TESLA REPORT PDF

Tesla
STRATEGIC ANALYSIS
Emily Chan, Kylie Chun, Christine Doan,
Katherine Haghverdian, Megan Lee, Ariel Martin,
Kylie Yamamoto and Timothy Yu

Table of Contents
Contents
Executive Summary __________________________________________________________ 1
Recommendations__________________________________________________________2
Industry Structure ____________________________________________________________ 3
Overview _________________________________________________________________3
Chronology of the Industry ___________________________________________________3
Industry Today_____________________________________________________________5
Products__________________________________________________________________6
Markets __________________________________________________________________7
Suppliers _________________________________________________________________8
Manufacturing Processes ____________________________________________________8
Distribution________________________________________________________________9
Common Financial Arrangements______________________________________________9
Remote Industry Environment _________________________________________________ 11
Social Factors ____________________________________________________________11
Political Factors ___________________________________________________________12
Economic Factors _________________________________________________________14
Technological Factors ______________________________________________________16
Resource Factors _________________________________________________________16
Market Analysis _____________________________________________________________ 18
Electric Car Market ________________________________________________________18
Market Segment Analysis ___________________________________________________18
Critical Success Factor Analysis ________________________________________________ 21
Industry Success Factors ___________________________________________________21
Tesla’s Success Factors ____________________________________________________23
Failure Analysis ___________________________________________________________25
Industry Structural Analysis____________________________________________________ 29
Threat of Entry: Moderate ___________________________________________________29
Threat of Substitutes: Moderate ______________________________________________30

Table of Contents
Bargaining Power of Buyers: Moderate to High __________________________________31
Bargaining Power of Suppliers: High___________________________________________32
Intensity of Rivalry: Moderate to High __________________________________________33
Competitor Analysis: BMW ____________________________________________________ 35
Overview ________________________________________________________________35
History __________________________________________________________________35
Assumptions _____________________________________________________________36
Financial Statement Analysis ________________________________________________37
Capabilities ______________________________________________________________38
Operations _______________________________________________________________42
Suppliers ________________________________________________________________45
Core Competencies & Sustainable Competitive Advantages ________________________48
Current Strategy & Future Goals______________________________________________49
SWOT Analysis ___________________________________________________________51
Competitor Analysis: Mercedes-Benz ____________________________________________ 53
Overview ________________________________________________________________53
History __________________________________________________________________53
Assumptions _____________________________________________________________54
Financial Statement Analysis ________________________________________________55
Capabilities ______________________________________________________________56
Operations _______________________________________________________________57
Product: Mercedes-Benz B-Class _____________________________________________58
Manufacturing Process _____________________________________________________59
Distribution_______________________________________________________________59
Marketing________________________________________________________________59
Human Resources_________________________________________________________60
Suppliers ________________________________________________________________61
Core Competencies & Sustainable Competitive Advantages ________________________61
Current Strategy __________________________________________________________62
Future Goals _____________________________________________________________63

Table of Contents
SWOT Analysis ___________________________________________________________64
Strategic Map ____________________________________________________________65
Company Analysis___________________________________________________________ 66
Overview ________________________________________________________________66
History __________________________________________________________________66
Assumptions _____________________________________________________________67
Financial Statements Analysis _______________________________________________67
Suppliers ________________________________________________________________70
Capabilities ______________________________________________________________71
Operations _______________________________________________________________72
Target Market ____________________________________________________________73
Marketing________________________________________________________________73
Products_________________________________________________________________74
Manufacturing Process _____________________________________________________76
Distribution_______________________________________________________________77
Human Resources_________________________________________________________77
Brand Image _____________________________________________________________78
Competitive Advantage & Core Competencies___________________________________79
Cost and Comparison Analysis _______________________________________________81
Future Goals _____________________________________________________________82
SWOT Analysis ___________________________________________________________84
Competitor Comparison & Evaluation __________________________________________85
Strategy Formulation_________________________________________________________ 87
Strategy Recommendation __________________________________________________87
Appendix A ________________________________________________________________ 91
Appendix B ________________________________________________________________ 92
Endnotes __________________________________________________________________ 93

01 Executive Summary
Executive Summary
Founded in 2003 in San Carlos, California, Tesla was created by a group of engineers. Its
initial mission was to prove that electric cars are better than gas powered cars. Dedicated to
making each new generation of vehicles to be designed with incredible power and zero
emissions, Tesla strives to ultimately transition the entire world towards sustainable transport.
The inventor that the company is inspired after, Nikola Tesla, patented an AC induction motor
in 1888 that the engineers based the Tesla Roadster on in 2008. In 2012, Tesla redefined the
car industry with the first four-door electric sedan with the Model S and continues to spread its
footprint into areas such as the Gigafactory in Nevada that will produce lithium ion battery cells.
There has been an increasingly popular trend towards more sustainable living. This social shift
has led way for many well-established automakers like Mercedes and BMW to enter the
electric vehicle industry, posing potential threats to Tesla. With increasing competition and the
demand of electric vehicles higher than ever, Tesla has the opportunity to capitalize on many
of its strengths: rapid innovation, high performance, disruptive technologies, strong customer
experience, and consistent brand image.
Tesla’s brand is not just about being an automaker, it also entails a focus on being an
innovator of energy. Its cars are integrated with all-wheel drive configurations, high efficiency
motor, and high speed charging. Because of Tesla’s ability to be charged at home, Tesla
owners never have to worry about fueling at gas stations. Free charging stations are placed on
popular routes around the world that can replenish a charge by 50% in 20 minutes.
Tesla has been able to capitalize on its core competencies to achieve strong competitive
advantages, ultimately providing high value to its customers. The following table demonstrates
the correlation between the two:
Core Competencies Competitive Advantage
• Gigafactory
• Efficient Engineering
• Computer Aid Design
• Innovative Manufacturing
• No storage costs
• Direct Dealership
• Industry Standard Batteries
• Supercharger Network
• Strong Customer service
• Made to Order Purchases
• Autopilot feature

