Tesla

 Motors  Company  Analysis  

University  ID  number:  U1415730  
Date:  19th  January  2015  
Word  Count:  1984  
   
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Markets,  Marketing  and  Strategy  IB1170  

Executive  Summary  
 
The  purpose  of  this  report  is  to  examine  electric  vehicle  manufacturer  Tesla  Motors  and  their  
business  environment,  assets  and  resources,  and  targeted  market  segments.      
 
The  use  of  the  PESTLE  framework  and  Porters  Five  Forces  of  Competitive  Position  allowed  for  
an  understanding  of  the  industry  Tesla  operates  in,  and  their  external  business  environment.  
Jay  Barney’s  VRIN  Framework  is  then  used  to  examine  the  value  of  major  resources  to  Tesla’s  
everyday  operations  and  long-­‐term  position.    This  report  concludes  with  an  examination  of  
the  segments  of  the  market  targeted  by  the  firm.    Results  from  this  report  indicated  that  Tesla  
motors  are  heavily  influenced  by  external  factors  such  as  changes  in  oil  prices,  or  product  
developments  by  competitors.  
 
The  conclusion  indicates  that  Tesla  dominate  their  targeted  niche  segments,  however,  the  
success  is  only  limited  to  the  premium  electric  vehicle  market.    It  is  recommended  that  Tesla  
bring  a  new,  more  affordable  car  model  onto  the  market  to  significantly  increase  their  market  
share  amongst  the  Electric  Vehicle  industry.  
 

   

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Table  of  Contents  

1.0  Introduction  ..........................................................................................................................  3  
2.0 Analysis of Tesla Motor’s industry using a PESTLE analysis  .............................................  3  
2.1 Political  ..........................................................................................................................................................................................  3  
2.2 Economic  .......................................................................................................................................................................................  3  
2.3 Social  ..............................................................................................................................................................................................  3  
2.4 Technological  ...............................................................................................................................................................................  3  
2.5 Environmental  .............................................................................................................................................................................  3  
2.6 Legal  ...............................................................................................................................................................................................  4  
3.0 Analysis of Tesla’s external business environment using Porters five forces of competitive
position  .......................................................................................................................................  4  
3.1 Competitive rivalry  ....................................................................................................................................................................  4  
3.2 Threat of entry  .............................................................................................................................................................................  4  
3.3 Threat of substitutes  ...................................................................................................................................................................  5  
3.4 Buyer power  .................................................................................................................................................................................  5  
3.5 Supplier Power  ............................................................................................................................................................................  5  
4.0 Assessment of the Tesla’s assets and resources  ....................................................................  5  
5.0 Market Segments targeted by Tesla Motors  ........................................................................  6  
6.0 A discussion of how an understanding of PESTLE, Porters Five Forces, VRIN and
Segmentation is related to the business’s performance.   ............................................................  6  
7.0 Conclusion and Recommendations  ......................................................................................  7  
8.0  References  list  .......................................................................................................................  8  
 
   

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1.0  Introduction  
Founded in 2003 (Tesla Motors, About Tesla, 2014), Tesla Motors is an American car company that
produces and sells electric cars. In recent years, electric cars have become competitive as
substitutes for traditional fuel powered cars, and poses a threat to continue in the future.

This assignment will aim to analyze the industry and business environment in which Tesla operates
through a PESTLE (Political, Economic, Social, Technological, Legal and Environmental) analysis,
and by considering Michael Porters five forces of competition (Porter, 2008). This report will also
assess Tesla’s assets and recourses, and examine the market segments this company targets.

2.0 Analysis of Tesla Motor’s industry using a PESTLE analysis

PESTLE is a framework that considers Political, Economical, Social, Technological, Legal and
Environmental factors that affect a firm.

2.1 Political
There are political benefits to consumers of using Tesla products, which in turn is beneficial to the
firm. As Tesla provides environmentally friendly vehicles, consumers are given incentives to
purchase their products. Customers receive government grants, which vary depending on their
region. For example, in the United Kingdom, consumers receive a “£5000 government grant”,
exemption from Road Tax, Luxury Vehicle Tax, and London congestion charges (Tesla Motors,
Incentives, 2014).

2.2 Economic
In addition, Economic effects on consumers also have a direct impact on Tesla. Due to the
company providing electric cars, consumers are not required to pay for petrol. This reduction in
costs act as further incentive to purchase Tesla’s products. However, Tesla cars are relatively
expensive, with the popular model S priced between US$69900 and US$104500 (Tesla Motors,
Resale Value Guarantee, 2014), depending on each individual’s desired specifications. This
indicates that oil prices could have an effect on Tesla’s sales – As oil prices increase, car buyers
may opt for electric vehicles such as Tesla, whereas as oil prices decrease, customers may be driven
to purchase fuel powered cars.

