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Tesla Motors Inc. Market Entry Strategy in Germany

A Corporate Strategy Analysis

Term Paper 2016 27 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of Contents

Executive Summary

List of Abbreviations

List of Figures

List of Tables

Table of Contents

1. Introduction
1.1 Problem definition
1.2 Methodology

2. International Market Entry Modes
2.1 Overview
2.2 Advantages and Disadvantages

3. Tesla Motors Inc.
3.1 Tesla Motors – The company
3.2 Financial Situation

4. Corporate Strategy
4.1 Corporate Vision
4.1.1 Build a Sport car
4.1.2 Use that money to build an affordable car
4.1.3 Use that money to build an even more affordable car
4.1.4 Provide zero emission electric power generation options
4.2 Tesla`s Firm Specific Advantages
4.2.1 Electric Vehicle
4.2.2 The Battery
4.2.3 The Infrastructure
4.3 Additional FSAs
4.4 Location Bound FSAs
4.5 Non-Location Bound FSAs

5. Tesla’s Strategy in Germany

6. Conclusion

7. Bibliography

Appendix

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures

Figure 1 Overview Entry Modes

Figure 2 Elon Musk, CEO and Co-Founder of Tesla

Figure 3 Revenue Tesla Motors Inc., 2009 - 2014

Figure 4 EBIT Tesla Motors Inc., 2009 - 2014

Figure 5 Tesla share price development related to company events

Figure 6 Tesla Motors Inc., Product Strategy (Tesla Motors Inc., 2014)

Figure 7 Tesla Roadster

Figure 8 Tesla Model S

Figure 9 Tesla Model X

Figure 10 Tesla Supercharger

Figure 11 Tesla Model S Interior

Figure 12 Tesla EV Platform, Second Gen

Figure 13 Tesla's Super Charger Station

Figure 14 Typical Tesla Store Based in City Location

Figure 15 Tesla Super Charger Network in Germany

Figure 17 EVs Sold in Germany, 2006-2015

Figure 18 „Tesla - Fireflies by Sam O’Hare“ Sam

Figure 19 Global Auto Sales by Region, 2008 - 2020

List of Tables

Table 1 Modes of Entry: Advantages and Disadvantages

Table 2 EV Sales in Germany, November 2015

Table 3 Global Sales Automobiles, 2014 - 2016

Executive Summary

The author of this assignment reviews the Tesla’s business model approach and its strategy in the non-domestic German market. Tesla’s firm specific advantages are especially related to innovation of the vehicle, the battery and the infrastructure. Tesla Motors follows a product strategy entering from premium market and moving towards mass market. After starting with a high-price Roadster model Tesla launched the more affordable Sedan and a SUV model. In 2017 Tesla plans to launch its first mass market EV. Tesla shows a new value chain in the automotive industry by a deep of vertical integration from EVs manufacturing towards software, recharging network and battery manufacturing. Tesla entered the German market to export premium EVs. The Automaker also builds a charging network in Germany and prepares the market for its future mass production Model 3 coming in 2017. This work consists of three major parts. The first part deals with the theoretical background of international strategies for MNEs. The second part describes Tesla as a company and its strategy. The last part analyzes the competitive advantages of Tesla and shows how they are used to enter the German market. This work ends with a final reflection and a conclusion of the research.

1. Introduction

The purpose of this paper is to perform an analysis and valuation of Tesla Motors’ strategy in Germany. Tesla is an automaker from the US designing, manufacturing and selling EVs. The German market is part of Tesla’s international expansion. Tesla is active in the German market and has a clear strategy to sell EVs and make electric mobility a real alternative to internal combustion cars. Electric mobility didn’t reach the critical mass yet. Customers fear the battery distance issue and therefore avoid EVs. This Assignment describes Tesla’s business model of selling a mobility solution instead of single electric vehicles.

1.1 Problem definition

Nick Sampson, the CEO of Faraday Future, an automotive new start-up from USA, just presented his vision of future electric vehicle at the CES 2016 in Las Vegas and stated: “As an automotive company you don’t need a 100 year legacy in the automotive industry to define what’s the next generation of transportation needs to look and feel like.” (Faraday Future Inc., 2016)

The basic research question to be answered in this assignment is:

Is it possible to create a successful internationally transferable business model for electric vehicles without a long experience in the capital intensive automotive industry?

1.2 Methodology

The data for this paper was collected from books, internet, reports and different journals.