02 Executive Summary
With pressure to stay ahead in the industry and high production goals for the future, Tesla will
need to identify the areas in which it must focus on for the future.
Recommendations
The following recommendations highlight areas for Tesla to continue to stay as a top
competing performer in the electric car industry.
Production
Tesla should focus on increasing automation in its manufacturing processes to ensure that it
will efficiently meet the demands of its existing and future models. While many of its operations
are currently automated, Tesla can stand to invest in this effort more as it is expecting to ramp
up production exponentially with the release of the Model 3. Tesla should also look into
expanding its facilities into the East Coast to boost production volume and make delivery times
faster.
Marketing
Tesla currently does not use traditional advertising methods. Staying true to its current
strategy, Tesla should continue to rely on customers’ word of mouth and updating their blog
with current and relevant information. Tesla should work to increase its brand visibility through
social media by creating engaging content on Facebook, Instagram, LinkedIn, and Twitter.
They should also expand into other marketing efforts like creating a community group where
other Tesla owners can meet and connect with each other.
Financial
In its current financial state, Tesla is operating at a loss and will not see profitability until 2020.
Tesla should look into alternative ways to raise capital instead of taking on more debt, like a
stock split or dilution. Tesla should work to build more partnerships as well as capitalize on the
Gigafactory to sell its batteries to other companies to raise capital.

03 Industry Structure
Industry Structure
Overview
Electric vehicles are a rising and compelling segment of the automobile manufacturing market
that has continuously been gaining ground in the United States. In the past decade, the electric
vehicle (EV) industry grew from just a few players to a booming and expanding market,
comprised of mostly established automakers and one solely electric-focused carmaker.
Consumers have gravitated towards this alternative drive type over conventional motor
vehicles in recent years to join the movement towards sustainable mobility and long-term
savings. States pushing government incentives to tighten emission norms have also
contributed to the EV growth beyond the consumer level.1 Electric vehicles present progress in
reducing the world’s carbon footprint of automobiles.
Chronology of the Industry
The electric vehicle industry is relatively young. Although it has been gaining in popularity
today, the electric vehicle has been around since the early 1800s. Since the beginning, the
demand for these vehicles has come in waves.
The Beginning Stages
Between 1832-1839, Robert Anderson of Scotland invented and built the first electric powered
carriage using non-rechargeable primary cells. However, American Thomas Davenport is
credited with building the first electric vehicle to operate on a track in 1834. In 1891, William
Morrison built the first successful electric vehicle in the United States, which could hold six
passengers and travel up to 14 miles per hour. By the very early 1900s, the electric vehicle
had 28 percent of the automobile market share, and according to a survey conducted at the
National Automobile Show in New York, the top choice of automobile was the electric vehicle.2
The Switch to Gasoline
In 1908, Henry Ford started production of the affordable Model T car, which was powered by
gasoline. In 1912, Charles Kettering invented the practical electric automobile starter which
eliminated the need for the hand crank starter used in gasoline-powered automobiles. This
was the turning point for the automobile industry, and the effects would influence the electric
vehicle sales and market share. The downhill trend felt by the electric vehicle was a result of
shifting consumer demand, which was attributable to cheap gasoline and the improvement of
the internal combustion engine (ICE).

Renewed Interest in the Electric Vehicle
Between 1966 and 1976, a few key incidents sparked a renewed interest in the electric vehicle.
Congress started to pass more regulations because of increased health risks associated with
air pollution, and gas prices began to increase as a result of the 1973 Embargo. In 1976,
Congress passed the Electric and Hybrid Vehicle Research, Development, and Demonstration
Act which supported the research and development of hybrid and electric vehicles. Not only
was Congress taking interest in alternative energy, but so was California. In 1990, the state
passed the Zero Emissions Mandate. The California Air Resources Board required
automakers to manufacture some of its vehicles with zero emissions if the company wanted to
sell cars in California.3
During this time, General Motors (GM) invested in building a practical electric car, and teamed
up with AeroVironment to design the EV-1. Increased regulations pressured automobile
manufactures to comply and start producing electric vehicles. Several thousand electric
vehicles produced by Honda, GM, Nissan, Chevy and Toyota were available to lease.
Although showing a steady demand, the mandate and increasing regulations did not go without
pushback from the automakers and large oil companies.
In 2001, GM, joined by various automakers, led a lawsuit against the California Resources
Board and the mandate of 1990 was repealed. GM did not renew any leases and reclaimed all
of its EV-1s by 2004, and soon after it was discovered that the company crushed these electric
vehicles.
A Growing Market
In 2006, Tesla Motors, a Silicon Valley startup, unveiled its Tesla Roadster which could travel
more than 200 miles on a single charge. With Tesla’s success, car manufacturers began to
invest into the research and development of electric cars with the government's help.
In 2009, the government allocated $2 billion in the development of electric vehicle technologies
through the American Recovery and Reinvestment Act of 2009. Along with this funding, the
Department of Energy also invested $400 million to finance the infrastructure needed to
support electric vehicles. The Chevy Volt and the Nissan LEAF were released in the United
States in 2010, which was just the beginning of new releases from new car manufacturers.4
This leads into the electric car industry of today. There are more than 234,000 fully electric
vehicles on the market today and this number will continue to grow with new competitors and
new styles of electric vehicles produced.

