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Read: Case Problem " Tesla, Inc.", McGraw Hill Education, by Frank Rothaemel, Rev. March 7, 2020, MH0067 Prepare a Managerial Report* structured as follows: Task 1-1: Structure and present your paper in the form of a Managerial Report, with a cover page, table of content, executive summary, main body, appendices. Expected length of Assignment 1: up to 6 pages APA format, excluding cover page, table of contents, and appendices Task 1-2: What is Tesla’s business model? How is Tesla’s business model different from traditional car manufacturers? Task 1-3: How was Tesla able to enter the automotive mass-market industry? Task 1-4: In which stage of industry life cycle is the electric vehicle industry? What core competences are the most important at this stage of the industry life cycle? Task 1-5: Evaluate Elon Musk’s “Master Plan, Part 2” and assess if Tesla can gain and sustain a competitive advantage. (*) INSTRUCTIONS: How to write a managerial report: Skill Development Guide-Writing a Formal Report.pdf By submitting this paper, you agree: (1) that you are submitting your paper to be used and stored as part of the SafeAssign™ services in accordance with the Blackboard Privacy Policy; (2) that your institution may use your paper in accordance with your institution's policies; and (3) that your use of SafeAssign will be without recourse against Blackboard Inc. and its affiliates.
- What business model is Tesla pursuing? How is Tesla’s business
model different from traditional car manufacturers?
Tesla’s business model focuses on the sustainable, zero-emissions, and efficient pure electric vehicle
as their core value proposition. Tesla’s customer segment encompasses consumers who are ecoconscious and have a higher willingness to pay especially with Model X and Model S. However, with the
introduction of Model 3, Tesla aims to expand to consumers who have a lower willingness to pay to
appeal to those who have a stricter budget. Tesla’s business model differs from traditional car
manufacturers in that Tesla’s revenues streams focus on presales when unveiling its newest models.
Regarding preorders and customer relationships in its business model, Tesla offers priority to earlyadopters and Tesla employees which incentivizes and reinforces customer loyalty. Additionally, Tesla’s
cost structure differs from traditional car manufacturer’s costs in that Tesla generally does not spend
money on advertising and marketing. - What type of innovation strategy is Tesla pursuing? Tie your
explanation to Elon Musk’s (2006) “The Secret Tesla Motors Master
Plan” here.
Tesla’ strategy utilizes both the Blue Ocean Strategy [1] and the Emergent Strategy [0]. In regards to
the Blue Ocean Strategy, Tesla does not have any prominent competition. Although the first electric cars
were introduced in 1996 by General Motors, prominent automakers such as General Motors, Honda,
and Toyota discontinued production of electric vehicles as they successfully delayed the zero-emissions
mandate by the California Air Resource Board. In this strategy, the “red ocean” represents Tesla’s
competitors where the majority of the automobile industries is in existence; Tesla represents “blue
ocean” as the market space is yet to be explored. Additionally, Tesla employs the Blue Ocean Strategy in
that in creating an all-electric vehicle with partly self-driving features, Tesla aimed to differentiate itself
from its competitors rather than adding incremental innovations to outcompete its competitors. Also,
Tesla caters to the noncustomers of the automobile industry in that its products appeal to consumers
wanting a sustainable energy sourced car and to those not wanting to deal with fluctuating gas prices.
What Tesla offered was uncontested in the industry. Tesla also employs the Emergent Strategy in that
Tesla focuses on experimenting, learning, and adapting to technological changes in the future rather
than a “product of deliberation.” So, in Tesla’s Secret Strategy, the company built a sports car to
generate revenue to address the unmet demands of eco-conscious consumers and future stricter
regulations of fossil fuel emissions by creating an electric car. Also, to meet the demands of more
budget-oriented customers, Tesla planned to build a relatively affordable car such as the Model 3 in - Although Tesla still has not unveiled an even more affordable car than Model 3, it may do so in the
future to reach a broader group of consumers. - In which state of the industry life cycle is the electric vehicle industry?
What are the implications for the future development of this industry?
What key strategic initiatives would be most important at this stage of
the industry life cycle?
The electric car industry is on the transition to the growth stage, in which the growth rate of the
whole market is dramatically high, and the growth potential is vast. The technology and infrastructure of
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the electric car is reliable but need improvements. The cobalt-lithium based battery is sufficient for the
urban commute, but the whole industry still needs research on increasing the density of battery while
lowering the cost [2]. Since 2012, the growth rate of electric car delivery stayed at around 50-60 percent
per year, much higher than the growth of the US economy [2]. In 2017, the electric car industry became
a larger market with car deliveries of 1.3 million [2]. Compared with the delivery number of gasoline
cars, which is a whopping 96 million, the electric car industry has an enormous growth potential. Many
European Union countries plan to forbidden sales of gasoline car in the long run to reduce the emission
of carbon dioxide. As a result, the electric car industry could replace traditional car industries in the
forecasted years of 2030 to 2050 and maintains a high growth rate before 2030. In the regional market,
the US and China have the highest growth of around 80 percent in 2017. Since the US and China are the
primary targeted market for Tesla, the electric vehicle industry has a bright future for growth.
Additionally, government policies, technological development to satisfy consumers’ various
demands, and the cost structure of building electric vehicles are three critical implications for the future
development of the industry. Government may subsidy electric car industry or initiate advantageous
policy for the consideration of domestic industry competitiveness as well as carbon emission reduction.