2. International Market Entry Modes

2.1 Overview

Pan and Tse (Pan & Tse, 2000, S. 538) show an overview of possible entry modes (figure 1). Entry modes basically consist of Non-Equity and equity types. Exports and contractual agreements such as licensing models are non-equity based activities whereas JVs and WOS require FDIs. Strategic alliances can be formed by using contractual agreements od JVs.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1 Overview Entry Modes

2.2 Advantages and Disadvantages

Peng illustrates the advantages and the disadvantages of each entry mode in a handy table:

Table 1 Modes of Entry: Advantages and Disadvantages[1]

Abbildung in dieser Leseprobe nicht enthalten

3. Tesla Motors Inc.

3.1 Tesla Motors – The company

Tesla Motors Inc. is an US Automaker headquartered in Palo Alto, California. Tesla was Tesla was formed in 2003 and went public in 2010. Tesla operates in the Automotive industry and has business units in the renewable energy and energy storage systems. Tesla sells electric luxury cars, automotive components, rechargeable energy storage systems. Tesla sold 100.000 EVs until the end of 2015. (Tesla Motors Inc., 2014)[2]

Tesla has a unique corporate culture cultivated and executed by its charismatic CEO and product architect Elon Musk. After having sold his first companies, Zip2 1999 and PayPal in 2002, and founding SpaceX in 2002, Musk joined Tesla Motors with a lot of entrepreneurial expertise. He not only defines the vision today, he is also the face of the company and an own brand. He owns 22.25% of Tesla Motors.(Owen, 2010)(Tesla Motors Inc., 2014)

3.2 Financial Situation

Tesla started sales first in 2008 with the production of the low volume model Tesla Roadster. In 2012, the first own designed and manufactured Model S was launched. The revenue increased from $112million in 2009 to $3.2 billion in 2014. The figure below illustrates the revenue development from 2009.

Abbildung in dieser Leseprobe nicht enthalten

Figure 3 Revenue Tesla Motors Inc., 2009 - 2014[3]

However, the EBIT is still negative with $220million in 2014. Tesla initially destroys shareholder value. Considering the early start-up phase from 2003 to 2009, Tesla didn’t earn any money for more than 13 year existence. The following figure shows a negative EBIT since Tesla’s start of operation.

Abbildung in dieser Leseprobe nicht enthalten

Figure 4 EBIT Tesla Motors Inc., 2009 - 2014[4]

The development of the share price stands in contrasts to Tesla’s financial performance. Although Tesla destroys value, the share price constantly increased. This represents the shareholder’s strong belief in Tesla’s vision and business model.

The initial share price for the IPO was $19 in 2010. Today Tesla shares have a value of $215

Abbildung in dieser Leseprobe nicht enthaltenFigure 5 Tesla share price development related to company events [5]

4. Corporate Strategy

4.1 Corporate Vision

The vision of Tesla Motors Inc. is[6]

“To accelerate world’s transition to electric mobility.”

To make this vision happen, Tesla defined a strategy based on this vision. In 2006 Elon Musk posted a masterplan for Tesla Motors. This post was published on the corporate blog and remained accessible to public ever since. The masterplan was summarized to a short formula:

- Build a sport scar
- Use that money to build an affordable car
- Use that money to build an even more affordable car
- Also provide zero emission electric power generation options[7]

This strategy is reflected in the company’s product strategy and additional business unit activities. Figure 6 shows Tesla’s product strategy:

Abbildung in dieser Leseprobe nicht enthalten
Figure 6 Tesla Motors Inc., Product Strategy(Tesla Motors Inc., 2014)

4.1.1 Build a Sport car

The idea of the 1st generation vehicle, the Tesla Roadster, was to test and refine battery and technology at low volume. This high performance EV was based on an existing car – the Lotus Elise vehicle. The Roadster was available for a high price, started from $120.000, targeting a small group of customers. Tesla executes its top-down product strategy starting with this premium product in a niche market.[8]

Abbildung in dieser Leseprobe nicht enthalten

Figure 7 Tesla Roadster[9]

4.1.2 Use that money to build an affordable car

Tesla used the experience gained from the Roadster model to design, develop and manufacture its first own electric vehicle: The Model S. This 2nd generation is a fully electric developed four seat sedan manufactured in Tesla’s plant in Fremont, California. The second model based on the 2nd generation platform is the Tesla Model X, a SUV launched end 2015. The Model S/X are available for a significant lower price than the previous generation, starting from around $80.000, targeting a much bigger group of customers.[10]

Abbildung in dieser Leseprobe nicht enthalten

Figure 8 Tesla Model S[11]

Abbildung in dieser Leseprobe nicht enthalten

Figure 9 Tesla Model X[12]

4.1.3 Use that money to build an even more affordable car

The Tesla Model 3, 3rd EV generation, forms the final step of the masterplan. it will be available in the US for $35.000 before incentives. Launching in 2017, it will be able to drive 200 miles on a single charge and create an attractive package for mass market. Other competitors will enter this segment and increase the overall awareness for EVs.