Industry Today
The electric vehicle industry is still in its budding stages, only a few years since its beneficial
factors were introduced to affect consumer choices. Demand for full hybrids is projected to
surpass 983,000 units in 2018.1 The continued decline in the price premiums of full hybrids will
stimulate demand continuously every year. The United States and Europe are expected to lead
the global EV market in sales because of higher disposable income and more developed EV
infrastructure.5 Currently, around 16 low-end and high-end auto manufacturers are competing
in this market. A few are fully dedicating R&D to this industry in their business models such as
Tesla, while most are entering this industry as an expansion to their conventional gasoline
vehicle line such as Ford, Nissan, and BMW (see Figure 1).
Figure 1: EV Sales by Manufacturer, 2015
Market share is widely represented by Nissan, Tesla, Mitsubishi and VW as the forerunners,
and the rest of the pie is divided into much smaller slices (see Figure 2). This represents the
market accurately with a rising move in established auto manufacturer entrants to compete in
the electric vehicle industry and vary their product portfolio by assimilating to sustainability
shifts. In joining this industry, market participants are required to consistently focus on
innovative mobility technology. Autonomous driving, voice assistance and other enhancements
to the performance of the vehicle that will attract a wider range of consumers are currently in
the process of improvement or development. Regulatory pressures encourage moves towards
electric-powered vehicles and grant tax incentives.6

Figure 2: EV Market Share by Manufacturer, 2015
Products
Electric vehicles are more energy efficient than their internal combustion engine (ICE)
counterparts, rendering electric vehicles the most optimal and sustainable source of
transportation for the future. Not only are electric vehicles zero-emissions, but the high-tech
technology of the battery-powered electric motor converts all of its fuel energy into usable
power, a stark differentiation from the ICE, which only utilizes 20 percent efficiency. With the
reduction or elimination of transmissions in electric vehicle designs, the overall weight is lighter
and maintenance costs are lower relative to hybrid and ICEs. Due to lower maintenance care
without oil filters, engine valves, consumers no longer must constantly devote these expenses
to their vehicle.
Outer appearances of electric vehicles do not give obvious identifiers that its carbon footprint is
exponentially less than ICEs. The chassis, or body, of electric vehicles are manufactured in the
same process as bodies of ICE vehicles are. The drastic differences are not visible externally
in the styling of the vehicle or in the interior of the vehicle. Rather, the differentiation is
experienced during the drive, distinctive to the battery-powered motor of the electric model.7 To

captivate the consumer weighing the options of a conventional combustion engine vehicle and
an electric vehicle, the EVs must maintain functionality, safety, convenience and sleek design,
while optimizing energy efficiency and performance.8 Figure 3 below illustrates the primary
differences between electric and gasoline vehicles that compare emission, source of power,
driving range, refueling/recharging time, and cost per mile.9
The battery, as the essential component keeping an electrical vehicle running, is refueled by
household wall outlets or at public charging stations. Electric vehicle batteries are typically
composed of lithium-ion that have a higher energy density over lead-acid or nickel-
metalhydride batteries.1 As the premium type of battery for EVs, lithium-ion carries a hefty price
which increases per kilowatt-hour (kWh) incorporated into the battery. Due to lithium-ion
battery price tags, the typical mass market EV holds a range of less than 100 miles. However,
as lithium-ion batteries decline in price, so will the overall EV manufacturing cost. Batteries
require extensive testing and R&D in-house to further improvement and leads in range
technology.
Since the recent surge in electric vehicle offerings released amongst various low and high-end
car manufacturers, the prevalence of public charging stations has increased to respond to this
alternative charging transition. Recharging times vary, depending on the voltage capacity and
battery type of the car.4
Figure 3: Electric vs. Gasoline Vehicles
Markets
Most battery-electric vehicles available today have only been on the market since 2010. Many
established ICE players have ventured into the EV industry due to a shift towards energy
efficiency and sustainable living. Greater demand for EVs is seen in more developed areas,

where there are larger markets, higher levels of disposable income and greater demand for
sustainable mobility.
Because the electric vehicle industry is still in its early stages, market segments have not yet
been fully defined. However, as the industry continues to experience significant growth, the EV
market will likely become segmented by price. The industry will see the EV market roughly
segmented into smaller, mass-produced EVs at affordable prices (under $40,000) and longer-
range, luxury electric EVs at higher prices. The level of disposable income and value placed on
certain EV capabilities will be determinants of consumer interest.1
Suppliers
Even with the replacement of an internal combustion engine with an electric motor, what
accessorizes the internal and external elements of the car are still comprised of many parts.
The extraneous parts that structure a whole car are provided by numerous different suppliers.
Batteries are one of the most crucial components of the electric vehicle. Some automotive
companies have technology and expertise and systems in lithium-ion cells to have proprietary
technology while some continue with lithium-ion cell suppliers. Panasonic, Samsung SDI, and
LG Chem are among the few original equipment manufacturers (OEMs) who dominate the
lithium-ion battery market.5
Manufacturing Processes
An electric vehicle, in some ways, can be seen as a modification of the traditional gasoline-
powered vehicle. Externally, both types of vehicles have similar bodies, but internally, the
components greatly differ. Generally, gasoline-powered vehicles have an internal combustion
engine, transmission, alternator, carburetor, spark plugs, crankshaft, and battery. Production of
an electric vehicle would mean differences in the powertrain and energy storage system. This
would require changing the design of the body to accommodate rechargeable, high-power
batteries and installing the infrastructure to be able to recharge the batteries.
The manufacturing of an EV, not including design considerations, follows the general process
of that of a traditional gasoline-powered vehicle. The process takes place at a manufacturing
facility, where the body of the car is first formed by welding pressed aluminum panels together.
General assembly of the car’s operating components is split up into several workstations. Each
workstation is reserved for a specific purpose: installation of complex electronics, assembly of

the car’s interior, insertion of the AC/heating system, addition of the battery pack, completion of
the car’s exterior and finally, quality inspection.
Typically, EVs are produced in small volumes for most car manufacturers since they represent
a small segment of their predominantly ICE product lines. Therefore, the manufacturer’s cost
per vehicle remains relatively high. As EV adoption becomes more widespread, they can
become produced in higher volumes in which manufacturers would see larger cost reductions
as economies of scale increase. Manufacturers that have a larger stake in the EV industry,
such as Tesla, produce EVs at higher volume and prove to be more cost-competitive in terms
of the supply base for components.
Distribution
The electric vehicle industry’s dealership network is no different than the conventional
automobile industry’s in terms of the prominent and vital role it plays in the supply chain. With
the exception of Tesla’s vertical integration of its distribution centers, franchised car
dealerships are the standard middleman between the auto manufacturer and the consumer.
Generally, these car dealerships are franchised by automotive retailers such as Autonation and
Penske, which are granted franchising rights of the auto manufacturing company to act as an
intermediary for the car company’s products. Car dealership businesses will purchase the
vehicles of that specific automotive brand to gain steady inventory in order to meet various
consumer needs and specifications. Prices of the car models and advertising activities are all
set and managed by the company to meet factory prescribed norms, but specific retailers that
own the car dealership franchises will offer varying services per location.10
Common Financial Arrangements
When it comes to financing a car, there are many ways to get a good deal. Dealers always try
to make money by up-charging the potential customer and a good way to avoid extra fees is to
forgo dealer financing and focus on different outlets. Choosing pre-owned vehicles that come
with manufacturer-backed warranty can be a smart move, considering cars on average lose 18
percent of their value within the first year. Prior to going on the market, they are also inspected
and fixed, just like a new car.
For gas-powered cars, leasing should not be an initial option because the car must eventually
return to the dealer and if bought after the term, its price is usually higher compared to a car of
similar value. However, for electric cars, leasing proves to be a choice that most customers go
for, as 75 percent of the electric car market is leased. This is related to the types of incentives

