PDF Tesla FINAL Complete

Major Case Analysis: Tesla Motors
Chris Washburn
4/7/16
Policy Analysis and Formulation
MAN4720

Table of Contents
Organization’s Industry.......................................................................................................................... 1
US Automobile Manufacturing Industry Characteristics............................................................... 1
Political Factors.................................................................................................................................... 1
Economic Factors................................................................................................................................ 2
Sociocultural Factors.......................................................................................................................... 2
Technological Factors........................................................................................................................ 2
Environmental Factors ....................................................................................................................... 2
Legal and Regulatory Factors .......................................................................................................... 3
US Automotive Manufacturing Industry’s Driving Forces ............................................................ 3
US Automotive Manufacturing Industry’s Five Forces.................................................................. 4
Power of Rivalry ................................................................................................................................... 4
Power of Buyer ..................................................................................................................................... 4
Power of Supplier................................................................................................................................. 4
Power of New Entrants....................................................................................................................... 4
Power of Substitutes........................................................................................................................... 5
Key Success Factors of the US Automotive Manufacturing Industry ....................................... 5
US Automotive Manufacturing Industry Group Map ...................................................................... 5
Industry Attractiveness .......................................................................................................................... 6
Tesla Financial analysis......................................................................................................................... 6
Profitability............................................................................................................................................. 6
Operating Margin ............................................................................................................................. 6
Return on Assets ............................................................................................................................. 7
Return on Equity .............................................................................................................................. 7
Earnings per Share.......................................................................................................................... 7
Liquidity.................................................................................................................................................. 8
Current Ratio..................................................................................................................................... 8
Quick Ratio ........................................................................................................................................ 8
Cash Ratio.......................................................................................................................................... 8
Times Interest Earned..................................................................................................................... 8
Growth Analysis (2010-2014) ............................................................................................................ 9
Asset, Sales, and Equity Growth ................................................................................................. 9

Income Growth ................................................................................................................................. 9
Tesla’s Leverage .................................................................................................................................. 9
Debt-to-Equity and Debt Ratio.................................................................................................... 10
Financial Assessment........................................................................................................................... 10
Tesla’s Value Chain Assessment ...................................................................................................... 10
SWOT Analysis....................................................................................................................................... 11
Competitive Strength Assessment.................................................................................................... 12
Tesla’s Mission....................................................................................................................................... 13
Tesla’s Current Strategy ...................................................................................................................... 13
Current Strategic Issues ...................................................................................................................... 14
New Strategic Changes........................................................................................................................ 15
Marketing Strategy Implementation.................................................................................................. 16
Appendix .................................................................................................................................................. 19
Figure 1: Crude Oil Prices................................................................................................................... 19
Figure 2: Strategic Group Map........................................................................................................... 20
Figure 3: Competitive Strength Assessment.................................................................................... 21
Figure 4: VRIO Chart........................................................................................................................... 22
Figure 5: Automotive Industry Operating Margins .......................................................................... 23
Figure 6: Automotive Industry Debt................................................................................................... 24
Figure 7: Tesla Financials................................................................................................................... 25
Bibliography............................................................................................................................................ 26

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Organization’s Industry
Tesla Motors is an automotive company that was founded in 2003 by Martin Eberhard,
Marc Tarpenning, Jeffrey B. Straubel, Ian Wright, and its current CEO, Elon Musk. Tesla Motors is
named after the physicist and electrical engineer, Nikola Tesla. The company operates on Elon
Musk’s vision of transforming the world from a “mine-and-burn hydrocarbon economy towards a
solar electric economy” (Lawlor, 2016). To achieve this vision, Tesla designs and produces plug-in
electric vehicles, inventions which have zero carbon emissions and attain mileage ranges of up to
265 miles per charge. The company also provides a network of super chargers, 400 stations
within the United States and 2000 worldwide, that is free to use for Tesla customers.
As the US Automobile Manufacturing Industry goes as a whole, Tesla has been able to
capture 4.5% of the increasing market share. Although 4.5% is far behind the market shares of the
automotive Big Three (GM, Ford, and Chrysler with 18.0%, 12.9% and 6.8% respectively), Tesla is
observing the market with a long-term outlook where market share could grow to 22% by 2030.
Tesla plans to achieve this market share increase by evolving the current hydrocarbon automotive
industry into an EV (electric vehicle) controlled industry. Boundaries surrounding this market
evolution include investing in the appropriate battery technology and manufacturing, converting the
public view of electric cars, and establishing and investing into a marketing campaign.
US Automobile Manufacturing Industry Characteristics
Political Factors
For political factors, the US Automotive Manufacturing Industry must be mindful of the taxes
and tariffs surrounding the industry’s products, such as gas guzzler taxes and tariffs on importing
and exporting the vehicles. These taxes can impede on sales if customers deem that purchasing a
luxury or foreign vehicle is not a priority. A benefit for the customers of environmentally-friendly
vehicles can include government incentives that can diminish the overall price of the vehicle.

