Contents

I. Introduction .......................................................................................................................................... 2
II. Case Analysis ......................................................................................................................................... 2
1. Tesla’s vision, values and mission ..................................................................................................... 2
2. The company’s objectives ................................................................................................................. 2
3. Marco-environment analysis ............................................................................................................ 3
4. Analysis using Porter’s Five Forces model of competition ............................................................... 5
5. Analysis of common drivers of industry change ............................................................................... 6
6. Comparative market positions – A Strategic Group Map ................................................................. 7
7. Industry’s key successful factors (KSF’s) ......................................................................................... 13
8. Summary of the industry’s outlook ................................................................................................ 16
9. Financial analysis............................................................................................................................. 17
10. Competitive asset analysis – VRIN test ....................................................................................... 20
11. Cost structure and customer value proposition ......................................................................... 21
12. Competitive strength assessment .............................................................................................. 24
13. Generic Business Strategy ........................................................................................................... 25
14. SWOT Analysis............................................................................................................................. 25
15. Is Tesla’s present strategy a WINNER? ....................................................................................... 26
III. Conclusion ....................................................................................................................................... 27

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 I. Introduction
This report aims to analyze factors which are both external or the inside of the company that affect
Tesla as well as its strategies, and thus drive evaluation whether they are a WINNER. With three main
parts, including Introduction, Case Analysis and Conclusion, the report about Tesla applies relevant
concepts and theories during the course BUSN 4275 - Business Strategy & Competitive Analysis in a
methodical order.

II. Case Analysis

1. Tesla’s vision, values and mission
The vision, mission and values of Tesla Inc (Tesla) are as follows:

- Vision: to create the most compelling car company of the 21st century by driving the
world’s transition to electric vehicles (Tesla Inc., 2011)
- Mission: to accelerate the world’s transition to sustainable energy (Tesla Inc., 2011)
- Values: “Move fast; do the impossible; constantly innovate; reason from “first
Principles”; think like owners and we are ALL IN” (Tesla Inc., 2014). Tesla emphasizes safety
operation to yield “the best possible products”; sustainability that “make a difference in the
world and to accelerate the world’s transition to sustainable energy”; and continuous learning
and innovation from in-house staffs and external partnerships (Tesla Inc., 2018).

2. The company’s objectives

According to Tesla Impact Report (2018), Tesla Fourth Quarter & Full Year 2018 Update (2018) and
Tesla, Inc. Q3 2019 Financial Results (2019), Tesla’s objectives are comprised financial targets and
strategic goals:

- Financial objectives:
 Sales and earnings: from 360,000 to 400,000 deliveries in 2019 totally with 25% non-
GAAP gross margin from Model 3 (the most popular and best seller sedan of Tesla).
 Expense and cashflow: Expense is expected to increase by less 10% in 2019 and positive
free cash flow quarterly (beyond Q1 2019)
 Capital expenditure: capex is anticipated to reach $2.5 billion in 2019.
- Strategic objectives:

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  Model 3 is forecasted to become a global product and continually be the best-selling
automobile which outsell own competitors in the U.S market. To execute this strategy, a
Shanghai Gigafactory has begun to produce Model 3 in other to meet the target of more
than 360,000 cars altogether in 2019.
 Meanwhile, Model Y which cost less than Model 3 and take less time to produce is
expected to be launched in summer 2020 to offer a wider range and more affordable
products and maintain and strengthen the dominant position in the electric car market with
sale target 500,000 electric vehicles annually by year-end 2020.
 Expanding charging network (charging stations) globally and “strategically pair solar and
battery storage at as many Supercharger stations as possible”
 Having sufficient service locations to ensure that after-sale services were available to
owners when and where needed
 Be the world’s biggest and most highly regarded producer of the electric-powered
automobile.

