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Strategic Marketing Plan
Marketing 489
Professor Ed Love
Western Washington University
Allison Sowder, Becca Sangwin, Laura Jackson, Megan Cuomo, Sahar Heidari
Table of Contents
Automotive Industry Analysis Key Factors 2 Porter’s 5 forces 3 Tesla’s Competitors 6 Competitive Review 16 Customer Review 17 Macroenvironmental Review 21
Tesla, Inc. Analysis 24
Primary products 27 Current goals and objectives 31 Current and past strategies
33 Current performance 36 SWOT 38 Current lifecycle stage 43 Current branding strategy 45
Core Competencies 47 Competitive Advantages
Cost Advantage 49 Differentiation Advantage 53
Segmentation 55 Targeting 60 Marketing Plan
Goals and Objectives67
Segmentation66
Targeting 68 Positioning Strategy 70 Implementation 71 Evaluation and Control 74 Budget 76 Future Goals 79
1
Key Factors that Influence the Automotive Industry
Economic Status of the Market
According to the US Department of Commerce Bureau of Economic Analysis,
the US’s GDP in 2015 was overall smaller than it was in 2014. Additionally, the US
Census shows that the median level of income for households in 2014 was $54,462 1
Even though the US is moving out of its recession, the majority of consumers have
a lower income than required to purchase high class sports cars. Therefore,
consumers nowadays who desire luxury vehicles need more affordable
alternatives.
Number of Consumers in Market
The revenue raised from the automobile industry each year is about $123
billion, $5.2 billion accounted for in profit. The annual growth of the industry has 2
been about 8.4% in from 2010 to 2015. For the next five years, the expected growth
is predicted to be a much smaller 2.5%. As of 2013, there are about 240 million cars
on roadways in the United States , the leading population of vehicles in the world. 3
Changes in Legislation
There is a global shift in legislation towards more regulations that demand
energy efficiency and environmental conscientiousness in the automotive
1 DeNavasWalt, C. Proctor, B. (2015). Income and Poverty in the United States 2014. Retrieved from https://www.census.gov/content/dam/Census/library/publications/2015/demo/p60252.pdf 2 http://clients1.ibisworld.com/reports/us/industry/ataglance.aspx?entid=816 3 Tencer, D. (2011). Number of Cars Worldwide Surpasses 1 Billion. Retrieved from http://www.huffingtonpost.ca/2011/08/23/carpopulation_n_934291.html
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manufacturing process, as well as an emphasis on safety. Furthermore, auto
manufacturers are increasingly using patents to protect these innovations and
developments.
Increased Competition
The number of brand competitors for the automobile industry is constantly
increasing. Many car companies are reading consumer preferences and competing
to produce cars with features that people want, which results in an increasing
production of a variety of car models.
Changes in Consumer Preference
Consumer preference changes is the final key factor that influences the
automotive industry. The movement toward eco friendly modes of transportation,
increases consumer’s usage of public transit and other fuel efficient methods of
getting around. This lessens the attractiveness of purchasing big SUVs or gas
guzzling vehicles. Manufacturers will need to adopt these green ideals and reflect
them in their marketing strategies and future product lines.
Porter’s 5 Forces
Threat of New Entrants
Threat of New Entrants in the Automotive Industry is low. This is due to the
high capital costs of setting up a manufacturing plant and the cost of organizing
distribution channels. Strong brand equity and reputation are key factors 4
4 I. (2004). The Industry Handbook: Automobiles | Investopedia. Retrieved January 20, 2016, from http://www.investopedia.com/features/industryhandbook/automobile.asp
3
consumers look for in the brand of car they are purchasing-- this takes years to
develop. A brand new car company won’t have the credibility necessary to compete
against their already established competitors. There are also high barriers to exit.
Which means that entering into this industry is a high financial commitment that is
not easy to terminate.
Buyer Power
Buyer Power is high in this industry because of the high involvement
purchase decision a motor vehicle is and the low switching costs for buyers. First
time, and even seasoned buyers will shop around to competitor dealerships to find
the best price. Then the buyer can also negotiate for a lower price. The threat of
simply going to a competitor dealership and purchasing the exact same car is
enough to give the buyer more power in negotiating price.
Supplier Power
Suppliers have low power as a result of high switching costs, high material,
process and system costs. This is also dependent on if the manufacturer utilizes
one supplier or multiple suppliers. If the manufacturer has multiple suppliers the
supplier has less power since the manufacturer can get the product elsewhere.
Though if the supplier is the only one that can offer this unique product, then they
have more power. As for the case of dealerships to buyers: the supplier also has
low power because the buyer, as explained above, has the ability to negotiate for a
lower price.
4
Threat of Substitutes
Threat of substitutes in the automotive industry has a medium power. The
movement towards a more eco-friendly community is paving the way for increases
in public transportation and other natural energy forms of transportation, for
example, electric powered bicycles. These are holes in the current industry where
there is opportunity for companies to step-up and be apart of this movement.
There are options available for fuel efficient cars; however, they are not quite fully
accessible to the public yet. Public transportation is not as reliable or effective in
the United States to completely remove the demand for personal transportation
vehicles. Therefore the threat of substitutes is not quite a high power.
Competitive Intensity
Competitive intensity within the industry is relatively high. There are multiple
players globally that are large competitors to the domestic markets. Specifically
Asian automakers have a cost advantage which American manufacturers are trying
to compete with. The industry itself has a flat rate of growth which is forcing
automakers to adjust their marketing and innovation strategies in order to grow
the market or to simply increase consumer demand in the industry.
Complements
Complements are products or services that would affect the success or
failure of another product or service. For example, in the automotive industry fuel
is a complement. As oil prices continue to drop, people will become less inclined to
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buy energy efficient cars or use public transportation, for the purpose of saving
money. Vice versa, if oil prices begin to rise, people will more inclined to use
fuel-efficient forms of transportation to save money. Another complement to the
automotive industry is the increased prevalence of charging stations that have
been made available in locations such as malls and grocery stores. This increase in
accessibility positively influences people to consider or purchase all-electric
vehicles.
Competitive intensity is the most important force for the Automotive
Industry. There is a movement toward innovation and differentiation not only
because of changing consumer preferences, but also in order to stay competitive
with other auto manufacturers. Based on Porter’s 5-Forces this industry is not
attractive to new entrants or even for current manufacturers. However, if
automakers transition into the new markets of cost efficient, eco friendly,
innovative vehicles, then there is potential to see an increase in the growth of this
industry.
Tesla’s Competitors
Brand Competitors
Brand competitors are two or more brands whose products compete in the
same market and offer very similar features and prices. Based on this definition, we
are looking for other luxury car brands that offer an electric or hybrid car model.
BMW, Porsche and Ferrari as competitors for Tesla.
Product Competitors
6
Product competitors are products that can be grouped together in a class
but offer different features. For Tesla, product competitors would consist of all
other types of cars. We chose Toyota, GM and Ford as three of the most prominent
types of cars in the automobile industry.
Generic Competitors
Generic competitors are companies that produce products that offer entirely
different features, but can satisfy the same customer needs. The primary function
of Tesla is to be a car that helps a person get from Point A to Point B. Substitutes
for a car that people can use to travel include motorcycles, scooters and bicycles.
Total Budget Competitors
Budget competitors have less to do with the actual product and more to do
with the price range. A luxury car like Tesla could be competing with the
consumer’s desire to purchase a house, boat or expensive jewelry instead of a car.
Current and Past Strategies
BMW: Similar to other comparable brands such as Porsche and Ferrari, BMW
has a target market that consists of people who have high standards of quality and
luxury. They have segmented their market into three different segments including
age, gender and income. BMW is often preferred by men around the age of 35 with
an income of $75,000 or more. Their strategy of marketing toward younger people 5
can be seen through the placements of their advertising and marketing, such as the
5 Kasi. Marketing Plan of BMW. Retrieved January 20, 2016 from http://marketingmixx.com/marketingplan2/296marketingplanofbmw.html
7
ads they placed in Spotify for one of their newer car models. They hoped it would
be seen by the younger, more “tech-savvy” generation.5
Porsche: Porsche, as a luxury car brand, also targets the more affluent
crowd. Currently, their demographic is similar to that of BMW. The typical Porsche
owner is a male, college graduate with an income of approximately $100,000. The
age range that Porsche has typically targeted in the past is the 25-55 year old range.
The majority of Porsche owners do fall within that range, but are typically older
than 40, which is closer to the older side of the target range. Porsche’s current 6
strategy is to keep targeting that younger crowd and to increase the number of
female clients, and the company’s “engineered for magic, every day” campaign is
perhaps the best example of this effort. The campaign uses Maria Sharapova, a 28
year-old celebrity, as their spokesperson to engage the younger, female crowd.
Ferrari: The Ferrari brand is also targeted toward a niche market of people
who highly value the luxury status. The typical owner of a Ferrari is a male who is in
his 50s. They do not reach the younger crowd primarily because of their high
price-point, and as a company they seem to be ok with this. Ferrari does not strive
to be seen as a car for everyday use or a car that someone saves up all of their
money to buy. It is a car that is purchased by someone who is already very wealthy
and can afford it just as a luxury good because they want it.
6 Mitchell, J. (2008). What Your Car Says About You. Retrieved January 20, 2016 from http://www.forbes.com/2008/11/21/carbuyertypesidentity08forbeslifecx_jm_1120cars.html
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Performance
BMW: BMW is one of the most dominant and successful brands in its luxury
vehicle market. 2014 was the most successful year BMW has ever had in terms of
sales and growth, and it seems that these statistics will continue to grow. As a
global brand during this year, BMW achieved growth in every single one of its
primary sales regions. In Europe, their total sales increased by 6.4%. In Asia, their
sales grew by 13.8%. In the Middle East their sales increased by 22.6% and in the
Americas it grew by 5.3% from the previous year. In 2013 the total profit before tax
was approximately 8.64 billion dollars. 7
Porsche: Porsche has made an enormous jump in sales and profitability just
in the year from 2014 to 2015 alone. They experienced a 24% increase in sales
from the last year, and in 2015 they delivered just shy of 210,000 units. This is the
first time ever that Porsche has sold over 200,000 units in one year. The strongest
market for the last year was in China with an increase of 34%, followed by the
European market with a 30% increase and the United States with a 9% increase. 8
Ferrari: In 2014 the number of car units sold for Ferrari decreased by
approximately 100 units, but the net profit hit $78 million dollars, which was a 5%
increase from the previous year in 2013. Ferrari’s goal each year is to produce less
than 7,000 car units between its Formula One team and production cars. The
promising markets for growth this year were Japan and the Middle East. Unlike our
7 (2015). BMW Is Most Successful Luxury Car Brand in 2014. Retrieved from http://www.motorauthority.com/news/1096204_bmwismostsuccessfulluxurycarbrandin2014with18millionsales 8 (2015). Porsche Press Release. Retrieved from http://press.porsche.com/news/release.php?id=971
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comparison competitors, the Chinese market for Ferrari saw a much smaller
percentage in growth.
Strengths
BMW: Strong brand equity and reputation is BMW’s best strength, as they
are well known on a global scale. They have a highly skilled workforce that allows
them to produce the high-quality products that they are known for and that people
like.5 As a brand, BMW has done a good job of demonstrating social responsibility,
primarily through their production of some environmentally friendly vehicles.
Another strength of the company is their strong presence in China, which is a
continuously growing market for them.
Porsche: Porsche also has a strong, global brand reputation as one of the
most recognized luxury brands in the entire world. They are known for producing a
high-quality product, but can be even more depended on to produce a sporty,
supreme style. The company has over 12,000 employees globally. 9
Ferrari: Ferrari has very strong brand equity. The materials used in the cars,
including a very light alloy, are a huge strength of Ferrari, particularly when you tie
it into Ferrari’s strong presence in the racing industry. The company is also really
big into research and development and has very strong departments for it.10
Weaknesses
BMW: While the company does target people with a higher income, the
prices of the cars are fairly high, which can be seen as a limitation. BMW also has
9 Porsche Automobile Holding SE SWOT Analysis. Retrieved from http://www.mbaskool.com/brandguide/automobiles/1822porscheautomobileholdingse.html
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only a small number of acquisitions and strategic partnerships. They also have a
high cost structure and weak brand portfolio.5
Porsche: As the middle income segment of the market continues to increase,
the company’s lack of presence in this bracket proves to be a disadvantage.
