Tesla Motors

Overview
Tesla is an automotive firm that designs, engineers, manufactures and sells cars using a “product” business model. Tesla mobilises technology within the vehicle itself, and other technologies that are separate to the product. Tesla has developed a small range of premium cars with fully electric powertrains that are sold or leased to customers with eco-credentials, who are prepared to pay for novel technology packaged in a car. It also sells its powertrain systems to other automotive firms. Not only does the product mobilize battery powertrain technology in the vehicle itself, a network of recharging stations is provided to Tesla customers, with navigation technology in the vehicles to help customers find these. Tesla sells cars directly to consumer over the Internet rather than using a dealership network. The complementary aspects of the business model include customer lists, intellectual property, and finance products.

History

Tesla Motors was founded in 2003. Tesla is headquartered in California and also has an assembly facility in the Netherlands giving better access to European and Asian markets. Tesla’s first model, the Roadster, entered the market in 2008 with a starting price of US$109,000 (excluding a US$7,500 federal tax credit). Between 2008 and 2012 Tesla sold 2400 roadsters in 31 countries. The Model S is Tesla’s current production model, and is a fully electric four-door sports saloon priced between US$62,000 and US$72,400 for battery sizes of 60kWh and 85 kWh respectively. In 2013 Tesla delivered 22,477 Model S cars worldwide.

For the first few years Tesla’s share price was quite low and steady because the business is regarded high-risk. Since it announced its first profits in March 2013 the share price has risen sharply, with only one major impact when questions were raised about the safety of the vehicle after several fires involving the battery pack. In 2009 Daimler invested US$50m for a 10% stake in Tesla. When Tesla floated on the Nasdaq stock exchange in July 2010, Toyota bought US$50m worth of stock. A taxpayer-funded US government loan of US$465m in 2009 was also repaid in 2013. Daimler is using the Tesla electric system in their Smart electric city car. The new Mercedes B-Class Electric Vehicle (EV) due out in 2014 will have a Tesla powertrain. Meanwhile Toyota have placed a US$100m contract to supply the electric motor, power electronics, gearbox, and software for the new Rav4 EV.

In 2013 Tesla had a global automotive market share of ~0.02% and a premium global market share of 1%. The company recorded revenues of US$2,013bn during the financial year 2013, compared to US$413.2m for FY2012. Competitors to Tesla are firms with conventional internal combustion engine powertrains systems, such as the BMW 7-series, Porsche Panamera and Maserati Quattroporte. This has meant Tesla is able to capitalise on selling product to the more eco-conscious consumer. There are other electric cars but none are competing in the premium-sports sector and none have the range that Tesla does.

Customers

The business model represented by Tesla has two main groups of customers:

1) Individuals who wish to purchase a novel, eco-friendly car (currently the Model S but the new Model X, a crossover vehicle will also start shipping in 2015)

2) Original Equipment Manufacturers (OEM’s), e.g. Toyota and Mercedes who want to buy Tesla’s electric powertrain technology

Engagement  — Value Creation Proposition

In the Model S, Tesla has designed a car with higher performance than its competitors with lower environmental impact. It did this by taking a higher risk approach when designing the battery pack, than would have been taken by conventional safety conscious traditional car companies. This proprietary technology is now available to the world through open source patents.

When you buy a Tesla it comes complete with integrated electric vehicle technology that gives the product leading performance for any production electric car, and delivers superior performance to many of its class competitors. When you buy a Model S, Tesla offers free recharging at any of its fast recharge stations, for the life of the vehicle. Tesla also guarantees a buy-back price for used Tesla’s. The emotional value of owning a Tesla must also be stressed, since this is a well-designed car known to be radical and innovative; there is status value from owning the car, even when it is not being driven. Specifically, the main customer benefits for car buyers are as follows:

Low cost refuelling (recharging). Can recharge at home. Tesla state that based on average driving, consumers will save US$261 per month on electricity costs over petrol refuelling.

• Innovative high-tech brand

• Very high acceleration – equivalent to Ferrari

• Government grants for purchase

• Electric cars are allowed to drive in the car pool lane / bus lanes, significantly reducing commuting times.

• Often no city tax charges or road toll charges

• There is status from owning a Tesla that is unique, an ‘innovation leader’ and ‘eco-conscientious’

• Buy the car online, rather than having to go through a dealership

The fitting of navigation technology in the car is useful for finding recharging stations. As a network effect, California for example has now made it mandatory that all new homes built must have an EV recharging point fitted. Tesla’s gradual roll-out of rapid EV charging stations (that charge 80% of the battery in 20 mins), is essential to enabling greater customer range and will help reduce range anxiety.

• For Car Companies such as Toyota and Mercedes the benefits are:

• A ready to go technology that does not require so much R&D investment

• Speed to market for state-of-the-art electric vehicle technology

• Ability to work with the market leader, capture knowledge and understand better the technology

• A tried and tested technology in the market that is not at their risk

• A supplier they can sue and off-set potential brand damage if the technology failed in service

• Return on investment since they are shareholders

Delivery — Value Chain

Tesla has manufacturing and assembly facilities in the US and Holland, and is currently building a major battery manufacturing facility in the US. Customers order cars from Tesla through Tesla’s website. Customers can also see the car and book a test drive from a small number of showrooms. Because Tesla tightly controls the buying process it can ensure the customer experience is managed and consistent. Tesla then contracts with logistics companies to deliver the car to the customer.

For car companies who buy Tesla technology, they will work together to co-develop technology for the customer vehicle, to ensure it is fit for purpose in its new application. Once the systems have been validated through testing in the new vehicle application, detailed supply contracts will be put in place to ensure production parts are delivered to the customer’s final assembly plant. The car companies will then be able to sell complete vehicles with Tesla’s technology integrated (usually without crediting Tesla), in order to enter this emerging EV market using state-of-the-art technology that will ensure they can sell more products at a higher price and add eco credentials to their brand.

Monetisation — Value Capture

Depending on where customers are located, various tax credits for purchasing an EV are available (in the US these range from $7,500 to $15,000). Car customers either purchase the cars in an upfront cash sale, or over time through a leasing arrangement. Car sales in 2013 amounted to US$1.28B in revenue. Beyond this, Tesla have several revenue streams:

• Selling powertrain systems to other automotive OEM’s (Tier1 supplier to Toyota and Daimler).

• Selling solar energy from their supercharging station back into the power grid. This is seen as a minor revenue generator.

• Interest from finance packages offered
• Rental fees where this scheme is in place