Tesla Value Chain

Value Chain Analysis 1. Primary activities 1.1. Inbound logistics The most significant approach to for Tesla is inbound logistics. While this mostly entails in-house manufacturing, other parts are manufactured and delivered from various distributors in a timely way. This approach reduces the period of waiting while improving efficiency. Tesla motors currently have high levels of vertical integration in its manufacturing processes. Although ‘Model S’ uses over 3,000 purchased parts that are internationally sourced from over 350 suppliers and several major components for their other vehicles are outsourced; much of the manufacturing processes occur inhouse that enables them to maintain control over their quality standards and intellectual property. Tesla currently owns and operates two automobile manufacturing plants in California – Tesla Factory, and Nevada – Gigafactory. The latter is currently being developed and expected to be fully operating by 2016. By 2020, it is estimated that the Gigafactory will produce approximately 500,000 EVs annually. Total capital expenditure is estimated to be around $4-5 billion with half of that expected to be financed by Tesla (Tesla Motors, 2015). We use various raw materials in our business including aluminum, steel, cobalt, lithium, nickel and copper (Tesla Motors, 2017). Although they possess an adequate supply of these materials to ensure manufacturing and supply requirements are met, material prices are constantly fluctuating depending on market conditions and global demand. 1.2. Operations Tesla has its main operation centered Northern California which is highly automated with computerized robots. Both of Tesla’s factories are well equipped for several manufacturing operations including stamping, machining, casting, plastics, body assembly, paint operations, drive unit production, final vehicle assembly and end-of-line testing (Tesla Motors, 2017). Quality engineers are employed to work with engineering teams to ensure that functional design and durability requirements for their products are met as well as ensuring suppliers are efficient in delivering parts at the required quality level within a specified time frame and budget (Tesla Motors, 2017) 1.3. Outbound logistics The distribution channel of the company entails its store in 25 nations that have a significant role in educating people on the benefits of electric cars. The purchase of the cars is made in online platforms and showrooms. Neither does Tesla invest in traditional marketing nor contract an ad company. Instead, the firm has designed a network of its stores situated in high traffic and wealth locations to benefit its approach to brand awareness. Tesla currently distributes its vehicles to consumers directly through their online stores. They offer loans and leases for our vehicles in certain markets in North America, Europe and Asia primarily through various financial institutions. The also offered resale value guarantees or similar buy-back terms to all direct customers who purchase vehicles and who financed their vehicle through one of our specified commercial banking partners. Subsequent to June 30, 2016, this program is available only in certain international markets. Resale value guarantees available for exercise within the 12 months following December 31, 2017 totaled $ 375.7 million in value (Tesla Motors, 2017). Vehicle deliveries with the resale value guarantee do not impact their near-term cash flows and liquidity, since they receive the full amount of cash for the vehicle sales price at delivery. While they do not assume any credit risk related to the customer, if a customer exercises the option to return the vehicle to them, they are exposed to liquidity risk that the resale value of vehicles under these programs may be lower than their guarantee, or the volume of vehicles returned to them may be higher than their estimates or they may be unable to resell the used cars in a timely manner, all of which could adversely impact our cash flows. Through 2017, They only had an insignificant number of customers who exercised their resale value guarantees and returned their vehicles to them (Tesla Motors 2017). They currently offer vehicle leases in the U.S. for Model S and Model X directly from Tesla Finance, their captive financing entity, as well as through leasing partners. Leasing through Tesla Finance is available in 39 states and the District of Columbia. They also offer financing arrangements through our entities in Canada, Germany and the United Kingdom. Leasing through Their captive financing entities and their leasing partners exposes us to residual value risk (Tesla Motors 2017). 1.4. Marketing & Sales The firm also uses celebrities such as Morgan Freeman who has an influence in popularizing and fashioning images of Tesla products. Thus far, the primary driver of sales for Tesla has been media coverage and word of mouth. Both forces have enabled Tesla to achieve sales without the use of traditional marketing activities such as television, radio and print advertising, which would have otherwise resulted in high marketing expenditures. Tesla’s marketing efforts include holding ‘display and demonstration’ events. Additionally, they market and sell their cars through highly visible and premium company-owned outlets and galleries in major metropolitan locations. Tesla’s marketing and sales strategy allows them to offer differentiated and persuasive customer experiences that would not otherwise be present with franchised automobile dealers and service centers. This also allows them to retain better control over costs associated with inventory, warranty services and pricing as well as enabling them to maintain/enhance their brand and obtain prompt customer feedback (Tesla Motors, 2017). Currently Tesla’s marketing strategy is working in their favour by relying heavily on media coverage, word of mouth and industry trade shows to promote their brand. However, the longevity of their approach is doubtful as established automobile manufacturers plan to enter the EV market in the near future. This will inevitably lead to a change in Tesla’s current marketing practices, causing them to increase marketing expenditure so they can effectively compete with bigger companies who have the advantage of stronger brand awareness, larger customer base and considerably greater resources than Tesla. 