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Economic Factors
The US Automobile Manufacturing Industry contains a consistently growing market with an
annual growth rate between 2010 and 2015 of 5.4%. This growth rate currently attributes to
projected revenues of $107 billion for 2015. Economic Conditions that the US Automotive
Manufacturing Industry must remain wary of are volatile oil prices and the discretionary income of
the customers within the industry. Crude oil, the input for refinement into gasoline, has been a
volatile commodity in the past and is currently dropping to all-time lows. Figure 1 shows the
historical prices of crude oil, prices which create an inverse relationship between gasoline-
combustion vehicles and the EV segment. An inverse relationship also exists between low-end car
purchases and luxury car purchases when evaluating discretionary incomes.
Sociocultural Factors
The sociocultural aspect within the US Automotive Manufacturing Industry may be the most
important factor when analyzing the industry’s general environment. Social movements, such as
the SUV boom in the early 2000’s to the current “green movement”, create specific markets which
manufacturers must recognize ahead of time. The current green movement is not only recognized
socially, but is influenced by governments around the world with incentives to purchase more fuel
efficient vehicles and to consume less fuel by ride sharing and carpooling.
Technological Factors
Technological innovations influence the US Automotive Manufacturing Industry immensely
due to the market demanding high tech inputs in a majority of the vehicles the industry produces.
These innovations and designs include options such as navigation systems, auto start features,
proximity key FOB alerts, and lane departure warnings. Many of these technological additions
create a benefit to customers in the form of ease of use, but many provide functional safety
features to improve overall vehicle safety and reduce car-related injuries.
Environmental Factors
Environmental factors are prevalent in every day operations across the US Automotive
Manufacturing Industry and can affect companies in a negative manner. Many raw materials and

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inputs to the automotive industry come from overseas and can be disrupted with inclement
weather, such as hurricanes and tsunamis. Snow fall in the US can also affect the industry by
eliminating shipping and delivery lanes for car manufacturers, both from their suppliers and to their
respective dealerships.
Legal and Regulatory Factors
Legal and Regulatory mandates must be observed and monitored at all times within the US
Automotive Manufacturing Industry. Due to evolving safety regulations, such as air bag
deployments, seatbelt implementations, and frontal collision minimums, companies must recognize
and implement standards within their own products and relay that information forward to the
company’s customers. Other regulations include emission standards across each state in which
manufacturers must be within certain carbon levels for road acceptance.
US Automotive Manufacturing Industry’s Driving Forces
As the aforementioned factors affect the US Automotive Manufacturing Industry heavily, the
main drivers, or assertive forces, are much more unique and direct when forecasting the industry’s
future. The first driver is new internet capabilities and innovations within and around the vehicles in
the industry. Applications such as GPS mapping of roads for auto-steering capabilities and
internet (Wi-Fi) accessibility within the vehicle. The current marketing driver within the US
Automotive Manufacturing Industry is the use of social media platforms, such as Facebook and
Twitter, to promote products and connect with customers. These social media platforms are not
only a great way to promote products to customers, but also allow for customer feedback and
problem/issue management. Another driver within the industry is the change in the long-term
growth rate, which stands at 5.4%. This would normally attract new entrants to the industry but
due to the large capital expenditure barrier, current firms remain safe. Although it does not change
the number of competitors, the annual growth rate of the industry does change the competitive
climate among the current competitors since they all must continuously innovate their products to
retain a percentage of the growth.

