External Analysis

PESTEL Analysis

In order to distinguish and break down the fundamental elements of the company’s external
environment it is suggested to use PESTEL analysis (Academy, 2015). Figure below illustrates all
crucial external factors, which need to be considered while doing external analysis. PESTEL stands
for:

Taken from: http://www.professionalacademy.com/blogs-and-advice/marketing-theories---pestel-analysis

In the following
paragraphs, each factor is
going to be analyzed separately.

Political
By selling autos in many countries of North America, Asia andWestern Europe (Tesla, 2014), the
companyneeds to manage any political issues affecting its business operations. For example,one of
the main political aspects influencing on the industry is ecological assurance lawsto stimulate the
production of more environmentally friendly vehicles to meet the emanation levels(Environmental-
protection.org.uk, 2014). The next essential aspect is US government vitality advance projects for
innovative work of new vehicle advances (Department of Energy, 2014). For this situation,
numerous automobile producerswill be occupied with entering the new business sector in
automobile industry.
Economical
Nowadays, US market is most attractive for Tesla Motors, because of the economic growth and
level of GDP (Tradingeconomics.com, 2015). Figure 1 below illustrates the growth rate of US GDP
from 2013 to 2015.
Figure 1. US GDP growth rate (%). (Trading Economics, 2015)

In addition, financial elements incorporate monetary development in the option vitality commercial
ventures and increment in the expense of utilizing the autos for the most part because of the ascent
in technical service costs in the brief period. Accordingly, the interest for more-proficient autos is
higher than it used to be(BBC News, 2014).

The market shares of electric cars in US are gradually increasing (Voxeu.org, 2015). Small portion
of this growth are tax privileges and grants, which are provided by the government. Around half of
electric vehicle deals in the US to the $7,500 endowment given by the Federal Qualified Plug-in
Electric Drive Motor Vehicle Credit (Li et al., 2015).

Moreover, US Center for Automotive Research (CAR) reports that there is a potential positive trend
in auto industry. The latest report of CAR states that the positive pattern in auto deals and
production will proceed in coming years. The financial execution of the car segment and assembling
all the more extensively is imperative for both national and local economies in the U.S. Producing
and car industry patterns can represent the condition of the general economy, as times of
development can be specifically related to more extensive financial increases (Mitch Bainwol,
2015).
The CAR report, utilizing econometric displaying, estimatescar sales growth from 2013 to 2018 by
around 12.8 percent generally. The forecastsays that vehicles deals will proceed to consistently
increment throughout the following years (Mitch Bainwol, 2015).

Social
Social factorsare identified with expansion of natural concerns, dispositions and accentuation on
eco-friendly items. Consumers are losing confidence in gas fuel and related expense underway,
attempting to help the earth (Baki, et al. 2004). In addition, with no doubt the present society judges
individuals in light of the sort of the auto they claim (Autospies.com, 2015) and the thought of
having electric vehicles enhances the economic wellbeing of a person(Weissmann, 2015).

Technological
Fast globalization, technology development and the impact of the internet have considerably high
influence on the automobile industry. During the last years, innovation headway has taken spots
inside of the car business, including the presentation of totally electric cars in the market and
automation of cars made driver’s trip safer and more convenient (Haveit-eu.org, 2011).This prompts
to improve and develop further in car safety and comfortability. Besides, B2B stages and
commercial centers have additionally given expanded chances to the auto business, which gave the
opportunity to reduce cost and led to the growth of productivities (Kachaner,et al, 2011).

Environmental
Over the past few years, many companies, which are oriented in car manufacturing, start facing
reasonable pressure to produce environmentally friendlycars. Natural variables, for example,
expanding consciousness of climate change lead to changes in operations and organizations' product
itself, in light of the fact that clients are getting more mindful of ecological impacts of production

Legal
Numerous regulations exude from green developments presenting vitality advance projects and
putting weight on generation of eco-friendly autos, for instance, build tax collection to fuse the new
techniques for green business, the abundantly extended ― taxes and policies (Muller, 2013).
Another significant apprehension is franchise regulations in US that ensure auto merchants and
makes some problems to “Tesla” offering its auto directly to clients (Fisher, 2014). Different
elements that may influence the assembling of battery auto incorporate the assessment motivating
forces and endowments to expand the interest among buyers (Ministry of Transportation, 2010). The
factors that were covered all through the PESTLE examination created numerous chances for Tesla
Motors for more extensionand achievement of electrical autos inside car industry. On the other
hand, together with chances they likewise make dangers, accordingly, the organization ought to be
worried about fast innovation progression and governmental regulations inside of the business
where it functions

Porter’s 5 Forces
This is another tool for analyzing external environment and industry attractiveness.
Threat of new entrants
The level of threat of new entrants is high. Tesla itself confrontedthe difficulties of being the new
participant into the business sector having various budgetary inconveniences that required high
capital speculations whileentering the electric car industry in 2003. On the other hand, for
established car producers, which have substantial economic power to enter this business sector is
moderately low because of their capacities and administrative project support for creating electric
vehicle (Academia.edu, 2015).