Porsche’s high maintenance and running costs are also a weakness.9
Ferrari: The prices of various Ferrari models are extremely high. While this
serves to their purpose of filling a niche market, it limits the potential consumers
greatly. One of the most prominent weaknesses of this company is their lack of
experienced service professionals around the globe, and also their limited service
and distribution networks. 10
Likely Future Marketing Strategies
BMW: In the next five years, BMW intends to further strengthen the position
of the company by increasing volume of sales to more than two million units per
annum. BMW plans to achieve this goal by
expanding its business to new markets,
for example, in some Asian countries as
well as Australia. Based on BMW’s quest 11
for expansion, future marketing strategies
would entail different marketing
strategies in order to appeal to the
10 Ferrari SWOT Analysis. Retrieved from http://www.mbaskool.com/brandguide/automobiles/4995ferrari.html 11 Marketing strategy and pricing strategy of BMW. (n.d.). Retrieved January 20, 2016, from http://www.ukessays.com/essays/marketing/marketingstrategyandpricingstrategyofbmwmarketingessay.php
11
different geographic locations. In Asia, BMW must focus on growth opportunities in
urban clusters, as well as tailor to local preferences based on which Asian country
BMW plans to compete in. According to a recent study, content marketing is very
popular in Australia (see graph to the right) , so perhaps BMW will follow adjust its 12
marketing tactics based on the current trends in the country.
Porsche: On Porsche’s website, the company states that it’s in the process of
developing a new sports car, called Mission E, and it’s focused on sustainability and
incorporating new advanced technologies. Mission E (illustrated below) will be an all
electric sports car, and Porsche has provided some insight to the new product’s
development on its website, and the style of the car is very luxurious and sexy,
similar to Tesla’s models. Porsche’s future marketing strategies for this new vehicle
will focus on highlighting the luxury of the vehicle as well as the sustainability of
running fully on electricity. 13
12 GOOD CAR BAD CAR. (2015, May 02). Retrieved January 20, 2016, from http://www.goodcarbadcar.net/2014/05/usabestsellingluxuryvehiclesapril2014salesfigures.html 13 Marketing Trends Australia 2013. (2013, February 25). Retrieved January 20, 2016, from http://contentmarketinginstitute.com/2013/02/australia2013contentmarketingresearch/
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Ferrari: Ferrari plans on expanding its current theme park and relying on
external content publishers to write about the theme park in order to spread the
news. Ferrari is adding a new roller coaster to its theme park, located in Abu Dhabi,
and several content publishers, including Screamscape and The National , have 14 15
written articles in anticipation of the record breaking roller coaster called Flying
Aces. Other future marketing strategies rely heavily on Sergio Marchionne, the CEO
of Fiat Chrysler Automobiles and chairman of Ferrari. When Sergio took direct
control over the business in 2014 that was once independently run, there was a lot
of speculation about what would become of the business. It’s likely that 16
Marchionne plans to keep Ferrari in the luxury car market, competing as a highly
innovative and high quality sports car.
Impact of the Competitor’s Strategy on Tesla, Inc.
BMW: Similar to Tesla, BMW also competes in the luxury car market and
targets male consumers around the age of 35 with an income of $75,000 or more.
BMW offers an electric model called the BMW i3, that starts at a price of around
$42,400. Because this model is also a relatively affordable, eco-friendly luxury car, it
would be presumed that this directly competes with Tesla. However, the
comparison image below shows the BMW i3 and the Tesla III side by side. Clearly,
14 Ferrari World. (2015, November 27). Retrieved January 20, 2016, from http://www.screamscape.com/html/ferrari_world.htm 15 Ferrari World Abu Dhabi reveals new recordbreaking roller coaster | The National. (2015, May 5). Retrieved January 20, 2016, from http://www.thenational.ae/business/traveltourism/20150505/ferrariworldabudhabirevealsnewrecordbreakingrollercoaster 16 Ciferri, L. (2014, September 15). Sell? Grow? IPO? Marchionne ponders Ferrari's future. Retrieved March 1, 2016, from http://www.autonews.com/article/20140915/OEM02/309159956/sellgrowipomarchionnepondersferrarisfuture
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these are two very different style cars that appeal to different demographics. As far
as the sexy sports car look goes, Tesla’s new model beats BMW’s model by a
landslide, and Tesla’s model also has the more affordable price. BMW is also
offering a hybrid luxury model, but it's priced at over $140,700, so clearly it won’t be
competing in the same affordable market as the Tesla III model. Since the new
Tesla model hasn’t hit the market yet, it’s difficult to say the impact of BMW’s
strategy on Tesla, but one can predict that it won’t cause too much harm to Tesla
III’s profits, as both the models appeal to different demographics.
Porsche: Porsche has an alike target market to BMW, as described above.
High income males, $100,000 or more, between the ages of 25-55. However, in
recent years, Porsche has come out with a new campaign called “engineered for
magic, every day”, which is aimed at targeting women. To analyze how Porsche’s
female-oriented marketing campaign affects Tesla, it’s important to analyze the
percentage of Tesla owners who are female. One study shows that in California,
women make up only 16% of Tesla’s Model S owners, meaning that the people
14
actually buying Tesla vehicles are mostly men. Overall, because Porsche competes 17
in the same luxury car market as Tesla, of
course their marketing strategies affect Tesla
negatively as they take potential customers
away from the organization. But recent
marketing efforts of Porsche that are geared
towards women customers probably won’t
have much of an effect on Tesla overall, as the majority of the business’s customers
are men.
Ferrari: Ferrari’s marketing strategy is similar to the other car businesses
mentioned, all though Ferrari specifically appeals to older males, usually in their
50’s. The reasoning behind this is explained by the extremely high price of Ferrari
vehicles. The hybrid model that Ferrari offers is called the Ferrari Laferrari and it
starts at a whopping $1.416 million. Clearly, the price point for a Ferrari is a lot
different than the price point of a Tesla. To give this vehicle some visual context, an
image of the model is displayed to the right. Based on the high priced models
Ferrari offers, the impact of Ferrari's marketing strategy on Tesla isn’t extremely
concerning because most potential Tesla customers couldn’t afford a million dollar
Ferrari hybrid anyways. If anything, Tesla will soon provide a stylish, eco-friendly
sports car alternative to Ferrari at an affordable price.
17 DeMorro, C. (2014). Study: Men and Women Drive Electric Cars Differently. Retrieved from ttp://gas2.org/2014/05/28/studymenandwomendriveelectriccarsdifferently/
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Competitive Review
All four of these firms, including BMW, Porsche, Ferrari and Tesla compete in
an undifferentiated oligopoly infrastructure. The luxury automotive industry can be
characterized as undifferentiated oligopoly because different businesses, like the
ones we discussed in this section, offer the same product, but with different
features. The differentiated features can be characterized as different makes,
models or overall features. For example, while businesses like BMW offer electric,
hybrid and gasoline powered cars, other businesses, such as Tesla, only product
electric and hybrid cars. There are a decent amount of competitors in the luxury
automotive industry, as shown in the graph below, but not enough that it would be
characterized as a perfect competition. Additionally, another characteristic of an
oligopoly is high barriers to entry, which is absolutely the case for the luxury
automotive industry.
16
Customer Review (Concentrated to the United States)
In a consumer study conducted in 2014, surveying over 2,000 U.S.
respondents, the industry consisted of 34% generation Y (born between 1980 and
early 2000s), 20% generation X (born between early 1960s and early 1980s), 34%
baby boomers (born between 1946 to 1964), and 12% other. Over ¾ of generation
Y(total of 64 million) plan to purchase a vehicle in the next 5 years. Generation Y is
the strongest potential vehicle buyers in the years to come. The most important
factors that affect buying decisions for generation Y are: affordability/payment
options, operational/maintenance costs, and lifestyle needs (in terms of
transportation. 18
The car and automobile manufacturing industry consists of 157 businesses.
The revenue raised from the industry each year is about $123 billion, $5.2 billion in
profit. The annual growth of the industry has been about 8.4% in from 2010 to 19
2015. For the next five years, the expected growth is predicted to be a much smaller
2.5% due to predicted constraint in export growth because of various economic
problems and declining global oil prices. As of 2013, there are about 240 million
cars on roadways in the United States, the leading population of vehicles in the
world. The total amount it costs for consumers to finance a vehicle is expected to 20
increase, causing less demand for the purchase of new vehicles, and more demand
18 (2014). Global Consumer Automotive Study. Retrieved from https://www.autonews.com/assets/PDF/CA92618116.PDF 19 http://www.ibisworld.com 20 Tencer, D. (2011). Number of Cars Worldwide Surpasses 1 Billion. Retrieved from http://www.huffingtonpost.ca/2011/08/23/carpopulation_n_934291.html
17
for public transportation. However, the slow but steady growth of the industry is
expecting to reach $138.8 billion in revenue by the year 2020.
Characteristics of Luxury Vehicle Buyers (narrowed focus for meaningful
analysis)
The geographic scope is concentrated to the United States. The figure below
demonstrates the most popular states in which luxury car owners reside. As you
can see, California and Georgia have the highest percentage of luxury car owners of
14%. Overall, the 8% of the US population own a luxury car.
In terms of demographics, 53% of luxury car buyers are male. Also, luxury car
owners range in age from 30 years old to 60 years old; the average age is 42 years
old. The medium income for the buyer profile is about $100,000 a year, though, it is
not imperative that these car buyers must be affluent to own a vehicle that is
considered to be ‘luxury.’ In this context, luxury meaning vehicles with a price tag of
18
between about $30,000 to $45,000. Keep in mind that a large portion of luxury 21
vehicles are financed, allowing less affluent individuals the opportunity to purchase.
Also, race is not a factor that is distinguished between luxury and non-luxury car
buyers.
For psychographics, the buyer profile describes an individual with a higher
average income with more disposable income. When buying a luxury cars, these 22
individuals seek exclusivity and specialty in terms of features and vehicle
capabilities. These buyers tend to have higher expectations than the average
because they are expecting to receive a product with greater value in return for the
higher price tag. Also, the factors that affect buying decisions differ from those
purchasing non-luxury vehicles. These factors include but are not limited to:
handling, value, style, comfort, prestige, status, and visual impact.
Research shows that 40% of luxury car owners hold a professional or
managerial position in a company or business. Also, 64% of these individuals are
married. In terms of education, 42% of these individuals are college educated.
These three characteristics contribute to socioeconomic characteristics. In addition,
behavioral patterns point toward non-routine consumption. When buying a luxury
car, these buyers seek experiential and symbolic meaning behind their purchase.
Rather than purchasing a car for utilitarian need fulfillment, luxury vehicles fulfill
emotional needs sought from the buyer. Luxury seekers expect to be ‘taken care
21 Mateja, J. (1991). Demographics Spell Out Just Who Buys What Car. Retrieved from http://articles.orlandosentinel.com/19910721/features/9107130187_1_luxurycarbuyerprofilebuyingaluxury 22 Anurit, J. Newman, K. Chansarkar, B. Consumer Behavior of Luxury Automobiles. Retrieved from http://www.economicswebinstitute.org/essays/carthai.pdf
19
of.’ It is an expectation that roadside assistance be included in the package. These
individuals live busy, hectic work lives and expect convenience to be part of the
experience. Lastly, only 50% of buyers finance luxury vehicles, in contrast with the
80% of buyers who finance non-luxury vehicles.