that are provided on a local, state, and federal level that are incorporated into the price of a
lease. Other factors that lead customers to lease include the battery life of an EV and the fact
that electric cars only retain 30 percent of their value after three years, compared to gas cars
retaining 50 percent (see Figure 4).
Figure 4: EV Value Retained
When it comes to choosing what size the car loan should be, the monthly car payment should
be less than 20 percent of the disposable income. Taxable investments should be considered,
rather than tapping into 401Ks when considering all pools of money. Credit unions or nonprofit
banks hand out loans at a lower cost than traditional banks but looking at the APR, annual
percentage rate, to compare between various lenders.
Timing for when to visit the dealership changes how motivated the salesperson will be in terms
of cutting a deal. The busiest time is on the weekend which means that by starting early in the
week, a salesperson is more inclined to give a customer a good deal. Visiting a dealership at
the end of the month gives more incentive to a salesperson to sell a car since dealers receive
bonuses depending on how many cars leave the lot. The last tip would be to look for older
models since they will sell for less as the car companies try to roll out new versions and get rid
of inventory.

11 Remote Industry Environment
Remote Industry Environment
Social Factors
Consumer Perceptions
In its 10-K report Tesla lists consumers’ willingness to adopt electric vehicles (EVs) as one of
the most important factors for the company’s future growth, which is an element that also
presents a threat to the industry.5 The current eco-friendly trend that has people becoming
more conscious of their environmental impact will help the electric car industry because it
offers consumers a mode of transportation that is both zero-emissions and powered by a
renewable resource. Reductions in the prices of EVs and concerns about volatile gas prices
are expected to increase the demand of hybrid and electric vehicles by 25 percent per year
through 2018.11
Consumer hesitations tend to circulate around issues related to the limited driving range and
convenience of charging electric vehicles, since it can take hours to fully charge the battery
and there is a limited network of charging stations in comparison to the availability of gas
stations. In a recent survey by financial services company UBS, only 43 percent of
respondents said that 200 miles is an acceptable range for an electric car, and 69 percent
considered 300 miles to be acceptable.12 Tesla’s Model S has a driving range of 219 to 337
miles, depending on the battery type and use conditions.13 The average American drives
about 37 miles a day and electric vehicles can be charged anywhere an outlet or public
charging station is available, so perhaps manufacturers should do more to drive the message
that EVs are not as much of a hassle as people think.14 However, development of batteries
that charge more quickly and have the capacity to fuel cars for longer distances between
charges would go a long way to dissuade major concerns and improve consumer perceptions
of electric vehicles. The electric car industry has a high potential for growth, but manufacturers
need to stress to consumers the benefits of going electric, including reducing their impact on
the environment, saving money fuel costs and enjoying a smoother, quieter ride. Improving
consumers’ attitudes towards EVs by alleviating their apprehensions serves as a huge
opportunity for the industry to tap into a large group of potential customers who may be on the
fence about electric vehicles.
Buyer Demographics
Based on 2013 sales, about 55 percent of people who purchased electric vehicles are between
the ages of 36 and 55 years old, which is a younger demographic than most purchasers of
hybrid vehicles. EV buyers also tend to be wealthy; almost 21 percent had household incomes
of $175,000 or greater.15 This customer demographic reflects the higher price point of electric
vehicles and growing popularity of luxury electric cars. Particularly in the luxury electric car

segment, the anticipated entry of BMW, Audi, Porsche and Mercedes threatens to unseat
Tesla as the dominant competitor. A survey revealed that 41 to 52 percent of households
earning $100,000 or more would choose to buy an electric car from an incumbent brand, and
20 to 29 percent would purchase from Tesla.16 The entry of existing luxury car companies may
be beneficial for the electric car market if brand familiarity attracts consumers to purchase an
electric vehicle, especially among the wealthy, who tend to purchase EVs as a secondary or
tertiary car due to their limited range.
Overpopulation
The world population is currently at over 7 billion people. If that number were to grow at an
unexpected rate, especially in heavily populated urban areas, then it may cause a shift in the
modes of transportation preferred and used by consumers. Areas with a very high
concentration of people already experience a ton of traffic on daily commutes, so overcrowding
may render traditional and electric cars impractical to use if there are too many vehicles on the
road.
Political Factors
Government Incentives
Government support of electric vehicles is a reflection of the goal announced in President
Obama’s 2011 State of the Union speech to have one million electric vehicles on the road by
2015 as “a key pathway for reducing petroleum dependence, enhancing environmental
stewardship and promoting transportation sustainability, while creating high quality jobs and
economic growth.”17 Unfortunately, his objective was not met but the electric car industry
benefits from the mechanisms enacted in attempts to reach this goal.
One of the most important political factors affecting the electric car industry is the availability of
government tax credits, which serve as a big incentive for consumers to purchase an electric
car. Currently, buyers of new electric vehicles are eligible for up to $7,500 in credits,
depending on the size of their vehicle’s battery. The full credit can only be applied if the
buyer’s income taxes for the year are equal to amount of the credit or more, meaning that the
remaining amount cannot be carried over to the next year’s taxes or issued as a check.18 The
idea behind the electric vehicle tax credits is that greater economies of scale will contribute to
the ability of manufacturers to eventually lower the high initial costs of new innovations and
technology, eliminating the need to offset the costs with these credits. The government has
already phased out similar plans for hybrids and clean diesel vehicles and plans to do the
same for electric vehicles as each manufacturer hits the mark of 200,000 qualified vehicles
sold. According to the U.S. Department of Energy’s Office of Energy Efficiency and
Renewable Energy, “The credit begins to phase out for vehicles at the beginning of the second