The bargaining power of Buyers

Generally, the power of buyer is moderate, it can be considered as medium. Tesla’s Annual Report
(2014) shows that company depends on its association with Toyota and Daimler (Brown, 2013).
Tesla pays a great attention on partnership development, because they generate significant amount
of their profit by supplying these organizations and in this manner, they cannot lose them.
Nevertheless, Tesla also sells its autos to individual clients, and numerous government-motivating
forces give potential clients expense credit reasoning (Ministry of Transportation, 2010). These
programs increase the demand of electric autos, which makes power of buyers low.

The bargaining power of Suppliers

The power of suppliers is high, because as it was mentioned above the company is significantly
dependent on its suppliersand any issues with parts conveying will bring certain problems and
negatively effect on brand image. Moreover, they acquire different parts of their cars from around
200 suppliers all around the world(Tesla Motors, 2014).

Threat of Substitution
The risk of substitutes is impressively law in car industry, in light of the fact that there are just
couple of decisions in the substitution of auto. For example, strolling or biking that is extremely
trouble for long separations. In addition, public transportation, for example, buses; trains etc. can be
considered as a substitution as well. In any case, numerous individuals want to have their own auto
that is more beneficial
Competitive rivalry
Overall, competitive rivalry in car industry in US is extremely aggressive. However, Tesla position
itself within electrical vehicles market, where the competition is not so high nowadays, therefore it
can be concluded that competitive rivalry is low. There are only 18 current car models in the market
and the main competitors are Nissan Leaf, Chevy Volt and Portage Focus BEV (Insideevs.com,
2015).

Because of the fact that this business sector is extremely alluring and growing quick other famous
car producers are trying to introduce their own electric cars and enter the market. (E.g. BMW,
Volkswagen and Audi). Besides, each company is creating its own niche market by introducing
substitutes for eco cars such as: hybrid cars or biodiesel autos. Even though, the competition will be
considerably higher in a few years, Tesla Motors have to keep innovating and introducing new
solutions in the car industry market (Insideevs.com, 2015).
Internal analysis

Porter’s Value Chain

This part will describe Tesla’s internal properties and competences; it’s generation of returns to
shareholders. By evaluating the value chain analysis of Tesla Company, the potential and
sustainable competitive advantages will be identified.

In order to differentiate their brand Tesla Motors attempts to manufacture superior products and
exclusive technology. The core competencies of the company are conveyed through the
accomplishments in their value chain, which builds customer value. In the process of clarifying the
available information, it has categorized in actual value development.

Inbound Logistics
 Gigafactory
 IN-house production
 Numerous suppliers
 JIT

Operations
 Technical Expertise
 Vertical integration
 Innovated/automated
 Easy reprogramming
 Quality of Vehicle

Outbound Logistics
 Owned stores (18 countries)
 Online reservation
 Showrooms


 Elon Musk
Marketing and Sales  Superchargers
 Word of Mouth
 Short movies
 Campaigns
The company has applied most of their value chain parts by implicating design, manufacturing and
sales. Basic machineries are manufactured and transported from numerous suppliers, and most
important machineries Tesla produces in-house (Bowman, 2010). Also, Gigafactory will provide
considerable scale advantages and the manufacture will be vertically integrated (Tesla Motors,
2014). Also, the price of automobiles is non negotiable, that’s why the company implement the
vertical integration on selling. The Gigafactory will help to construct the Gen3 with 200 miles
assortment.

Following the operations of Tesla, the cars are manufactured in Northern California, Fremont
factory with all compulsory producing operations (Tesla Motors, 2014). Production process is
highly mechanized and updated. This decreases overhead necessity and makes the producing
process more cost effective. Multi functional robots can manufacture up to 83 vehicles per day with
producing the variety of car models (Hill, et al, 2014). Tesla motor has introduced three models of
vehicles into automobile industry: sedan Tesla Models S, Model X and Tesla Roadster. The
vehicles present a sizeable competence for the range along of the quality of energy stored in high-
powered battery. Tesla knows well about battery packs and its management system (Tesla Motors,
2015). They updated Tesla Roaster with 1000 of laptop Lithium cells and provided it with cost
optimized battery pack, when Tesla Model S provided with Panasonic sell battery packs (Tesla
Motors, 2015). The battery is usually sold to clients along with the automobiles and with
opportunity to purchase it when the old one needs to be changed.
The distribution channel of Tesla Motors comprises their own stores in 18 countries. The stores are
located in visible areas in shopping malls and high foot traffic streets in order to involve the clients
when they are open-minded and create brand awareness (Tesla Motors, 2014). For instance, some
celebrities, such as Morgan Freeman and George Clooney etc. have a big influence on popularity
and fashionable brand image of Tesla. Tesla motors applies new multi channel model for acquiring
vehicles, which includes online stores and retail outlets. The online purchasing helps potential
customer to buy a car online in a suitable way.

