecchnology uniqueness of the company
Battery pack Technology Own sales distribution
of User forum on website
W R&D cost Limited Limited budget for Only available at Tesla
Internal overwhelmed manufacturing marketing activities own networks
Revenue scale Recent technical issues Limited distribution
environ
S Industry Cutting edge Create unique positive Customer satisfaction
leader as manufacturing images Exclusive services
ment battery and Word of mouth
electric
Tesla engine
Core technology
Compete W Only making Production Only reaches to limited Tesla is responsible for
ncies electric delays consumers everything
batteries and Technical Limited external
engines issues services

R&D MANUFACTURING MARKETING AFTER SALES

RESOURCES

CAPABLITIES

Tesla

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Tesla, Inc.

Tesla generate self-reinforcing enthusiasm for the brand, create and utilize cutting edge

technology, and willing to take risk.

Extendability Competitor
differentiation

Generating self-reinforcing Consumer


enthusiasm for the brand has helped tesla focus on R&D through
Value
better resource allocation which overcomes limitations in the external environment related to

potential substitutes and larger budgets of competitors

Tesla use of cutting edge technology from top to bottom is a sign of commitment related to the

values of Elon musk and helps them succeed

Being able to take risks allowed Tesla to find its position in the market, and more importantly,

force others to take notice

Analysis of Strategic Factors

Business level strategy

Tesla had been seen to have adopted the differentiation strategy from the very beginning. History

has it that Tesla (the company) succeeded in the market place by introducing products which were

different from what the other competitors proposed. The company makes sure that the products

are differentiated and not resemble with what the other companies have to offer. Consumers are

able to identify the products by Tesla which had been made easy by the differentiation strategy

that the company engages itself into. Furthermore, the company enjoys the liberty of

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Tesla, Inc.

outcompeting its rivals due to the environment friendly technology that it had enveloped along.

This had the advantage that other companies that were out there, they had vehicles that used

combustion engines while Tesla on the other hand manufactured electric vehicles.

Comparatively, other rival companies such as Toyota had been engaging in the cost leadership

strategy but Tesla on the flip side was not concerned with this. Apparently, Tesla had been found

out to be one of the highest pricing companies which focuses upon differentiating itself rather

than running for the low cost leadership. The company boasts about the technology and the

electric vehicles that they manufacture and doesn’t consider the vehicles which use gasoline

powered engines as their benchmarks. Their technologically advanced operations allow them to

make unique electric cars which are environmentally friendly as well in comparison to the

gasoline vehicles, this had allowed Tesla to enjoy an increasing share in the market.

Corporate level strategy

Tesla has a unique way to advance towards its corporate strategy. Tesla sells most of its products

through its company owned showrooms and also through its online platforms that it owns. This

strategy might seem to be a growth strategy in its own. The revenue from the company owned

showrooms and through commissions that they earn give them a way out to more revenues from

their products. Ethical behavior and culture can be seen as the center of Tesla. The company

provides environmental friendly products that avoid harming the societies, nature and people

around. Furthermore, the company distributes reasonable and sufficient remuneration to its top

employees as part of its corporate strategy.

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Tesla, Inc.

Functional level Strategy

Tesla’s promise towards its product and brand controls many aspects of its supply chain and this

in turn influences its supply chain strategy – more directly towards its sales and customer

service.

Tesla wants its cars to be sold by more knowledgeable men so for that they sell them under their

own name and through their own men and salespeople. Just because Tesla spends so much

money to brand their product, it wouldn’t have been possible through some third party dealer

ship because of which Tesla has taken this reaponsibilty on its own self. This attention towards

quality and brand is reflected through the training of their employees and in the atmosphere and

design of their stores. The sleek and fast charging stations as compared to typical charging

stations, the owners of Tesla are incentivized to buy Tesla electric cars.

Analysis of Strategic Factors, Strategic Alliance and Recommendation

A differentiation strategy is followed by Tesla and this strategy helps them to build competitive

advantage and developments of products and creating a differentiation factors from their rivals.

Differentiation and innovation exist at the core of Tesla. The kind of services they provide add

value to their work and it becomes a culture. Tesla generally focus on advanced technologies in

their electric motors by competing against General motors, Toyota motors, Honda motors,

Nissan motors, Bavarian motors and Volkswagen.Tesla products are competitive because they

made environmental friendly technology, considering the vast majority of automobiles of today

use combustion engine. Tesla also used differentiation focus by coming up unique and

innovative products that not only grab the attention of consumer but also focused mainly on early

adopter and high end market for electric vehicles. Since their production cost are declining and

they need to invest in the research and development centres. They also strengthen

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Tesla, Inc.

competitiveness by broadening its market reach to generate more sales and increase brand

popularity.

Inorder to bring sustainability in their sales and improve brand popularity, there are four main

objectives that tesla need to work on in order to be in the game and that is:

1. Installing energy generation solar roofs and storage products in homes to work in

conjunction with their electric cars.

2. Tapping into new markets such as electric semis and public transport buses in order to

attract more consumer.

3. Improving their autonomous driving software to make all vehicles fully-autonomous so

that everyone on the same pace.

4. Developing a tesla share fleet and app to customers’ cars can make money for their

owners while they are not in use.

Building the company with competency, capabilities and resource strength, creating strategy

supportive policies and procedures, instituting best practices and a commitment to continuous

improvement in unique way of so that no rival imitate it, installing support system and value

added services and maintain low cost. As Tesla tries to position itself in the business of

sustainable and decentralized energy, the relationship with Panasonic is significant. Tesla'sability

to attract and manage leading companies in the automotive and other key industries as strategic

alliance partners is an important part of its formula for success.

Tesla should focus on improving its manufacturing efficiency. Tesla should work on diversity of

supply chain as their current supplier is single source. The production process become slow in

Tesla so for that reason, it should provide training to their workers or need to hire more skilled

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Tesla, Inc.

workers to keep up with the planned production growth and introduction of new electric semi.

The company currently has single battery cell supplier and this is the one reason that cause

delays in production process in order to overcome this, Tesla need to have multiple battery cell

supplier to safeguard against production delays.

Implementation, Evaluation and Control

The Tesla is a unique company and it has unique culture as well. The company stricture is in U-

Form or in other words it has divisional structure which comprised of number of divisions such

as energy, engineering, legal, production, HR, communication, finance, sales and software. The

benefits of having this structure as it have less bureaucracy compared to other companies. This

structure also helps to increase the communication among different layer of management with

positive implication of decision making and flexibility of business.

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Tesla, Inc.

References

http://thespherepress.com/tesla-motors-external-analysis-pestle/

https://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=1060&context=honorstheses

https://research-methodology.net/tesla-organizational-structure-divisional-and-flexible/

https://www.whereisroadster.com/tesla/

https://www.thestreet.com/world/tesla-biggest-challenges-2019-14813474

https://www.businessinsider.com/tesla-challenges-in-2018-2018-4#the-doj-is-reportedly-

investigating-teslas-statements-about-model-3-production-34

http://panmore.com/tesla-motors-inc-generic-strategy-intensive-growth-strategies-analysis

https://www.feedough.com/tesla-business-strategy-and-business-model/

https://brainsandbliss.files.wordpress.com/2018/05/tesla-strategic-analysis.pdf

https://www.bloomberg.com/research/stocks/private/board.asp?privcapId=27444752

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https://www.cbsnews.com/news/experts-say-tesla-board-may-have-too-many-ties-to-ceo-musk/

https://www.businessinsider.com/tesla-board-of-directors-full-list-elon-musk-chairman-

replacement-2018-8

Appendices

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