3. Marco-environment analysis
PESTEL Models is used to analyze macro-environment as the table follows:

Factors The likely issues, insights and patterns that affect Effect on
Tesla
+ /= / -
Governments around the globe promote the consumption of less C02
+
emission products, like electric vehicles
Several governments offer incentives for electric-power automobile
Political manufacturers. In the United States, a federal tax credit of up to $7,500 +
to customers who purchase Tesla cars.
Main markets such as North America, Australia, Europe and China have
+
political stability.
Gasoline prices have slipped dramatically since 2015 and thus made
Economical electric vehicles less attractive as it costs more for energy compared to -
the fossil fuel

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 Most major markets have witnessed optimistic growth in their
economies. In the U.S, the unemployment rate decrease to the lowest in
50 years (the US unemployment rate falls, 2019). +
. Hence, there would be more disposable income available for individuals
who want to upgrade to or possess electric cars
People are more environmentally conscious. They have preference for
Sociocultural +
renewable energy-powered vehicles, which also release less C02.
The rapid change in technology allows Tesla to incorporate the latest
advancements in battery technology and its automation manufacturing +
process to optimize product performance and cost.
Technological
Technology in hydrogen fuel is increasingly developed by major
competitors and expected to be another choice for gasoline-powered -
vehicle replacement besides electric car
Climate change and global warming are increasingly of paramount
concern. It forces people to find solutions and alternatives to mitigate
Environmental +
carbon dioxin released. Replacing traditional cars by electric vehicles is a
sensible ideal.
Several developed countries imposed the commitment and laws that ban
+
vehicles powered by fossil fuel within next 30 years (Petroff, A., 2017)
Legal
The U.S-China trade war adversely impacts Tesla’s operations.
-
(Oberoi, M., 2019)
Overall:
On the basis of this analysis, discussed macro-environment factors facilitate the future
growth of Tesla.
Key factors support this conclusion are:
 The support from governments and eco-friendly parties and individuals +
 Having electric vehicles is a growing trend and essential to protect
environment
 Ever-changing technology breakthroughs allow Tesla to enhance the quality
of product as well as product range.

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4. Analysis using Porter’s Five Forces model of competition
 Power of suppliers: Low to moderate. Most of the manufacturing process is carried in-
house including designing, developing and producing while components are provided by outside
suppliers. It allows Tesla to control the processes and enhance bargaining powers. However,
Panasonic is an exception since it is the biggest supplier and play a vital role in Gigafactory to
produce lithium-ion battery. (Thompson, 2018)
 Power of buyers from the industry: Low. There are a vast number of people want to
possess a Tesla car. Long lists of customers are waiting for the pending deliveries. In addition, a
number of pre-orders are delayed scheduled delivery time or even canceled.
 Threat of new entrants: High. The electric automobile market is considerably promising.
Almost all of car manufacturers are planning to release electric vehicles, including reputable car
producers like Toyota, BMW and Volkswagen whose ambition to announce the electric versions
of their renowned model.
 Power of substitute products: High. The primary alternative to electric automobile is
gasoline-powered cars. Even though electric vehicles are more environmentally- friendly, fossil
fuel vehicles constitute the vast majority in the automobile market. It is mainly because of its
diversity of prices, types and quality and due to the fact that the charging stations for Tesla cars
are still limited. Moreover, major automobile competitors are working on hydrogen fuel vehicles
which can be the significantly potential substitute products.
 Intensity of industry rivalry between competitors: Low to moderate. Whereas there are
many companies have released electric cars, Tesla is still dominant in this segment currently.
This is mainly because of their pioneer position and sensible marketing campaign. There is a long
list of customers are willing to wait more than one year for Tesla’s car delivery rather than
choose another brand. In a broader view, however, Tesla is still facing with the competition
from traditional car manufacturers.

In summary, the overall evaluation is moderate since the threats of analyzed forces varies. While
Tesla has dominant position in the electric vehicle market segment and considerable bargaining
power to both suppliers and customers, the potential competition is considerable because of the
availability of substitutes and the threat of new entrants to the electricity-powered car market.

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 5. Analysis of common drivers of industry change
The drivers of industry change and their impacts on Tesla are analyzed as follows:

