Tesla Inc Analysis

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Feb 20, 2024

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1 A Comprehensive Analysis of Tesla Inc. Vashisth Jalaj Aneri Patel Ankush Jesani Kashish Rajput Centennial College BUSN332: Business Strategy Dr. Amir Ghazinoori February 12, 2024

2 Executive Summary : About the Group Group 3 formed by Aneri Patel, Kashish Rajput, Vashishth Jalaj, Ankush Jesani focuses on conducting a brief field research on Tesla Inc. Work Divided Potential or Actual Problem/Opportunity Identification and Background - Aneri Patel Executive Summary and Recommendations - Kashish Rajput Internal Environment Analysis - Vashishth Jalaj External Environment Analysis - Ankush Jesani Scope of the Project This project aims to conduct a comprehensive analysis of Tesla Inc., formerly Tesla Motors, focusing on its internal and external environments. The scope throws light on numerous aspects of the company's history, growth trajectory, internal strengths and weaknesses, core competencies, as well as opportunities and threats in the external environment. The project will include the following components:

3 1. Background : A historical overview of Tesla Inc., including its founding, key milestones, changes in leadership, and significant developments over time. 2. Internal Environment Analysis : Tesla's internal resources, capabilities, strengths, and weaknesses. This includes an assessment of its core competencies, such as battery technology, electric vehicles, software integration, and renewable energy solutions. 3. External Environment Analysis : A PESTEL analysis to examine the political, economic, social, technological, environmental, and legal factors impacting Tesla's operations. Additionally, analyze the competitive forces using Porter's Five Forces model to assess the intensity of competition, bargaining power of buyers and suppliers, threat of substitutes, and threat of new entrants. 4. Problem/Opportunity Identification : Potential or actual problems and opportunities faced by Tesla based on the analysis of its internal and external environments. This includes challenges such as production issues, quality concerns, regulatory compliance, and competition, as well as opportunities for market expansion, innovation, and strategic partnerships. 5. Recommendations : Strategic recommendations to address the identified problems and capitalize on the opportunities. Recommendations include strategies for global expansion, investment in research and development, risk management, compliance, and diversification of product portfolio.

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4 History of Tesla Inc. Tesla Inc. (Formerly Tesla Motors) is an American manufacturing company that specializes in electric automobiles, solar panels and batteries for cars and home power storage. It was founded in July 2003, by Marton Eberhart (CEO) and Marc Tarpenning (CFO) and named the company after Nikola Tesla. The founders started the company to build electric cars and sourced their funding from multiple sources. One of the notable investors was Elon Musk – the founder of PayPal. Elon Musk contributed more than $30 Million and served as the chairman of the company starting from 2004 (Schreiber & Gregersen, 2024). Now the brand Tesla is associated with Elon Musk (current CEO) and as of February 2024, the market cap of Tesla Inc. is $616.47 Billion (cap, n.d.) The company has a fascinating history that intertwines innovation, ambition, and technological breakthroughs. Here is a brief journey of the company: In late 2007, Marton Eberhart resigned as the CEO of the company and Elon Musk took over. Under the leadership of Musk, Tesla made its debut in the market with its electric car Roadster, in 2008. It was tested to have a mileage of 245 miles (394 km) on a single charge. Additional tests showed that its performance was comparable to that of many gasoline-powered sports cars. The lightweight car body was made of carbon fibre. The vehicle’s electric motor was powered by lithium-ion cells that could be recharged from any standard electrical outlet. In 2010, the company went public and raised $226 Million (Schreiber & Gregersen, 2024).