calendar quarter after the manufacturer has sold 200,000 eligible plug-in electric vehicles in the
United States as counted from January 1, 2010” (see Figure 2).19
Figure 5: EV Tax Credit Phase-Out Plan
The tax credits present a current opportunity for electric vehicle companies to use from a
marketing standpoint, but may become a threat to the industry if manufacturers are unable to
lower the costs of batteries and technology to keep their prices affordable for consumers when
the credits are no longer available. The price premium for electric vehicles is one of the
reasons people opt for traditional cars, so it is critical for the EV industry to find a way to reduce
costs and pass those savings on to consumers to make EVs an attractive option.
Investment in Public Transportation
If local and state governments were to make the decision to invest heavily in modes of public
transportation like buses, trains and subways to improve reliability and comfort, then
consumers may choose those methods over traditional cars due to the decrease in perceived
benefit. Upgrades in public transport would cause consumers to reconsider whether owning a
car or using other methods of transportation is more valuable, in terms of cost, time spent
looking for parking or walking to pick-up locations and convenience, which presents a threat to
the electric vehicle industry.
Government Regulations
Increasingly stringent car safety and emissions standards will help push automakers away from
gasoline-powered cars and towards alternative fuel vehicles. The Clean Air Act is a federal law
most recently amended in 1990 that sets standards for air emissions in order to protect the
environment and health of the public from the effects of air pollution.20 California’s Zero
Emissions Vehicle Mandate requires car manufacturers to sell a certain number of electric
vehicles in proportion to its overall sales within the state.21 As a result of 2003 legislation
enacted to reduce greenhouse gas emissions to 80 percent below 1990 levels by the year
2050, California is also increasing sales targets for alternative fuel vehicles from about 1

percent today to over 15 percent by 2025. Nine other states (Connecticut, Maine, Maryland,
Massachusetts, New Jersey, New York, Oregon, Rhode Island and Vermont) have also
adopted California’s standards, which are much stricter than federal regulations.22 The future
implications of these requirements will prompt manufacturers to begin focusing more heavily on
developing alternative fuel vehicles, if they have not already, which will hopefully drive
production costs down and provide consumers with a greater variety of EV choices than are on
the market today. It is also likely that the government will continue to enact even stricter
environmental standards for car manufacturers, which will give another push to increase the
demand for more environmentally friendly vehicles. On the other hand, if government safety
and environmental mandates become too strict, then it may deter new competitors from
entering the electric vehicle industry and inhibit the industry’s growth.
Oil Industry Lobbying
Lobbying by the oil and gas industries also presents a threat to the electric vehicle industry.
Groups backed by fossil fuel companies are organizing to advocate against government
subsidies and promote the use of petroleum-based fuels who do not want electric vehicles to
gain popularity and cut into their profits. Koch Industries, an energy corporation with $115
billion in revenues, is working to launch a new pro-petroleum fuels group that will spend about
$10 million a year to advocate fossil fuel use and attack government subsidies for alternative
energy.23 Groups like this one have the support of companies with enormous financial
resources and have the potential to overwhelm the EV industry’s progress and the
government’s stance of working to phase out fossil fuels. In 2010, Koch Industries, Valero and
Tesoro teamed up to fund a multimillion dollar ballot initiative against California state standards
aimed at reducing carbon emissions. Although the initiative was unsuccessful, the influence of
the oil industry in the political realm is a threat the electric vehicle and alternative energy
industries cannot afford to ignore.
Economic Factors
Economic Conditions
Following the 2008 recession, the unemployment rate in the U.S. has steadily declined each
year since 2009 (see Figure 6). Lower rates of unemployment imply that people have more
disposable income to spend on leisure activities and products, like perhaps purchasing a
second car for the family that is electric. Since electric cars typically sell for a higher price than
traditional internal combustion engine cars, it is less likely for consumers to opt for EVs when
the economy is in a slump.
Approximately 26.4 percent of U.S. households earned more than $100,000 in 2015, which is
roughly constitutes the wealthy demographic that tends to purchase electric cars (see Figure
7). With income inequality on the rise, it is possible that the group of buyers who can afford to

purchase electric vehicles will shrink as the top one percent of the population accumulate more
and more wealth. In 2013 the top one percent earned more than 25 times more than the entire
bottom 99 percent of the population, and the income inequality gap has widened in every state
since the 1970s.24 Future economic upturns and downturns will affect the electric car industry
in the form of consumers’ ability and willingness to spend the money to cover the upfront cost
of purchasing an EV, despite future savings on fuel costs.
Figure 6: Unemployment Rate Trend, 2006-201625
Figure 7: Distribution of Household Income, 201526
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2006 2008 2010 2012 2014 2016
UnemploymentRate(%)