Effect
Driving industry changes on Tesla
+ /= / -
Changes in an industry’s long-term growth rate: The electric automobile industry is
tremendously promising which is expected to growth 22.3% annually from 2018 to 2025
+
(Kumar, 2019). This effect is more favorable since new entrant needs enormous financing to
manufacture electric vehicles.
Increasing globalization facilitates the growth of Tesla operations as it improves emergence of
wealthy individuals in developing countries. The wealthier people are, the more demand in +
premium cars, especially electric automobiles.
Emerging new Internet capabilities and applications: The usage of pay-per-click
advertisements on websites and mobile applications allow Tesla to boost sale volumes
without using conventional and costly marketing campaign. In addition, a software application +
with “Range Assurance” feature allows car’s navigation system to connect the location of
charging station and show to drivers when car’s battery is running low. (Thompson, 2018)
Shifts in who buys the products and how the products are used: people increasingly care more
+
about environment and have more interest in switching to electric vehicles than ever.
Technological change and manufacturing process innovation: The electric vehicle is actually
disruptive change in the automobile industry. The rapid change in technology innovation not
+
only facilitates automation more effectively but also enhance capability and quality of the
electric automobile battery.
Product innovation: ongoing trends in product innovation introduce more variety of
alternatives to fossil fuel automobiles besides electric vehicles. For example, Google are
actively working on self-driving technology or the future of hydrogen-powered vehicles are of -
significant public attention. More interestingly, ride-sharing and car-sharing platforms like
Uber and Lyft are considered to reduce automobile sales, including revenues of electric cars.
Entry or exit of major firms: As analyzed, there are more and more major automobile
competitors are entering the electric automobile market. As a result, there is going to be the -
intense competition in the near future which make Tesla need viable strategy to compete

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 Diffusion of technical know-how across companies and countries: Tesla has solid know-how
and more than 500 patents which allow the company becomes the pioneer in electric vehicle +
technology.
Changes in cost and efficiency: “… standardizing options such as the air suspension, AWD,
premium package, and glass roof. This is yet another step towards increased
+
standardization, which results in significantly lower manufacturing cost “
(Tesla Inc., 2019)
Reductions in uncertainty and business risk: Electric automobile industry requires a
tremendous amount of money to invest and competitive. It is accompanied by several
-
uncertainty regarding the estimated timeline that the company can cover the extravagant
operation cost.
Regulatory influences and government policy changes: There are not only government’s
financial incentives given to individual who purchase Tesla car, but also several commitments
around the globe to cease fossil fuel car in the near future, namely: The U.K 2040, France +
2040, Norway 2025, as well as “official targets for electric car sales” such as Austria, Denmark,
Ireland, Japan, the Netherlands, Portugal, Korea and Spain. (Petroff, 2017)
Changing societal concerns, attitudes, and lifestyles: Climate change bring significant concerns
all over the world. People tend to switch from gasoline cars to product that releases less +
carbon dioxide like electricity-powered automobile.
Overall impact +
In general, the effect of the forces driving industry change on Tesla are favorable. Most importantly,
eco-conscious perspective is the root of supportive policies and technology breakthrough and hence
driving the industry change.

6. Comparative market positions – A Strategic Group Map

Each industry rivals are positioned differently in the automobile market regarding strategy approaches
they follow such as price and product ranges and geographic coverage. Strategic group mapping is used
in this analysis to assess competitor positioning within the industry as well as Tesla’s market position.
The strategic group mapping is constructed by following steps:

 Identify the competitive characteristics: In the automobile industry, price range is a

significant characteristic that companies should consider in order to position themselves in the
market. In addition, product-line breadth is another important characteristic that can be a

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strategy approach to compete within the market. While some automobile manufactures offer a
luxurious brand image or more eco-friendly vehicles, the others tend to provide a wider product
range which ambition is to dominate the market or even build distinct brand names with various
segment like the case of GM Volkswagen:

Figure 6.1 Car bands owned by Volkswagen Group (Source: https://www.volkswagenag.com )

 Plot the firms on a two-variable map using pairs of these variables: Tesla’s major
competitors which are direct or indirect in the market are Volkswagen, Toyota, Nissan, Hyundai,
Ford, General Motors and Mercedes. Each of them has a typical strategy approach in terms of
price range and products range illustrated as follows: (Tesla Inc., 2011)

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 Figure 6.2 Tesla major rival brands (Tesla Inc., 2011)

Note that this data was in 2011. Since then, there have been a number of competitors enter actively in
the electric vehicle market and announced some popular cars with various range such as Audi e-Tron
(Volkswagen), Mercedes-Benz EQC, MG ZS EV and Porsche Taycan (Volkswagen). (Best electric cars in
2019, 2019).