5 In 2012, Tesla stopped the production of the Roadster and focused on its new model S Sudan. The release of the car positioned Tesla as one of the few successful independent automakers and a pioneer in the electric car market. By September 2014, the car hit an all-time sales record with 2500 cars sold in just 1 month. They built stations called superchargers across the United States that allowed Tesla owners to charge their cars at no extra cost. Along with that, they also began building large factories called “Gigafactories” to manufacture batteries build their vehicles and reduce the costs of their lithium batteries. The first Gigafactory was opened in 2016 in Reno, Nevada. They further went on to release Model Y and Model X – some of the latest models of Tesla (Schreiber & Gregersen, 2024). The company also branched out in solar energy products. A line of batteries to store electric power from solar energy for use in homes and businesses. In 2016, Tesla bought a company called SolarCity and offered rooftop solar panels. To signify that Tesla is not just a vehicle company, it officially changed its name from Tesla Motors to Tesla Inc (Schreiber & Gregersen, 2024). This does not mean that the company has always been on the rise. The company and its CEO Elon Musk have always been in the news for some unethical behaviours. One of the notable incidents is when Musk made some tweets about taking Tesla private and securing the necessary funding for it. In September 2018, the US Securities and Exchange Commission (SEC), charged Musk with securities fraud as his tweets were “misleading and false”. As a result, the stock prices of Tesla plummeted, and Musk was asked to resign from being the chairman of the company but was allowed to stay as the

6 CEO simultaneously both Musk and Tesla were fined $20 Million (Schreiber & Gregersen, 2024). This is just one of the incidents and the company’s stock price is very dynamic reaching both the high and low extremities, sometimes within a day. However, this has not stopped Tesla from becoming one of the leading manufacturers and producers of electric vehicles. One of the most unique points that sets Tesla apart from its other companies is that it focuses on one model at a time. This allows them to have a model that is unique with the utmost quality and features as all the resources were invested towards just that one model. Internal Environment Analysis Tesla Inc. is renowned for its innovation in electric vehicles, renewable energy solutions, and advancements in batteries. Below is the information about Tesla’s Resources and capabilities- 1. Battery Technology - Tesla as cutting-edge hatchet technology uses lithium-ion cells and energy storage solutions (Tesla, n.d.). The company’s big gigafactories are integral to the production of these batteries which enables Tesla to maintain a competitive edge in the electronic vehicle range, performance, and energy storage solutions. 2. Electronic Vehicles - Tesla's score competency lies in the production of its electronic vehicles, till now Tesla has created several electronic vehicles namely Model X, Model Y, Model E, Model 3, and Model S with current production of

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7 cyber trucks. They have gained widespread acknowledgement for their performance, range, and their new and unique driving capabilities. 3. Software and Connectivity- Tesla integrates sophisticated software and technology into their vehicles which is helpful for a remote diagnosis of the vehicle moreover it provides different features such as Infotainment and control of the whole car via your phone. Search software-driven approach helps the company to gain loyal customers and provides a unique experience to users beyond driving a car. 4. Renewable Energy Solutions - Beyond electric vehicles Tesla is also involved in the development and deployment of renewable energy solutions which include solar panels, solar roofs, and energy storage systems (Tesla powers all, n.d.). Tesla has several competitive advantages over other businesses in the EV industry, but Tesla is providing and dominating this market because of its new and innovative developmental technology of creating unique EVs they focus their strategies primarily on innovative battery technology and that helped them to stand out in the market and become strategically viable. Internal strengths and weaknesses Tesla is the leading EV (electronic vehicle) manufacturer market and is renowned for its innovations, but it does have some strengths and weaknesses just like other businesses and they are as follows- Strengths:

8  Innovation : Tesla has the biggest strengths in its innovation sector because of its cutting-edge technology for creating new and unique electronic vehicles and better technology too.  Integration : The company has vertical integration (Emmer, 2024) for its operations which includes manufacturing of batteries, electric vehicles and their assembly making it easy to have control over the supply chain and helpful to reduce cost.  Superchargers : Tesla has significantly established more than 50,000 superchargers around the globe (Tesla, Superchargers, n.d.) making it easier to access for consumers which increases the appeal of their electric vehicles among consumers. Weaknesses:  Production Challenge: Tesla has faced production challenges in the past including delays in ramping up production volumes and meeting delivery targets. These challenges have led to concerns about the company’s ability to scale its production capabilities.  Quality Concerns: Tesla has received criticism and feedback regarding low- quality control issues with its vehicles including fit and finish problems, and panel gaps which also lead to reliability issues among customers.  High R&D Expenses : Tesla has cutting-edge technology which is their biggest strength, and they achieve it by relying on R&D departments but the money that

