TESLA MOTORS STRATEGIC AUDIT REPORT

Presented by:Karim El DeebNadine KhattabOmar Rashed

Agenda

• History• Current Situation (products,

milestones and financial)• Environment Scanning (IFAS, EFAS)• TOWS matrix• 4 corporate strategies with

Advantage and disadvantage• Cascading to Business Functions• Evaluation & KPIs measurements

History• Tesla Motors, Inc. is an American company based in

California that designs, manufactures and sells electric cars and electric vehicle powertrain components

• It was founded in 2003 by a group of intrepid Silicon Valley engineers “Martin Eberhard”, “Marc Tarpenning”, and “Ian Wright” named after the scientist Nikola Tesla.

• The founders didn't have the money needed to realize their idea, so they contacted Elon Musk

• Elon Musk had earlier founded the companies Zip2, PayPal, and SpaceX

Products & Milestones• Roadster was introduced by 2006 where only

2,500 units were sold• Commercial deliveries of Model S was in

2012, selling more than 7,500 unit by end of Q1 2013

Stock Market Information

• Tesla's IPO was on June 29, 2010 priced at $17 per share

• Today closing price is 149$ per share

6/29/2010 10/27/2010 2/28/2011 6/28/2011 10/26/2011 2/28/2012 6/27/2012 10/25/2012 3/1/2013 7/1/2013 10/29/20130

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Stock closing price

Income statement

Item Details

(Q1-Q3)

2013

2012 2011 2010 2009

Total revenues   1,398,277

413,256

204,242

116,744

111,943

Cost of Selling  1,098,6

04 383,189

142,647

86,013

102,408

Gross profit  299,673 30,06

7 61,59

5 30,73

1 9,535

             

 Research and development

163,523 273,978

208,981

92,996

19,282

  administrative184,080 150,3

72 104,102

84,573

42,150

Total operating expenses

  347,603 424,350

313,083

177,569

61,432

Loss from operations

  (47,930) (394,283)

(251,488)

(146,838)

(51,897)

               Interest income 97 288 255 258 159   Interest

expense(26,705) (254) (43) (992) (2,53

1)  Other expense 18,018 (1,82

8)(2,64

6)(6,58

3)(1,44

5)Loss before

income taxes  (56,520) (396,

077)(253,922)

(154,155)

(55,714)

Provision for income taxes

  1,230 136 489 173 26

             Net loss   (57,750) (396,

213)(254,411)

(154,328)

(55,740)

Internal Factor Analysis Summary

Strengths (3.7)

Internal Factors

Weight

Rating

Wgt. Score Comment

Strong R&D department

Calibers0.45 4 1.8

Strong Management

Team0.3 4 1.2

The CEO Elon Musk has earlier founded

companies like PayPal and SpaceX, so he has a

good track record

Excellent Designs 0.1 3 0.3

The Model S won the 2013 Motor Trend's Car of

the Year award

Great Location, close to best

calibers in the US

0.05 3 0.1

They are building their cars in California . They

can find many computer- and electrical engineers

in California

Large Production Capacity

0.1 2 0.3

Ability to develop vehicles completely in

house including the sub-assemblies required

Internal Factor Analysis Summary

Weaknesses (2.2)

Internal Factors

Weight

Rating

Wgt. Score Comment

Relatively High Priced compared

to fuel cars0.25 3 0.75

Few Charging stations 0.2 2 0.4

Tesla Motors are doing their best to change

this by building Superchargers, which

are like gas stations but for electric vehicles

only.

Low Battery Range 0.3 2 0.6

Slow Charging Process 0.3 1 0.3

Battery Charging could take around 30 mins/170 mile

Lack of Brand Recognition

&Limited operating history

0.05 3 0.15

The company is just ten years old ,Compared to

fuel cars manufacturers

Opportunities (4.1)

External Factors Weight

Rating

Wgt. Score

Comment

The world is running out of oil. Electricity is a renewable energy. 0.35 5 2

People care more about environmental issues. 0.05 2 0.2

Can use their battery technology in other areas, such as storing power

from solar panels.0.1 4 0.6

The growing support by governments across the globe for environmentally

friendly vehicles 0.1 3 0.3

Large International Market Potential Particularly Europe, Asia, and Canada. 0.2 4 1

External Factor Analysis Summary

External Factor Analysis Summary

Threats (2.4)

External Factors

Weight

Rating

Wgt. Score Comment

Very Strong competition with

less operating Costs

0.3 2 0.6Like BMW, Mercedes, and Lexus expected to join the

market soon

Economical slowdown 0.15 2 0.3

Electric cars are still expensive and a new

recession, like the one in 2008, may limit the

demand

Limited supply for raw materials 0.3 2 0.6

Limited Experienced resource pool

0.15 4 0.6

Awareness of importance of EV is not well propagated

0.1 3 0.3

Large Segment of the market is not aware of the importance of the EV and

not interested to know

TOWS Matrix

Internal Factors IFAS

Strengths WeaknessesS1.Strong R&D

department CalibersS2. Strong Management

TeamS3. Excellent Designs

S4. Great Location, close to best calibers in the US

S5. Large Production Capacity

W1: Relatively High Priced compared to fuel cars

W2: Few Charging stations

W3: Low Battery Range W4: Slow Charging

ProcessW5: Limited operating

history

Opportunities SO Strategies:-Focus on new product development with new

technologies and be ahead of the market

-Expand in new markets-Develop new products in an industry different than

the company's core operation

WO Strategies:Promote the awareness of

environmental friendly cars(O1,4,W1)