The noticeable competitive advantage of Tesla is supercharger networks. The company have 110
public free charging stations in North America and Europe and one station in China (Tesla Motor,
2016).

Moreover, when other companies rely on traditional advertising, Tesla focuses on word of mouth
and media coverage. The company doesn’t spend money on traditional marketing and doesn’t
approach advertising agencies (Foley, 2013). Furthermore, the company made web based short
movies in You Tube (Tesla Motors, 2014).

Tesla implemented flat/ horizontal structure in organization and strong leadership (Tesla Motors,
2014). Due to good communication, fast decision-making, Tesla has flat organization structure (Hill
and Jones, 2008). As for procurement, the company has settled good relationship with suppliers,
such as Panasonic (Ellram and Krause 1994, cited in Waters, 2003) and short-term contracts with
other strategic suppliers (Tesla Motors, 2014).
SWOT analysis
SWOT highlights the key concerns from the external analysis and internal strategic analysis. The
first part of the exploration focused on value drivers, such as external opportunities and threats that
can impact on profit margin and growth, when another part is about internal strength and
weaknesses analyses that can influence negatively to the organization structure. Thus, it is intended
to build a designed sketch of Tesla’s strategic positions.

Strengths:
 Outsourcing of secondary apparatuses provides with low cost of operations.
 Strong developed R&D department
 Extremely innovated technology with advanced software and hardware. (ability to charge
cars at home)
 Elegant and luxurious design provided.
 High innovative manufacturing process by using powerful 3d printers, automations and
robotics.
 High effectiveness of production battery systems and electric powertrain.
 Good relationships with partners and investors, such as Google, Tayota Motors and
Panasonic with bringing mutual benefits to all parties.
 Vertically integrated value chain admits the quality and cost control.
 Well-based brand perception.
 Good location. They are manufacturing their car in California and they can find numerous
electrical and computer engineers there.
 Low marketing expenses
 Company owned stores
 The Gigafactory
 No environmental pollution about Tesla’s cars.
Weaknesses:
 Long-term liquidity risk is high
 Delaying with delivery operations on time due to time of production
 Inadequate infrastructure applied around electric cars
 Limited superchargers for electric vehicles
 Limited producing capacity
 The shortage of lithium battery cells
 Full reliance on suppliers
 Limited operating history and deficiency of brand recognition
 Limited marketing strategy

Threats
 Future growth of customer demand
 Delays in delivering automobiles to its clients
 Competitor’s advantage (knowledge of competitors in auto industry)
 High raw materials prices
 Possibility of developing alternate energy powered vehicles
 Limited EV infrastructure support

Opportunities
 Customer awareness of advantages of purchasing electrical vehicles
 The substantial growth in petroleum prices can lead to switching
 Big international market potential
 Increase of oil and gas prices can lead to increase in Tesla’s customers.

From a technological point of view Tesla has many strengths, but it also suffers from a lot of
weaknesses. One of the biggest threats is the limited EV infrastructure even in the US, and the big
competitive advantage of the competitors in terms of financial capabilities and manufacturing
capacity. Certainly there is a huge international market potential, with electric vehicles bound to
become one of the most sought for transportation, especially when the shortage of petrol will begin.
We would also like to point out the potential development of even more energy efficient power-
trains by the likes of Honda. Honda has been developing and has already presented its hydrogen
powered engines, which are easy to maintain, much more powerful than EV and more efficient in
terms of maintenance and refueling.
TOWS
Strengths and opportunity
 Established partnership with such well-known companies will contribute the trust of Tesla’s
customers, will attract future investors and develop strong brand recognition.
 Focus on technological advancement primarily due to low cost operations

Strengths and Threats

 Use partnership with Daimler to lower prices of raw material through sourcing them from
low cost suppliers
 Increase R&D to further decrease the cost of production
 Reliance on suppliers can lead to destruction of brand image

Weaknesses and Threats

 Improve the delivery system in order to avoid customer switching
 Decrease the level of dependency from suppliers in order avoid the delay of raw materials
 Expand the range of models by classifying premium and low premium automobile segments

Weaknesses opportunity
 Develop strong marketing strategy in order to attract new customers
 Establish strong customer awareness of advantages of buying electrical cars by increasing superchargers and
batteries packs

Competitor Analysis for Tesla Motors

Market Share Comparison for 2014/2015

In the external analysis of Tesla motors it has been identified that the company is operating in a new,
but rapidly developing segment of the automobile industry. The larger manufacturers like GM,
Toyota, Mercedes Benz, BMW and Nissan are all developing their own electric or hybrid vehicles,
and with much larger financial capabilities than Tesla, they have been able to quickly catch-up to the
world’s most innovative car manufacturer in many aspects. In this section we will review the current
competition, and namely analyze the direct competitors of Tesla cars from manufacturers like
Nissan, BMW, Toyota and also look into the capability of other alternate energy powered cars from
Honda.