 Assign firms occupying about the same map location: Tesla and some of its competitors
are currently positioned in the market by following these approaches:
Companies Price range Product range
Tesla: mid-sized premium and premium electric vehicles High Narrow
Ferrari: luxurious gasoline cars Very high Very Narrow
Mercedes: premium vehicles with various models in terms of
High Quite wide
capability and engine power (gasoline, electricity or hybrid)
BMW (owns BMW, Mini, and Rolls-Royce): premium and
High-
luxurious vehicles with various models regarding capability and Wide
Very high
engine power (gasoline hybrid)

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General Motors (owns Buick, Cadillac, Chevrolet, GMC, Holden
Low to high Wide
and Wuling): affordable to premium cars with various models
Ford (owns Lincoln, Aston Martin, Jaguar, Land Rover and
Low to high Wide
Volvo): affordable and premium price cars with various models
Huyndai (owns Huyndai and partly Kia): affordable price cars
Low Very Wide
with various models (even in electric segments)
Honda: affordable price cars with various models Low to medium Wide
Nissan: affordable price cars with various models Low to medium Very Wide
Toyota (own Toyota, Hino, Lexus, Ranz, and Daihatsu):
Low to high Wide
affordable and premium price cars with various models
Volkswagen (owns Audi, Bentley, Bugatti, Lamborghini,
Medium – Very Considerably
Porsche, SEAT, Škoda) offer various automobile types, ranging
high wide
from medium to luxurious, from fossil-fuel-powered to electric
…

 Draw circles around each strategic group, regarding the market shares: Since the size of
circles approximately proportional to the size of the company’s share of total sales in the
industry, the market share evaluation of Tesla and its major competitors is needed.

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 Figure 6.3 Global car market share of the world's largest automobile OEMs in 2018
(Source: https://www.statista.com )
The research does not show Tesla’s data in 2018 and there is also no accurate Tesla market
share information available. However, Tesla’s market 2013 shares are nearly 1% of the global
premium auto market and merely 0.02% share of the global auto market (Tesla Inc.,2014). Since
2013, the company revenue has surged by an incredible rate (Fosse, 2019).

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 Figure 6.4 Tesla revenue from 2008 to 2018 (Source: https://www.statista.com )

As a result, Tesla’s market share in 2018 is estimated less than 1% globally.

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 A STRATEGIC GROUP MAP: COMPARATIVE MARKET POSITIONS OF AUTOMOBILE
MANUFACTURES GLOBALLY

high Ferrari Tesla BMW

Mercedes

Volkswagen
Price range

GM
Ford

Nissan
Honda
Toyota

Hyundai
low

narrow wide
Product range

7. Industry’s key successful factors (KSF’s)

The industry’s key successful factors (KSF’s) are strong brand name, product quality and cost savings,
outstanding technology and innovation, distribution and supporting infrastructure and accessibility to
financial capital and support.

 Strong brand name: High-profile brands with strong customer loyalty are fundamental
to maintain market share, create high sales growth and prolong the product life cycle. Large
companies with significant promotion budgets are able to maintain strong brand images
through constant promotion and support the introduction of new products and brands. Most of
global automobile manufactures have built the strong brand images for decades or even
hundreds of years such as Ford, Toyota, Mercedes and BMW. The young company- Tesla also
earn a reputation as an electric car pioneer.

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 Product quality and cost savings: The organization must produce consistently reliable
high-quality products and position its brand to represent quality and best value. In additions,
not only the energy consumed should be mitigated but also intangible cost of car emission
needs to be under careful scrutiny. Tesla is confident that their electric car is proven the most
energy-efficient in the world.

Figure 7.1 Tesla Vehicles’ engergy efficiency compared to competitors (Tesla Inc., 2019)
 Outstanding technology and innovation: The more advanced technologies companies
have, the more successful they tend to be in the industry, especially in electric automobile
manufacturing. Battery technology is one of vital factors in developing electricity-powered
vehicles. Currently, electric vehicles are “limited to range
of 50 to 300 miles on a single battery charge" (Thompson, 2018). Tesla is aggressively investing
in lithium-ion battery development and production to maintain and strengthen the first-mover

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position in this technology. Tesla’s Gigafactory 1 is now the world largest battery factory .

Figure 7.2 Tesla’s factory Gigafatory 1 capability (Tesla Inc., 2019)

 Distribution and supporting infrastructure: Distribution channel is a crucial factor to
promote and provide product to the customer. In addition, the popularity of charging stations is
essential to the success of companies in electric automobile market as vehicle operation relies
on its battery. Currently, Tesla showrooms and service centers are situated in a good number of
metropolis in North America, Europe, China and Australia. The charging station network is also
widely expanded.

