Tesla Inc. is an American automaker founded in 2003. Elon Musk, chairman of Tesla since 2004 and CEO since 2008, has led the strategy of the company. In 2006, he announced a short master plan, which was: Build a sports car.
Fourteen years after its creation, Tesla is today one of the most influential and powerful car company in the world. Indeed, with its $57 Billion in market capitalization, Tesla has reached a confortable place in the financial markets. However, the firm has experienced several critical periods during the last few years and the most significant one was the post ” Economic crisis of 2008 ” in which the company was about to go bankrupt and disappear.
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As the leader of the company, but mostly as a risk-taker, Elon Musk made an uncertain decision involving a large amount of money by taking “all the capital he had left from the sale of PayPal to Ebay and invest that in Tesla”.
That’s how with a personal investment of $40 Million, he saved the company.
Since its creation, Tesla has developed four different car models: The Roadster / The Model X / The Model S and The Model 3. The first one is a sports car, the next two are premium models and the Model 3 is intended to the large public.
1) What are the two or three main strategic issues facing the company?
Today, Tesla is facing many strategic challenges. I choose to showcase three of them:
I. CARS PRODUCTION
The Model 3, the most awaited electrical car in the world, has several manufacturing issues.
According to the article from The Business Insider, the challenge set up by Tesla’s CEO was to launch the Model 3 on schedule. However, here are the facts: Tesla has planned to produce 1500 vehicles at the end of September 2017, but only 260 Model 3 were manufactured i.e 17% of the prediction. Besides, as stated in the same article, 400 000 people have pre-ordered the Model 3 for an amount of 1000$, providing to the firm $4 million to encourage the production. Today, Tesla must find a solution to accelerate the production rates.
II. SOLARCITY INTEGRATION
SolarCity is now a business unit within Tesla group and must make a major contribution to its development.
Tesla has merged with SolarCity on June 2016. Peter and Lyndon Rive, Tesla CEO cousins, founded this firm specialized in solar energy. The main challenge of this integration is to take advantage of SolarCity services and to turn it to a competitive asset for the company.
Today, many potential users have doubts about the capacities of the cars’ batteries to meet their utilization needs. In 2015, the average of PEVs was about 200 miles whereas the Tesla Model S presented a range of 265 miles in addition to an 85kWh battery pack. Tesla announced an agreement with Panasonic to build the world’s biggest manufacturing plant for lithium-ion storage batteries. This plan will be called the “GIGAFACTORY” and would be a great step for Tesla and for the way people consume electricity today. As a sign of trust and success, the whole 2016’scheduled production had been pre-sold.
The aim would be a medium-term goal consisting in stopping the collaboration with Panasonic to use SolarCity as a supporting asset to develop the next Gigafactories and becoming autonomous in the cars batteries production process.
III. DEVELOPING TESLA’S NETWORK
Implementation of charging stations across Tesla markets
At the time, the critical problem was that their charging system was not compatible with the two competing technical standard for fast charging.
Therefore, they needed to build special adapters. Moreover, most charging stations could not charge Tesla cars. Thus, they had to build their own network, which was really costly.
When customers buy their cars, they have to find supercharger stations in their immediate surroundings. Today, there are hundreds of stations around the world. As can be seen in the first picture below, Tesla has chosen to establish itself mainly in the United States and Europe. However, when looking more specifically in a location, the supercharger’s density of stations remains low. Even if Tesla has directed its stations towards strategic regions where demand is high, it can be seen that in Paris, for example, the nearest stations are located in suburbs, several tens of kilometers from the capital.
2) What two or three strategic recommendations would you make to management to ensure the company’s future success?
Recommendation 1: Increasing cars’ production
• Openning new factories in the United States that maintains the same standards as tesla.
• Tesla has produced 50 000 vehicles last year of Model X and Model S combined
• Tesla has set up the objective of producing 200 000 cars model 3 the second semester of 2017.
• Historically, the forecasts made by Tesla’s management were only partially met.
• Increase the number of factories and locatioin in strategic big cities
• Hire more qualified manufacturers and designers
• Attract them to the bgi cities
• Implement robots more automatic systems
Recommendation 2: Vendre la solution Tesla / Solarcity
• Utiliser solarcity pour les station de chargement. Initialement dans les panneaux solaires. Reconversion pour s’aligner sur la strategy de Tesla et accompagner le développement de la compagnie.
• Batteries fabriquées dans la giga factory pour les tesla. Les batteries utilisées dans les voitures , à la pointe de la technologie.
• Implantation de stations de chargement dans des endroit stratégieque, proches de grandes où la demande est forte.
• Les zones géographiques doivent rester les memes. Il faut augmenter la densiter de superchargeur ex: Paris intramuros.
• Développer des partenariats avec des entreprises dénergie dans un premier temps pour accélérer les implantation des superchargeur dans les villes.
• Tesla’s Superchargers offered the world’s fastest recharging of electric vehicle batteries. This is also an advantage over its peers
3) How does the macroeconomic and competitive context affect management’s margin for maneuver?