The main competitors of Tesla Motors in world and primarily USA market have been increasing
their sales and getting really close to Tesla Model S in terms of technical capabilities.

Figure 1 Electric Car Sales in the USA Q4 2014 statistics

Nissan with its Nissan Leaf has been the dominant leader of the US market in terms of sales. The
under $30 000 price tag for the Leaf more than makes up for its inability to match the range or
power output of the Model S from Tesla. On another note Tesla has been surrounded by strong
competitors in the Chevrolet Volt, BMW i3, Ford Fusion Energy and Mercedes Benz B-Class. In
terms of sales, Tesla has underperformed according to the company itself, which has attributed this
to the mild slump in the economy worldwide and that the majority of US customers were on
vacation at that period. The Volt and the i3 saw a great increase in sales in 2014. This situation
carried on further to 2015 with slight changes.

In 2015 based on the available data

Tesla has regained market share.
 According to Kane (2015) after the start of 2015 Tesla has got a 19.7% market share, while the
Figure 2 EV Sales in the beginning of 2015
Nissan Leaf is on second place with an
approximate 17.4% of US market share. Interestingly BMW
has surpassed Chevrolet with its BMW i3 model which sold
just over 3000 units in the first quarter of 2015, compared to
2770 units by Chevrolet. Another big player n the EV market
of the United States is Fiat with its 500e model and 8.0%
market share. Ford Fusion Energi comes in 6th place with
7.9% of market share, while Ford C-Max Energi is on 7th
place with 6.7%. Toyota with its Prius PHV is on 8th place
and a 5.2% of the total market share. Interestingly the Tesla
Model S is the only luxury oriented vehicle in the top 5 of this
list. Its closest competitors like the BMW i8, Porsche Cayenne
S E-Hybrid and Porsche Panamera S E-Hybrid have 1.5% and
less than a 1% market share. This clearly indicates that
currently the level of innovation used by Tesla and its ability
to attract customers is allowing the company to hold the
largest market share in the EV industry of USA, even with
one of the highest vehicle prices as you can buy two Nissan Leafs for the price of a single Model S,
and still have some money on your hands.

Overall Tesla has regained its market leading position in its primary market and the increased
investments of the company into its production facilities (building a new battery manufacturing
plant in Nevada) show that the company is looking into further expanding the horizons. However,
several analysts and specialists in the industry of automobile manufacturing have warned investors
that, while Tesla’s business model is currently working and the company is showing Year over Year
growth (will be further demonstrated in the financial analysis section), it has yet to fully provide a
mass market car (Model 3 and the Model X), as its current Model S is primarily for the luxury
oriented buyer. In this case however, DeBord (2014) has argued that while Tesla is superior in terms
of technology and design of EV’s, it lacks the ability to manufacture hundreds of thousands vehicles
a year. Certainly the new plant in Nevada will provide some of that ability, but still it will be far
from the 200 000 - 300 000 vehicles mark, which is easily attainable by the likes of GM, Toyota and
Nissan. Currently the main competitors of Tesla are Porsche, BMW and Mercedes Benz, although
the last one is also the partner of Tesla and according to the research has several agreements with
Tesla to use its future technology in its own vehicles through an agreed technology patent transfer
policy developed by Tesla and Daimler AG. Right now the market insiders are claiming that large
manufacturers have no intention of investing heavy into this industry. They are feeling the ground
with a few selected models and are more concerned about the risks of EV’s. They have short range
and charge much longer compared to petrol engines. For them the ideal plan is to allow Tesla to
pave the road and see how it performs with its mass market offerings. The main question is - is the
mass market ready to switch to Electric Vehicles or not?

Another potential problem is the price of production for Tesla compared to its main competitors.
Currently the company is promising a $35 000 price range for its mass market Model 3, but this is
still more expensive than the Nissan Leaf or the Spark by Chevrolet. Tesla will most likely be
superior in terms of range and power output, but at this price range the customer are much more
sensitive than compared to the price range bolstered by the Model S. At this price range even a
difference of a few hundred dollars often decides the success of one brand and the failure of the
other. The current largest auto manufacturers like Toyota, GM and Nissan are the biggest threat to
the mass market offering of Tesla, while luxury manufacturers like BMW, Audi, Mercedes Benz
and Porsche pose a serious threat for the Model S and any other model that Tesla is planning to sell
in the same price range in the future. At the moment the Model S is by far the most sold EV on the
North American market thanks to its unparalleled range of its batteries. The offerings of other
luxury segment EV’s are more expensive, have less range and some of them are mostly hybrids.
Balakrishnan (2015) argued that while it is a big question on how the larger manufacturers will
compete against Tesla technologically, their abilities far surpass Tesla’s in the financial capabilities
department. Also there are increasing rumors of the likes of Apple and Google on launching their
own EV models by 2020, and it is expected that they will have the full range of capabilities of
current and future Tesla vehicles. As a result the competition of Tesla is not making rushed
decisions and have employed a waiting tactic, aimed to see what can Tesla achieve and is there a
market for mass manufactured EV’s. The current luxury EV market is not too profitable as shown
by Tesla, but if customers start switching to cheaper EV’s then it is certain that Toyota, Nissan, GM
and many other manufacturers will start a rapid development of new vehicles and EV technology.
Thus Tesla must develop a much stronger competitive advantage in different aspects of the business
to be able to hold off the assault of the much larger manufacturers.
Financial Performance of Tesla and its closest competitors