2.3 Social
Social factors also alter the industry in which Tesla operates. One major example is the media.
Issues such as global warming have come to the public eye in recent years, and with media
coverage of such problems, electric cars become more desirable.

2.4 Technological
In terms of the technological aspect of the automotive industry, safety is a major priority. Tesla has
a sound safety record, and achieved a 5-star rating in both NHSTA (NHSTA, 2014) and Euro
NCAP (Euro NCAP, 2014) safety ratings. However, as the electric car market is relatively young,
there are bound to be some technological flaws. For instance, towards the end of 2013, Tesla’s
model S suffered “three fires in 5 weeks”(Keane, 2013). Tesla CEO Elon Musk’s decision to
release the company’s patents on their electric cars (LeBeau, 2014) is sure to bring about future
technological enhancements in the industry.

2.5 Environmental
Musk’s decision to release the patents may also have environmental implications. Although it may

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hamper Tesla’s potential sales in the long run, it will lead to technological advancements in the
industry, and hence more electric vehicles on the road. This will have a positive impact on
environmental issues such as global warming in the future. Musk stated that it would be “short
sighted” to keep hold of their knowledge due to how much “inertia the climate has” (Rechtin,
2014).

2.6 Legal
Legal regulations also have an affect on Tesla’s products. For example, The U.S pedestrian Safety
Enhancement Act “requires the use of Audible Vehicle Alerting Systems” as “all-electric
automobiles are so quiet at low speeds”(Sandberg 2012), which poses a threat for pedestrians. Such
regulations require Tesla to alter and enhance the products they sell.

3.0 Analysis of Tesla’s external business environment using Porters

five forces of competitive position

3.1 Competitive rivalry

The rivalry within the automotive industry as a whole is very high, however it is slightly less
competitive when focusing on the electric vehicle market alone. Nevertheless, Tesla do face
competition from numerous other electric and hybrid vehicle manufacturers, as can be seen from
the 2014 sales comparison table in Figure 1 below. (Inside EV’s, 2014)-

 
Figure  1  -­‐  Table  showing  sales  comparison  between  Tesla  and  rivals  in  2014  (Inside  EV's  2014)

3.2 Threat of entry

Tesla, founded in 2003, is a relatively new firm in the automotive market, and themselves are a
threat to further penetrate the market and gain market share. Tesla’s product differentiation gives
them a unique selling point, however, the release of their patents (LeBeau, 2014) allows other car

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manufacturers to enter the electric car market. In addition, growing concerns about environmental
issues such as global warming is likely to prompt already established automotive giants to begin
production of electric vehicles.

3.3 Threat of substitutes

Tesla can be evaluated in two ways in terms of threat of substitutes. In the automotive industry as a
whole, the threat of substitutes is extremely high, as there are numerous large companies selling
fuel powered cars.

On the other hand, when compared to the industry of electric cars, threat of substitutes is relatively
low. This is because this portion of the automotive industry is relatively unsaturated, and most
other electric vehicle producers do not put all of their resources into that segment. However,
alternative electric vehicles, such as the Nissan Leaf and Chevrolet Volt (Inside EV’s, 2014), and
hybrid cars do pose a threat to Tesla’s market share, as can be seen in figure 1 on page 4. In
addition, Tesla releasing their patents is sure to increase the threat of substitutes in the coming
years.

3.4 Buyer power

Buyer power is a part of this framework which is linked to the availability of substitutes. The
automotive industry flows with endless companies that offer viable substitutes to the buyer.
Conversely, if the consumer desires to purchase an electric vehicle, then buyer power is restricted.
However, Musk’s decision to release the patents (LeBeau, 2014) on their products is likely to lead
to more substitutes, and hence increased buyer power for electric vehicles in future years.

3.5 Supplier Power

Batteries are a major resource that is supplied to Tesla Motors by an external company. Supplier
power to Tesla is moderate. Although Tesla does not have countless suppliers, they have made
efforts in “diversifying its supply line” (Jones, 2013).

4.0 Assessment of the Tesla’s assets and resources

There are four main types of resources a company can have: tangible resources, intangible
resources, human resources and financial resources. Tesla Motors have numerous resources, and
this report will go into detail about one from each subsection. The following resources will be
analyzed using Jay Barney’s VRIN (Valuable, Rare, Inimitable, Non-substitutable) model (Barney,
1991).

An example of a tangible asset is Tesla’s Research and Development facilities. This is an

extremely valuable asset for Tesla, as their prominence in the electric car market is due to their high
performance in relation to their electric vehicle Rivals. Aspects such as the ability to travel up to
265 miles (Tesla Motors, Resale Value Guarantee, 2014) on a single charge are unmatched by
rivals, and are largely due to heavy investment into research and development. Tesla’s operating
revenues are an example of a financial Asset. Revenues of US$620.5 million in the first quarter
2014 alone (Trefis team, 2014) are valuable as they allowed for a US$81.5 million injection into
research and development during that same time frame (E.Ross, 2014). The technology developed
from tesla’s research and development can be considered as rare and inimitable as their vehicles are
supreme to its competition in many ways. However, the release of the patents on their vehicles
means that their technological expertise is now available to competitors, and reduces the non-
substitutability of their goods.