Oil Prices
There is an income effect tied to the price of gas: lower gas prices correspond to greater levels
of discretionary income, and vice versa.27 According to a consumer price index by AAA, “Half
of U.S. adults consider gas prices to be ‘too high’ when it reaches $3.44 per gallon … [and]
roughly two-thirds of Americans (62 percent) are offsetting high gas prices by changing their
driving habits or lifestyle,” with 54 percent choosing to do so by driving a more fuel efficient
car.28 When gas prices are high, consumers are more sensitive to the number of miles per
gallon their cars get and search for more fuel-efficient vehicles, increasing demand for more
energy efficient cars like hybrids and EVs. If oil prices were to rise in the future due to
shortages or other unforeseen reasons, it is likely that demand for electric vehicles will
skyrocket.
Technological Factors
Battery Improvements
Improving electric vehicle batteries presents the industry the opportunity to give consumers the
ability to drive farther with less charging, which will increase consumer confidence in EVs. A
breakthrough in battery technology that allowed EVs to be charged faster or less frequently
would greatly benefit the industry because it would reduce the inconvenience of owning an
electric vehicle. The battery is also one of the most expensive parts of an electric vehicle; in
2010 the average battery cost $1,000 per kWh. Fortunately, costs have been falling at a fast
pace, with the average dropping to about $350 per kWh last year.29 Once battery
manufacturers can reduce the price of batteries to a point where EVs can be priced to compete
with traditional cars, electric vehicle sales are expected to take off to a point where they will
hopefully become mainstream vehicles of choice.
Tesla’s 10-K states that negative perceptions by the public toward the use of lithium-ion cells
for their battery packs present a risk because in “rare occasions, lithium-ion cells can rapidly
release the energy they contain by venting smoke and flames.” Safety concerns may dissuade
consumers from purchasing an EV, so it may be beneficial to make also improvements to the
battery pack’s design.
Resource Factors
Competent Employees
With schools and programs placing a greater emphasis on STEM (Science, Technology,
Engineering and Mathematics) education at an early age, there will most likely be a surge in

students studying subjects that will prepare them to work in high-development sectors like the
electric vehicle industry. With their STEM backgrounds, these new employees present a huge
opportunity because they can contribute greatly to new technology development that will attract
interest and increase the prevalence of EVs in our society. The increasing presence of women
in these fields will also bring a fresh perspective that may lead to breakthroughs in technology
and other design factors.
Availability of Lithium
The U.S. is one of the largest consumers of lithium, which is found in high concentrations in
only a few places. Bolivia, Chile, China, United States and Argentina are known to possess
around 90 percent of the world’s lithium resources, but there are no clear quantifications of the
total amount of lithium resources worldwide. Batteries are expected to become the most
common use of lithium in the future, in applications such as cars, cameras, cell phones and
laptops.30 Experts do not expect there to be a shortage of lithium in the near future, but it is still
possible that estimates of lithium reserves are inaccurate or unexpected circumstances such
as wars, natural disasters or unfavorable political relations with other countries inhibit the ability
of battery manufacturers to acquire lithium. It is also possible for lithium prices to increase due
to shortages or labor costs, which would in turn push the price of lithium batteries and electric
vehicles up and reduce the sales and profit margins of the EV industry.
Charging Station Infrastructure
Government support for expanding the number of charging stations throughout the country will
greatly benefit the EV industry by providing the infrastructure necessary for the industry to grow
to its full potential. These efforts will help to alleviate consumer concerns about getting stuck in
the middle of nowhere with a dead battery because charging stations are not as widely
available as needed.
The Obama administration has planned to establish 48 new electric vehicle “charging
corridors” in 35 states, covering about 25,000 miles of highways.31 The charging corridors will
be placed near restaurants and other amenities so drivers can recharge their vehicles when
traveling long distances. Broadening the infrastructure is a necessary step for expanding the
adoption of EVs and making them more practical for everyday and long-distance use.

18 Market Analysis
Market Analysis
Electric Car Market
The electric car market consists of namely Battery Electric Vehicles (BEVs) whereas hybrid
cars are referred to as plug-in hybrid electric vehicles (PHEVs). The future of the automotive
industry lies in electric cars due to its potential for environmental protection and oil crisis. Elon
Musk’s Tesla Motors commands the green spotlight and is setting the pace for cleaner cars.
Though people are making the shift towards electric cars for its green value, no technology is
100% green.
In terms of competitors, BMW and Mercedes Benz are offering three electric car models this
year. Thirteen car companies in total have at least one electric car option with car sales up
34% with about 17 million vehicles being sold in 2016. Right now, electric vehicles are 1.6% of
the car market but is expected to rise to 6% by 2025. 32
The company applies a differentiation focus strategy based on the uniqueness of its products.
It continues to stay competitive against the competition by integrating advanced
environmentally friendly technology. Market penetration allows Tesla to maximize its revenues
from the market with its current intensive growth strategy. Based on how much market share
Tesla owns, it develops more competitive advantages in relation to its strategy.
Market Segment Analysis
The demographics for electric car buyers skew towards a more young and affluent audience. A
little more than half of that group, 55 percent, are between the ages of 36 and 55. The average
household income for 21
percent of the buyers are
$175,000 or more. About 44
percent mentioned that there
is at least one child living with
them at home. Only 26
percent are people over the
age of 56 with 12 percent
having a household income
greater than $175,000. 33
Considering that Tesla
belongs in the luxury electric

19 Market Analysis
car market, the customers tend to be from affluent backgrounds. Those who are looking to buy
a Tesla must have the necessary infrastructure near their homes; a garage or convenient
access to a proper electrical system for charging purposes. Most of these car buyers are found
in cities along the west coast. Electric cars are offered mainly in California due to state
regulations that require at least one zero emission model be sold by major car companies. The
cities with the most green car buyers are in California and Virginia. San Francisco, Oakland,
and San Jose are tied for first, followed by Charlottesville in second, and Los Angeles in third
place.30
Demand Trends
According to a report done last year, the US electric car market has very strong growth overall
despite the collapse in oil prices which gave consumers the impression that new energy
vehicles were not as economically viable as they once were. Recent pressure that the
government and consumers are facing considering alternative fuel options to limit pollution has
contributed to the growth of the electric car industry. Since buyers are price sensitive, many
manufacturers invested heavily into reducing switching costs as much as possible and building
their brand to weaken the buyer power in a new cars market.
Product Life Cycle
The product life cycle consists of inception, growth, maturity, and decline. For the electric car
market, since it only consists of less than five percent of the overall car market, it is still in its
early stages in growth. At the growth stage of the life cycle, that is where sales are increasing
at its fastest rate after the researching, developing, and launching of the product is finalized.
Tesla’s main focus lies on early adopters in the high-end market. Tesla has come out with a
few models and other companies are joining in on this trajectory towards building more eco-
friendly electric vehicles. A company reaches the maturity stage once the growth rate starts
winding down and sales near its peak. The decline stage, or final stage, happens when sales
move downward.
34

20 Market Analysis
Customer Analysis
Before the price on electric vehicles can be reduced to satisfy most customer demands, rentals
become a major objective in research. Customer participation, service quality, and customer
value are being analyzed for post purchase intentions. Problems such as difficulty finding
enough charging stations pose as a risk for consumers when comparing between electric and
the more traditional automobile. Nowadays there is the trend of car sharing and that helps
alleviate the purchase price burden of electric cars which is why rental service is key.
Customer satisfaction, as proven in studies on multimedia telecommunication services, heavily
influences post purchase intentions as it is composed of emotional response and consuming
experience. Customer perceived value (CPV) requires extensive research since greater levels
of customer satisfaction leads to stronger competitive position and higher market share.