One of the best ways to analyze a company on its current and historical performance is to look at its
financial efficiency. By going public Tesla Motors has been publishing its financial performance
data every year since 2008 and we have undertook an in-depth analysis of the firm’s financial
performance for the last 5 year period. In addition we have calculated the most important ratios to
demonstrate the performance of the company over the latest period.

First of all Tesla Motors main financial and operational facts have been compared to those of its
main rivals like GM and Toyota and the industry average.

  Tesla Toyota GM Industry At the moment Tesla Motors market

Market Cap:
30.33B 187.6B 56.55B 44.54B capitalization is estimated at $30.33 billion, with
Employees:
10,161 344,109 216,000 116.32K

Qtrly Rev
its shares hitting $231 mark after some problems
Growth (yoy): 0.1 N/A -0.01 0.12

Revenue (ttm):
3.79B 227.63B 152.35B 55.48B
earlier in the year caused by the lower than
Gross Margin
(ttm): 0.26 N/A 0.12 0.2 expected sales at the end of 2014. However, as
EBITDA (ttm):
indicated earlier Tesla is a much smaller company
-184.29M N/A 13.45B 4.54B

Operating
Margin (ttm): -0.14 N/A 0.04 0.06
Net Income
(ttm): -675.90M 18.16B 4.53B N/A
than any of its direct rivals. For instance Toyota
EPS (ttm):
-5.33 N/A 2.73 2.04

P/E (ttm):
N/A N/A 13.34 12.72

PEG (5 yr
expected): -1.83 N/A 0.35 0.45

P/S (ttm):
7.94 N/A 0.37 0.68
boasts a whopping $187.6 billion market capitalization and GM has almost twice as more than Tesla
at $56.55 billion. But, while Tesla plans to sell around 55 000 vehicles in 2015, Toyota and GM will
sell almost 10 million units each. The lower capitalization of GM is brought by a huge decrease of
sales in Europe and Asia, but its US market is still strong. On the other hand, many analysts have
provided that Tesla has an over inflated market cap, which has been acknowledged even by its found
Elon Musk. The firms is yet to turn a profit with its Net Loss being at -675 million which is their
best result over the company’s lifecycle. At the same period Toyota earned $18.16 billion and GM
had a Net Income of roughly $4.53 billion. The industry standard EBITDA is around $4.54 billion,
while Tesla only recorded a loss of -184$ million. Their gross margin is higher than the industry
average, and this is primarily due to the fact that they sell luxury sedans. The number of employees
is just over 10k, while Toyota employs 344k and GM has a 216k large workforce. EPS is one of the
worst indicators for Tesla, as it has not been positive yet. While the industry average earning per
share is at 2.04, the company recorded only -5.33$ per share. Even the rest of their general financial
indicators are way off the industry averages and are not even close when comparing to the likes of
Toyota or GM. One of the main reasons is the size of the company and its production capacity. It is
a rather small tech company which is only being developed and money is invested into Tesla with
the goo outlook on the future of the company. But one of the main concerns is that even the current
technological advantages of Tesla can be imitated by other manufacturers in a year or two. Thus
from the general point of view Tesla has to hit profitability and rapid growth in financial
performance really fast, if the company wants to be able to attract new investors and expand its
production level to at least several hundred thousand units a year and become a serious threat to the
larger players in the most short amount of time possible.

Tesla Financial Ratios Analysis

To further analyze Tesla’s financial performance a thorough assessment of the key profitability and
liquidity ratios has been undertaken.