1.5. Service The company also has service centers in Asia, Europe, and North America where it develops and expands free charging station for the customers thus advancing the product value. They provide service for their electric vehicles at their company-owned service centers, at our Service Plus locations or, in certain areas, through Tesla mobile technicians who provide services that do not require a vehicle lift. Performing vehicle service themselves allows them to identify problems, find solutions, and incorporate improvements faster than incumbent automobile manufacturers. Their vehicles are designed with the capability to wirelessly upload data to them via an on-board system with cellular connectivity, allowing them to diagnose and remedy many problems before ever looking at the vehicle. When maintenance or service is required, a customer can schedule service by contacting one of Tesla service centers or Tesla mobile technicians can perform an array of services from a customer’s home or other remote location. They provide a four year or 50,000 mile New Vehicle Limited Warranty with every new vehicle, subject to separate limited warranties for the supplemental restraint system and battery and drive unit. For the battery and drive unit on our current new Model S and Model X vehicles, Tesla offer an eight year, infinite mile limited warranty, although the battery’s charging capacity is not covered. For the battery and drive unit on our current new Model 3 vehicles, Tesla offer an eight year or 100,000 mile limited warranty for their standard range battery and an eight year or 120,000 mile limited warranty for our long range battery, with minimum 70% retention of battery capacity over the warranty period. In addition to the New Vehicle Limited Warranty, they currently offer for Model S and Model X a comprehensive maintenance program for every new vehicle, which includes plans covering prepaid maintenance for up to four years or up to 50,000 miles and an Extended Service plan. The maintenance plans cover annual inspections and the replacement of wear and tear parts, excluding tires and the battery. The Extended Service plan covers the repair or replacement of vehicle parts for up to an additional four years or up to an additional 50,000 miles after the New Vehicle Limited Warranty. 2. Support activities 2.1. Firm infrastructure Tesla motors adopted a flat/horizontal organizational structure with the CEO at the top making decisions and then delegating authority to lower level manager. Tesla Motors benefits from having flat organization structure due to better communication process and faster decision-making, eliminating delays and lag time. Elon Musk, who has necessary leadership qualities to build a strong corporate culture to perfect execution of company’s strategic vision, leads the management team. 2.2. Human resource management Currently employing over 6,000 employees in over 100 different locations (Radius, 2014), Tesla continues its plans to recruit and develop a high number of new talents from around the world to support its growth plans. Currently their team has core competencies in computer-aided design and crash test simulations as well as expertise in lightweight materials that will enable them to reduce the product development time of new models. However, as EVs are currently in the developmental stage, Tesla may face difficulties in recruiting experienced workers that will result in them having to dedicate substantial time and expense training new recruits. Tesla’s sales output is expected to grow dramatically in the coming years and a key concern for them is the limited number of specialized service engineers in their workforce, especially in Europe and Asia. This compels them to hire a high number of specialized staff in high voltage training and servicing techniques (Tesla Motors, 2015). Employing qualified workers is fundamental to the success of the business, as limited expertise will adversely affect customer relationships which will in turn impact the businesses ability to breed customer loyalty and sell additional vehicles. 2.3. Technology development As Tesla’s success in the market is based on the utilization and development of advanced technology, they rely heavily on introducing breakthrough innovations. The company-owned service centers enables their technicians to collaborate with their engineering and R&D team to identify problems with existing technology, create solutions and incorporate those improvements into their new output. R&D is the key part of Tesla Motors that allows being so competitive in their field that no other competitors can currently beat them. The company focuses on plowing back all free money on R&D to reduce the cost, remain innovative and sustain their image. It also adds the elegance to the product’s design that creates the impression of superior value and quality. All their ideas are protected with patents to decrease the threat of exploiting their invention and being copied. However, there is a risk that Tesla’s R&D efforts may be inadequate in adapting to new EV technology that may result in them being unable to source and integrate latest technology into their vehicles. 2.4. Procurement They have developed good relationship with strategic suppliers, such as partnership with Panasonic, allowing to gain significant benefits for each party and sharing of information and short-term agreements with other suppliers, to replace them with alternative sources in the case of their failure to provide necessary components. 3. Conclusion: Differentiation strategy Tesla motor has a focus differentiation strategy focus on people who are rich environmental conscious, attracted by stylish and beautiful car for a common customer it is very hard to buy a car costing more than 60000. Tesla cannot offer car at low price because they do not have large scale of production and capital to compete on low cost bases, thus tesla is focus on unique product design and advance technology which help to attract customer to buy the cars thus this make tesla in a stable position in current environment that gives core competitive advantages.