The macroeconomic and competitive contexts in the automobile market do not frighten Tesla, which is experiencing significant growth based on a unique business model. Indeed, the company has a considerable management’s margin for maneuver, contrary to what one might think, with a saturated automobile market.
In 2007, Elon Musk has managed to launch a sports model: the Roadster; and he launched an affordable car in 2013, the Model S which costs between $52,400 and $72,400. The price seems significantly high but this investment would lead to lower costs of using. For instance, the global user cost of Tesla is about $1,800 per year allowing savings on fuels and maintenance. Tesla also wanted to attract a larger panel of customers by launching the Model X, a crossover between a sedan and a SUV. Tesla has made the choice not to sell its cars with franchise dealers. As a matter of fact, Tesla owns all of its showrooms and runs counter to its peers.
The other main point of Tesla strategy is to consider itself not only as an automobile company but also as a technology leader. The company’s goal was to develop the best lithium-ion battery system for its cars. The CEO’s strategy was based on innovation, and the turning point came in 2015 with the invention of the nickel-manganese-cobalt battery. This is somehow the reason why the value of the company was so high compared to its rivals. Tesla also differs from the others with its choice to open its patents. Whereas its competitors keep their patents secret and spend money in doing so, Tesla chose the sustainable transport interest over the profit. This action is surely a part of Tesla’s strategy and it credits the company a very positive image.
Concerning the business model, the electric vehicles represent a revolution for the automakers and have disrupted the traditional gasoline car industry. But the difference between Tesla’s business model and the other automakers’ business model is that Tesla’s technology is not a barrier for its rivals since Tesla thinks it is useless to spend money litigating patents. Thus, this business model allows other companies to launch electric vehicles. Nevertheless, even if the patent portfolio of Tesla was lower than the majority of its peers, Tesla strengths was to find a way to gather the technology with the client needs and to offer designed products promoted by innovative marketing tools.
But according to Clay Christensen, Tesla’s business model was not disruptive as they offer higher performance at higher prices whereas the other companies are looking for lower prices with lower performances. As a matter of fact, Tesla reached an agreement with Panasonic. Thus, Tesla used off-the-shelf lithium cells bought from Panasonic and announced they will build the world’s biggest lithium-ion batteries manufacturing plant. In fact, it is highly innovative, but the leading automakers also managed to develop some electric technologies since Renault-Nissan had delayed the production of car batteries to subcontractors. They developed them in collaboration with NEC whereas General Motors chose LG.
Resources and capabilities are the main sources of profitability. Tesla Motors is a one of the leaders in making and selling plug-in electric vehicles which were first launched in 2008. Why would a potential buyer choose Tesla over its peers?
In terms of resources, the firm presents many advantages compared to its competitors. The market suffers from a lack of familiarity with the vehicles and their operation and maintenance create a substantial barrier to widespread PEV deployment. Regarding the reputation, Tesla Motors is one of the pioneers in the PEVs industry and consistently promotes the advent of a sustainable transport. Moreover, Tesla Motors benefits from the highest customer satisfaction score of any car in the world in 2013. The Model S even gets free publicity since it has become famous among top celebrities in Hollywood.
Tesla Motors is a well-known manufacturer and presents itself even as a technology leader within electric vehicles. They have a technological advantage. The car’s battery built by Tesla attracted huge publicity and is credited with changing public perceptions of electric cars. Tesla has developed a powerful know-how combining existing technologies. Though it is not the first company among the others in terms of patents, Elon Musk announced Tesla would put some of the patents in open source. This added a positive image related to the company: its priority may not be to make profit but the accelerate the development of a sustainable transport.
Besides in 2015 Tesla sold 55.000 cars whereas Fiat Chrysler sold 2.5 million. Tesla do not use franchise dealers which is the traditional approach chosen by the established automakers. The firm opens its own showrooms in major cities. And to avoid legal conflicts by doing so, Tesla has successfully made the law of several states in the US changed. This highlights its possibility of influence. Tesla has also a huge financial power: its stock market value was $31.7 billion whereas Fiat Chrysler was valued at $20.5 billion. This give lots of credits to Tesla which has significant tangible resources. Optimism supports Tesla’s valuation for its growth as well as the vision of the leader Elon Musk.
They simply dominate the electrical vehicle industry by not only always having one step ahead, but by getting their technology accessible, global, and universal.
4) How would you organize the company to pursue your recommendations?
In order to achieve the objectives set by Tesla and to implement the 3 recommendations proposed above, I believe here is how to implement these ideas.
Invest in factories :
Building new factories
Buy existing factories
Recruter de la main d’œuvre qualifiée
Investir dans la R&D orientée Suply Chain
Optimisation des process de fabrication : diminuer le temps de fabrication
Intégrer solarcity dans le process tesla à travers :
prix attractif sur les panneaux
Investir dans les grandes villes
Mettre en place des accords avec les grands entreprise pétrolières q
5) What are the key “human dimensions of change” facing the company to purse your recommendations? Provide two sentences on what “success” looks like after one year and after three years.