Profitability 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12

Net Margin % -561.54 -49.79 -132.19 -124.56 -95.88 -3.68 -9.19
Asset Turnover (Average) 0.34 1.23 0.45 0.37 0.45 1.14 0.77
Return on Assets % -224.35 -191.32 -61.21 -59.76 -46.28 -43.36 -4.19 -7.11
Financial Leverage (Average) 1.86 3.18 8.94 3.62 6.42
Return on Equity % -118.03 -227.22 -18.69 -37.25
Return on Invested Capital % -64.97 -72.34 -4.55 -8.45
As you can see there is a positive dynamic in the key ratios like the Net margin starting from 2008 at
-561.54% and growing close to zero with -3.68% in 2013 when the company started to see an
increase in the sales of its top earner the Model X. Asset Turnover is an important ratio which
analysis the efficiency of the company in using its assets to generate sales revenue. Overall a higher
asset turnover means that the company is performing better. In the case of Tesla we can see big
fluctuations of this ratio. Although the general trend is upward sloping, this means that the company
is becoming more efficient with its assets. This is further underlined by the increasing return on
assets over the last 6 year period up till 2013, while in 2014 the company has seen another decline in
this ratio, just like in the majority of other indicators. The Return on Equity has seen dramatic
growth in 2012 and 2013, but in 2013 it decreased slightly to -37.25%. Overall the profitability
ratios are negative, but have generally positive trends meaning that with some additional sales and
expansion, Tesla will be able to turn into profits, as expected by the investors and the founders.
Nonetheless it is very early to compare Tesla and its possible profitability with other larger players
like Toyota or GM.

Liquidity/Financial Health 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12 Latest
Qtr
Current Ratio 0.43 0.36 1.75 2.76 1.95 0.97 1.88 1.52 1.17
Quick Ratio 0.34 0.14 1.27 1.24 1.51 0.42 1.33 1.01 0.61
Financial Leverage       1.86 3.18 8.94 3.62 6.42 5.74
Debt/Equity       0.35 1.21 3.3 0.9 2.06 1.54

Another great measure of a company’s financial performance and health are the set of liquidity
ratios, Liquidity is important as the company must find the perfect balance between its liquid assets
and their ability to cover short-term liabilities of the company. The most general ratio used for
measuring liquidity is the current ratio. Here we have used both the liquid and illiquid assets of the
company and measured their ability to cover the liabilities of the firm. According to the calculation
Tesla has had a positive current ratio since 2007, but in 2009 it has accumulated enough assets to
cover all of its liabilities. This is marked by the huge investments attracted by Tesla which has
constructed new facilities and assembly lines in such a short period. Another great liquidity ratio is
the quick ratio that analyzes the company’s ability to meet its short term liabilities with its most
liquid assets excluding inventories. In this case Tesla Motors has also become rather capable of
covering its short-term obligation and especially since 2009 has had a perfect quick ratio, except for
2012. Overall the first measures of liquidity show that the company is rather healthy from this point
of view, but it is not using its cash effectively. The golden rule of liquidity is that it should be
sufficient to cover obligations but the rest of the cash or liquid assets must be properly utilized so
that the company can always have a close to 1 ratio. The financial leverage ratio has increased
dramatically, while the Debt/Equity ratio has also increased meaning that the company has been
aggressively using debt as a means to finance its expansion. While this increases investors risk, the
liquidity of Tesla is high and the company is close to obtaining a good equilibrium in terms of
leverage and risk. One thing is certain, is that at this point Tesla could not have generated this much
earnings and be close to breaking even without the help of external debt financing. Thus in this
context debt and leverage increases have been fueling the company’s earnings by allowing it to
expand their business much quicker than they would be able to achieve through a more organic
development approach.

Summary of Financial Analysis

Overall Tesla is rapidly developing, which seen through its very aggressive usage of leverage
through debt to fuel its expansion and increase supply of its product. The big question is the over
liquidity of its current assets as it shows that the company is yet unable to effectively is the extra
cash on its hands. Probably this is due to the increased financing; the company has been able to
generate more cash in a much shorter time frame. One of the biggest problems is its inability to turn
a profit for the whole analyzed period. The company is not paying dividends as it has no profit, the
net loss is decreasing, but without providing a fresh, budget oriented electronic vehicle the company
will earn a bad reputation among investors. Certainly they are investing with the hope of a bright
future, and technologically Tesla is far superior in its own way compared to Toyota or Nissan or
General Motors. But it is way smaller in terms of sheer size and thus must operate with a higher
profit margin, meaning that their cars are the most expensive EV’s on the market in their respective
segments. The launch of the new power bank plant in Nevada has promised to cut production costs
by 20%-30% for Tesla, and this would a real game changer in the current situation. As soon as Tesla
will be able to bring profits on year over year basis then it will be able to stabilize its leverage levels
through increased equity. This in return will have a more positive impact on the whole risk level of
Tesla as a company and they might be able to attract even larger investors to further expand their
R&D and production. Although the founders of Tesla have stated several time that they do not want
to be the clear market leader in terms of sales, they want to force a change in the whole industry and
become the pioneers of a new automobile industry. However their current actions suggest that
dominance in the EV market is their goals as well and their rapid development and launch of new
services and products only shows how much the company is willing to risk becoming unreachable to
the larger, more financially solid, competitors in terms of technology. This is the main conclusion
derived from the analysis of the financial performance of Tesla and the analysis of its competitors
and the general external and internal environment of the company.