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US Automotive Manufacturing Industry’s Five Forces
With the use of Porter’s Five Forces model, the industry’s competitive forces can be further
divulged to show the immediate competitive environment within the US Automotive Manufacturing
Industry. The immediate competitive environment will reflect the industry impacts of the future and
how firms can attain or abstain from these impacts.
Power of Rivalry
Rivalry, within the US Automotive Manufacturing Industry, is very high since there is so
much diversification among products and so many companies within the industry. Although GM
leads the market share with 18%, the corporation consists of subsidiary companies (Chevrolet,
Buick, GMC, and Cadillac) that all compete against one another in the same industry. The US
Automotive Manufacturing Industry is also projected $107 billion in revenues which makes this a
very favorable market for competitors; even a mere 1% of this market would prove profitable.
Power of Buyer
Power of the buyers within the US Automotive Manufacturing Industry is low to medium
when observing individual consumers. This power is lowered due to the consumer’s low volume of
purchases along with the products within the industry being fairly differentiated. This buying power
is increased due to the consumers being well informed about the quality and prices of the vehicles,
as well as the cost of switching to a competing product being relatively low.
Power of Supplier
Depending on the level of customization and quality of the vehicles in the industry, the
power of the suppliers can range from medium to high. With higher quality inputs being demanded
across the luxury segment, suppliers are able to charge a premium for items such as unique
woods and leathers. Also, products that are used across every vehicle class, such as plastics for
dashboards, can fluctuate on pricing due to their demand.
Power of New Entrants
With a higher industry growth rate of 5.4% annually, the US Automotive Manufacturing
Industry could be seen as a ripe market to enter. Unfortunately, the barriers for this industry, such

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as the capital requirements, are too high for smaller manufacturers to enter. The strong brand
preferences among consumers is also a deterrent to enter this automotive manufacturing industry.
Power of Substitutes
The power of substitutes varies within different geographical locations across the US. In
larger cities with successfully implemented public transit, such as the subway in New York, the
power of these substitutes would be much higher than in a rural town where vehicles and
transportation is placed on the individuals. Other substitutes to the US Automotive Manufacturing
Industry would include bicycle companies, buses within city transit, carpooling, as well as video
conference hosting companies.
Identifying the competitive environment allows companies within the US Automotive
Manufacturing Industry to assess the future of the market and the future impacts that will occur.
These impacts can be summarized as maintaining the current industry standard in technology
within vehicles and maintaining market share within a highly competitive market segment.
Key Success Factors of the US Automotive Manufacturing
Industry
The Key Success Factors throughout the US Automotive Manufacturing Industry include a
mix of factors ranging from quality of the product inputs to simple marketing strategies by
competitors. Consumers also see a company as successful when the companies’ products
perform to their stated standards. An added benefit is attainable if these same company products
can outperform their stated standards. Another highly important factor is where the vehicles in the
US Automotive Manufacturing Industry are priced at among their competition. Relative pricing to
the quality of product being offered is important when increasing market share and retaining
customer satisfaction.
US Automotive Manufacturing Industry Group Map
Using the inputs of price and geographic market scope, industry “players” can plot their
companies against other competitors within the US Automotive Manufacturing Industry. General

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Motors, the company with the largest market share in 2015, presents a medium price relative to
their quality but narrows their scope mainly to North America and Europe. Toyota differs from
General Motor’s approach as they offer a more low-end, basic vehicle lineup but with a broad
geographic scope over many countries and continents. General Motor’s strategy is a broad
differentiation strategy in which they aim to provide the products that their customers are trending
to and currently prefer. Toyota implements a focus low cost strategy in which they use cheaper,
more affordable inputs on the interiors of their vehicles, but still offer up superior reliability. 1
Industry Attractiveness
The US Automotive Manufacturing Industry can and cannot appear attractive on both sides
of the spectrum; this spectrum being whether you are an existing company within the market or a
new entrant. For existing manufacturers, it is very attractive to be in this market for benefits such
as the amount of revenue available in the market and the low threat from new entrants. The
drawback for the existing companies is that rivalry power is very high and requires a lot of product
differentiation to succeed. For new entrants, the US Automotive Manufacturing Industry would not
be attractive due to the large barrier of entry (capital expenditures) and the level of competition and
rivalry that already exists within the industry.
Tesla Financial analysis
Profitability
Within Tesla’s Income statement, shareholders and investors have the ability to assess the
profitability firm; rather, the unprofitability of the firm. Profitability ratios include Tesla’s operating
margin (ROS), Return on Assets, and the Return on Equity.
Operating Margin
During 2014, Tesla recorded an operating margin (Net Income before interest and
taxes/Net Sales) of -8.90%. This negative percentage was due to the company’s continuance of
net losses from company operations. Compared to the US Automotive Manufacturing Industry
1
Automotive Industry Strategic Group Map can be found in Figure 2.