21 Critical Success Factor Analysis
Critical Success Factor Analysis
Critical success factors, an idea popularized by MIT’s John F. Rockart, are the few essential
factors that directly impact the competitors in an industry.35 Companies should strive to
execute activities related to the critical success factors at the highest level to outperform the
competition.
The electric vehicle industry is still relatively new, and analysts do not have a set of established
critical success factors because of its rapidly changing environment. However, by analyzing
the industry’s successful companies as well as researching the industry failures, we have
identified five critical success factors for the electric vehicle industry. These factors are access
to capital, government support, battery technology, charging infrastructure and customer
education. We have also identified four critical success factors for Tesla, which are “disruptive”
technology, customer experience, superchargers and a strong, consistent brand image.
Industry Success Factors
Access to Capital
The most important success factor for developing, producing, and selling an electric car is
capital. Electric vehicles require hefty investments in research and development because the
internal workings of the car (software, battery capability, etc.) are more crucial to the success
of the car than its exterior look. Martin Eberhard and Marc Tarpenning, the original minds
behind Tesla Motors, reached out to family, friends, and smaller VC firms to raise their first
round of money. However, this was not nearly enough to finance company growth, so the two
men set out to find a lead investor. They found it in Elon Musk, co-founder of PayPal and
visionary of Space Ex. Musk led the $7.5 million round. A successful proof of concept was
important to securing more funding, which was led by Valor Equity Partners and Elon Musk of
$13 million.36 The government also helps fund clean energy projects to encourage entry into
this space because without the money, companies would not be able to successfully produce
the new technology or develop completely different cars.
Capital is also necessary for the additional components needed to maintain the success of an
electric vehicle producing company. Money needs to be invested in the charging stations, as
well as repair and maintenance infrastructure and staff. Capital is much easier to come by for
existing automobile manufacturers than smaller start-ups, however, venture capital firms are
taking interest in this growing market which makes it an opportune time for new competitors to
reach out to investors.

Government Support
The government’s support is essential to the success of this industry. Government policies
that support the production and manufacturing of electric vehicles will allow this industry to
continue to grow, as more car companies will need to comply with requirements and customers
will have the incentives needed to switch to electric vehicles. There are already some
government programs that have influenced the growth of the industry and are pushing towards
clean energy. The EV Everywhere program, launched by President Obama in 2012, is part of
the Energy Department’s Clean Energy Grand Challenge. Secretary Chu describes this
program as, “... advancing electric vehicle technologies and continuing to reduce costs, so that
a decade from [2012], electric vehicles will be more affordable and convenient to own than
today’s gasoline-powered vehicles.” According to fueleconomy.gov, the official U.S.
government source for fuel economy information, owners who purchase electric and plug-in
hybrid cars after 2010 are eligible to receive a federal income tax credit up to $7,500 under this
program. This does not include the extra incentives that individual states and cities provide to
consumers. For example, in San Jose, California the city is providing free parking for street
parking meters, at regional parks and in four downtown garages. These financial incentives
will provide an additional pull for consumers to purchase electric vehicles. Financial support is
also available to electric car manufacturers in the form of government loans. With heavy
support from the government, the electric vehicle industry can continue to grow and may even
become the vehicle of the future.
Battery Technology
Companies who want to successfully compete in this industry need to continue to innovate in
lithium-ion battery technology. Currently, the energy capacity of the battery is low and it takes
long to charge. Companies need to stay ahead or keep up with the competition in this crucial
area by heavily investing in the research and development of the battery. Whether that is by
investing the money into the company to produce the battery technology itself or partnering
with another company who is solely focused on making the necessary improvements, the
development of the interior parts of electric vehicles at this stage is more critical than the
exterior specs.
Battery efficiency is important to the consumer, and so is the cost. Batteries are still expensive
to produce, and if the cost of battery drops, so will the overall price of the car. According to an
analysis of the electric vehicle market by Bloomberg New Energy Finance, the cost to produce
the lithium-ion battery has fallen 35 percent since last year. Bloomberg New Energy Finance
lead advanced transportation analyst Colin McKerracher has said, “Lithium-ion battery costs
have already dropped by 65 percent since 2010, reaching $350 per kWh last year. We expect
EV battery costs to be well below $120 kWh by 2030, and to fall further after that as new
chemistries come in.”37

One-third of electric vehicle manufacturing costs are battery-related, and if the projection were
to hold true to the analyst reports, the costs of manufacturing electric vehicles will drop
drastically as improved technology becomes available. The battery efficiency and cost are
differentiating factors of each electric car competitor.
Charging Infrastructure
Convenience and quality of the charging stations available to electric vehicle owners is a
critical success factor because although not a direct component of the car, is necessary for the
continued function of the vehicle. Without chargers in optimal locations, the cars will not be
able to function. To make the move away from gas completely, chargers need to be made
available in locations that are accessible to drivers, meaning that chargers need to be placed in
an appropriate range of proximity, just like gas stations.
To increase the overall size of the industry, the quality of the chargers is also crucial.
Currently, it is inconvenient to recharge the electric vehicle and may take hours to bring the car
back to full power, which is 80 percent.38 Time is precious to consumers, and charging stations
need to be improved if this industry wants to continue its growth.
Customer Education
Educating customers on the financial, economical and environmental benefits and costs of
switching to a fully electric vehicle will lead customers to make a more informed decision when
purchasing or leasing their next car. The industry is relatively new, so shifting consumer
demand is crucial to the success of this industry. As shown in the industry chronology section,
there were periods of time when the electric car may have been sustained its success in the
automobile market. However, there was not enough push from automakers and the
government alike in educating the public, who ultimately determine the demand. Fully electric
vehicles are starting to trend again, but the market for gas alternatives is still relatively small.
Potential customers need to be educated of the benefits of investing in a fully electric car. It is
essential for competitors to market the short and long-term benefits of electric vehicles or
consumers will continue to pick the gas car.
Tesla’s Success Factors
“Disruptive” Technology
“Disruptive” technology, a term coined by Harvard Business School Professor Clayton
Christensen, is technology that changes an industry. The disruptive technology of efficiently
powering a high-performing car with lithium-ion batteries drives Tesla to the innovative forefront
of the electric vehicle industry. Its initial plan of producing a high-performing sports car that
was both environmentally friendly and highly efficient led the company to its success today.39