Purchase Decision Process (U.S. industry-wide)
When buying a car, the first step is to set a list of criteria that the vehicle
must meet before it is considered for purchase based on need recognition. Then,
research is the most important step in narrowing down possibilities based on the
criteria. Research suggests that 52% of car buyers spend 10 or more hours on
research, and 79% consider three or more brands in their search for a vehicle that
fulfill their needs, whether hedonic or utilitarian. In regards to generation Y
discussed before, car reviews from independent websites, as well as family and
friend input are the most influential factors that affect the buying decision. Also, the
following are considered: manufacturer websites, news articles/media reviews,
salesperson at the dealership, and social networking websites. Next, the buyer uses
the research to evaluate alternatives. Then a purchase is made and post-purchase
behavior follows which includes the need for extended services, routine
maintenance, and convenience, everything that a buyer expects from the purchase.
The consumer considers the following factors when making an important
purchasing decision: first and foremost, cost, lifestyle/income, needs (utility vs
hedonic), driveability/experience, safety, fuel-efficiency, eco-friendly, brand
reputation, and value. And the buyer expects: convenience, routine maintenance,
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confidence in ability of dealer to repair, extended services, reliability, testability,
technology, and quality.
Macroenvironment Review
Legal and Regulatory
The North American Free Trade Agreement (NAFTA) allows U.S. car
companies to export their cars to both Canada and Mexico, broadening the scope
of the market. The Federal Motor Carrier Safety Administration (FMCSA) defines
thousands of regulations for safety performance of cars. Intellectual property is
extremely important in the automotive manufacturing industry and due to the
large workforces and abundance of trade secrets, manufacturing firms rely on
confidentiality provisions in employee handbooks and contracts. While patents
have not historically been revenue drivers, the automotive manufacturing industry
is currently the 3rd most active sector for patents with a faster growth rate than
any other industry. This is partly due to a demand for better fuel efficiency and 23
improvements in batteries for electric and hybrid cars. Manufacturers want to
ensure the legal protection of their inventions and advancements. These
advancements are emerging threats to the traditional OEM (original equipment
manufacturer) business model.
Economic
There are many economic factors that play into the vitality of the auto
industry. The general health of the economy will influence buying habits. After the
23 (2015). A Perfect Storm for Automotive Patent Disputes? Retrieved from https://www.autoindustrylawblog.com/2015/10/08/aperfectstormforautomotivepatentdisputes/
21
financial crisis of 2008, all of the carmakers in the United States showed sales
declines: GM (16%), Toyota (32%), Ford (34%), Honda (23%) . General Motors, the 24
leading American auto manufacturing firm received an economic bailout from the
federal government. Changes in the economy also affect the general population’s
disposable incomes and, consequently, the rate of purchase of new vehicles. Fuel
prices are a complementary force to the auto industry and therefore sway both car
buying and driving habits. With the rapid increase in globalization, many Western
automotive manufacturers such as General Motors, Ford, Toyota, Honda, and
Volkswagen have increased outsourcing of production to developing countries and
emerging economies in order to reduce production costs and improve profitability.
Exchange rates and taxation from outsourced materials or imported cars can also
influence prices and profits in the automotive industry. For example, the current
weakness of the Yen to the Dollar is threatening the profitability of the Japanese
Auto industry.
Social and Cultural
The automotive manufacturing industry is
reliant on social and cultural factors. Demographic
changes and shifts in fashion influence brand
popularity and market share. Brand image is a
very important factor, and how a brand is
perceived socially can be crucial. A company
24Vitale, S. (2014). Lessons Learned Since the 2008 Slowdown. Retrieved from http://www.mbafcpa.com/newsletters/2412/LessonsLearnedSincethe2008SlowdownAreYouPreparedSh.aspx
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scandal can lead to a huge loss of market share, such as when Volkswagen’s use of
hidden software deceived American regulators measuring emissions from
diesel-engined cars. The company’s shares fell by a third. As a brand that had 25
previously prided itself on trustworthiness and good public image, this was
devastating. The rapid nature of social media and word of mouth can quickly make
or break a brand’s desired image. People are writing and sharing their own reviews
and critiques more than ever, and to greater reach. Furthermore, there have been
increased social movements towards “healthier” transportation alternatives such as
walking and biking that are discouraging people from automobile reliance. Finally,
consumers are seeking more environmentally and fuel efficient options when
shopping around for a new vehicle.
Environmental
An increased awareness of global climate change in the consumer sector has
led to a shift in buying attitudes. Many consumers now consider hybrid or electric
technologies when purchasing a new car, as well as fuel efficiency and overall
company stewardship and corporate social responsibility. Many look to reduce
their carbon footprint. The U.S. Environmental Protection Agency (EPA) has
regulations for automotive manufacturers relating to waste disposal, material
alternatives, the use of metals, and importation of engines and other materials.
They also regulate fuel economy standards. Cars that are not manufactured to
meet these fuel standards receive a “Gas Guzzler” tax that is paid by the
25 (2015). A Mucky Business. Retrieved from http://www.economist.com/news/briefing/21667918systematicfraudworldsbiggestcarmakerthreatensengulfentireindustryand
23
manufacturer and collected by the IRS. The U.S. department of Energy offers 26
federal incentives and funding opportunities for alternative fuels and vehicles, as
well as air pollution reduction. In 2009 they designated $25 billion in loans to
encourage the development of advanced technology manufacturing capacity for
fuel-efficient and battery vehicles in the U.S. 27
Technological
In the technological environment, there is an ongoing shift towards
robotization in the manufacturing plants. As previously stated, pressure from both
the government and consumers for energy efficiency is changing the landscape of
traditional automobile manufacturing, as firms explore the utilization of alternative
fuels and materials. There is currently a race amongst leading firms towards the
world’s first (roadsafe) self-driving vehicle. E-commerce has drastically changed the
nature of the auto industry, as shoppers can compare prices and features in a
matter of clicks, and even purchase a vehicle online. The internet has also enabled
vast databases of vehicle research and reviews, allowing potential customers to
forgo the traditional shopping and buying process and avoid interaction with car
dealers.
Tesla, Inc. Firm Analysis
In Silicon Valley, California, in 2003, engineers Martin Eberhard and Marc
Tarpenning dreamed up an electric car that would be more efficient than any
26 Automative Sector Laws from the Environmental Protection Agency, retrieved from http://www.epa.gov/regulatoryinformationsector/automotivesectorsnaics3364231811 27 Alternative Fuels Data Center. Retrieved from http://www.afdc.energy.gov/laws/fed_summary
24
gas-powered car. With the addition of being incredibly cool, with instant torque, 28
high power and zero emissions. Tesla was born. The name is homage to Nikola
Tesla, the inventor who designed the AC induction motor, around which the Tesla
vehicles are designed. Tesla motors are found in over thirty countries worldwide,
and there are more than 50,000 vehicles on the road altogether . 29
Elon Musk became the
company’s chairman of the board in
2004, when he led Tesla’s Series A
financing round with 7.5 million
dollars. He invested $13 million
more in 2005, and the company
raised $40 million Series C in 2007. The company signed a contract with Lotus to 30
produce what would become the Tesla Roadster. Eberhard served as CEO until a
serious lack of funds encouraged a need for new leadership. At the close of 2007,
Ze’ev Drori, a well-known executive and entrepreneur became CEO. The company
proved profitable, but Musk took over the reins in 2008, as he had invested more
than $70 million of his own funds in the company and wanted to influence its
direction. Musk continues to serve as Tesla’s CEO. On June 29, 2010, Tesla went 31
28 Burns, Escher, et. al. “A Brief History of Tesla”. Retrieved from http://techcrunch.com/gallery/abriefhistoryoftesla 29 https://www.teslamotors.com/about 30 Burns, Escher, et. al. “A Brief History of Tesla”. Retrieved from http://techcrunch.com/gallery/abriefhistoryoftesla/ 31Byrne, L. Maryland Electric Vehicles. http://marylandev.org/abriefhistoryoftesla/
25
public, the first American car company to do so since Ford in 1956. The Initial Public
Offering raised $226 million. 32
In 2014, Musk introduced a brand extension, ‘Tesla Energy’, unveiling the
“powerwall home battery”, a large battery for storing solar energy. The concept of
the line is to discourage the world’s dependence on grid energy in favor of solar
energy.
Tesla’s vehicles are produced at their factory in Fremont, California, which
has the capacity to make 1,000 cars a week.
Currently, the company employs 10,161
people. Tesla also owns an assembly 33
factory in the Netherlands and a specialized
production plant in Lathrop, California. The
production of the upcoming
Model 3 will occur in a gigafactory in
Nevada, with strategic partners including
Panasonic. Tesla’s retail model is one of 34
a kind, as it operates showrooms, known
as “galleries” (typically in shopping malls)
in 22 U.S. states, typically states with more
restrictive dealership protection laws. Here, potential 35
32 Squatriglia, C. “Tesla IPO Raises $226.1M, Stock Surges 41 Percent”. Retrieved from Wired.com 33 Tesla Motors, Inc. (TSLA) Company Profile. Retrieved from Yahoo! Finance at yahoo.com 34 Tesla Gigafactory. Tesla Motors. Retrieved from Teslamotors.com 35 About Tesla Tesla Motors. Retrieved from www.teslamotors.com
26
customers are able to view and learn about the product, but cannot purchase
vehicles from the showroom. Purchases are only allowed through the company
website, Tesla.com, and there is usually a substantial waitlist. Tesla differentiates
itself from the standard U.S. dealership model by owning its own stores and service
centers, and utilizing the practice of direct customer sales, which has been highly
debated but was endorsed by the Federal Trade Commission in May, 2015 . 36
Tesla’s mission is to accelerate the world’s transition to sustainable transport,
and this is reflected in everything they do. 37
Tesla’s Primary Product and Services
Tesla has supported their mission by creating a line of electric cars with
incredible engine power and a sporty, luxurious look that have all exceeded the
expectations of consumers. Some of the more well-known and prominent car
models include the Roadster, Model S and Model X.
Tesla Roadster
In 2008 the company developed this
powerful sports car that set a new standard
for powerful electric cars. It could accelerate
from 0 to 60 mph in less than four seconds
and could travel approximately 245 miles
with just one charge of its battery. More than 2,400 Roadsters were sold and it now
runs in 30 different countries.
36 Federal Trade Comission. Feinstein, Lao, et. al, “Direst to Soncumer Auto Sales” https://www.ftc.gov/newsevents/blogs/competitionmatters/2015/05/directconsumerautosalesitsnotjustabouttesla 37 About Tesla Tesla Motors. Retrieved from www.teslamotors.com
27
Model S
In 2012 Tesla unveiled their Model S vehicle, the first ever premium and one
hundred percent electric sedan. It combines the feel of a luxurious sports car with
the capacity of a family car. It can reach acceleration from 0 to 60 mph in just
about five seconds and also has the feature of two back row seats (the ability to
carry seven passengers in total). The
Model S can travel approximately 265
miles per charge of its battery. Tesla’s
Model S received Motor Trend’s 2013
Car of the Year award and was also given
a five-star safety rating by the U.S.
National Highway Traffic Safety Administration. 38
Model S Improvements
While it was not a development of an entirely new model, the improvements
upon the Model S are very significant. They developed the 85D and the P85, two
configurations of the already existing model. The 85D now has a high efficiency
motor at both the front and back end of the car, which gives it extremely high levels
of traction in all driving conditions. The acceleration on this model is approximately
4.2 seconds from 0 to 60 mph. The P85 is slightly different in the fact that it has a
high efficiency motor in the front, but a performance motor on the back end to give
38 About Tesla Tesla Motors. Retrieved January 27, 2016 from www.teslamotors.com
28
the car an acceleration time of approximately 2.8 seconds from 0 to 60 mph. This
P85 model is the fastest four-door production car ever created.1
A unique feature within the Model S is the autopilot feature, which allows the
vehicle to steer and change lanes on its own with just the tap of a turn signal. It can
also scan for a parking space and let you know when one has become available,
and can even parallel park when you tell it to.