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average (8.00%) and Tesla’s competitors, such as GM (8.50%) and Toyota the highest (13.8%),
Tesla falls short and will continue its loss if operating expenses and cost of goods sold are not
controlled and diminished. 2
Return on Assets
Return on Assets (ROA) and also termed as Return on Investment is poised to
illustrate to investors how profitable the company is behaving in relation to its total assets. Tesla’s
ROA (ROS x Asset Turnover) for 2014 is -5.03%. This is increased from the -9.19% profit margin
due to the company’s low asset turnover (0.55). Low asset turnover is a large factor in Tesla’s
financials due to long lead times on vehicle manufacturing and the supply chain hindrances within
the lithium ion battery market.
Return on Equity
Return on Equity (ROE) measures how profitable Tesla is behaving with relation to
the money investors have pumped into the company. Return on Equity (ROA x leverage) is the
most dismal profitability ratio for Tesla, coming in at -32.25 %. When compared to the US
Automotive Manufacturing Industry average (17%), Tesla once again falls short. The large
negative percentage is enhanced exponentially due to Tesla being a highly leveraged company
(6.42), with the average leverage for the US Automotive Manufacturing Industry being 2.5.
Earnings per Share
Since Tesla does not currently pay any dividends, the firm’s EPS calculation comes
out to be net income divided by the average number of shares outstanding. The diluted calculation
of this ratio extends the calculation by removing preferred stock. Tesla’s EPS for 2014 was -1.85
with a compounded annual growth rate of -6.13%. This ratio is poor in terms of profitability for
shareholders.
2
Automotive Industry EBITDA and Operating Margins can be found in Figure 5.

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Liquidity
Current Ratio
The current ratio, also known as the working capital ratio, allows Tesla to gauge the
firm’s ability to pay current liabilities with current assets in a given year. Tesla’s current ratio
(Current Assets/Current Liabilities) for 2014 is 1.52. This coverage of one and half times the
liabilities for Tesla is acceptable but is still below the US Automotive Manufacturing Industry
average of 2.28 times for 2014.
Quick Ratio
Compared to the current ratio, the quick ratio is a better representation of liquidity
since it removes the inventories (non-liquid assets) from the current asset category. The current
ratio for Tesla is 1.07. With the removal of nearly $955,000 worth of inventory, Tesla’s current
assets are diminished to provide a more accurate perception of their liability coverings within the
company. Comparative to the industry, Tesla actually beats the average (0.63) due to the
company not holding high amounts of car inventories on dealer lots and showrooms.
Cash Ratio
The cash ratio is very similar to the quick ratio aforementioned but it further removes
accounts receivable and other prepaid expenses within the firm. Tesla, for 2014, has a cash ratio
of 90.44%. This ratio is abnormally high and raises a question to investors as to why this cash is
not being utilized elsewhere in the firm to generate higher returns for the company.
Times Interest Earned
The final liquidity ratio within Tesla is the Times Interest Earned (Tie) ratio and it
allows for a firm to observe how many times it can cover its interest expenses within a given year.
Tesla’s TIE ratio comes in at a -1.85 times. This negative value is representative of Tesla’s loss (-
$186,689) from operations, thus illustrating that the company cannot generate a net profit, let alone
cover its own interest payments.

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Growth Analysis (2010-2014)
For Tesla, the growth analysis and compounded growth rates, between the years of 2010-
2014, are the firms most demanding and impressive numbers. The growth analysis of Tesla
includes growth rates from the firm’s assets, sales, income, equity, and earnings per share.
Asset, Sales, and Equity Growth
Assets within Tesla, including cash, accounts receivable, inventories, property,
plant, and equipment, have grown at a compounded annual growth rate of 97.29% per year. This
extraordinary growth was fueled by plant expansions (Gigafactory) as well as higher production
levels on multiple vehicle platforms which increased overall inventories. For the Sales and Equity
growth, Tesla grew at 128.78% and 44.86% respectively. Both of these large growth rates can be
attributed to overall company expansion and market emergence. These high growth rates are the
major explanation for tesla’s continued support from investors and a steep-climbing stock price.
Income Growth
The compounded annual growth rate for income is an abnormality, when calculated,
due to both inputs being negative. In 2010, Tesla had a net loss of $-154,328 and a larger net loss
in 2014 with $-294,040. These two inputs create an annual rate of a positive 17.49%. Although
the growth is a positive percentage, the incomes are growing in the wrong direction, negatively.
Once again, Tesla will continue this downward slope within operating margin if operating expenses
and cost of goods sold are not controlled and diminished.
Tesla’s Leverage
Included within Tesla’s ROE calculation and company analysis, ratios such as debt-
to-equity and the debt ratio are important in measuring the firm’s overall risk and leverage position
within the market. 3
3
Automotive Industry debt averages can be found in Figure 6.