Aujourd’hui Tesla emploie plus de 33 000 personnes, ce qui constitue un nombre assez important pour une entreprise en comparant ce chiffre par exemple à celui de Facebook avec 10 082 collaborateurs. En revanche s’il on se positionne sur le marché de l’industrie automobile, ce chiffre reste faible en comparant par exemple à BMW avec ses 124 729 employés. En effet,
6) Which functions would be most important to pursue your recommendations and what techniques / approach would you recommend to best leverage these human resources?
Functions: R;D / Supply Chain / Operations
– Processus de recrutement en amont plus pointu
– Etre clair par rapport aux attente et au objectifs de l’entreprise
– Etre à l’écoute des employeurs
– Stimuler leurs créativité
Part II: Questions based on the group project
1) Based on the group’s solution, what are this venture’s three key factors of success?
During this project group, we were a group of 4 people working on Snap’s challenges. We tried to answer Ducker’s 5 questions and set up 8 specific objectives for the company.
According to our research, one of the key factors in Snap’s success is the environment in which the start-up was born. In fact, having been founded in California by students from Stanford University, the company has been immersed since its creation in the Silicon Valley universe where all the technologic firms and big companies are present. This environment has been able to challenge Snap’s ideas and develop the firm in an exceptional way to reach 158 million customers today, 6 years after its creation.
The second important point that contributed to Snap’ success was the simplicity of the application proposed to the public. Indeed, the graphical user interface offered is easy to handle, we do not need tutorials and every feature is intuitive.
Finally, the last point that contributed to Snap’s success is the dynamism of the application. Thanks to the concept of ephemeral published photos that have a temporary duration of a few seconds, or the “story” that remain visible 24 hours, the user shares live content with his network of friends. Thus, even if message communication is possible, the majority of people use photos/videos to exchange, making the dialogue more dynamic.
2) What will be the major challenges or stumbling blocks this venture may face?
To start with, the first obstacle to Snap is the presence of competition in the market in which the firm operates. Indeed, the Facebook-Instagram-Whatsapp group, which is part of Facebook company, has taken up the idea of ephemeral publication of photos initiated by Snap. These three companies, whose development is important, compete more and more with snap, especially since they have more financial resources than the company: Facebook has a $508 Billion market capitalization against $18 Billion for Snap. In terms of innovation, this continues to be a challenge for snap, which must maintain its position and improve its processes.
The second major challenge, in connection with the innovation of the company, is that Snap has been developing a new feature called ‘Snap Map’. This is an option that integrates location data into the application. It allows any user to see photos or videos that other users publish, not necessarily in their friends’ network, at a given moment, anywhere in the world. Also, it allows you to locate your friends who allow their visibility. For snap, this is a challenge because it involves public data sharing that can have both good and bad consequences. Indeed, the objective here is in the control and security of data because users can retrieve public data and use it in the wrong direction.
Finally, in Snapchat’s Business Model, the company has integrated a part of advertisements. Companies can therefore publish advertisements on user applications against payment for the company. However, Snap has to find a good balance by not transforming the application into a pub fair. Indeed, ads can appear directly between two photos or videos received by our friends, who may sometimes displease the user. It is true that some advertisements are present and can be viewed only after the user has pressed them to view them, but the good management of automatic advertisements is a third important lever to master by the application.
3) What would you do differently to improve the company’s chances for success?
To increase the chances of success of the company I will invest in the Snapchat experience. In other words, I will consider the opinions of users to adapt the offer proposed by the application and develop the platform according to the needs of snapshot customers. This would involve enhancing technological research and developing new tools. In my opinion, this is the most important aspect because beyond the fact that shareholders and investors decide on the future of the application, progress must be in line with users’ expectations.
If researchers find a new kind of innovation, I would recommend that we survey a large group of people before implementing the new functionality that most people might not like.
With regard to data security, it can be set up a dedicated cyber security unit or take advantage of the company’s good positioning to buy a start-up company in the cyber security field with significant development potential. The aim is to be in tune with Snap’s culture, which remains above all a Californian start-up.
4) How was the group work managed? How would you improve the management of group work in the future?
For our group work, we began by agreeing on the couple of companies on which we carried out our research. Then we set up the presentation plan and distributed the tasks so that everyone could concentrate on one aspect of the presentation. The people who worked on it, presented the part worked out by each one, which was then added to the final power point presentation. In fact, as we worked on it we are the most able to present our part and our slides.
However, a few points have been wrongly excused in my opinion. First of all, during the pooling, we just wrote our slides on each side and then put them together to have the final presentation. I noticed that this was not a good strategy because we did not know the parts of the others and therefore we couldn’t intervene in case of questions or interaction with these other parts. Personally speaking, it was necessary to prepare our researches separately and then build up the final rendering in a group. This would have allowed the opinions of each member to be obtained in relation to the form and substance of the project.
The second point that we missed is the proofreading at the end of production. Indeed, maybe it was due to stress, but we did not reread each other and this caused spelling errors or unacceptable presentations on the slides presented. For my next group work, I will spend at least 10 minutes at the end of the preparation to reread all the slides.
Finally, the last critical point was the allocation of speaking time, which was not equitable. For a 20-minute presentation at 4 each member, each member must speak 5 minutes, which was not the case for us.