Tesla Strategy Recommendations

In most cases when devising a new strategy one can apply the standard tools of strategy formulation
like the Porter’s generic Strategies or Bowmen’s Clock. However in the case of Tesla Motors it is
difficult not to choose anything apart from Focused Differentiation as the main strategy. The
company cannot compete with the bigger competitors in terms of production costs and thus
becoming a cost leader is practically impossible. For this part of the report we have selected two
ways in which Tesla can further develop their company to make sure that it can sustain its
competitive advantage over the closes rivals.

Strategy #1 Increase competitive advantage through focusing on R&D

One of the main threats to Tesla is the financial capabilities of their competitors. The financial
analysis of Toyota and GM has shown that both companies earn billions in profits and thus can
easily invest much more money than Tesla into their R&D of EV’s. Thus Tesla must pursue two
main goals through its R&D. The first is to minimize the costs of production. By doing this the
company will be able to market cheaper cars and thus compete for a larger portion of the market
population. Having a price advantage and a strong brand image will give Tesla an additional edge
over their competitors like the Nissan Leaf and GM Volt. The current Model S by Tesla is not a
cash-cow product. It is more of a Star product which at the moment is unable to financially cover all
of Tesla’s costs. Being much more expensive than most other electric vehicles, the Model S is a
niche product for the smaller and richer part of the population. On the other hand through focused
research and development they will be able to deelop more efficient technology in terms of
manufacturing costs and market a mass market oriented vehicle like the Model 3 or Model X. Based
on the current core competencies of Tesla, like their strong R&D focus, charismatic leadership and
good product quality, they could become a real hit among the mass-market and seriously develop
their market stance in the EV industry.

Strategy #2 Increase Model Range

Currently Tesla is focused on a very limited range of vehicles. Certainly launching additional
models requires time and an increased capacity of production, which Tesla currently lacks. Thus
their primary accent must be on developing additional manufacturing capacity. Outsourcing
assembly is not an option as there could be serious issues with quality or leakage of technology. The
company must not only build additional assembly lines, but also develop vertically, meaning that
they must limit the number of spare parts from other manufacturers. All of this is a rather difficult
step, but which Tesla must take if it wants to keep intact its own strategic outlook and brand image.
Certainly the company could go the other way by announcing a deal or a partnership with a larger
manufacturer, but then it would seriously risk losing its core clients and customer base and the value
of their brand would diminish.

Conclusion

In this report we have analyzed Tesla Motors Company, its current external and internal
environments. An id-depth analysis of the financial performance of the company for the last 6 year
period has been provided. Tesla has experienced a positive dynamic, but is yet to achieve profits.
Nonetheless is has been able to attract financing for rapid business development, although mostly
through debt. Tesla will soon achieve profits and the investors can increase the share of equity in the
business. From a strategic standpoint there are two main options that currently are most realistic and
would add to the cause of the brand and its founders. Firstly we recommended them to achieve
lower production costs by focusing on R&D of cheaper manufacturing and sourcing of parts and
technology. The second recommendation is to become a larger manufacturer with introducing new
models like the long anticipated Model 3 oriented for the mass market. All findings have been
presented in the report.
Bibliography
Academy, P. (2015). Marketing Theories - PESTEL Analysis. [online] Professionalacademy.com.
Available at: http://www.professionalacademy.com/blogs-and-advice/marketing-theories---pestel-
analysis [Accessed 23 Nov. 2015].

Energy.gov, (2014). Loan Programs Office | Department of Energy. [online] Available

at:http://energy.gov/lpo/loan-programs-office [Accessed 23 Nov. 2015].

Environmental-protection.org.uk, (2014).Car Pollution | Environmental Protection UK. [online]

Available at: http://www.environmental-protection.org.uk/committees/air-quality/air-pollution-and-
transport/car-pollution/ [Accessed 23 Nov. 2015].

Radingeconomics.com, (2015). United States GDP | 1960-2015 | Data | Chart | Calendar |

Forecast | News. [online] Available at: http://www.tradingeconomics.com/united-states/gdp
[Accessed 23 Nov. 2015].

BBC News, (2014).Petrol price reaches record high. [online] Available

at:<http://www.bbc.co.uk/news/business-17490088>[Accessed 23 Nov. 2015].
Baki, M., Copus, S., Green, M., Highfill, D., Smith, J. AndWhineland, M. (2004)Automotive
Industry Analysis - GM, DaimlerChrysler, Toyota, Ford, Honda, Kansas State University,
Unpublished.
Autospies.com, (2015). Can You Judge A Person By The Type Of Car They Drive? - AutoSpies Auto
News. [online] Available at: http://www.autospies.com/news/Can-You-Judge-A-Person-By-The-
Type-Of-Car-They-Drive-27859/ [Accessed 23 Nov. 2015].