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Debt-to-Equity and Debt Ratio
The Debt-to-Equity ratio (D/E), a formula which is total liabilities divided by equity, is
a tool used to gauge how much debt is being used to finance asset purchases as opposed to
funding them with shareholder’s equity. Tesla’s D/E ratio is 5.35 times within the company itself, or
5.35 debt purchase dollars to 1 purchase dollar of equity. The debt ratio, or consumer’s leverage,
for Tesla is 83.42% and can be compared against the D/E ratio. The debt ratio is characterized by
calculating how much of the company is financed by debt. With 5.35 times more debt being used
to finance rather than equity, there is no doubt that the debt ratio of 83.42% is accurate.
Financial Assessment
Within Tesla’s financials, the major areas of concern are the continued losses due to high
operating expenses and cost of goods sold and the low liquidity ratios across the company when
compared to the industry. Areas for praise and continued exploitation include the exponentially
high growth rates within assets, sales, and equity. 4
Tesla’s Value Chain Assessment
As Tesla continues to operate in the US Automotive Manufacturing Industry, company
resources and competencies that need to be exploited and improved become aware. The addition
of Elon Musk to Tesla must be seen as a sustainable competitive advantage, due to Musk’s
accelerated vision of the world’s transition to a solar electric economy and his engineering
background. Musk not only creates an intangible visionary gap between other companies, but
provides a marketing icon for the company to base future sales off of. A competency that is more
of a competitive parity within the industry but highly valuable to Tesla is the company’s geographic
positioning of its headquarters in the tech-heavy Silicon Valley. Silicon Valley allows for Tesla to
“access some of the most innovative companies and skilled talents [in the world]” (Lawlor, 2016)
and to recruit excellently trained and highly ambitious workers. As far as the company’s products
go, the superior vehicle performance that Tesla presents to its customers is a temporary
4
Tesla Motor’s Financials sheet can be found in Figure 7

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competitive advantage. With aspects pertaining to handling, acceleration, interior detail, and
overall design, Tesla has a product that could remain a competitive advantage for as long as they
continue to innovate their product to the consumer’s preferences. A competency for which Tesla
has a competitive disadvantage is their minimalized marketing campaign throughout the US
Automotive Manufacturing Industry. This lack of marketing is apparent in their ad space
throughout social media, telecommunications, and tangible billboards. A major reason, for this
diminished marketing, is that Tesla relies on the superior reviews from customers and magazines
to promote the company through word of mouth and praise. 5
SWOT Analysis
Strengths – The competitive assets that Tesla has configured to work in favor for the
company are its strong technological innovations, appealing design techniques, strong upper
management and division of engineers, and a backwards integration of batteries along the
company’s supply chain.
Weaknesses – A few competitive deficiencies within Tesla Motors is that the company
has a high costs of goods sold to consumers, as well as high capital expenditures for the
supercharging network; an asset that returns no profits to the company as of yet.
Opportunities – The major opportunity for Tesla moving forward is their movement into
the price sensitive, middle-income segment. With the Model 3 being offered at a starting price of
$35,000, Tesla will have a large advantage attaining a larger market share within the US
Automotive Manufacturing Industry.
Threats – The current threat to Tesla is the looming gas price diminishment and volatile
oil market that the US is currently experiencing. This oil threat hinders the “green movement” from
5
Tesla’s value chain assessment can be found in Figure 4.

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being an immediate requirement for consumers and also changes their customer preferences
(lower gas prices leads to larger vehicles in the US).
Competitive Strength Assessment
Within the CSA (Competitive Strength Assessment), Tesla Motors is benchmarked against
key competitors within the US Automotive Manufacturing Industry. The competitors being
benchmarked include General Motors, Ford, Toyota, and Fiat Chrysler Automobiles. The strength
measures being benchmarked between Tesla and its competitors are the Key Success Factors
(KSF) mentioned previously.
When assessing the first measure, quality/reputation/image, Tesla far exceeds (Score: 10)
the other competitors due to the current vehicle lineup being made up of high end inputs such as
carbon fiber dashboards and suede seats. The zero emissions from Tesla’s vehicles also
contributes to a favorable score within the image factor due to the “green movement” around the
world. The most heavily weighted measurement in the CSA, Product Performance, garners a 30%
weight and is a driving force behind customer preferences and customer satisfaction. Tesla once
again garners a max score against the other competitors due to the 3.8 second 0-60 mph time
from the Model S. Not only is acceleration attributed to this product performance category, but
ease of use, comfortability, crash safety, as well as lane departure, auto-driving assist, and the
instant power.
Continuing through the CSA, Tesla begins to slip away from market dominance in the
marketing and distribution category. Tesla is unable to distribute vehicles as quickly as General
Motors or Toyota due to supply chain inefficiencies and lack of dealerships with lots full of unsold
cars. The marketing strategy is also subpar to the competition due to its lack of advertising
through mediums such as social media, telecommunications, and physical billboards in susceptible
markets. Another struggling measurement for Tesla, compared to its competitors, is the relative
cost position for the company’s current products. The Model S and the Model X both soar above