Model X
Model X is a slight improvement
on Model S in its acceleration. The
battery allows for the vehicle to travel
257 miles on one battery charge and also
has an acceleration from 0 to 60 mph in
3.2 seconds. This model also has a “safety first” design. The floor-mounted battery,
which is in place in several other Tesla models as well, guarantees a low center of
gravity for the vehicle. This takes the risk of rollover down by approximately 50%
compared to other similar vehicles of different companies.1 The lack of gasoline
engine in the front also allows for a larger crumple zone in the case of a collision in
that area. Other safety features include the camera, radar and sonar systems to
provide accurate and real-time feedback of the surrounding roadway for the driver.
This model is also designed to automatically apply brakes in an emergency
situation. The physical design includes the falcon wings feature that gives it both a
29
very luxurious look and also much easier access for getting into either of the two
back row seats.
Other important services that Tesla offers are the supercharger and
powerwall. Superchargers are free charging stations that allow your Model S to
charge within minutes instead of hours. In an effort to minimize stops in long
distance travelling, they are conveniently placed in locations that are considered
hotspots. You can check the Model S app on your smartphone to see the
progression of charging on your car. The powerwall is an at-home battery charger
that obtains its energy from solar panels, and can be used to power your home.
Currently, Tesla is working on their Version 7.1 software (an update from
their 7.0 software) for the Model S or Model X that will allow the vehicle to reach a
level that has not yet been reached by anyone. This software will introduce the
“summon” technology, which will allow your car to do things like open your garage
door, enter and park itself and then shut itself down, even when you are not in the
car. Eventually the car will even be able to drive anywhere across the country, while
charging itself along the way, and will sync with your calendar so that it can arrive
30
exactly on the date that you want it to. Tesla and this software will take the concept
of self-driving cars to the highest level.1
Current Goals and Objectives
Tesla CEO, Elon Musk, claims that Tesla Motors had the same goal for the
past 10 years which is to bring sustainable transportation to the masses by
speeding up the arrival of electric cars, encouraging the adoption of this type of
vehicle by the masses . Tesla has built itself up to be a luxury car manufacturer 39
that delivers quality product for consumers. In the beginning, Tesla’s target market
was very affluent individuals seeking luxury, while at the same time seeking
environmentally friendly alternatives that still preserved that of a prestige vehicle.
As the price has dropped over the years from $101,500 for the Roadster to between
$69,900 to 79,900 for the Model S and comparable Model X, down to a very
affordable $35,000 in 2017 with the newest model 3. It has opened doors to
consumers that would have never thought they could afford the prestige of Tesla.
This was all formulated to bring sustainable transportation to the masses as
mentioned from the beginning, over a decade ago. In summation, Tesla’s objective
was to establish market growth by introducing a segment of never-before-seen
vehicle that would better the world, and not just compete for market share of the
industry. Tesla cars were luxury priced due to high innovation and production costs,
not because they ultimately wanted to compete in the luxury car market segment.
39 Musk, E. (2013, November 18). The Mission of Tesla [Web log post]. Retrieved January 27, 2016, from https://www.teslamotors.com/blog/missiontesla
31
In recent years, however, Tesla has come under fire for claims against the
company for producing dangerous vehicles prone to catching fire. National
headlines accused the Model S of igniting in reaction to roadway collisions, casting
a spotlight on Tesla and the firm’s disregard for public safety. However, the media
failed to mention that gasoline fires account for the majority of fiery collisions on
roadways today. Now, it is Tesla Motors present goal to disprove myths about their
electric vehicles’ safety. Elon musk assures the public that it is more likely for an
individual to be struck by lightning in one’s lifetime than find one’s self in a Tesla
crash fire. He reitterates that Tesla Motors is more greatly concerned about driver
and passenger safety than damaged product because car parts can be replaced,
human lives cannot. Research show that the Model S has the lowest probability of
injury of any car on the roads today, tested by the United States government. In the
race to salvage Tesla’s product quality reputation, as well as build a reputation for
being exceedingly safe, the company is taking action.
Steps are being take to disprove misconceptions about product safety,
influenced by disproportionate media coverage. The objective here is gain the trust
of the public again. Musk has devised a three action plan to gain consumer
confidence in Tesla. First off, the company is modifying its car warranty to cover all
damage due to fire. Secondly, the National Highway traffic Safety Administration
has been approached to conduct a full investigation into fire incidents and why they
could be occurring. And lastly, the company is announcing an updated
air-suspension feature that will improve ground clearance, reducing the possibility
32
of damage to the undercarriage of the vehicles. Elon Musk is hoping these swift
actions will prove to consumers that Tesla is addressing the issues and making the
appropriate changes.
Past Product Strategies to Current Product Strategies
Tesla Motors began with a focus on selling a sports car that is not only a
luxury product, but also an environmentally friendly alternative to other sports car
on the market. The first ever car model, the roadster, was priced high to compete
on the same level as other competitive luxury car brands, but differentiated itself
with the electric engine. This was an exclusive product preserved for the exclusive
consumer. Also, When the company was young it did not have the economies of
scale to produce a product with a lower price tag due to the demanding
technological innovations that cost the company large amounts of capital to
support. And sleek design and cutting edge features attributed to higher prices. The
higher the price, the more elite the product in the mind of the consumer. The
strategy at this point in Tesla’s history was to gain market share of the luxury
automobile market, positioning the company in the minds of consumers as a brand
comprised of a prestigious line of electric cars that compete alongside BMW,
Ferrari, Lexus, etc.
This starting point aligned with Tesla’s end goal of bringing sustainable
transportation to the masses because the roadster hit the market to target affluent
individuals who also cared about the environment. This solved a problem for this
very specific type of consumer. The plan was to dominate this niche market, and
33
then to move on to adjacent markets to ultimately implement Tesla’s market
growth strategy. The earlier strategy was aimed at establishing the brand in the
mind of consumers, building Tesla’s brand reputation to ensure that its products
were to be known as elite, quality, and luxury. This beachhead audience was a
reference group for other consumers to consider shopping with Tesla. The
Roadster offered no compromises and was a whole problem solution. The market
was focused and small, making it easier to solve the problem. Tesla created the
Roaster to relieve the pain that affluent individuals concerned with environmental
issues felt in the current market place.
Now that the company has
established the attention and involvement
of its beachhead, the next step was to
create the Model S, a vehicle lower in price
that was more obtainable for a greater
majority of consumers, making a slow
creep into the mass market. The Roadster
was used as a reference for the Model S.
Next, the Model X premiered as a sedan
version of Model S with a similar price tag. Now the Model S and X are referencing
the newest model to hit the market, the Model 3. The Model 3 is the least expensive
vehicle with a price tag of $35,000 that will soon be marketed to the masses. Unlike
the Roadster, this was created to be more of an inclusive product. The current
34
strategy of offering an elite product at an affordable price, while reserving brand
reputation and product quality, will bring Tesla closer and closer to actualizing its
goal of delivering sustainable transportation to the masses. Tesla’s goal all along
was to produce increasingly affordable cars for mainstream buyers
At this point in the game, it is important for Tesla to preserve the prestige of
the brand name while at the same time retaining customer relationships with the
original beachhead audience. Tesla Motors is creating a differentiation advantage
by building the brand image to stand for more than just expensive cars in the mind
of a large variety of consumers, ultimately producing qualitative results that
resonate with every type of consumer, affluent or average. This is greatly raising the
consumers’ willingness to pay because the brand ensures quality and prestige, but
now at relatively low costs to the average consumer. The willingness to pay will far
exceed the $35,000 Model 3 price tag and this will generate great revenues for
Tesla.
Also, Tesla has specified characteristics that make it an exclusive product no
matter the cost. First, there is no inventory and these cars are built to order.
Secondly, there is no negotiation on the price of their vehicles. Thirdly, transactions
are conducted online. Customers have to wait long periods of time before they can
get their hands on a custom made Tesla vehicle, contributing to the overall prestige
aesthetic. It has not yet been determined if the much cheaper Model 3 will follow
the same guidelines.
35
Tesla’s Current Performance
Sales
Tesla’s sales, as marked on its 2015 annual report, was 3.198 billion dollars , 40
which is an increase from 2014, in which the company earned 2.01 billion dollars in
revenue. 41
Market Share
Tesla has the greatest market share in the US electric car industry, with
31.57%, as of February of 2015. As displayed in the graph below, Nissan is just
behind Tesla with 27.01% market share, and BMW with 24.55%. 42
Market Share Growth
Tesla’s market share growth has lessened since 2014 due to the arrival of
BMW’s new electric model, the BMW i3. The graphs below compare market share in
the electric car industry in 2014 and 2015. In 2014, Tesla and Nissan were neck and
neck, each with 42% market share. However, because Tesla competes in the luxury
electric car industry, Nissan isn’t much of a competitor for Tesla. But once BMW’s
electric model hit the market in 2015, Tesla’s market share dropped to 31.57%,
which is a 25% decrease. BMW has 24.55% market share, making it Tesla’s top
competitor within the luxury electric car industry. 43
40 December 2014 Dashboard HybridCars.com. (2015, January 06). Retrieved January 27, 2016, from http://www.hybridcars.com/december2014dashboard/ 41 Tesla Motors Annual Report. (2014, February 26). Retrieved January 27, 2016, from http://ir.teslamotors.com/secfiling.cfm?filingid=11931251469681 42 February 2015 Dashboard HybridCars.com. (2015, March 04). Retrieved January 27, 2016, from http://www.hybridcars.com/february2015dashboard/ 43 February 2014 Dashboard HybridCars.com. (2014, March 04). Retrieved January 27, 2016, from http://www.hybridcars.com/february2014dashboard/
36
Profitability
Tesla’s profitability, as marked on its 2015 annual report, was actually a net
loss of 2.94 million dollars. The loss is mainly a result of the 1.86 million dollar loss
from operations. The explanation for this huge loss is most likely a result of all the 44
funds going towards the development of the Tesla Model X and the Tesla Model III,
which should be hitting the market this year. Either Tesla needs to increase its
revenues or decrease its costs in order to break even. However, with the new Tesla
models arriving to the market this year, it’s likely the revenues for Tesla will
increase greatly, lowering its net loss.
44 December 2014 Dashboard HybridCars.com. (2015, January 06). Retrieved January 27, 2016, from http://www.hybridcars.com/december2014dashboard/
37
Tesla SWOT Analysis
Strengths
Industry leader: Tesla developed the first fully electric car in 2008. The car
was named The Roadster and it was the first highway-capable all-electric vehicle in
mass production for sale in the United States. Tesla was first to mass-produce
electric vehicles, and continues to produce them with the longest range of any
other electric vehicle. Currently with the highest market share in the electric car
industry, Tesla has maintained its spot as a leader in the luxury electric car industry.
Innovative technology: Tesla doesn’t just sell electric cars, it sells
technology, and Tesla has some of the greatest engineers working on its products.
In May of 2015, Tesla launched a new business called Tesla Energy, and introduced
38
a wall-mounted, solar-charged battery for home power use called the Powerwall.
The invention is intended to help wean the world off fossil fuels. Additionally, 45
Tesla doesn’t just build electric cars, it also builds the infrastructure to support
these vehicles, including superchargers, battery swap stations and service stations.
It’s clear that Tesla’s innovative design is helping advance the world and prepare for
the future.
Narrow focus: Another strength of Tesla is its narrow focus. Tesla focuses
on a specific niche market, which is customers who care about innovative and
sustainable technology, and designs products to satisfy that specific market.
Instead of trying to satisfy everyone, Tesla satisfies the specific needs of one niche
market, and ultimately, this has proved to be the most profitable for the business,
and gives it a competitive advantage over competitors.
