Memo the United States, the Model S

To: Ms. Grotrian-Ryan
From: Emily Turnbull
Re: Tesla Motors’ Strategy to Revolutionize the Global Automotive Industry


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Tesla Motor’s is an American automotive company that manufactures premium-quality, energy-efficient, high-performance electric vehicles. It was incorporated in July of 2003 by Martin Eberhand and Marc Tarpenning, two Silicon Valley engineers who believe it was feasible to product and awesome electric vehicle. The Model S was the most-awarded car of 2013. including Motor Trend’s 2013 Car of the Year award and Automobile magazine’s 2013 Car of the Year award. In 2013, the Model S ranked as the best- selling car in 8 of the 25 wealthiest zip codes in the United States, as ranked by Forbes.

Tesla had a capital expenditures of $264 million in 2013, aimed chiefly at expanding its factory production capabilities and opening additional sales galleries, service centers, and supercharger stations. Capital expenditures of $650 milled to $850 million were planned for 2014.
In 2014 Tesla Model S was picked best overall out of 260 cars tested. Of all vehicles tested, including every major make and model approved for sale in the United States, the Model S set a new record with a score of 99 out 100 on the Consumer reports describing the car as “a technological tour de force with blistering acceleration, razor-sharp handling, compliant ride, and versatile.” The following is a situation analysis for Tesla Motors’ Strategy to Revolutionize the Global Automotive Industry. Key issues are notes, SWOT Analysis, and recommendations are provided.

Current Situation
Telsa has greatly improved financially from years 2010-2013 to start turning a profit. Cash flows from operative activities in 20110 went from negative 127,817 to 257,994 in 2013. Proceeds from insurance of common stock in public offers doubled from 2010 to 2013 from 188,842 to 360,000. New revenue went up from 75,459 to 1,952,684 in 2013. But surprising enough each year Tesla has lost money. In 2010 Tesla lost 154,328, in 2011 they lost 254,411, 2012 they lost 396,213, and lastly in 2013 Tesla lost 74,014.
Tesla has an important edge over its competitors in the race to bring electric cars to the masses. Tesla’s Model S is expensive it ranges from $70,000 to over $100,000, but its range is 265 miles, more than triple that of Nissan’s Leaf which is only 75 miles. Because the lithium-ion battery pack in Tesla vehicles reputedly cost upward of $25,00 and was far and away the biggest cost component, the speed with which the company could profitable introduce new vehicles with prices of $35,000 to $50,000 depended largely on how fast and how fair it was able to drive down the costs of its battery pack via greater scale economics in battery production and cost-saving advances in battery technology. Tesla also wants to make electric cars more practical by building a nationwide network of charging stations that can deliver 200 miles of charge in about half an hour, compared to several hours to charge an electric car at an ordinary station today.
Prepaid Maintenance Program Tesla offers a prepaid maintenance program to Model S buyers that included plans covering maintenance for our years or up to 50,000 miles and an additional four years or up to an additional 50,000 miles. The new vehicle limited warranty covered the Model S battery for a period of eight years or 125,000 miles. These plans covered annual inspections and the replacement of wear tear on parts, excluding tires and the battery, with either a fixed fee per visit for Tesla Ranger service or unlimited Tesla Ranger visits for a higher initial purchase price for owners with vehicles limited warranties or extended-service plans, the fees for Tesla Ranger service were higher.

SWOT Analysis

• Highly innovative processes
• Strong brand
• Good engineering and technology research capability
• Large amount of Capital
• Strong Control on production processes
• Electronic, motor, and battery packs

• A Small company with small sales volume
• Limited market presence
• High Prices

• Family Sedan market
• Oil and gasoline prices rising, making the price premium for an electric car more appealing
• Expanding on developing lithium-ion batteries and other energy efficient choices
• Global sales expansion

• Natural gas powered cars
• Price of oil falling
• Aggressive competition
• Dealership regulations

Key Issues/Alternatives

Tesla’s choice of these small lithium-ion batteries is, one of its most important strategic moves Tesla can make for their cars. Having an extended battery life, will make it easier for people to travel further without having to stop for a recharge or use gasoline. The larger cells/battery, because they contain more energy, are also more dangerous. Tesla needs to make sure this is developed correctly so there is no hazard from a new an improved battery. So, automakers use less energy-dense battery materials that are more resistant to catching fire. Trying to offset the lower energy density, automakers chose flat cells because they pack together more densely, but such cells cost more to manufacture.
By choosing smaller, cylindrical cells, Tesla saved on manufacturing costs. Tesla could also use the most energy-dense battery materials available, in part because smaller cells are inherently less dangerous. And better energy density reduces materials costs. This approach meant Tesla had to develop a way to wire together many thousands of separate cells, compared to several hundred of the larger cells.
Choosing the smaller, cylindrical cells also gave Tesla more flexibility in packaging the cells. Large, flat cells will deform in a collision and possibly catch fire, so other automakers have had to find places within the car where the battery would be out of the way in a crash. That meant using up some passenger or cargo space.


Tesla management has three important advantages. The first one is ability to create and control Tesla’s own version of compelling customer buying experience, one that was differentiated from buying experience consumers had with sales and service locations of franchised autobile. Having customers deal directly with Tesla-employed sales and service personnel enabled Tesla to engage and inform potential customers about electric vehicles in general and the advantages of owning a Tesla in particular and build a more personal relationship with customers and hopefully instill a lasting and favorable impression of Tesla Motors, its mission and the caliber and performance of its vehicles.

Step two is ability to achieve greater operating economics in performing sales and services activities. Offering a substantial opportunity to better control inventory costs of both vehicles and replacement parts, manage warranty service and pricing, maintain and strengthen the Tesla brand and obtain rapid customer feedback.

The last step is the opportunity to capture the sales and service revenues of traditional automobile dealerships.


Despite the few issues that Tesla has had with production and working out the issues, they are a path to success. Tesla needs to continue to generate mean for the company’s vehicle and drive sales leads to personnel in Tesla’s Showrooms and sale galleries, building long-term brand awareness and manage the company’s image and reputation. By obtaining feedback from the owners of Tesla vehicles and make sure their experiences and suggestions for improvement were communicated to Tesla personnel engaged in designing, developing and/or improving the company’s current and future vehicles.


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