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$100,000 USD when optioned slightly above the base model. With this price position, many of the
middle income customers of the US Automotive Industry are out of reach. With Tesla’s launch of
the Model 3, they will barrage into this middle income segment and increase the company’s low
cost position to that of its competitors. 6
Tesla’s Mission
Tesla’s present mission is ““to accelerate the world’s transition to sustainable transportation
[by] bringing compelling mass market electric cars to market as soon as possible” (Lawlor, 2016).
This current mission does fit and mesh in with the current market forces of new internet capabilities
within vehicles and the continued growth of the automotive industry growth rate. The last driving
force of the market, the social media marketing driver, has not been met by this mission statement.
Although this mission does not encompass the marketing driver, the “compelling electric cars” are
intended to speak for themselves and draw customers to the company and product through word
of mouth and internet “buzz”. Changes to this present mission should include defining “as soon as
possible”; the time horizon in which the company plans to have a widespread market share on its
sustainable transportation around the globe. Identifying this ambiguity will not only streamline
efficiency for the firm, but solidify shareholders in their investments.
Tesla’s Current Strategy
Tesla’s present generic, or business, level strategy is a focus differentiated one with a
corporate level strategy revolving around a transnational design. This strategy encompasses
being completely different than the competition, which they are, but still setting the bar for EVs into
the future. This is a daunting task when following this mission of building a “sustainable
transportation” (Lawlor, 2016) model throughout the world. Tesla also uses this focus
differentiated strategy to implement their manufacturing of the Powerwall, a device used to store
energy within private households through the use of solar panels. The present strategy correlates
6
Tesla’s full Competitive Strength Assessment can be found in Figure 3.

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well with the current market forces, that of increasing internet capabilities within vehicles and
continuing the growth throughout the automotive industry. Tesla differentiates its vehicles to meet
the market forces by implementing features such as auto piloting, Car Summoning from within a
garage, and OTA (Over-The-Air) Software Updates. The previous downfall with the marketing
driving force is minimally covered by this focus differentiation strategy because the product surges
popularity through internet buzz and implies the “build it and they will come” concept.
Supporting strategies surrounding Tesla are to implement overall sustainable competitive
advantages within the EV market, the lithium ion battery production market, and the management
of supercharging stations around the world. Controlling the EV market will not only supply users to
the supercharging stations, but these same customers will be purchasing said EVs containing
batteries produced by the same company. This backwards integration design and strategies by
Tesla are currently producing promising signs for sustainable advantages now and into the future.
Tesla’s focus differentiation strategy also shows a long-position in the market and a belief that the
future of the US Automotive Manufacturing Industry is truly electric vehicles.
Current Strategic Issues
Apart from the industry specific problems and issues, Tesla has firm specific issues that
must be addressed if the firm wishes to remain competitive within the US Automotive
Manufacturing Industry. The initial problem for Tesla is that the company has not been profitable in
back-to-back quarters since the company’s inception. These net losses are being caused by large
operating expenses throughout the company. These large operating expenses stem from high
R&D costs within their vehicle technology and information systems, as well as the large capital
expenditures connected to the Gigafactory in Nevada. Another strategic issue which is being
ignored by the company is the lack of marketing throughout the firm. Marketing is a massive tool
within the US Automotive Manufacturing Industry and has become a necessity if firms, such as GM
and Ford, want to remain successful within the industry. Further issues stemming from supply
chain activities highlight supplier reliability and quality for Tesla’s focus differentiated products.