Brand Image: As stated on its company blog, Tesla’s mission is to accelerate
the advent of sustainable transport by bringing compelling mass market electric
cars to market as soon as possible. In other words, with Elon Musk as CEO, Tesla is
about more than just making cool cars. Tesla has a very firm focus, and that is to
change the world. Tesla’s mission to change the world is a main differentiator,
which gives it a positive brand image among consumers. Ultimately, this incredible
brand image that Tesla has created from scratch is one of its greatest strengths.
Tesla’s mission extends beyond making cars, and this clearly resonates among
45 Tesla Motors Inc.'s $3,000 Powerwall Is Available This Summer The Motley Fool. (2015, May 4). Retrieved January 27, 2016, from http://www.fool.com/investing/general/2015/05/04/teslamotorsincs3000powerwallisavailablethis.aspx
39
consumers. Tesla has created a large buzz, and as an example, the brand ranked
above any other luxury brand in Consumer Reports magazine’s measurement of
“brand perceptions”. 46
Weaknesses
Late product delivery: So far, Tesla has put only two products out on the
market: the Roadster and the Tesla Model S. A newer model, the Tesla Model X, was
scheduled to hit the market in 2013, but it kept getting delayed; now it’s 2016 and
it's still not out yet. All though the delays may be necessary for creating the best
possible product, Tesla has been restricted from hitting their quarterly numbers,
and this is displeasing to shareholders. 47
Limited profits: Because Tesla develops all of its cars in-house, including
their sub-assemblies, this leads to a higher cost of production. As a result,
economies of scale are not achieved. In addition, all though the Tesla S has a
starting price of $69,900, the company is actually losing $4,000 on every car
produced. With great innovation comes a high cost, and Tesla’s lack of cash flow 48
has been ultimately displeasing in the eyes of the company’s shareholders.
46 Davis, S. (2014, February 24). Tesla, Tesla, Tesla: Building A Power Brand From Scratch. Retrieved January 27, 2016, from http://www.forbes.com/sites/scottdavis/2014/02/24/teslateslateslabuildingapowerbrandfromscratch/#260d7aa61494 47 Tesla Motors – SWOT analysis. (2015, December 05). Retrieved January 27, 2016, from http://blog.cayenneapps.com/2015/05/12/teslamotorsswotanalysis/ 48 Tesla loses HOW MUCH on every car sold?! (2015, August 10). Retrieved January 27, 2016, from http://www.cnbc.com/2015/08/10/teslaburnscashlosesmorethan4000oneverycarsold.html
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Opportunities
Growing need for electric vehicles: It's no mystery that the earth is running
out of fossil fuels. It’s estimated that sometime in the 21st century the world will
run out of oil, and people will be forced to turn to other ways to run their vehicles. 49
For this reason, electric cars will become increasingly popular, and this is illustrated
in the graph below. In the last five years alone, the amount of electric car owners 50
has increased by 400,000. Tesla is in a good market that is expected to grow
substantially in the years to come.
49 When Will We Run Out Of Oil, And What Happens Then? (2010, April 21). Retrieved January 27, 2016, from http://science.howstuffworks.com/environmental/energy/runoutofoil.htm 50 Electric Drive Transportation Association (EDTA) (January 2016). "Electric Drive Sales Dashboard". EDTA. Retrieved20160121. Sales figures sourced from HybridCars.com and direct reports submitted by EDTA member companies
41
Battery technology can be used in other areas: Tesla has some of the
greatest battery technology in the world. This is a huge opportunity for them to
apply that technology to other areas of business. As mentioned earlier, Tesla
launched a new business called Tesla Energy this last May. The company itself, as
well as their investors, have put in roughly five billion dollars into setting up Tesla’s
new battery plant called the Gigafactory. One of its inventions was the Powerwall, 51
which powers homes using electricity generated by solar panels. Tesla already 52
seems to be taking advantage of this opportunity, which is to use their battery
technology in other areas, other than their electric vehicles. As the world must use
less and less fuels, it is predicted that battery technology will become increasingly
popular, and this is a huge market opportunity for Tesla.
Threats
Increasing competition: Many other car manufacturers, including BMW,
Nissan and Toyota, have invested in developing electric and hybrid vehicles.
However, because Tesla competes in the luxury car industry, its main competitor is
really only BMW. Based on a market share analysis that was created in February of
2015, Tesla currently holds 31.57% market share while BMW holds 24.55%.
Although Tesla is clearly the leader in the industry, BMW is a strong contender. As
51 Elon Musk explains why he is so confident Tesla's batteries are the future. (2015, November 10). Retrieved January 27, 2016, from http://www.techinsider.io/elonmuskonteslasbatteryadvantage201511 52 Powerwall. (n.d.). Retrieved January 27, 2016, from https://www.teslamotors.com/powerwall
42
time progresses, more and more manufacturers will enter the luxury electric car
industry, and Tesla will have to fight to keep their position as a leader. 53
Electric vehicle accidents: The lithium batteries used inside Tesla vehicles
have been notorious for catching fire after the vehicle runs into an object, There
were three incidents back in the fall 2013, which resulted in viral videos and
pictures spread all over the internet. Tesla is not the only company with this
problem, other electric car manufacturers, such as Chevrolet and Fisker, have
produced cars that have had collision related fires. All though the number of 54
electric cars catching fire is still relatively low, the bad word of mouth scares many
consumers away from wanting to purchase
any type of electric car. As safety is a top
concern for most car buyers, the market for
electric cars may be negatively affected by
the few fire incidents, and this is a threat to
Tesla’s business.
Current Life Cycle Stage for Model 3
Introduction Stage
The Tesla Model 3 is clearly in the introduction stage due to the fact that the
car model has not even been introduced to the market yet. The plan is for the
53 December 2014 Dashboard HybridCars.com. (2015, January 06). Retrieved January 27, 2016, from http://www.hybridcars.com/december2014dashboard/ 54 UPDATE: Early Data Suggests CollisionCaused Fires are More Frequent in the Tesla Model S than Conventional Cars | MIT Technology Review. (2013, November 21). Retrieved January 27, 2016, from http://www.technologyreview.com/view/521916/updateearlydatasuggestscollisioncausedfiresaremorefrequentintheteslamodels/
43
Model 3 to be shown in March of this year, alongside the Chevrolet Bolt (a car with
similar specs to the Model 3). Tesla will then begin selling it sometime next year in
2017. It will also compete with the BMW 3 series which is also set to be released
sometime next year. Khobi Brooklyn, a spokeswoman for Tesla, claims that the 55
Model 3 is right on schedule with this plan. 56
Model 3 Specs
The mileage range for the Model 3 is expected to be somewhere close to 200
miles in one battery charge. While this may seem significantly less than previous
Tesla car models, one must keep in mind that the price of the car itself is
significantly less expensive than the other luxury models, at a price of
approximately $35,000. This cost is approximately half of Model S standard. With
all of the supercharge stations that are being placed in more locations, the range of
the car becomes a slightly less important feature. It will be about 20% smaller 57
than the Model S, which puts it at about the same size as the BMW 3 series. 58
In the past, Tesla has not been completely reliable with its expected release
dates. For example, the Model X was scheduled for production at the end of 2014,
but it did not actually happen until late in 2015. If Tesla manages to stay on track
with timing on the release of the Model 3, it should be able to achieve a leading
55 Confirmed: The $35,000 Tesla Model III Will Be Unveiled in March 2016. Retrieved January 27, 2016 from http://www.popularmechanics.com/cars/a12983/35000teslamodeliiicomingin2017/ 56 Cobb, J. (2016, January 7). Tesla Says Model 3 Will Be On Sale 2017 Alongside Chevy Bolt. Retrieved January 27, 2016 from http://www.hybridcars.com/teslasaysmodel3willbeonsale2017alongsidechevybolt/ 57 Branman, M. (2015, June 13). Tesla’s Model 3 Will Boast A 200Mile Or Greater Range, Cost $35,000. Retrieved January 27, 2016 from http://www.digitaltrends.com/cars/teslamodel3performancespecsnewsrumors/ 58 Tesla Model 3 Road Test. Retrieved January 27, 2016 from http://www.consumerreports.org/cro/teslamodel3roadtest.htm
44
position in the industry for the type of car that it is selling, especially given the fact
that the similar Chevrolet Bolt will be sold at a higher price than the Model 3 of
$38,000.19
Current Brand Strategy
Elon Musk wanted to change the world, and he is doing that with Tesla. He
decided that he wanted to get rid of the dirty, gas guzzling motor vehicles and
instead introduce a revolutionary, clean, all electric
sports car. Musk wrote in a blog post from Tesla that
“the master plan is [to] build a sports car, use that
money to build an affordable car, use that money to
build an even more affordable car; while doing
above, also provide zero emission electric power
generation options.” Tesla’s brand strategy initially 59
was to disrupt the market with this innovative technology. Musk wanted the world
to see that an energy efficient car could indeed out race a fuel based Ferrari or
Porsche. Once the naysayers were quieted and chatter about this credible
technology grew, then they would take the market by expanding into affordable
vehicles.
Tesla is founded upon a mission to eradicate the dependence on fossil fuels
and emerge into a sustainable world. Tesla lives and breathes this mission. They
don’t hire talented engineers to their company. Instead, they find brilliant
59 Musk, E. (2006, August 2). The Secret Tesla Motors Master Plan (just between you and me). Retrieved January 26, 2016, from https://www.teslamotors.com/blog/secretteslamotorsmasterplanjustbetweenyouandme
45
innovators who aren’t afraid of shaking things up and contributing to their mission.
This mission is key to understanding the brand strategy at Tesla. The online
communities they have built are dedicated to increasing the user experience and
understanding of this innovative technology. Not only are user forums being
implemented, but Elon Musk himself will personally update his Twitter followers on
the daily happenings at Tesla. 60
Another brand differentiator is the way Tesla is selling their luxury vehicles.
Each car is customizable and created on demand, no negotiation on price and
without the easy accessibility to test drive. With this strategy they are again living
the mission of not producing waste. They are only supplying what is in demand.
This also creates a sense of exclusivity, as well as, assurance that the product they
are receiving is of the utmost quality.
Musk himself adds brand equity to the company as well. Through his
successful incorporation of his other companies, SpaceX and SolarCity he is
reinforcing his belief to “help expedite the move from a mine-and-burn
hydrocarbon economy towards a solar electric economy.”28 The mission at Tesla is
one that many other car companies cannot compete with. The passion and
dedication by Musk and the Tesla company is clear in every step that they take.
Core Competencies of Tesla Motors, Inc.
As a car company, Tesla’s core competencies are primarily technology based.
The two significant competencies are the powertrain and vehicle engineering.
60 Hull, D., & Delevett, P. (2013). 2013: Tesla's media strategy: Build a brand without spending on advertising. Retrieved January 26, 2016, from http://www.mercurynews.com/business/ci_22976857/teslasmediastrategybuildbrandwithoutspendingadvertising
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Tesla’s electric powertrain consists of the battery pack, power electronics, motor,
gearbox and the control software. The exceptionally well-designed control
software allows all of the previously mentioned components to function together
the way that they do. The powertrain is also uniquely compact and contains fewer
moving parts than the internal combustion powertrain that would be part of a
gas-powered car. Each of these technological elements were designed for the Tesla
Roadster and the Model S and are incorporated into the Model X, which is just
recently being produced. The powertrain has a modular design, which will allow for
future models of Tesla cars to easily replicate the majority of the technology. Tesla 61
also uses this same technology in the powertrain components that they
manufacture for other companies as well.
Components of the Powertrain
Battery pack: In general, the battery packs are designed to store tons of
energy and to have a long life, and they have managed to produce them at a
relatively low cost. An example is the battery pack for the Tesla Roadster, which can
store 53 kilowatt hours of energy and will last for over 100,000 miles (or around
seven years).1 Tesla claims to have great expertise in the safety and management
systems that are needed to work with the lithium-ion cells that are used in the
creation of an electric car. They have an internal battery cell testing lab and a great
performance database of several lithium-ion cell vendors and chemistry types.1 The
extensive knowledge and information that Tesla has at their disposal allows them
61 Tesla Motors Annual Report. Retrieved on February 2nd, 2016 from http://ir.teslamotors.com/secfiling.cfm?filingid=11931251396241&cik=
47
to choose the battery cells that provide the best performance. The battery pack that
Tesla uses has great flexibility, which allows them to constantly adapt to the
improving technology in the types of batteries they use.
