Tesla Case Study

Lesson # 6 Case Study

• Allan L. Dy
• Krystle L. Garcia
• Rudolfo G. Garcia
• Jose Maria C. Navarro
• Eileen A. Pesigan
• International American University
• BUS590: Business Strategy - 2016 Spring 1 - Section F

Professor Catherine M. Dolan Garcia, PhD

February 14, 2016

        The “new kid on the block” is usually the one neglected, overlooked, sometimes unfortunately bullied and most often tested first to see if he/she would blend in with the community.  Acceptance is not instant but matures over time, unless he/she brings along something outstandingly new. Perhaps Tesla is an exception. As the newest and youngest among today’s car manufacturing companies, Tesla has made a rather better than average entrance into a field dominated by long time Japanese, European, American and Korean automotive veterans. And so far, it has seemingly passed its first test of first impression as the “new kid on the block.”  This paper looks into the progression of the industry’s first fully electric vehicle that outlasts every other similar model in the electric vehicle category.

HISTORY AND BACKGROUND

        Everything started when product designer Malcolm Smith got a call from his friend Martin Eberhard and was invited to the shop.  Here, he was introduced to a proto-type electric car they wanted to build. Smith was skeptical at start but was invited to ride a strange tiny yellow car.  As soon as Eberhard hit the accelerator, the car leaped to 60mph in less than 4 seconds. Smith knew no other car can give a 100% torque in an instant, and soon after, Smith became one of the first 20 employees of Eberhard.

        Tesla Motors is named after electrical engineer and physicist Nikola Tesla. It was incorporated in 2003 by Martin Eberhard and long-time friend Marc Tarpenning. Elon Musk joined Tesla in 2004 as Chairman of the Board. He was the controlling investor in Tesla from the first financing round, funding the large majority of the Series A investment round of $7.5M with his personal funds. Tesla’s primary goal was to develop, market and commercialize electric vehicles and to prove that electric cars could be better than gasoline-powered cars.

        The Tesla Roadster, the industry’s first fully electric sports car was introduced in 2008.  It is also the first to use lithium-ion battery cells that enables the car to accelerate from 0 - 60mph in 3.7 seconds and achieving a range of 245 mph per charge.  Two years later in 2010 Tesla started producing right-hand Roadsters.  The Model S, a fully electric luxury sedan that provides the comfort and utility of a family sedan while achieving the acceleration of a sports car: 0 – 60mph in 5 seconds was launched in 2012.  The highly anticipated Model X, a fully electric crossover followed in 2015 and it features an exhilarating acceleration, falcon wing doors,

and room for three rows of seating.

        Tesla’s vision is to create the most compelling car company of the 21st Century by driving the world’s transition to electric vehicles with the safety of its customers and their families among its main priorities. Pricing starts at $35,000.00 and up.

PROBLEMS

1. Battery and charging concern        s:

        Tesla’s battery life has been proven to fall short on long trips in areas where charging stations are scarce. Like all electronics, this car relies on electricity which limits its range to places where charging stations are within reach and available.  

1. Dealers worry about Consumer Protections:

        Tesla continues to battle state by state to launch its new storefront-based sales model despite opposition from dealer associations. Dealership groups prevent the company’s direct sales model from entering a number of states.  They are in dispute in at least 14 states. Texas and Arizona banned its stores. New York can operate in only 5 existing sales locations but cannot open new outlets unless they are owned and operated by an independent dealer.  Ohio approved 3 sales locations only and blocked Tesla and other OEMs from obtaining any future direct sales licenses.

1. The Brick:

        Tesla’s Roadster apparently suffered from a severe limitation that largely destroyed the value of the vehicle. It was described to be a “brick”. It means that the vehicle is completely immobile and cannot be started or even pushed down the street. The only solution is for owners to replace the battery for the price of $40,000. Tesla’s Warranty nor typical car insurance policies does not provide any protection from this major loss.

SOLUTIONS

        Tesla launched a new type of adapter that allows you to charge a Tesla car anywhere there’s an outlet. They are also in the process of strategically putting up more Super Chargers (stations in various convenient locations. Super Chargers, as Tesla named it, are the world’s fastest charging station allowing one to charge in minutes instead of hours to minimize stops during long distance travels.  

As for the presence in other sates, Tesla fought for and got the FTC’s (Federal Trade

Commission) regulators statement supporting Tesla’s model. Texas state is in the shortlist of their new $5Billion Battery Factory. Because of that, Texas Governor, Rick Perry said that they might revisit their state’s franchise and licensing laws. This is good news for Tesla and they might have a chance that their ban will be lifted.  Tesla still continues to have a Direct Sales Model and Not a Dealership one. Their service operation is also highly personal and almost a boutique approach. This gives them an edge over other dealerships.  In North America 9 out of 10 Tesla owners are within 100 miles of a Tesla Service Center.