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High-end materials, such as carbon fiber and suede upholstery, are used throughout Tesla’s
vehicles and are held to higher standards by Musk and the founders of the company. Along with
the high cost of materials for the firm, Tesla’s customers are also affected by high prices in relation
to the necessary equipment that the firm’s products require, such as wall adapters for the cars and
home charging conversion kits.
New Strategic Changes
Within Tesla’s strategic concerns, there are major and minor changes amidst the firm that
would increase its profitability and increase market share.
The first recommendation begins with preventing further profit losses from supply chain
inefficiencies. Tesla must identify quality suppliers of goods and raw materials, such as carbon
fiber and the suede upholstery, and assist them in retooling their own production for both firms to
succeed. If this is not attainable by either company, Tesla then has the ability to vertically integrate
with a merger or acquisition. This acquisition would have to be positively correlated with Tesla’s
current company culture to fit in correctly. This strategic change will decrease supply chain lead
time and ultimately, decrease operating costs overall.
The next strategic change Tesla should implement is a move towards a stronger marketing
campaign. This first way this campaign can be executed is to increase attendance at auto shows
and car meets where customers can test drive the firm’s vehicles. This strategy not only increases
the word of mouth marketing system already in place, but allows more hands-on experiences for
interested parties. Another angle of attack for a marketing campaign is through the use of social
media platforms and suppliers. Partnering with Facebook to launch a “green initiative” campaign
would promote both companies, their products, and the environment as a whole. The final
marketing implementation is to create a nostalgia-based television and print campaign, similar to
Coca Cola’s techniques, and would be the most “in your face” type of marketing. This strategy
involves a psychology route to delve into customer’s feelings and thoughts.

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As part of Tesla’s Master Plan, the financial situation of net losses has been completely
predictable and calculated. The issue at hand is that net income was supposed to become positive
at the start of commercialization within the electric car segment. The final situation has not
improved and this situation is where the final recommendation intervenes. Due to the massive
expansion phase coming to a close, Tesla must now cut back on R&D costs and begin to convert
these innovation ideas and products into profits. This recommendation goes in part with the above
stated marketing campaign: reduce R&D funds by transferring them into an international marketing
campaign and process reengineering.
Marketing Strategy Implementation
Although Tesla’s top management is appropriately lead by the key visionary, Elon Musk,
recruiting employees with strong intellectual capital and technical skills for future projects will
continue to be a requirement for the company. With a move to more marketing-based strategy,
prospective sales employees would need to possess greater personality skills, as well as having a
background in a sales-based position. This added priority to skilled employees will increase overall
sales of vehicles, thus increasing Tesla’s revenues. With current sales employees, Tesla will
develop training programs internally to increase knowledge-based capabilities which will increase
performance in “strategy-critical value chain activities” (Thompson, p.291). All of the above
employee implementations require a matching organizational structure to operate efficiently and
successfully. By delegating a majority of the marketing authority to sales employees and
showroom managers, top management can focus on psychologically swaying customers into
showrooms through international marketing.
Tesla’s next step is to allocate the appropriate funds, from the correct sources, to the new
marketing strategy effort. To accomplish the strategy, a 10% decrease in R&D annually since the
early expansion of the company is phasing out. The current R&D expenditure for 2014 was
approximately $465 million and the equivalent advertising expenditures were $48.9 million (Tesla –

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2014 10-K). The 10% decrease/transfer of funds would double the marketing efforts of Tesla. By
transferring funds into the marketing strategy, new policies can be created to provide top-down
guidance on how sales employees should carry out actions when interacting with customers.
These policies would include being well-groomed in the work place, maintaining eye contact and
attentiveness, and promoting the company culture to potential clients.
For a quick, quantum improvement into the new marketing strategy, Tesla will implement a
one-time process reengineering system within their sales and management division to convey
improvement to total customer satisfaction. This reengineering will utilize the aforementioned
policies to streamline the work flow for employees. After the initial launch of the marketing
campaign, employees will use the new process reengineering practices to adopt TQM (Total
Quality Management) strategies in which to convey enthusiasm and commitment to the customers
and potential clientele. As a customer gets closer to accepting a purchase of a new product from
Tesla, sales employees will require mobile (tablet) software with which to present focused options,
such as paint colors, to the customer. This software provides a hands on benefit for the customer
and a view in real-time of what they can expect upon delivery of their vehicle. As a sale is
completed, employees must be provided with an incentive to continue providing superior service,
as defined in the new marketing policies. This incentive must not be able to be abused, but rather
be attainable by hard work and repeat success within an employee’s scope of responsibilities. A
tiered incentive system will be built with the following steps: monetary bonuses for twenty-five
exceptional compliments received from customers, along with increasing benefits such as Tesla
headquarters and production facility tours for superior customer service.
The allocation of resources to the higher-priority marketing fund and new employees
operating on proficient policies will produce a corporate culture, or “organizational DNA”
(Thompson p.343), that continues to propel the execution of the marketing strategy through the
years. Not only will this improved corporate culture be reflected on customers, but employee’s
satisfaction and commitment will be increased so that a continuous improving circle is created

Washburn 18
between the customer and the market. To begin these improvements, strong leadership must
believe in the value of the strategy being instilled and implement it without regrets. By creating an
esprit de corps, Tesla will continue to increase its market share, win emotional commitment of
employees, and improve overall satisfaction of current and potential customers.