9 this department acquires may strain their profitability and the company’s financial resources. Company’s Core Competencies: Brand and Marketing - Tesla has built a brand which relates to sustainability, luxury, and innovation. Moreover, its marketing strategies, which rely on word of mouth, social media, and different unusual methods have been highly effective in attracting customers and creating excitement around the product. Customer Experience - The company focuses on prioritizing increasing customer experience by offering exceptional service, customization options, and using a B2C sales model. Its focus is on building a community of loyal customers and it also contributes to its competitive edge and strengthens brand loyalty. Electric Vehicle Technology- Tesla’s biggest core competency is its production of electric vehicle technology. The company has pioneered advancements in battery technology, electric drivetrain, and energy management systems. This competency allows Tesla to produce high-performance vehicles with long-range and rapid charging capabilities. These core competencies help Tesla to gain a competitive edge in the EV industry gain more loyal customers maintain a leading position in the market and pave the way for future growth and expansion into different sectors.

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10 External Environment Analysis: A. A Brief PESTEL Analysis of the Company: Political Factors: Tesla operates differently from traditional cars that rely heavily on fuel. While their vehicles use both electricity and gas, they require significantly less gas compared to conventional automobiles. Instead of frequenting regular gas stations, Tesla drivers primarily utilize charging stations for refuelling. Government initiatives have been instrumental in advancing electric and hybrid engine technology. If you purchase an electric car, you might be eligible for tax credits. For instance, specific states like Virginia and Colorado offer state tax credits of at least $5,000 for electric vehicle buyers. Tesla’s global expansion is underway, but its success in various countries hinges on the local economic context. Environmental factors: Tesla, a trailblazer in electric vehicles, appeals particularly to environmentally conscious consumers. Unlike traditional cars that guzzle fuel, electric vehicles significantly reduce the environmental impact. Moreover, electric cars are expected to be more cost- effective over time compared to their gasoline counterparts.

11 Tesla stands out for its commitment to sustainability and innovation. With unparalleled power and luxury, Tesla has firmly established itself as the premier electric car brand. This strong brand presence poses a challenge for other electric vehicle manufacturers trying to enter the market. Social factors: An electric car is a popular choice for those who care about the environment. It uses less fuel than a conventional car, which reduces its environmental impact. It also saves money in the long run. Tesla is a brand that stands out for its environmental friendliness and innovation. It offers powerful and luxurious cars that few competitors can match. Tesla has established itself as the leader in the electric car market, making it hard for other brands to challenge it. Technological Factors: Technology is a double-edged sword for Tesla. On one hand, it gives the company an advantage over its rivals. It enables Tesla to be more energy efficient and prepares it for future challenges and opportunities. The cars are designed to embrace new technology, unlike conventional cars in the market. On the other hand, it poses a constant threat. Technology changes rapidly and unpredictably. We, as humans, are always inventing, improving, and updating what we already have. In a matter of months, the latest devices

12 and applications can become outdated and irrelevant. Since Tesla depends on technology for its vehicles, this is both a strength and a weakness for the vehicles. Nevertheless, Tesla is well-positioned to apply artificial intelligence (AI) and automation to its vehicles. Many traditional cars are not compatible with such innovations, but Tesla ensures its cars are ready to adopt them (still they become too advanced). Legal Factors: Tesla is growing its global presence. They must stay current on their patents in different countries. Otherwise, their growth could be delayed or hindered by legal problems. Moreover, because the car is environmentally friendly, they can market their cars as cost-effective and compliant with international green standards. Economic Factors: The global economic growth has boosted the demand for electric cars. In 2017, the world economy was expected to grow by 3.5 percent. This led to more electric innovations in Asia, Europe, and the United States. As a result, the sales of electric cars increased by more than 30 percent from 2016 to 2017. Tesla benefits from lower material costs, especially for batteries. The company can reduce its production costs as its cars become more popular. This also creates an opportunity for Tesla to make a more affordable vehicle for the masses. This can further lower the material costs, depending on the economic situation of each country. However, a weak economy can hurt the company’s profits.