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Intangible resources which most large companies have are patents. However, Tesla Motor’s CEO
decided to release their patents. The value of this bold move was to encourage “the advancement of
electric vehicle technology” (LeBeau, 2014). Although it is rare for companies to make decisions
such as these as it reduces the inimitability of their products, the lack of the patents will bring about
further development to this segment of the automotive industry.

Tesla also have a very important Human Resource in CEO Elon Musk. Musk is extremely
valuable, as he is 100% committed to the company, stating that he “will be the last one to sell
shares” (Reeves, 2014). His value is further evident through bold decisions, such as to release
Tesla’s patents, which lead to a 10% rise in the share price within two weeks (Voyles, 2014).
Individuals such as these are extremely rare, which is reflected through how he has transformed
Tesla from being relatively unknown into a premium company.

5.0 Market Segments targeted by Tesla Motors

Tesla, unlike most other automotive companies have only one model on the market at the moment
(Model S), with another model set to be released onto the market in 2015 (Model X) (Tesla Motors,
About Tesla, 2014). Both models are set to be in a similar price range, with the model S priced
between US$69900 and US$104500 (Tesla Motors, Resale Value Guarantee, 2014), and Model X
at US$67400 (Rechtin, 2012). The price range of these vehicles allow Tesla to establish themselves
as a premium brand, and implies that they target a wealthier segment of the market.

Tesla’s model S has the aesthetics and capabilities of a modern sports car, with the ability to
accelerate from 0-60 miles per hour in 3.2 seconds, and a top speed of 155 miles per hour (Tesla
Motors, Resale Value Guarantee, 2014). In addition, this vehicle has the facility to seat 7
passengers (Rechtin, 2012) whilst maintaining its sleek look, which provides a market gap filler for
customers who desire to have a combined sports car-family sedan.

Both Tesla models also have a larger Mile-range than all other Electric vehicles, with the capacity
to travel 265 miles on a single charge (PluginCars 2014). This creates a new segment to the
automotive market, and offers electric vehicles to customers who need to commute long distances.

Another segment of the market Tesla targets are people informed about current environmental
issues such as global warming. Due to an increasing number of individuals becoming aware of the
detrimental effects of fuel powered cars on the environment, electric vehicles are becoming a more
viable option.

6.0 A discussion of how an understanding of PESTLE, Porters Five

Forces, VRIN and Segmentation is related to the business’s
performance.
None of these four frameworks can give us a clear indication on business performance individually,
however, when the information from all models are considered, we can form a clear picture of Tesla
Motor’s business performance. The PESTLE analysis allows us to understand the mechanisms of
Tesla within their industry, whilst Porters five forces allows for a greater understanding on Tesla’s
competitors and the automotive industry as a whole. This, in conjunction with the VRIN analysis of
Tesla’s major Assets allows for a three-dimensional view about the firm’s performance. The VRIN

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framework goes into depth about the value of certain assets to Tesla, and the importance on their
business performance. In addition, the analysis of the market segments targeted by Tesla reveals
information about their performance in their targeted niche markets.

7.0 Conclusion and Recommendations

In Conclusion, through the frameworks used in this report, it is evident that Tesla have been
performing well in their targeted niche markets over recent years. Lead by determined CEO Elon
Musk, Tesla’s innovative ideas have not only lead them to become one of the leading electric
vehicle manufacturers, but one of the premium companies in the automotive industry as a whole.
Moreover, it is evident that their decision to heavily invest operating revenues into research and
development of their vehicles has lead to positive technological improvements in their products.
Also, the growing social awareness of issues such as global warming is likely to have a positive
impact on Tesla in the long run.

However, Tesla’s success is limited to their targeted niche markets of premium electric cars. It
would be recommended that Tesla introduce a more affordable electric vehicle to compete in other
segments of the electric vehicle industry. The release of their patents is bound to bring
technological improvements to the industry, which therefore means that competition will begin to
arise in the niches that they currently dominate. If the affordable vehicle has similar technological
capabilities to the current Tesla Models, although profit margins may be slimmer than the current
models, it is likely to attract a large proportion of the market whilst maintaining their status as a
premium brand.
   