Power electronics: The power electronics has two main functions. The first
is controlling the power connection from the motor to the tires, and the second is
charging the car’s battery. The charging capability is unique and provides great
flexibility for customers in the sense that Tesla batteries can be charged from a
wide range of outlets with different amps and wattages.
Motor: Tesla powertrains use three-phase induction motors. Unique
features within these motors include a copper rotor design and “optimized winding
patterns that allow for easy manufacture and fit in as much copper as possible to
reduce resistance and energy loss”.1
Gearbox: The most unique feature of the gearbox, compared to a
gasoline-powered car, is the elimination of gear changes which gives the car a
smoother and faster acceleration.
Control software: All of the high quality and uniquely manufactured
components of the powertrain require a software that is of equal quality. Tesla
vehicles contain a great number of processors and they create custom firmware for
these processors. The software also contains complex algorithms that help produce
the tight control needed for much of the car features to function.
48
Vehicle Engineering
The ability for Tesla to produce a lot of the necessary components for their
cars within their own facilities gives them the ability to be consistent and successful
in their design. For the most part they design and create the bodies, chassis,
interiors and heating/cooling systems in-house. Their high functioning computer
programs for design and crash-testing are expected to continue to reduce the
development time for new, future car models.1 Another important component of
the vehicle engineering is the Tesla employees’ vast knowledge of the best way to
use lightweight materials in their cars. This is an important feature of electric cars
that affects their ability to travel longer distances on a given battery charge.
Cost Advantage
Tesla’s business plan is centered around a differentiation advantage rather
than a cost advantage, but that is not to say that Tesla does not utilize cost
advantage in some areas of its business plan. Elon Musk assures there is strategic
planning behind the non-traditional
dealership model that represents the
Tesla brand. In terms of a cost
advantage, Musk acknowledges that
Tesla could save large sums of money
on production costs and could easily
gain widespread distribution; however, that is not the brand focus. To reiterate the
mission of Tesla motors, the company aims to bring sustainable transportation to
49
the masses. The company is focused on advancing the knowledge of electric cars 62
in an easily accessible, convenient, “no pressure environment.” To fulfill this fantasy,
96 small showrooms/kiosks were built to inform the public about the future of
automobiles. Also, Tesla sales personnel are very knowledgeable on the topic of
electric vehicles, not just Tesla vehicles; this aligns with its mission statement.
Variable Cost Advantage
In the area of variable costs, there are advantages and disadvantages to the
Tesla cost model. First off, one of the major disadvantages that it faces is from the
made-to-order structure of production. The small quantities of production, coupled
with an extensive assembly time, majorly raises the costs to produce one unit
opposed to mass producing a large number of units in a more timely manner,
drastically decreasing the cost per unit. When the Model 3 comes out it will offer
the opportunity for greater economies of scale, decreasing a major component of
variable costs. Also, due to the specialized fashion of production and part
replacement, consumers have expressed concern for high repair costs, but that is
just an extra component to consider, unrelated to variable cost. On the other hand,
however, Tesla saves money in the area of inventory because their vehicles are
made to order. Also, sales personnel are fully salaried, saving the company money
on variable commission payouts to its sales team. The strengths in Tesla’s variable
cost advantage are easily duplicated by competitors, however, other vehicle
franchises operate in an industry standard that is profitable for their business
62 Musk, E. (2012, October 22). Blog: The Tesla Approach to Distributing and Servicing Cars. Retrieved February 02, 2016, from https://www.teslamotors.com/blog/teslaapproachdistributingandservicingcars
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plans. With the introduction of the Model 3, it is not easy for Tesla to sustain
made-to-order products, along with no sales commission for sales personnel
considering the flood of consumers that will walk into a Tesla store come time of
the Model 3 release.
Marketing Cost Advantage
In comparison to other car manufacturers in the industry, Tesla spends close
to nothing on advertising. In fact, Tesla’s lacks a CMO, and its in house marketing
consists of only seven people. However,
this does not mean this firm has no
marketing strategy whatsoever. Tesla
relies heavily on earned media, which
circulates from the content posted on its
owned media channels and from
customer testimonials. Tesla’s
management stated, "Importantly, we
are seeing orders in a particular region
increase proportionate to the number of deliveries, which means that customers
are selling other customers on the car." Elon Musk knows how to create a huge 63
buzz within the media, and ultimately, this is one of the main forms of marketing
Tesla benefits from, and best of all, they don’t have to pay for it. An example of an
ad developed in house for Tesla’s website that was used to generate word of mouth
63 Sparks, D. (2013, December 14). Tesla's WordofMouth Advantage. Retrieved February 04, 2016, from http://www.fool.com/investing/general/2013/12/14/teslaswordofmouthadvantage.aspx
51
is displayed to the right. In addition to the low costs spend on advertising, Tesla
strategically places its stores and gallery locations in areas with high foot traffic and
high visibility retail venues. Locations that you might find a Tesla gallery are at malls
or shopping streets where Tesla product specialists can readily answer questions
and interact with potential customers. While this isn’t targeting a highly specific
audience of electric or luxury car patrons, placing a Tesla shop in an area that will
maximize the amount of eyeballs is a strategic maneuver that provides a lot of
exposure for the business, and it saves it plenty of money in advertising costs. 64
Tesla’s cost advantage of spending little on marketing is sustainable, and this is
because it is difficult for competitors to imitate this strategy. The reason why Tesla
is able to get away with doing no advertising is because of the incredible WOM the
firm generates. Other businesses fail to create the same buzz that Tesla has been
able to achieve, therefore they must allocate large sums of money towards
advertising.
Operating Cost Advantage
Tesla has always manufactured its cars in house. Because this procedure is
very costly, Tesla has suffered a cost disadvantage, as many other car
manufacturers outsource different components of the value chain to save costs.
However, CEO Elon Musk announced that the business will begin outsourcing to
China. Tesla will manufacture the model III in China for the Chinese market, and it is
estimated that this will cut costs by 30 percent. Therefore, in the next couple years,
64 Sparks, D. (2013, December 14). Tesla's WordofMouth Advantage. Retrieved February 04, 2016, from http://www.fool.com/investing/general/2013/12/14/teslaswordofmouthadvantage.aspx
52
Tesla’s plans of outsourcing to China will provide the firm with an operating cost
advantage. Another aspect of operating cost advantage that Tesla has is the 65
economies of learning. Because Tesla has been producing its technology in house
for so long, this has improved its dexterity, work flow, and overall contributed to
the innovation of its lithium battery technology. In fact, Tesla is able to use the
technology of the lithium battery developed in house for its Powerwall battery,
which is a battery designed for households. Lastly, Tesla’s new gigafactory,
designed to build battery technology for the new models, is another example of
Tesla employing an operating cost advantage through vertical integration. The firm
hopes that by taking over the battery end of the business it will reduce the per kWh
cost of its power sources by more than 30 percent, as well as give Tesla the
capability to expedite the development of the advanced battery technology. 66
Overall, Tesla’s outsourcing to China is easily imitable, and this is something many
other car manufacturers do, so this is not a sustainable operating cost advantage.
However, the benefits that Tesla’s gigafactory will provide the business is
sustainable because other firms don’t have access to the same battery technology
as Tesla, and it is costly to vertically integrate.
Differentiation Advantage
Tesla has a great differentiation advantage. They live and breathe their
mission of sustainable technologies. There are no other automotive companies that
65 King, D. (2015, October 25). Tesla will build China's Model 3 in China. Retrieved February 05, 2016, from http://www.autoblog.com/2015/10/25/teslabuildmodel3china/ 66 Plummer, Q. (2015, May 04). Tesla's New Battery Technology Powerwall: Here's Why It's A Big Deal. Retrieved February 05, 2016, from http://www.techtimes.com/articles/50379/20150504/teslasnewbatterytechnologypowerwallhereswhyitsabigdeal.htm
53
are 100% dedicated to “accelerate the advent of sustainable transport by bringing
compelling mass market electric cars to market as soon as possible.” Due to 67
movement in society toward becoming eco-friendly, more competitors will begin
imitating the Tesla mission. Though not many will be able to compete with this
differentiation. Tesla is already beginning the strategy of Preemption, covering all
the bases regarding price ranges with their newer models X and III.
Elon Musk is also a differentiation advantage for Tesla. He has created a
community around these innovative sustainable technologies. His passion for this
mission is represented in every facet of his daily life and the progress at Tesla. Tesla
has a blog where Musk himself will
frequently post on the progress of Tesla
and reiterate their mission. He also
utilizes social media, such as Twitter, to
update his followers on the happenings
with new technology, Tesla, SpaceX and SolarCity. These companies are also a
direct reflection of Musk’s devotion to the Tesla Mission. Musk has lofty and long
term goals for Tesla, and his continued passion, innovation, and investment in the
company will lead to sustainable differentiation.
By developing Tesla as a sleek and unprecedented sports car, a focus or
“beachhead” was created where Tesla could dominate and garner attention, as
opposed to being just another more sustainable option in the typical sedan market.
67 Musk, E. (2013, October 18). Blog: The Mission of Tesla. Retrieved February 02, 2016, from https://www.teslamotors.com/blog/missiontesla
54
Tesla differentiates itself with astute market positioning. Elon Musk has also built
strong relationships with consumers who also believe in the mission of sustainable
technologies and innovations. Tesla is using these emotional connections and
brand awareness to ensure that when the more economical vehicles become
available, those who already positively associate with Tesla will be inclined to
purchase these cars as well, penetrating a new consumer market that will
consequently create long term relationships and further advocacy for the brand.
This is something that companies such as BMW, Porsche, and Ferrari can’t compete
with since they have positioned their products as fuel based motor vehicles with
only 25% dedication to sustainable technologies , which will be unappealing to the 68
many consumers seeking a truly sustainable vehicle.
Segmentation
Segment: The Trendy and Budget Driven
Key Benefits: this segment is at the stage in their life where they’re caught
in between needing a car with specific and realistic functions, and also wanting a
car that looks “cool” with features that are physically appealing. This segment could
be considered people who are just starting out in their careers, so they need a car
that doesn’t cost too much to begin with and can also get them from Point A to
Point B without costing too much in gas.
The primary features that provide those benefits: A car that is all-electric
would satisfy the desire that this segment has to drive a car that contributes to the
68 Musk, E. https://www.teslamotors.com/blog. Retrieved Feb 05, 2016.
55
trend of reducing the carbon footprint and building sustainability. Features such as
nice leather interior and an exterior design that is sleek and sporty and looks
similar to an expensive sports car, all on a compact or subcompact car contributes
the “cool” factor to a vehicle. If a vehicle maintains this appearance but also falls
within a less expensive price range it is even more attractive.
Most important competitors: Competitors with narrowly similar features
that can compete with the Model 3 as an electric car in all categories including
price, range and look include the Chevrolet Bolt and the BMWi3.
Segment size: As of 2013, the segment of young professionals (people
between the age of 20 and 35 who were employed in professional and technical
occupations) included approximately 15.3 million people, which accounted for
around 27% of the entire categorized workforce. 69
Demographics/Psychographics: People that are trendy and budget-driven
are often young in age and are working on establishing a professional career.