“This The Model 3 is set to become Tesla's mainstream vehicle, with the Model S and Model X retaining their higher price points, superior range, and more luxurious features. The Model 3, which will be 20 percent smaller than the Model S, is a crucial project for the company as it looks to make its own electric vehicles more affordable and attainable for a much larger audience of car shoppers.”(Welch, 2015)

4.1.4 Provide zero emission electric power generation options

Tesla builds and operates a network of supercharger stations. These superchargers enable Tesla customer to recharge a Tesla EV very fast. They are located strategically on important routes like route 66 in the US and are meant to be used on long trips. The long term vision of Tesla is to fully operate its charger network by renewable energy.

Abbildung in dieser Leseprobe nicht enthalten

Figure 10 Tesla Supercharger

4.2 Tesla`s Firm Specific Advantages

Tesla’s high reputation is mainly based on three innovations. Tesla managed to be innovative in its approach to design the product, to develop the battery system and to create an infrastructure. With this approach, Tesla not only sells EVs, but it delivers a mobility solution.

The seven concepts of Verbeke’s unifying framework is used to describe Tesla’s strategy in international markets. (Verbeke, 2013, S. 16-22)

- Centralized Exporter
- International Projector
- International Coordinator
- Multi-Centered MNE

Verbeke’s basic theory is a resource based view on MNE’s. His Model of Firms Specific Advantages says that firms and multinationals should develop stand alone resources, routines, and recombination skills. That leads to firm specific advantages. Verbeke distinguishes between two types of FSAs:

- Location bound
- Non-Location bound FSAs

Tesla can be described as a centralized exporter according to Verbeke’s model of four MNE’s archetypes. It started its international business with its first product, the Roadster model, followed by the Model S which had a much higher export rate and volume. Tesla is exporting products that had already been successful in the domestic market and are managed from the home country. The activities in the international markets are limited and focused on downstream activities in the value chain. This includes marketing, distribution and logistic. Tesla operates an own recharging network for its EV’s and runs own stores in the target markets. Tesla’s FSA’s are standardized products manufactured in the domestic country.(Verbeke, 2013, S. 16)

4.2.1 Electric Vehicle

Compared to traditional Automakers, Tesla has a quite simple and clear product portfolio. Basically, it consists two of the Model S and the Model X. However, Tesla’s offers high performance cars with a unique battery range.

Tesla build in its EVs a huge 17” display which forms the main interaction part in the car. The display replaces the conventional controls and offers a lot of new features. Since the Tesla Model S is an always connected device, it delivers lots of valuable data that can be used to improve the vehicle. Furthermore, the huge display creates a familiar usability similar to smartphones and creates a “Joy of Use” experience.

Abbildung in dieser Leseprobe nicht enthalten
Figure 11 Tesla Model S Interior[13]

Tesla developed an own platform for the second electric vehicle generation. This platform is used for manufacture the Model S and the Model X. Tesla created an efficient production of the current product with a high flexibility. The two models can be offered in various variants. As a consequence, it should lead to a cost reduction, lower R&D cost and shorten time to market.

[...]


[1] (Peng, 2009, S. 171)

[2] Source: Tesla Motors Inc., Investor Presentation, http://ir.teslamotors.com/ , accessed december 2015

[3] Source: Statista

[4] Ibid.

[5] Source: Reuters, http://www.reuters.com/finance/stocks/chart?symbol=TSLA.O ,accessed January 2016

[6] Source: Tesla Motors Inc., corporate website, https://www.teslamotors.com/about , accessed December 2015

[7] Source: Tesla Motors Inc., corporate website, https://www.teslamotors.com/de_DE/blog/secret-tesla-motors-master-plan-just-between-you-and-me , accessed December 2015

[8] Source: Tesla Motors Inc., corporate website, https://www.teslamotors.com/about , accessed December 2015

[9] Source: Tesla Motors Inc., corporate website https://www.teslamotors.com , accessed December 2015

[10] Source: Tesla Motors Inc., corporate website, https://www.teslamotors.com/de_DE/blog/secret-tesla-motors-master-plan-just-between-you-and-me , accessed December 2015

[11] ibid

[12] ibid

[13] Source: Tesla Motors Inc., corporate website https://www.teslamotors.com , accessed January 2016

Details

Pages
27
Year
2016
ISBN (eBook)
9783668407305
ISBN (Book)
9783668407312
File size
11.7 MB
Language
English
Catalog Number
v354492
Institution / College
University of applied sciences, Munich
Grade
1,3
Tags
Automotive Industry Tesla German Auto Market Strategic Management VRIO Porter Five Forces Electric Vehicle Disruptive Innovation BWL Strategy Autonomous Driving Elon Musk Corporate Strategy Vision International Market Entry Tesla Master Plan

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Title: Tesla Motors Inc. Market Entry Strategy in Germany