Weissmann, J. (2015). How Should We Define “Rich” in America? [online] Slate Magazine.

Available at:
<http://www.slate.com/articles/business/moneybox/2014/08/defining_rich_in_america_what_are_th
e_income_cutoffs.html> [Accessed 23 Nov. 2015].
Haveit-eu.org, (2011).Driving without a Driver –  Volkswagen presents the “Temporary Auto Pilot”.
[online] Available at:http://www.haveit.eu.org/displayITM1.asp?ITMID=117&LANG=EN
[Accessed 23 Nov. 2015].

Kachaner, N., Lindgardt, Z. and Michael, D. (2011). Innovating low-cost business models. Emerald,
[online] 39(2), pp.43-48. Available at:
<http://www.emeraldinsight.com/case_studies.htm/case_studies.htm?
articleid=1911692&show=html>[Accessed 23 Nov. 2015].

Academia.edu, (2015). Tesla motor's strategic analysis. [online] Available at:

<https://www.academia.edu/7563935/tesla_motors_startegic_analysis> [Accessed 24 Nov. 2015].

Ministry of Transportation, (2010).Newsroom: Ontario Paves the Way for Electric Vehicles.
[online] Available at: http://news.ontario.ca/mto/en/2010/06/ontario-paves-the-way-for-electric-
vehicles.html [Accessed 23 Nov. 2015].

Muller, J. (2013).The Real Reason Tesla Is Still Alive (And Other Green Car Companies Aren't).
[online] Forbes. Available at:http://www.forbes.com/sites/joannmuller/2013/05/11/the-real-reason-
tesla-is-still-alive-and-other-green-car-companies-arent/ [Accessed 23 Nov. 2015].

Fisher, D. (2014).Tesla'sElon Musk Learns An Old Lesson Fighting  Protectionist Dealer Laws.

[online] Forbes. Available at:http://www.forbes.com/sites/danielfisher/2014/03/18/teslas-elon-musk-
learns-an-old-lesson-fighting-protectionist-dealer-laws/ [Accessed 23 Nov. 2015].

Tesla Motors, Inc., (2014).Form 10-K Annual Report. Palo Alto, California. [online]Available at:
http://ir.teslamotors.com/secfiling.cfm?filingID=1193125-14-69681&CIK=1318605 [Accessed 23
Nov. 2015].
Brown, N. (2013). Daimler Wants Increased Cooperation With Tesla Motors.
[online]CleanTechnica. Available at: http://cleantechnica.com/2013/11/07/daimler-wants-increased-
cooperation-tesla-motors/ [Accessed 23 Nov. 2015].

Insideevs.com, (2015). February 2014 Plug-In Electric Vehicle Sales Report Card | Inside EVs.
[online] Available at: http://insideevs.com/february-2014-plug-in-electric-vehicle-sales-report-card/
[Accessed 24 Nov. 2015].

Oxeu.org, (2015). Measuring the environmental benefits of electric vehicles | VOX, CEPR’s Policy
Portal. [Online] Available at: http://www.voxeu.org/article/measuring-environmental-benefits-
electric-vehicles [Accessed 27 Nov. 2015].

Li, S, L Tong, J Xing, and Y Zhou (2015), “The market for electric vehicles: Indirect network
effects and policy impacts”, working paper, Cornell University.

Mitch Bainwol, A. (2015). Automobile industry leads U.S. economic recovery. [online] POLITICO.
Available at: http://www.politico.com/sponsor-content/2015/01/automobile-industry-leads-us-
economic-recovery [Accessed 27 Nov. 2015].

Grant, R. M (2010), Contemporary Strategic Analysis, 7th edition. John Wiley & Sons Ltd.

Barney, Jay B. and Hesterly, William S. (2012), Strategic management and competitive advantage,
4th ed., p. 68

Hill, C. and Jones, G. (1998).Strategic management .2nd ed. Boston: Houghton Mifflin Co.
Tesla Motors – Annual Report 2009, 2010, 2011, 2012, 2013, Q12014

Amit, R., &Zott, C. (2001). Value creation in e-business. Strategic Management Journal, 22(6-7),
493–520. http://doi.org/10.1002/smj.187

Mcintyre, D., (2015), Tesla Market Cap Hits Half of GM’s, [online] Available at:
http://247wallst.com/autos/2015/06/22/tesla-market-cap-hits-half-of-gms/ [Accessed 27 Nov. 2015].
Balakrishnan, A., (2015), Titans take aim at Tesla, [online] Available at:
http://www.cnbc.com/2015/09/15/titans-take-aim-at-tesla.html [Accessed 27 Nov. 2015].

DeBord, A., (2014), Analyst Says Tesla's Competition Is The 'Entire Auto Industry', [online]
http://www.businessinsider.com/analyst-says-teslas-competition-is-the-entire-auto-industry-2014-9
[Accessed 27 Nov. 2015].