Descriptors for this segment include people between the approximate ages of 20
and 35 with a college degree and work in fast-growing occupations. In 2013 31.5%
of the segment were of a racial minority and the earnings range average for this
segment in 2012 was $43,000. They are innovative and often have an
entrepreneurial mindset. A study from the Global Entrepreneurship Model shows
that just over 17% of people between the ages of 25 and 34 are involved in creating
or being a part of a new business, so one could say that the trendy and
69 (2014). The Young Professional Workforce. Retrieved February 11, 2016 from http://dpeaflcio.org/programspublications/issuefactsheets/theyoungprofessionalworkforce/
56
budget-driven are also innovative. Young professionals also look for an 70
environment with a fun and relevant culture and, as a result, make up 25% of
downtown populations in large metropolitan areas.2
Segment: Versatility Seekers
Key Benefit: Provides affordability and adaptability to different lifecycle
stages
This segment is looking for an affordable vehicle that can adapt to the life cycle
shifts they may rapidly go through. This segment is seeking the benefit of a vehicle
that can accommodate many different activities, from short grocery trips to long
road trips. The vehicle must be able to support a growing number of people
comfortably. This segment is likely to be seeking a car with excellent mileage, while
retaining the “cool” factor.
Primary features that provide those benefits: A relatively inexpensive
price tag would provide for affordability. The Tesla Model 3 will be half the price of
the Model S, somewhere between $25,000-$35,000. A car with greater mileage, all
wheel drive and increased storage would provide versatility. The Model 3 will have
a mileage range of about 200 miles, and is rumored to have a similar look to the
Model S. From an environmental aspect, this segment is going to be looking for an
electric car that will eliminate dependency on gas (increase affordability), as well as
reduce environmental stress on the world that their children and grandchildren will
be living in, and Tesla provides that.
70 Metro Edge Young Professionals. Retrieved February 11, 2016 from http://www.metroedge.org/aboutus/youngprofessionals/
57
Most important competitors: competitors include BMWi3 , Nissan Leaf,
Honda Fit EV, Toyota RAV4 EV, and Ford Focus Electric, all electric cars that provide
many of the aforementioned benefits for families.
Demographics/Psychographics: This segment includes young, affluent,
working couples with preschool children concentrated in fast-growing metro fringe
communities comprise 2.82 percent of U.S. households. This number has more
than tripled since 1990. Many are under 35 years old and earn six-figure incomes.
They are likely to be college-educated and employed as managers, executives and
white-collar professionals. They have active and children-centered lifestyles,
participate in a number of team sports and outdoor activities, and consequently
they drive cars where price and functionality trump style. Many have lengthy
commutes to work.
Segment: Innovative Environmentalists
Key Benefits: The key benefits sought from the innovative environmentalists
are new innovative technologies and environmental sustainability.
Primary features that provide those benefits: The Tesla Model 3 is fully
electric; therefore it produces zero emissions. This specific feature fulfills the
benefit of environmental sustainability that is sought by the innovative
environmentalists because it reduces fossil fuel consumption, and as a result,
carbon dioxide (CO2) emissions are lessened. In addition, the battery technology
used within the Tesla Model 3 is remarkably innovative, and this specific feature
provides innovative environmentalists with the benefit they seek of new
58
technologies. Tesla is also planning on potentially making its supercharger stations
compatible with other electric cars if the other car manufacturers are willing to
provide a capital investment. This just proves that Tesla is determined to create a 71
more environmentally sustainable world, and ultimately, the supercharger, which is
complementary feature to the model 3, really provides the environmental
sustainability that the innovative environmentalists seek.
Most important competitors: The most important competitors include
BMWi3 , Nissan Leaf, Honda Fit EV, and the Chevy spark , all electric cars that
provide many of the aforementioned benefits for innovative environmentalists.
Demographics/Psychographics: Various studies that have been conducted
to analyze the environmentalist individual have concluded that females express
higher levels of concern for the environment than males. In the area of income,
there is not a definite skew of involvement among higher income individuals,
however, lower income individuals do not possess the same resources to
contribute to environmental activism. Fortunately for them, Tesla’s mission is to
standardize the use of the electric vehicle through the creation of the relatively low
priced Model 3. Studies have also shown that individuals with higher education
under their belt are more knowledgeable about environment issues, ultimately
increasing overall environmental concern, naturally. It is also important to note that
71 Hruska, J. (2014, June 11). Tesla reveals plan to share Supercharger network with other electric car makers | ExtremeTech. Retrieved February 11, 2016, from http://www.extremetech.com/extreme/184141teslarevealsplantosharesuperchargernetworkwithotherelectriccarmakers
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higher educated individuals have a higher willingness to pay for products that are
more sustainable. 72
Segment size: The term of innovative environmentalist is specialized, yet
encompasses a broad range of individuals with differing levels of environmental
concern, making it difficult to quantify the size of the segment.
Targeting
The segment of customers we wish to target is Innovative Environmentalists
Seeking Luxury. Our key brand competitor is BMW. Our goal is to figure out how
Tesla can grow market share by creating more value for Innovative
Environmentalists than BMW does.
Customer Perspective
Tesla BMW
Benefits (1-10) (1-10) (1-10)
Brand Prestige (6) 7 9
Battery Technology (8) 10 8
Supporting Infrastructure
(7)
10 8
Brand Mission (10) 10 6
72 Fay, L. M. (2013, April/May). Demographic Factors and Expressions of Environmentalism. Retrieved February 10, 2016, from http://www2.uwstout.edu/content/lib/thesis/2013/2013fayl.pdf
60
Mileage per charge (8) 9 6
Total 46 37
Firm Perspective (Specific Firm Competitive Advantages)
Tesla BMW
Brand Identity Brand Identity
Transparency Brand Experience
(for consumers)
High Performance Product Design
Innovative Technology R&D Capabilities
Brand Mission Innovative Technology
Supercharger Network High Performance
Battery Supply Chain
61
3-Circle Targeting
62
Key Opportunities for Growth
Tesla can identify opportunities for growth through things that BMW does
better than they do, and also by identifying features that innovative
environmentalist customers want that neither Tesla or their competitor already
offers. While the supercharger network provided by Tesla is a good step in the
right direction, they could take this even further by putting more superchargers in
as many areas as possible and creating even more access to them. They could take
it even further by putting the research and development into finding an innovative
and environmentally-friendly way that the car can self-generate its own power.
They could also find a way to eliminate the idea of car maintenance altogether. An
all-electric car eliminates maintenance processes such as oil changes, and if they
could find a way to start eliminating other steps in the car’s lifetime maintenance
processes, this could capture this type of market. BMW has found a way to make
their all-electric car a subcompact size, and this is something that customers seem
to want. Tesla could easily make this a feature of one of their new future models.
Features That Should be Promoted
Tesla spends close to no money on marketing whatsoever. If Tesla were to
more actively promote its brand mission, this would resonate extraordinarily well
with innovative environmentalists. Tesla’s mission is to better the world by bringing
more sustainable vehicles to the mass market. Since innovative environmentalists
care deeply about the well being of the planet, promoting this feature would help
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effectively communicate the core value that Tesla provides, and more users within
the segment would adopt the Tesla brand.
Features That Can be Eliminated
With Tesla’s current features there is no need for them to eliminate any of
their offerings. The key features of Brand Identity, Transparency, High Performance,
Innovative Technology, Brand Mission, Supercharger Network, and Battery Supply
Chain are all areas where Tesla is able to differentiate and surpass their
competitors, specifically BMW. As Tesla evolves and introduces new products these
features can be reevaluated; however, as it is now, Tesla needs to take advantage of
their strengths to stay competitive and garner brand equity.
Points of Difference to Take Away From the Competition
Two current points of difference were identified for BMW: brand prestige and
a sub-compact vehicle size. Tesla could turn both of these PODs into points of
parity to better compete with BMW and capture market share. Regarding brand
prestige, by first entering into the luxury vehicle market, Tesla successfully
developed a prestigious brand in a short amount of time. While they don’t have a
long-standing historical brand image like BMW, they can leverage this prestigious
brand equity in the development of their new vehicles and take it mass market,
which will develop more recognition for the company as a prestigious brand. There
is increasing demand for smaller cars in the luxury vehicle industry. While BMW
currently offers a subcompact i3 model , Tesla has yet to release a vehicle in this 73
73 All BMW Compact Cars. http://www.bmw.com/com/en/newvehicles/bodytype/sportshatch.html
64
size category. However, the Tesla model III will already be 20% smaller than the
model S , creating value for consumers seeking that benefit. Additionally, there 74
are rumors of a Tesla model C subcompact car that may hit the market as early as
2018 which would create further value for customers who seek a smaller vehicle, 75
and take away that point of difference from BMW.
Marketing Plan
Goals and Objectives
Present Goal: Grow the market for electric vehicles.
Objective: Increase awareness about the importance of sustainable living.
Objective: Educate potential consumers about the benefits of an environmentally
friendly vehicle.
74 https://forums.teslamotors.com/forum/forums/teslamodelewillbe20smallerhave48kwhbattery 75https://forums.teslamotors.com/en_GB/forum/forums/importantnewteslamodelsannounceddutchautoweeknewsvideo2015modelx2016model
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Segmentation
Consumer Segment: Innovative Environmentalists
Value Proposition: To find an innovative and environmentally sustainable
mode of transportation.
Non-consumer Segment: Versatility Seekers
Value Proposition: To find a functional yet cool car.
Non-consumer Segment: Trendy and Budget Driven
Value Proposition: To find a trendy and low budget vehicle.
66
Targeting
Tesla will target a segment of innovative environmentalists with the new
Model 3 vehicle. This segment of people would be looking for a car that combines
their desire for creative and new vehicle technology with technology that also
supports the growth and expansion of sustainability. People who are innovative
are very open-minded with a visionary way of thinking, which allows them to
explore more sides of their creativity. An interesting article showed that creative
people are 41% more likely to watch the show ‘Mad Men’. People who are 76
creative would be drawn to strong advertisers such as Apple or Audi, whose
advertisements fit the description of innovation. They are persistent and
persuasive in their search for new technologies. Often times people who are
innovative have some type of formal education, and a lot have advanced degrees in
the fields of science and technology. They are very well-trained in their field. Eighty
percent of the segment considered as “innovators” possess at least one advanced
degree and fifty-five percent have achieved a PhD in a STEM subject. An ITIF survey
shows that STEM graduates from private undergraduate colleges are more likely to
become innovators and that MIT has educated more innovators than any other
college of its stature. California has produced the most innovations of any state in 77
the country, however the most innovating-winning awards are clustered around
research facilities in the states of New Mexico, Tennessee, California and
76 Bulik, B. (2010). You Are What You Watch, Market Data Suggests. Retrieved from http://adage.com/article/news/researchlinkspersonalitytraitstvviewinghabits/146779/ 77 Nager, A. Hart, D. Ezell, S. Atkinson, R. (2016). The Demographics of Innovation in the United States. Retrieved from https://itif.org/publications/2016/02/24/demographicsinnovationunitedstates
67
Massachusetts. These facilities include Los Alamos, Sandi, Oak Ridge National Lab,
Berkeley and Cambridge. Environmentalists are always looking for ways to do
more as far as the environment is concerned, and are most interested in finding
new ways to protect it. They like to see the results of what they can do and are
interested in green products and methods that ultimately save money in the long
run. Innovative environmentalists are always researching, discovering and
networking. They read articles that come from the New York Times and Huffington
Post. They also attend conferences such as TED conferences (Technology,
Entertainment, Design) or environmental conferences, as this gives a chance for
large groups of the brightest and most creative minds to come together to spark
innovation. The Tesla Model 3 is the perfect car for this target market because it is
a high performing electric car with a great mileage range, which is a direct response
to the innovative environmentalist’s desire to participate in products that
contribute to sustainability, but also uses new and advanced technology that is
offered in other models by Tesla.