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8.0  References  list  

About Tesla (2014) Tesla Motors. About Tesla. Available at: http://www.teslamotors.com/about
(Accessed: 18 December 2014).
Barney, J. B. (1991). Firm Resources and Sustained Competitive Advantage. Journal of
Management. 17:1. 99-120. Availible at:
http://www3.uma.pt/filipejmsousa/ge/Barney,%201991.pdf (Accessed: 23 December 2014).
E.Ross, P. (2014) ‘Tesla’s Research Budget: Spending as Fast as We Can’, IEEE, 12 May.
Available at: http://spectrum.ieee.org/cars-that-think/transportation/advanced-cars/teslas-
research-budget-spending-as-fast-as-we-can-and-a-good-thing-too (Accessed: 29 December
2014).
Incentives (2014) Tesla Motors. Incentives. Available at: http://my.teslamotors.com/incentives/UK
(Accessed: 19 December 2014).
Jones, M. (2013) ‘Tesla Motors Inc (TSLA) Adds Samsung To Its Battery Supply Chain’,
ValueWalk, 28 August. Available at: http://www.valuewalk.com/2013/08/tesla-motors-inc-
tsla-adds-samsung/ (Accessed: 28 December 2014).
Keane, A. G. (2013) ‘Tesla Model S Probed by U.S. After Three Fires in 5 Weeks - Bloomberg’,
Kohn, B. (ed.), 19 November. Available at: http://www.bloomberg.com/news/2013-11-19/u-
s-regulator-opens-probe-of-fire-in-tesla-electric-cars.html (Accessed: 20 December 2014).
LeBeau, P. (2014) ‘Tesla to open up all patents for the “advancement of electric vehicle
technology”: Musk’, CNBC, 12 June. Available at: http://www.cnbc.com/id/101754069#.
(Accessed: 27 December 2014).
Inside EV’s (2014) Monthly Plug-in Sales scorecard. Available at: http://insideevs.com/wp-
content/uploads/2015/01/2014-sales-chart-Dec-vfinal2.png (Accessed: 31 December 2014).
NHSTA (2014). Safecar.gov. Available at: http://www.safercar.gov/Vehicle Shoppers/5-Star Safety
Ratings/2011-Newer Vehicles/Search-Results?searchtype=manufacturer (Accessed: 21
December 2014).
PluginCars (2014) PluginCars. Available at: http://www.plugincars.com/cars (Accessed: 22
December 2014).
Porter, M. (2008). The Five Competitive Forces That Shape Strategy. Harvard Business Review.
86:1. 78-93. Availible at: https://hbr.org/2008/01/the-five-competitive-forces-that-shape-
strategy (Accessed: 22 December 2014).
Rechtin, M. (2012) ‘Tesla: 7-seat EV crossover has lots of zip’, Automotive News, 13 February.
Available at: http://web.a.ebscohost.com/bsi/detail/detail?sid=761370cf-f80e-4d45-8c6d-
d6179ac5a043%40sessionmgr4001&vid=0&hid=4104&bdata=JnNpdGU9YnNpLWxpdmU
%3d (Accessed: 22 December 2014).
Rechtin, M. (2014) ‘Musk says Tesla’s patents are open to all automakers’, 12 June. Available at:
http://www.autonews.com/article/20140612/OEM05/140619945/musk-says-teslas-patents-
are-open-to-all-automakers (Accessed: 22 December 2014).
Reeves, J. (2014) ‘5 CEOs who don’t care what you think’, MarketWatch, 27 May. Available at:
http://www.marketwatch.com/story/5-ceos-who-dont-care-what-you-think-2014-05-27
(Accessed: 3 January 2015).
Resale Value Guarantee (2014) Tesla Motors. Models. Available at:
http://my.teslamotors.com/models/design (Accessed: 18 December 2014).
Sandberg, U. (2012) ‘Adding noise to quiet electric and hybrid vehicl es: An electric issue’,
Acoustics Australia, 40.3. Available at:
http://www.acoustics.asn.au/journal/2012/2012_40_3_Sandberg.pdf (Accessed: 23
December 2014).
Euro NCAP (2014). THE OFFICIAL SITE OF THE EUROPEAN NEW CAR ASSESSMENT
PROGRAMME. Available at: http://www.euroncap.com/results/tesla/model_s/568.aspx

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(Accessed: 21 December 2014).

Trefis Team (2014) ‘Tesla Earnings Review: Profits Decline But Tesla Still On Track To Meet
Full-Year Targets’, Forbes, 9 May. Available at:
http://www.forbes.com/sites/greatspeculations/2014/05/09/tesla-earnings-review-profits-
decline-but-tesla-still-on-track-to-meet-full-year-targets/ (Accessed: 29 December 2014).
Voyles, B. (2014) ‘Why Elon Musk Released Tesla’s Patents’, CKGSB Knowledge, 7 July.
Available at: http://knowledge.ckgsb.edu.cn/2014/07/07/china-business-strategy/why-elon-
musk-released-teslas-patents/ (Accessed: 22 December 2014).

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