-Outsourcing some operational activities to a

low Cost (O5,W1)

O1: The world is running out of oil. Electricity is a renewable energy.O2: People care more about environmental issuesO3: Can use their battery technology in other areas, such as storing power from solar panels.O4: The growing support by governments across the globe for environmentally friendly vehicles O5: Large International Market Potential . particularly Europe, Asia, and Canada.

Threats ST Strategies:-Develop new products attracting the different

segments-Develop new

technologies to decrease overall operating costs

WT Strategies:-Follow Cost reduction

strategy to decrease costs-Sell Company with a

good price

T1: Very Strong Competition with less operating CostsT2: Economical slowdownT3: Limited supply for raw materialsT4:Limited Experienced resource poolT5:Awareness of importance of EV is not well propagated

External FactorsEFAS

Corporate Strategies1. Horizontal Growth Strategy: Market

Development

• Tesla should keep focusing on its Niche segment as the current status but expand in different markets such as Europe & Asia in order to increase revenues. This could be done by opening additional retail locations or adding an online presence

• Chinese central planners have said that they want to have 5 million electric cars on the road there by 2020. That's only seven years away.

Advantages:• Organization becomes pioneer at its specialization• Build Brand Name Globally• Avoids the fierce competition in USA Increase sales and thus revenues.• Risk diversification.

Disadvantages:• Organization is vulnerable to industry and other external environmental shifts• Needs good monitoring globally to efficiently manage crises.• Large capital needed to start the expansion.

Corporate Strategies2. Horizontal Growth Strategy:

Product Development

• Tesla could benefit from its strong R&D department and focus on innovating new cars to target a wider range of customers. If the strategy is properly implemented, Tesla can gain a reputation as a company that is on the leading edge of EV industry

Advantages:• Increase Brand Awareness.• Increase number of customers and accordingly Consumer Loyalty.• Capture more market share• Having multiple product lines may allow a growing business to

diversify risk.• Attract buyers with different preferences, increase profitability

even out seasonal sales patterns

Disadvantages:• Different Competitors will be added to current competition.• Company’s focus might be dispersed after adding new products.• resources may be disproportionately siphoned off for slower-

moving products

Corporate Strategies3. Stability Strategy: Pause/Proceed with

caution

• Tesla is now doing fine by introducing the Model S by end of 2012, to introduce and develop new products we will need a huge investment in R&D but instead we could test the ground before moving ahead with a full-fledged grand strategy, trying to overcome previous losses as a result Tesla will be able to move on with growth strategies. So it is just a temporary strategy.

Advantages:• Enables the company to focus on its new product the Model S• Gain Some Profit to overcome previous losses• Focus on internal issues and enhancing internal processes

Disadvantages:• Possible loss of market share• Loose opportunity for potential investments for a growing industry• Delayed to cope with the rapid technology changes

Corporate Strategies4. Conglomerate Growth: Diversification

• Diversifying into a different industry that the current company’s operation; producing EV cars. Use its battery technology for other uses such as storing power from solar panels. Leveraging the use of common brand name and combining resources to create new competitive strengths and capabilities

Advantages• Transferring skills & capabilities from one business to another• Fully utilize existing resources and capabilities• Sharing facilities or resources to reduce costs• Opportunities to achieve economies of scale • Opportunities to expand product or service offerings and preserve unity in

businesses

Disadvantages• Complexity and difficulty of coordinating different, but related businesses

(e.g. Philip Morris’ General Food and Kraft subsidiaries)

Cascading Strategy2 to Business Functions

• Marketing:o Marketing researches to identify customer’s needs and best areas to

penetrate.o Build brand equity.o Promotions.o Broad Price ranges.

• Research & Development:o Pioneer new products that increase buyer value.

• Human Resources:o Recruit new talents with diverse backgrounds with low pay.o Provide sufficient trainings

• Logistics:o Create & maintain strong, reliable & fast supply chain to react

conveniently to customers demand• Finance:

o Prepare sufficient cash and assets needed for investments • Purchasing:

o Hold good deals with new suppliers needed for the new products providing

Evaluation & KPIs measurements

Evaluate the R&D performanceCompare your own intelligence function against industry peers using GIA (Global Market Intelligence) Survey results in terms of• Annual budget• Level of development• Number of employees within the intelligence team

Evaluate the Marketing performance:• Social Media fan growth rates, engagement rates, and response rates• Onsite market interviews

Evaluate the Operating & Financial performance:• Speed-to-market—putting the right product in the right market

segment faster than a competitor, measuring time from idea formulation to delivering product in market

• Gross Profit Margin = (Sales-COGS) / Sales

Thank You