Positioning
Positioning Statement
“For customers who want a high-tech, environmentally sustainable mode of
transportation, Tesla excels at offering an alternative to gasoline fueled
transportation through its narrowed customer focus, positive brand image, and
innovative technologies.“
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Positioning Strategy
Comedic approach: Tesla is currently the brand leader in the electric car
industry, captivating innovative environmentalists through sophisticated battery
technology that is changing the game. Before Tesla, hybrid vehicle technologies did
not offer this segment a whole product solution to fulfill their need for an
innovative and environmentally sustainable mode of transportation. The
positioning strategy Tesla will implement to differentiate themselves from
competitors and to inspire passion among enthusiasts will be to implement some
form of a hostile positioning strategy. But it will be important to gauge the amount
of animosity that Tesla displays in its campaigns and brand voice. The hostile
positioning strategy should not detract from positive connotations that the Tesla
name is connected to in the electric vehicle industry, that is why we will appeal to
our consumers in a comedic manner. Refer to the figure on the next page for an
example campaign that will be on Tesla’s social media platforms. Up until now,
Tesla has used a strong brand mission, with the intention to bring sustainable
technology to the masses, to guide consumers perceptions of Tesla in identifying
with the brand and what it means to be a part of the Tesla culture. The campaign
below says, ‘join Tesla’s sustainable culture to save yourself the ridicule associated
with driving gas guzzling trucks.”
69
By positioning Tesla as a brand that challenges customers to acknowledge
the harm their gasoline vehicles are having on the environment in a comical
manner, it sends the message in favor of sustainability in a more positive way than
if we were to impose negative connotations on the Tesla brand with aggressive
positioning. The consumers will go through tests of affiliation with the brand
through criticisms of user profiles that go through life, living in the past, rather than
leading the way with the most innovative technology that the transportation
industry has to offer at this time in history. Tesla vehicle owners are leaders;
innovative environmentalists are leaders. Competitors that offer similar vehicles
with similar capabilities to the Model 3 do not stand a chance up against Tesla’s
brand culture and mission ingrained from the start. Tesla is unlike BMW because its
mission is to accelerate the world’s transition to sustainable transportation,
70
reflected in everything Tesla does and stands for. The authenticity of Tesla’s brand
intentions are priceless, and extremely difficult to replicate, winning in the mind of
our target market through Tesla’s message, “We believe in a sustainable future, and
it is up to you to decide to either stand with us, or be stranded in the past with the
other heedless followers.”
Implementation
Approach
To grow the market for electric vehicles, we want to increase overall
awareness and interest in this technology and its effects on the reduction of
environmental stress versus traditionally-fueled vehicles. We believe that a
successful way to amplify consumer interest is to take a hands on approach:
face-to-face education and trial opportunities. We will implement this through
various events and sponsorships. Our hope is to stimulate interest in electric
vehicles at these events, the scope of which can later be measured quantitatively
through digital marketing.
Events
The first event that our company wants to host is a “Test the Tesla” event that
would occur on Earth day (Friday, April 22nd), 2016. Our targeted segment,
Innovative Environmentalists are likely aware of Earth day, the day in which events
are held worldwide to demonstrate support for environmental protection. Our
event would do just that. We would promote the event through digital content, our
email database and social media platforms, and it would be open to the public,
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although it would likely attract mostly Innovative Environmentalists. There will be
music and food to further encourage attendance.This event would take place in 10
major cities across the U.S. and involve Tesla brand ambassadors educating
attendees about the technology, mechanics, history, future, and importance of
electric vehicles for the environmental wellbeing of the planet in 5-10 minute
informational sessions. Furthermore, there will be a Model S vehicle (from Tesla’s
current fleet of test vehicles, so no extra expenditure will be required) present at
every location available for attendees to test drive and inspect the features. This
would give potential customers a personal and realistic electric vehicle experience.
Attendees would be awarded with Tesla swag to take home. We would additionally
implement this model of education and test driving at other environmental events
that are likely to draw Innovative Environmentalists across the U.S. throughout the
year. For example, at the Environmental Leader Conference, Tesla would act as a
sponsor and host workshops, and subsequent interested attendees would be able
to join the email list to gain access to digital content for more information. Other
events Tesla is interested in sponsoring include the Energy Science & Technology
Conference, Summer Institute of Energy and Technology, the National Clean Energy
Summit, and the MIT Energy Conference.
Digital Marketing
Growing the market for electric vehicles is a critical step for Tesla as they are
the current market leaders. Due to limited funds and high activity of innovative
environmentalists online, digital marketing will be a primary tactic. We will be
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focusing on inbound techniques ranging from owned media of a Tesla blog, forum,
Facebook, Twitter, YouTube and Instagram page to paid media in the form of native
advertisements on these same platforms. Furthermore, we will implement native
advertising on credible news sites, such as the Huffington Post. These articles will
be centered around providing information about electric vehicles with minimal self
promotion of the Model 3 or Tesla. As an example, Tesla would pay the Huffington
Post to publish an educational article that describe the effects of CO2 emissions
and climate change, and near the end, mention Tesla’s mission. The less
promotional the article, the more effective it is for Tesla. The Tesla YouTube page
will feature various premieres of new innovations and vlogs from Elon Musk and
Ted Talks, educating the public on the technology that comprise their vehicles.
Audience involvement will be highly encouraged through campaigns revolved
around posting fan shared photos via Instagram. There will be a social team ready
to respond to consumers directly when mentioned on social platforms. The goal of
our inbound techniques will be to educate our audiences on the necessity of
electric vehicles and the benefits to the environment and their lives. In order to gain
earned media, and eyeballs we will also be implementing search engine
optimization tactics, paid search and paid social to increase the likelihood of a click
and promote brand awareness. Keeping with the innovative mission at Tesla we will
also be taking advantage of Programmatic advertising through Google’s
DoubleClick. This allows for better targeting to those innovative environmentalists
who would be receptive of Tesla advertisements. Email marketing is essential to
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keeping our current subscribers, and those leads generated from events happy and
up to date with the Tesla happenings. We will use MailChimp to inform them of
upcoming events based on their location and interests. Email marketing is
important to Tesla because purchasing an automobile is a significant financial
investment, and many consumers may not be ready for that. Through email
marketing, Tesla can nurture its leads by sending out weekly newsletters providing
valuable information to consumers, so when the time comes for those leads to
purchase a car, they will be more likely convert to Tesla customers.
Evaluation and Control
Events
In terms of metrics, Tesla would be looking to see increased knowledge
about—and interest in—electric vehicles as a market, as our goal is to grow the
market for this technology. Tesla would encourage event attendees to take a survey
after the information session and test drive. This survey would include quantitative
research questions using a Likert scale, which would allow Tesla to measure
participants’ knowledge and interest surrounding electric vehicles. A sample
question would be: “I would consider replacing my current vehicle with an electric
vehicle” (strongly disagree to strongly agree). For qualitative results, Tesla
ambassadors would take note of organic spoken feedback from the participants,
and look for trends in their responses relating to electric vehicles.
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Digital Marketing
Each of these platforms and campaigns will be monitored and tracked for
views, likes, clicks, leads, shares, etc. via Google Analytics, Google AdWords and
Hootsuite. Hootsuite will be essential in tracking social discussion around Tesla and
electric vehicles prior to and following a campaign/post. Google Analytics will
support the activity of our website and blog. While Google AdWords will allow for
better targeting and usage of keywords for SEM. YouTube analytics will be useful in
targeting our innovative environmentalists based on their previous searches or
videos viewed as well as basic demographics. A/B testing will be highly encouraged
and utilized in order to optimize our campaigns and platforms. While these metrics
are valuable we will be keeping in mind that likes on Tesla content do not directly
correlate with an increase in awareness of the importance of electric vehicles.
Therefore, we will be monitoring social discussions around our competitors and the
increase in sales/demand for electric vehicles as a whole. The entrance of new
competitors in the electric vehicles will reaffirm the growth of the market.
All our advertisements will be again centered around the idea of educating
consumers of the importance of electric vehicles and the benefit it would have to
their lives and the environment. Our hostile positioning will be strong in stating “We
believe in a sustainable future. Either stand with us, or stand with gas guzzling
planet destroyers.” These strategies will be ongoing and adjusted based on the
success of each platform and the changing goals of Tesla. For example, once the
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market for electric cars has grown, then the focus of Tesla’s campaigns will be in
promoting the Model 3.
Tesla 1st Year Marketing Budget
Marketing Strategy Cost Percentage of Ad
Expenditure
Native/Paid Social $208,200 41.64%
Owned Media Free 0%
Paid Search $100,000 20%
Email $1,800 .036%
Programmatic $60,000 12%
SEO Free 0%
Environmental Event
Sponsorship
Varying, average $6,000 x 5
events= $30,000
6%
“Test the Tesla” Earth
Day Event
$10,000 x 10 cities= $100,000 20%
Total $500,000
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Marketing Budget Breakdown
Keeping in mind that Tesla is currently in financial debt and spends close to
nothing on advertising, we set a relatively low marketing budget for its first year of
$500,000. Many of the percentages of ad expenditures were made based off
marketing budget forecasts for the year 2016. Below are breakdowns of how we 78
came up with all the costs allocated to each activity within the budget.
Native/Paid Social: Native advertising and paid social are really similar in
that native advertising adapts to form and function of the platform in which it
appears. Sponsored posts someone sees while scrolling through Facebook are both
an example of paid social as well as native. The costs within this tactic account for
the daily social media budget as well as the cost per impressions of a published
sponsored article from the Huffington Post.
● Facebook daily budget = $165
● Instagram daily budget = $165
● Twitter daily budget = $165
● $165 * 3 = $495 * 30 (days in a month) * 12 (months in a year) = $178,200
● Huffington Post Native Advertising: 3 million impressions = $30,000 79
Grand Total = $208,200
78 Lappe, N. (2015, October 15). How Much Should You Budget For Marketing In 2016? Retrieved March 08, 2016, from http://www.webstrategiesinc.com/blog/howmuchbudgetforonlinemarketingin2014 79 Sluis, S. (2014, September 04). How The Huffington Post Does Native | AdExchanger. Retrieved March 08, 2016, from http://adexchanger.com/publishers/howthehuffingtonpostdoesnative/
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Paid Search: In addition to implementing SEO, we will also utilize paid search
by using Google Adwords to buy a keywords, and we will be charged on a CPC (cost
per click) basis. We decided to choose $100,000, or 20% of our marketing budget,
as our ad expenditure for paid search as it is consistent with the industry average.
Grand Total = $100,000
Email: We chose MailChimp as our email marketing service based on its cost
and the features it offers. In order to send an unlimited number of emails to 15,000
subscribers, Tesla must pay $150 a month. The cost of our email marketing 80
expenditure is consistent with the industry average.
Grand Total = $1,800
Programmatic: Tesla will use DoubleClick by Google for programmatic ad
buying of search display ads. Many successful companies allocate significant funds
towards programmatic so we thought it was necessary to implement, however we
believe paid search will be more effective than display ads, so we will spend less on
programmatic than paid search.
Grand Total = $60,000
“Test the Tesla” Event: Per city:
● 20,000 square feet rental space x $.20/ft2 =$4,000
● Catering and Music= $3,000
● Brand Ambassador salaries= $2,000
80 Hollar, K. (2015, September 1). MailChimp vs Constant Contact: Which Email Marketing Software Reigns Supreme for Small Businesses? Retrieved March 08, 2016, from http://blog.capterra.com/mailchimpvsconstantcontact/
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● Tesla swag= $1,000
● Total=$10,000 x 10 cities
-Grand Total = $100,000
Environmental Event Sponsorship: Per event:
● Average Gold level Sponsorship per event= $5,000
● Brand ambassador salaries=$800
● Tesla swag= $200
● Total=$6,000x 5 events
-Grand Total= $30,000
Future Goals
After growing the market and accumulating interest and awareness for the
market of electric vehicles, the next step is to grow market share. To accomplish
this goal, Tesla will see an increase in sales for the Model 3, signalling the success of
adoption into everyday society that aligns with Tesla’s brand mission. But before
increasing sales, Tesla’s first objective is to increase overall awareness of the Model
3. The Model 3 sports the Tesla name, possibly deterring some consumers with
preconceived notions regarding product pricing, but captivating audiences familiar
with the prestige of the product that once appeared unobtainable. To increase
awareness and Model 3 sales, it will be critical to the success of gaining market
share to properly communicate the value proposition.
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