Figure 7.2 Tesla’s charging network availability (Tesla Inc., 2019)

 Accessibility to financial capital and support: To exist and compete successfully in the
automobile market, the company needs a vast amount of funding in extravagant technologies

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 and infrastructure. Besides that, supportive policies and programs from the government can
also allow companies to boost sales. Currently, Tesla is fundraising more effective than any
other car manufactures. The governments not only subsidize in clean energy projects of the
company but also offer incentives to individuals buying Tesla’s cars which helps to increase the
company sales considerably. However, Tesla seems to be facing a remarkable cash flow problem
in the near future because of aggressive investment and costly operating expense. Accordingly,
Elon Musk warned that Tesla might run of cash without 10 months if no “hardcore” cost-cutting
is conducted. (O'Kane, 2019)

8. Summary of the industry’s outlook

Analysis Tools Impact on
Tesla
+/ = / -
Marco-Environment
+
3/ PESTEL Analysis

Immediate Industry & Competitive Environment Analysis

4/ 5 Forces Model +/-
5/ Driving Force Analysis +
6/ Strategic Group Map +
7/ Industry Key Success Factors (KSF’s) +
Overall impact +
On the comprehensive view of external environment analysis, the industry’s outlook presents Tesla with
sufficiently attractive opportunities for growth and profitability.

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 9. Financial analysis
The comprehensive view regarding financial statements of Tesla over last four years are as follows:

Figure 9.1: Tesla’s income statement from 2015 to 2018 (Source www.macrotrends.net )

 Profitability ratios
o Gross profit margin = (Sales revenues-COGS)/(Sales revenues)

= $4,042 mil / $21,461.27 mil = 18.8 %

o Operating profit margin = (Sales revenues- Operating expenses)/(Sales revenues)

= $-388.07mil/ $21,461.27 mil = - 1,8 %

o Net profit margin = (Profit after taxes )/(Sales revenues) =

= $- 1,062.582mil/ $21,461.27 mil = -4.95%

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Figure 9.2: Tesla’s Balance sheets from 2015 to 2018 (Source www.macrotrends.net)

o Net return on total assets (ROA) = (Profit after taxes)/(Total assets)

= $- 1,062.582 mil/ $29,739.61 mil = -3.5 %

o Return on stockholders’ equity (ROE) = (Profit after taxes)/(Total Shareholder’s equity)

= -18.4%
 Liquidity ratios
o Current ratio = (Current assets)/(Current liabilities)

= $8,306.308 mil/ $9,992.136 mil = 0.8

o Working capital = Current assets – Current liabilities

= $8,306.308 mil - $9,992.136 mil = -1,955.828 mil

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  Leverage ratios
o Long-term debt to-capital ratio =
(Long-term debt)/(Long-term debt+ Total Shareholder’s equity)
= $9,403.672 mil/ ($9,403.672 mil +$5,757.64 mil) = 0.62
o Debt-to-equity ratio = (Total debt)/(Total Shareholder’s equity) = 2.07
 Activity ratios
o Inventory turnover = COGS/Inventory = $17,419.25 mil/ $3,113.446 = 5.59
o Average collection period = (Account Receivable)/(Total sale /365)
= $949 mil / ($21,461.27 mil/365) = 16.14

Figure 9.3: Tesla’s Financial Ratios from 2015 to 2018 (Source www.macrotrends.net)

Evaluation: - profitability ratios: unfavorable

- liquidity ratios: unfavorable
- leverage ratios: unfavorable
- activity ratios: favorable
In conclusion, while Tesla can be confident in their activity ratios as there are thousands of people are
willing to deposit money and wait for more than a year to purchase Tesla automobile, the company

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would try to speed up the operation to facilitate on-time deliveries. This can allow Tesla to increase sale
significantly and hence enhance their currently poor profitability ratios. As a result, the cash flow
situation would be more positive in order to cover short term and long term debt to enhance liquidity
and leverage ratios.