For example, the Chinese government subsidy thousands of dollar for each electric car sold and grant
car license in big cities in order to cultivate the newborn domestic car industry on the growth stage of
the electric vehicle industry. As a result, such substantial investment helps China contributes to more
than half of car deliveries in the whole market. In the US, the government currently offers a tax
deduction to individuals who purchase an electric vehicle. However, the deduction is subject to phase
out once a firm sells 250,000 car. In order to further promote sales of electric cars, the government
should prolong the tax benefit until a mandate requiring gasoline-powered cars be eliminated. Also, the
technology and infrastructure is another significant implication, as the consumer wants a battery with
longer travel miles and shorter charging time and would prefer to do so in their garage in addition to
those who do not have a garage. Reliability and comfortability are other factors that a company should
work on. Moreover, consumers have demands for space, function, and luxury. In general, consumers
desire electric cars that are comparable and better than their current gasoline cars. Also, the cost
structure is an essential factor for the consumer to make decisions so the price paid on the vehicle
should justify the cost savings by reducing gasoline consumption.
The key strategy initiates at this stage are on the technology and the brand. Since the market is
relatively small and technology has not completely matured, Tesla should maintain its status as "the"
electric car producer. The growth of technology suggests that the firm has to keep on upgrading its
models rather than incrementally improving the existing models. Furthermore, the current market
volume is not sufficient to create an economy of scale. Also, brand recognition is another crucial
strategy as Tesla strives to dominate the electric vehicle market and plan to keep its status in the long
run. As long as Tesla retains its competitive advantages until the market matures, the prospect of profits
seems plausible in the future. - What problems are Tesla encountering in the Model 3 production?
Why should that matter? How should Musk address them?
Tesla is facing several issues regarding Model 3. The most immediate problem is Tesla’s inability to
meet production demand. The “production bottlenecks” have led to Tesla only producing 260 Model 3
vehicles even though the CEO of Tesla promised to produce 1,500 Model 3 vehicles by the third quarter
of 2017. This shortage of production is an issue as Tesla had already received 500,000 pre-orders from
its customers. Not meeting its promised production goals and consumer demands indicate Tesla's
inability to uphold its claims and to consistently produce cars which can negatively affect Tesla’s
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reputation and dampen sales. This is particularly true among those who are not early-adopters or Tesla
employees as these consumers tend to be more critical and have a lower tolerance on complications.
Thus, Tesla needs a realistic approach and maintain transparency in that Elon Musk should refrain from
making promises until he knows for sure that they can be fulfilled.
In addition to fulfilling guarantees, Tesla also needs to maintain its reputation for high-quality
vehicles. Tesla does not have the luxury of having consistent software glitches, such jammed door
handles with the Model S. Furthermore, it is imperative that Tesla prevents the cannibalizing sales of
older models by introducing a newer and cheaper Model 3. As Model 3 is geared towards consumers
who are budget-constricted and price-sensitive, Tesla must be diligent in that affordable models should
include "basic functions" experienced only by owning Tesla and limit features that would otherwise be
available in Model S and X.
Just as diminishing sales of older models by introducing a newer one pose a threat to Tesla's profits,
so too does Tesla production of the cars. One-third of Tesla's supplies are sourced overseas, making
streamlining of production and cost-minimizing difficult. By centralizing its supplies in one country and
state, Tesla can lower production costs and increase its productivity. Thus, this would create a faster
delivery time, and Tesla would be able to stick to its claims. - Evaluate Elon Musk’s “Master Plan, Part Deux,” here and assess if Tesla
can gain and sustain a competitive advantage.
In 2011, about 20,000 battery electric vehicles (BEVs) were sold in the US and sales have increased
as in 2016 approximately 160,000 BEVs were sold. Although decreasing gas prices deter most consumers
from investing in an electric car, the growing global concern regarding climate change and fossil fuel
emissions has helped gain significant traction in the industry for sustainable energy. So far, Tesla leads in
the campaign for cleaner energy with its all-electric sedan and SUV. Even with a larger conversion from
gasoline cars to hybrid vehicles, the use of any form of gasoline to fuel cars would eventually phase out
as technology further advances. Currently, Tesla retains competitive advantages over its electric
automobile competitors such as the Nissan Leaf and Chevy Bolt. Tesla's competitive advantages are its
missions to provide and promote sustainable energy, image/reputation as a luxurious and trendy
vehicle, its sleek and simple design, and the culture surrounding people of owning a Tesla.
The “Master Plan, Part Deux” is at its early stages since Tesla has yet to create a vehicle line to
address all major segments such as all-electric trucks and buses. Additionally, self-driving software has
not been fully developed yet and requires safety improvements in order to be ten times safer than
manual driving as stated in Elon Musk's plan. Tesla needs to make considerable strides in order to
address safety concerns and alleviate any hesitation from the public to adopt the new technology. Given
the race for self-autonomous software, there is currently limited competitive advantages for Tesla in
that area. Any further autopilot accidents would jeopardize Tesla’s image as an innovative and reputable
company. However, in terms of the vision outlined in Elon's “Master Plan” to allow customers to make
money off Tesla cars, Tesla would be able to gain further competitive advantage by creating and
capturing new value from buyers by offering a new value proposition. Also, Tesla would be able to
sustain its competitive advantage by competing in the "blue ocean." Finally, Elon's goal to "create
stunning solar roofs with seamlessly integrated battery storage" would not increase Tesla's competitive
advantage as it serves as incremental improvements or features for its customers.
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References - Casadesus-Masanell, Ramon. “Strategy Reading: Introduction to Strategy,” June 1, 2014.
https://www.hbs.edu/faculty/Pages/item.aspx?num=49421. - Kim, W. Chan, and Renee Mauborgne. “Blue Ocean Strategy.” Harvard Business Review, October 1,
- https://hbr.org/2004/10/blue-ocean-strategy.
- “Lithium and Cobalt: A Tale of Two Commodities | McKinsey.” Accessed April 24, 2019.
https://www.mckinsey.com/industries/metals-and-mining/our-insights/lithium-and-cobalt-a-tale-oftwo-commodities.