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13 In many markets, consumers are buying luxury vehicles like SUVs and BMWs. This is favourable for Tesla, as its cars are seen as high-end and technologically advanced. Tesla can also attract middle-class customers by offering a vehicle that suits their needs and preferences. This can give Tesla an edge over its competitors in the electric vehicle industry. B. Analysis of the Competitive Forces of the Company Using Five-Forces Model. Competitive rivalry or competition (Strong Force): Tesla faces intense competition from traditional automakers and new entrants in the electric vehicle (EV) industry. The company has to constantly innovate and differentiate its products and services to maintain its competitive edge and customer loyalty. Some of the main competitors are Toyota, Volkswagen, General Motors, Ford, Hyundai, Nissan, BMW, Mercedes-Benz, Nio, Xpeng, and Lucid. Bargaining power of buyers or customers (Moderate Force): Tesla’s customers have moderate bargaining power due to EVs' increasing availability and affordability in the market. Customers can compare and choose from various options based on price, performance, design, features, and brand reputation. However, Tesla also benefits from its loyal fan base, strong brand image, direct sales model, and superior technology and quality. Bargaining power of suppliers (Moderate Force):

14 Tesla’s suppliers have moderate bargaining power as the company depends on them for critical components such as batteries, electric motors, and semiconductors. The company has established strategic partnerships with some of its key suppliers, such as Panasonic, LG Chem, and CATL, to secure a stable and cost-effective supply of batteries. However, they also face challenges such as supply chain disruptions, price fluctuations, and supplier concentration in some markets. The threat of substitutes or substitution (Moderate Force): Tesla’s products and services face a moderate threat of substitution from alternative modes of transportation and energy sources. Customers can opt for conventional vehicles, public transportation, ride-hailing services, or bicycles as substitutes for EVs. Similarly, customers can choose fossil fuels, nuclear power, hydroelectricity, or wind power as substitutes for solar energy and battery storage. However, Tesla also benefits from the growing environmental awareness, government incentives, and social trends that favor sustainable and clean energy solutions. The threat of new entrants or new entry (Weak Force ): Tesla’s industry faces a weak threat of new entry due to the high barriers to entry and the strong incumbency advantages of the existing players. The EV industry requires significant capital investment, technological expertise, R&D capabilities, regulatory compliance, and economies of scale to enter and compete effectively. Tesla has also built a strong brand reputation, customer loyalty, innovation culture, and network effects that create entry barriers for potential new entrants.

15 Opportunities/Threats that the Company May Face Opportunities: Growing Electric Vehicle Market: The industry is expected to grow exponentially in the upcoming years as people are looking for ways to be more environmentally friendly and reduce the reliance on natural resources. The industry has also been receiving government grants which could be beneficial for Tesla as one of the leading companies in the industry. New Markets: Tesla is currently established in emerging markets, but the growing awareness of the environmental impacts, people are moving towards more sustainable cars and Tesla offers those options. It has options for solar-powered vehicles. Therefore, Tesla can also move into the new markets and increase their sales. Innovation: Tesla is a company that is heavily involved in the innovation of its products. They spend a lot on research and development of their products. This could be an advantage as they could be able to provide more innovative and advanced products in the energy and automobile industry. This could put them ahead of their competitors (Story, n.d.). Challenges:

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16 Growing Competition: The electric vehicle market is growing at a fast rate and many other leading manufacturers of automobiles like Toyota, Ford etc. are entering the electric vehicle market. They can provide the same quality cars and similar features at a cheaper price compared to Tesla Inc. Product Liability Claim: All the products have not been successful for the company and there have been many cases of the failure of the cars’ technology especially in cases of accidents. The company has faced lawsuits for this. The heavy reliance on technology could also lead to cyber-attacks and the breach of data. So, it is something that Tesla would have to work on as its competitors can provide cars to their customers without these defects. Limited Products: The company has a history of focusing on one product at a time whereas its competitors can provide a wide range of products at a cheaper price. Tesla would have to consider diversifying its portfolio and increasing its range of products (Gupta, 2024). Recommendations for the Company: Tesla has the strength to remain successful in the business in the years to come. However, as identified in this analysis, there are various issues that the vehicle and energy company must address to maintain its competitiveness and improve its profitability.

17 Global Expansion: Tesla should tap into emerging markets for electric cars to improve its multinational presence. Expanding into new markets and regions, particularly emerging markets with growing demand for electric vehicles and renewable energy solutions, can provide significant growth opportunities for Tesla and satisfy Tesla's corporate mission statement. Developing tailored strategies for each market, addressing regulatory requirements, and building local partnerships can facilitate successful market penetration and expansion. Investment in Research and Development : Tesla's focus on innovation has been a key driver of its success. Continuing to invest in research and development to stay ahead of competitors and pioneer advancements in electric vehicle technology, battery technology, and renewable energy solutions is essential. This will enable Tesla to maintain its position as a market leader and continue to differentiate itself from competitors. Risk Management : Given the regulatory scrutiny and legal challenges faced by Tesla in the past, implementing robust risk management practices and ensuring compliance with regulatory requirements is crucial. This includes proactive measures to address potential legal issues, ensuring transparency and accountability in corporate governance, and maintaining ethical business practices.

18 References:

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19 cap, c. m. (n.d.). Tesla Inc . Retrieved from companies market cap: https://companiesmarketcap.com/tesla/marketcap/ Gupta, S. (2024, January 13). Tesla SWOT 2024 | SWOT Analysis of Tesla . Retrieved from Business Stratrgy Hub: https://bstrategyhub.com/tesla-swot-analysis/#Teslas_Opportunities Schreiber, B. A., & Gregersen, E. (2024, February 10). Tesla, Inc. Retrieved from Britannica: https://www.britannica.com/topic/Tesla-Motors Story, T. S. (n.d.). Tesla SWOT analysis . Retrieved from The strategy story: https://thestrategystory.com/blog/tesla-swot-analysis/#:~:text=Technological %20Advancements%3A%20Tesla%20is%20known,create%20new%20energy %2Defficient%20products. Tesla Porter’s Five Forces Analysis: EdrawMax Online . Edrawsoft. (2023, October 7). https://www.edrawmax.com/article/tesla-porters-five-forces-analysis.html Kissinger, D. (2023, September 6). Tesla Pestel/Pestle Analysis & Recommendations . Panmore Institute. https://panmore.com/tesla-motors-inc-pestel-pestle-analysis-recommendations About . Tesla. (2024, January 28). https://www.tesla.com/en_ca/about Emmer, M. (2024, january 9). Why Vertical Integration Is The Path To Strategic Advantage . Retrieved from Forbes: https://www.forbes.com/sites/forbesbusinesscouncil/2024/01/29/why- vertical-integration-is-the-path-to-strategic-advantage/?sh=1cf934ab57ad Tesla. (n.d.). A bit about batteries . Retrieved from https://www.tesla.com/en_ca/blog/bit-about- batteries Tesla powers all . (n.d.). Retrieved from Tesla: https://www.tesla.com/en_ca/energy Tesla. (n.d.). Suprechargers . Retrieved from https://www.tesla.com/en_ca/supercharger

Tesla Inc Analysis

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