10. Competitive asset analysis – VRIN test

To undertake operational activities, the organization needs to have resources, and it needs to have
capabilities to apply those resources . However, to compete in the market successfully, the context of
competitive resources and capabilities need to be understood. The following analysis used VRIN test for
assessing Tesla’s sustainable competitive advantage by answering 4 questions:

- V: Is the resource or capability competitively Valuable?

- R: Is the resource or capability Rare?
- I: Is the resource or capability Inimitable—is it hard to copy?
- N: Is the resource or capability Non-substitutable—is it invulnerable to the threat of
substitution from different types of resources and capabilities?

V R I N
Reputation – The No Yes No
Yes
most recognized Most of global car Tesla is widely Different type
Build customer
electric automobile providers are recognized and of reputation
loyalty and boost
manufacturer all over widely renowned hard to copy the could be the
sales
the world brand name substitute
Human capitals - CEO Yes No
Yes No
Elon Musk and Elon Musk is one management
Can be replaced
managements and of the most style and
Create value for the by new
staffs with solid Tech famous knowledge can
company personnel
& Auto experience businessmen be learned
Patents – More than No
Yes Yes
500 patents in a wide Can be
Create value through Several patents in No
range of areas substitutable by
advancement in various areas (*)
another
operations over the globe
invention

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 Charging networks – Yes Yes
Yes
more supercharger Need extremely No Battery is
Enhance customers
stations than any large investment Can be copied critical for car
satisfaction
company to build functions
Battery technology
Yes Yes
and factories – solid No No
Need a vast
know-how and leader Can be built Can use
Increase product amount of
in battery technology other battery alternative
capability and meet investment to
with the world biggest factories energy
market demand build
battery factories.

(*) “in 2014, Tesla announced a patent policy whereby it irrevocably pledged the company would not
initiate a lawsuit against any party for infringing Tesla’s patents through activity relating to electric
vehicles or related equipment so long as the party was acting in good faith” (Thompson, 2018)

11. Cost structure and customer value proposition

 Value Chain Analysis

Figure 11.1 A Representative Company Value Chain (Thompson, Strickland III, & Gamble, John, 2018)

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Based on the information given in the case study, the analysis of Tesla’s primary activities is as follows

Primary activities—Tesla Value chain analysis

Activity Implementation by Tesla
Supply Chain Management  3,000 parts and components purchased from more than 350
suppliers over the world.
 Most of suppliers are “single-source suppliers”
 Panasonic – the biggest most important supplier – also play
crucial role manufacturing batteries at the Gigafactory.
Operations  Highly automation in manufacturing
 Product designing, developing and producing are mostly carried
in-house.
 Car manufacturing and assembling operations are currently is
carried in-house including factories located California and Tilburg
(Netherlands).
 Gigafactory 1 (Nevada, the U.S) is World’s largest battery
factory. Gigafactory Shanghai is going to make cars in the end of
2019 with capability from 250,000 to 500,000 vehicles per years
before another Gigafactory in Europe built
Distribution  Electric vehicles are sold and guaranteed directly by Tesla sales
galleries and service centers without going through franchised
dealerships.
 Convenient showroom and sale galleries situated in major
metropolitan areas in more than 29 countries.
Sales and Marketing  pay-per-click advertisements on websites and mobile
applications regard to target clientele.
 CEO Elon Musk is the appealing businessman and has significant
impact on both loyal and potential customers
Service  As mentioned, after sale service is conducted in-house
 Broad supercharger networks in more than 1,500 sites around
the globe. Bigger than charging network of any companies.

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The basis of value chain analysis indicates that Tesla has competitive advantage to increase customer
value proposition compared to other electric car producers. Firstly, it allows Tesla to play more active
role in enhancing customer experience and cost saving by offering the company-owned sales galleries
and service centers. Secondly, most of manufacturing process is carried in-house including designing,
developing and producing that allow company to produce lower cost of good sold than their
competitors who choose outsourcing. In addition, wide charging network could facilitate the popularity
of Tesla electric vehicles.

 Activity Based Costing

The following statistic offer an insight about activity-based costing of Tesla and its competitor- BMW.