Washburn 19
Appendix
Figure 1: Crude Oil Prices

Washburn 20
Figure 2: Strategic Group Map

Washburn 21
Figure 3: Competitive Strength Assessment
Key Success Factor Weight Tesla GM Toyota Ford FCA
Quality/Reputation/Image .20 10 7 9 7 6
Product Performance .30 10 7 8 7 7
Raw material access/cost .10 6 10 9 10 8
Manufacturing capability .10 7 9 10 10 7
Marketing/distribution .10 5 10 9 10 8
Relative cost position .20 4 8 10 8 7
Overall Strength Rating 1.0 7.6 8 9 8.1 7

Washburn 22
Figure 4: VRIO Chart
Competency or Resource Where on value
chain
Valuable Rare Difficult to imitate
or substitute
Org to
Exploit
Type of
Advantag
e
18650 Form-Factor Lithium Ion Cell
Battery (Superior Mileage Battery on
the Market)
Product R&D,
Technology
Y Y N Y TCA
Silicon Valley – Geographic Positioning Human Resource
Management
Y N N Y CP
Volatile Crude Oil Market Supply Chain
Management
N N N N CD
Elon Musk Operations, Sales and
Marketing
Y Y Y Y SCA
Domestic and International
Supercharging Network
Service, Technology,
Systems Development
Y Y Y Y SCA
Superior Customer Service (Sell directly
to customers. No dealers)
Marketing, Sales,
Distribution
Y Y N Y TCA
Panasonic Partnership Supply Chain
Management, Product
R&D
Y N N Y CP
Nevada Gigafactory (Increased
Production and Supply Chain
Efficiency)
Supply Chain
Management, Product
R&D, Technology
Y Y Y Y SCA
Company Diversification (Powerwall) Sales, Marketing,
Operations
Y Y N Y TCA
Superior Vehicle Performance
(Handling, Acceleration, Design, and
Detail)
Product R&D,
Technology, Sales
Y Y N Y TCA
Minimalized Marketing Campaign Marketing, Sales,
Operations
N N N N CD
OTA (Over-The-Air) Software Updates Service, Operations,
Technology
Y Y Y Y SCA

Washburn 23
Figure 5: Automotive Industry Operating Margins

Washburn 24
Figure 6: Automotive Industry Debt

Washburn 25
Figure 7: Tesla Financials
STRATEGIC PROFIT MODEL RATIOS WORKSHEET
CURRENT DATA DUPONT FORMULA
YEAR 2014 -294040 3198356 -294040 5849251 -294040
NET PROFITS (294,040)$ 3198356 5849251 5849251 911710 911710
NET SALES 3,198,356$
TOTAL ASSETS 5,849,251$ NET PROFIT NET SALES NET PROFITS TOTAL ASSETS NET INCOME
NET WORTH 911,710$ NET SALES TOTAL ASSETS TOTAL ASSETS NET WORTH NET WORTH
* In thousands
-9.19% x 0.55 = -5.03% x 6.42 = -32.25%
LIQUIDITY ANALYSIS COMPOUND ANNUAL GROWTH RATES
CURRENT RATIO Period ( 2010 - 2014 )
CURRENT ASSETS 3198657 = 1.518 ASSETS 5849251 => 97.29%
CURRENT LIABILITIES 2107166 386082
QUICK RATIO 953675 SALES 3198356 => 128.78%
C/A - INVENTORIES* 2244982 = 1.065 116744
CURRENT LIABILITIES 2107166
CASH RATIO INCOME -294040 => 17.49%
CASH 1905713 = 90.44% -154328
CURRENT LIABILITIES 2107166
TIE EQUITY 911710 => 44.86%
EBIT -186689 = -1.85 207048
INTEREST 100886
EPS -2.36 => -6.13%
ROS = -284636 -8.90% -3.04
3,198,356$
Debt/Equity Ratio 4879345 5.35 Debt Ratio 4879345 83.42%
911,710$ 5,849,251$

Washburn 26
Bibliography
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