Tesla BMW
2018 2018
$1,000 % $1,000 %
Total Revenue 21,461,268 100% 97,480,000 100%
Cost of Revenue 17,419,247 81% 78,924,000 81%
Gross Profit 4,042,021 19% 18,556,000 19%
Operating Expenses
Research Development 1,460,370 7%
Selling General and Administrative 2,834,491 13% 9,558,000 10%
Total Operating Expenses 4,294,861 20% 9,558,000 10%
Operating Income or Loss -252,840 -1% 9,008,000 9%
Interest Expense 663,071 3% 386,000 0%
Total Other Income/Expenses Net -113,367 -1% 0%
Income Before Tax -1,004,745 -5% 9,815,000 10%
Income Tax Expense 57,837 2,575,000 3%
Income from Continuing Operations -1,062,582 -5% 7,240,000 7%
Net Income
-976,091 -5% 7,117,000 7%
Net Income available to common shareholders
Figure 11.2 Tesla and BMW’s 2018 income statements (source: https://finance.yahoo.com/)

The obvious distinction in Tesla and BMW activity-based costing is the considerable portion of research
development. Since Tesla is a first mover in the electric vehicle market, they have to spend significant

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amount of budget in R&D. In addition, while the traditional market that BMW is primarily operating is in
mature stage of industry life cycle, the electric automobile market is more likely in the growing stage. A
young company as Tesla need to access the financial funding and spend more in operating cost. That are
the reasons why related expense proportions in Tesla are higher than those in BMW.

12. Competitive strength assessment

Competitive Strength Assessment
(rating scale: 1 = very weak, 10 = very strong)
Key Success Tesla Volkswagen BMW
Factor/Strength Importance Strength Weighted Strength Weighted Strength Weighted
Measure Weight Rating Score Rating Score Rating Score
Reputation/brand 0.1 8 0.8 10 1 10 1
image
Manufacturing 0.05 1 0.05 7 0.35 3 0.15
capability
Quality/product 0.15 7 1.05 7 1.05 8 1.2
performance
Eco-efficiency 0.15 9 1.35 4 0.6 2 0.3
Technological skills 0.1 9 0.9 8 0.8 7 0.7
Distribution/ 0.05 5 0.25 8 0.4 7 0.35
capability
Customer supporting 0.2 9 1.8 4 0.8 2 0.4
capabilities (charging
station)
Financial resources 0.1 5 0.5 9 0.9 7 0.7
Government support 0.1 10 1 4 0.4 2 0.2
and incentives
Sum of importance 1
weights
Overall weighted 7.7 6.3 5
competitive
strength rating

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 13. Generic Business Strategy
Tesla’s generic strategy, based on Porter’s model, is differentiation focus. Tesla offers a different
approach to the automobile market based on more environmentally friendly products. Using a
completely different approach from conventional car manufacturers, the organization targets those
people who are environmentally conscious. Tesla has become the pioneer and first mover in electric
automobile industry.

By focusing on premium electric automobile segments, Tesla has announced Model S, Model 3, Model
X, Model Y and Roadster which aims to offer distinct experience with high level of design, performance
and quality to “driving the world’s transition to electric vehicles” as mentioned in the company’s vision
statement.

14. SWOT Analysis

Strengths
- Strong brand name
- Talent key personnel including Elon Musk
and management team used to work for
renowned technology and automobile giants
- First mover with solid know-how about
electric car technology
- Wide charging station network
- Having critically vast infrastructure with the
biggest battery factories in the world.
Opportunities
- The rapid growth of electric car market
- Several support and incentives from the
governments
- The increasing concern about environment
and preference in eco-friendly products
- Ever-changing technology intention
especially in battery technology
Weaknesses
- The cash flow as well as funding is
running out
- Cost of goods sold is still high and
excessive operating expenditure is
problematic.
- The limited capability currently can’t
meet the demand.
Threats
- Dropping gasoline price make electric
vehicle less attractive.
- Much more intense competition is
forecasted
- Technology, on the other hand,
facilitates more substitutes to electric
vehicles in the near future.

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 15. Is Tesla’s present strategy a WINNER?
The following three tests are conducted to determine whether a strategy is a winning strategy:

 The Strategic Fit Test

- External fit: Tesla growth can be facilitated by the external conditions. The trending
demand in electric automobile, exclusive government support and state- of-the-art technology
breakthroughs are vital factors for Tesla to achieve strategic goals.
- Internal fit: As mentioned above, Tesla strategy exhibit a outstanding internal fit
regarding its resources and competitive capabilities and supply chain including supply chain
management, operations, sales and marketing and service.
- Dynamic fit: electricity-powered vehicles have made a disruptive change in the
automobile industry and Tesla is the pioneer. Several plans to expand the operation and
significant budget investing in R&D indicates that Tesla still evolve aligned with external and
internal conditions change.
 The Competitive Advantage Test: The solid know-how, wide supercharger network,
renowned brand name and talent top level of management help Tesla to maintain and
strengthen competitive advantage over current competitors and potential entrants.
 The Performance Test
- Competitive strength and market standing: The reputation of Tesla is increasingly
strengthened. Tesla is now widely recognized as the biggest electric car manufacturer all over
the world. There are long lists of customers waiting for months to receive their Tesla premium
automobile.
- Profitability and financial strength: Interestingly, Tesla current financial situation is the
biggest concern for its management. Costly operation expense and tremendous investment in
infrastructure and R&D result in ongoing losses. The worse information is that cash flow is
running out after years that Tesla has to burn cash in its operation. However, in the other hand,
the remarkably increasing gains in market shares offer an insight about the optimistic future for
Tesla.

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 -

Figure 15.1 Model 3 revenue in 2018 compared to competitors ( Tesla Inc., 2019)

In the basis of this analysis, Tesla’s current strategy represents a WINNER.

III. Conclusion
By way of conclusion, Tesla’s strategy is analyzed in this essay from comprehensive and different
perspectives. They include the insights about influence of external and internal factors on the
company strategy as well as its competitive advantages and ability to survive and compete in the
market. Those are driven from the knowledge obtained in the course and additional researches from
Tesla’s reports and other online websites as listed in References section.

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 References

Best electric cars in 2019: our top EVs on sale (2019, November 03). Retrieved from
https://www.carmagazine.co.uk/electric/best-electric-cars-and-evs/

Fosse, P. (2019, March 24). Tesla’s Incredible Growth, Past & Future — How The Company Could
Continue Hyper Growth. Retrieved from https://cleantechnica.com/2019/03/24/teslas-
incredible-growth-past-future-how-the-company-could-continue-hyper-growth/

Kumar, P (2019, January). Electric Vehicle Market by Type (Battery Electric Vehicle, Hybrid Electric
Vehicle, and Plug-in Hybrid Electric Vehicle), and Vehicle Type (Passenger Car, Commercial
Vehicle, and Two-Wheeler) - Global Opportunity Analysis and Industry Forecast, 2018-2025.
Retrieved from https://www.alliedmarketresearch.com/electric-vehicle-market)

Oberoi, M. (2019, August 26). Trade war could impact Tesla’s China operations. Retrieved from
https://marketrealist.com/2019/08/trade-war-could-impact-teslas-china-operations/

O'Kane, S. (2019, May 17). Musk says Tesla will be out of money in 10 months without ‘hardcore’
changes. Retrieved from: https://www.theverge.com/2019/5/17/18629166/elon-musk-tesla-
money-changes-cfo-employee-expenses

Petroff, A. (2017, September 11). These countries want to ban gas and diesel cars. Retrieved from
https://money.cnn.com/2017/09/11/autos/countries-banning-diesel-gas-cars/index.html

Tesla Inc. (2011). Tesla Motors Company overview. Retrieved from https://ir.tesla.com/static-
files/43b9fc69-df93-421b-86b7-4f65e2d44594

Tesla Inc. (2014). Tesla Motors investor presentations. Retrieved from https://ir.tesla.com/static-
files/e768168d-076e-4705-9751-e7872b1982bc

Tesla Inc. (2018). Tesla impact report. Retrieved from https://www.tesla.com/ns_videos/tesla-

impact-report-2019.pdf

Tesla Inc. (2019). Tesla Fourth Quarter & Full Year 2018 Update. Retrieved from
https://ir.tesla.com/static-files/0b913415-467d-4c0d-be4c-9225c2cb0ae0

Thompson, Jr., A.A., Strickland III, A.J., & Gamble, John E. (2018). Crafting and Executing Strategy.
New York, NY: McGraw -Hill.

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Thompson, Jr., A.A. (2018) Tesla Motors in 2018: Will the new Model 3 save the company? New York,
NY: McGraw -Hill.

US unemployment rate falls to 50-year low of 3.5%. (2019, October 4). Retrieved from
https://www.bbc.com/news/business-49934309

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