The company has only improved the technology since the release of its first car, The Roadster,
and continues to dominate the industry. According to fortune.com, Tesla’s new Model S
P100D has a range of 315 miles and is the third fastest accelerating production car produced,
comparing gas-powered and electric vehicles alike.40
Tesla continues to develop new technology that will once again change the automobile industry
in general, and especially the electric vehicle industry. Tesla is broadening its scope to include
autonomous driving. And if successfully executed, this will change how people travel to and
from their destinations. Tesla stays ahead by disrupting the industry and pushing the limits of
technology. Its continued investment in technological advancement is the result of innovative,
forward thinking leadership.
Customer Experience
Tesla management made an early decision to eliminate the middleman and not sell its cars in
the traditional dealership route. Tesla, unlike its other automakers, sells its cars in its own
showroom. Delivery of the vehicles takes longer, however, this is because each car is
customizable and made to order. In Tesla’s showrooms, customers are educated about both
Tesla vehicles and the electric vehicle industry in general. Customers are not yet fully
knowledgeable about this new type of technology, and Tesla provides customers with
representatives who are willing to take the time to educate customers on the pros and cons of
their potential car purchases. Unlike in the traditional dealerships, the Tesla representatives do
not work on commission.41 With these showrooms, Tesla has its cars and its customers on its
mind, and the level of individual service that Tesla provides sets it apart from its competitors
who use dealerships to sell both electric and gas powered cars.42
Superchargers
According to Tesla’s website, Tesla’s Superchargers are “The World’s Fastest Charging
Station.”43 The Superchargers are strategically placed along highways, city centers, and the
company even partners with specific destinations to provide a Tesla Wall Connector at the
location. There are 735 Supercharger stations with 4,625 Superchargers available for Tesla
owners use, and the Superchargers are easily located on the vehicle's interior screen. Tesla is
currently building more Supercharger Stations to increase accessibility. Tesla owners are able
to use both Tesla’s Superchargers and public charging stations, while other electric vehicles
are only built for the generic station.
Tesla's superchargers are more efficient than most of the other charging stations already in
place. The Tesla Superchargers charge its car in minutes rather than the other publicly
available charger which normally takes hours. The 40A High Voltage Outlet provides 14 miles
of range after a half hour charge while the Tesla Supercharger will provide 170 miles in the
same amount of time.44 The Supercharger compliments the design of the battery to provide

the user with the most efficient charging stations in the world. This significantly decreases the
amount of time customers spend charging their cars while increasing the distance the car can
travel. Tesla’s Supercharging technology coupled with its unique battery differentiates Tesla
from its competitors.
Strong, Consistent Brand Image
Tesla has built itself a remarkable brand and reputation not only in the electric vehicle industry,
but also in the automobile industry in general. The company has coupled its commitment to
sustainable energy with a unique, attractive car design. Tesla has created significant demand
for its cars in the industry and has successfully delivered on its promise of producing sleek,
sporty looking cars that consistently outperform its competition in numerous ways. The Model
S has achieved the best safety rating in history from the National Highway Traffic Safety
Administration (NHSTA), and it was also awarded with Motor Trend’s 2013 Car of the Year
award.45 The young company is world renown in the electric vehicle industry, and Tesla
needs to find ways to maintain and grow its strong brand image. The company is not without
issues. It has pushed back car release dates, and it has had fatal issues with its autonomous
driving aspects. However, Tesla has been able to overcome its obstacles, and continues to
push out high performing cars. Resilience will be essential in maintaining and improving
Tesla’s strong brand image moving forward, which will eventually attract new customers and
maintain its existing customer base.
Failure Analysis
General Motors
In 1988, General Motors first teamed up with the California company AeroVironment to build a
practical electric car. This prototype, “Impact,” eventually evolved into the General Motors
electric vehicle, EV-1. The EV-1 was fast, quiet and well-liked by those who leased the
car. However, the future success of this vehicle was bleak. General Motors produced this
vehicle, but many believe the company did not fully support the development of this product
due to multiple factors. At best, it was designed as a commuter car and marketed as an
alternative second car.46 According to consumer interviews in the documentary “Who Killed
the Electric Car?” people were cautious about the electric car. They wanted strong,
dependable cars, and addressed concerns about the battery life and charging infrastructure
availability. The consumer was focused on getting the best automobile for their buck, but was
not educated on the other nonfinancial benefits of electric vehicles. GM did not combat against
consumer fears because of external and internal pressures.

Because the electric vehicles were not mass produced like the gas powered cars, GM argued
that it was costly to manufacture. And although California passed its Zero Emissions Vehicle
Mandate in 1990, there was no significant government support at the time to help with
improving the technology of the electric vehicles. Many auto manufacturers, including GM,
believed that this mandate was too strict and the California Air Resources Board faced
significant backlash of its mandate from automakers, oil companies, and small advocate
groups who opposed utility companies.47
California was forced to work with the auto manufacturers to negotiate flexibility in the
mandate, which would eventually require automakers to build and market the electric vehicles
in accordance with demand. Those who supported the electric vehicle movement within GM
tried to convince management that there was significant demand for the vehicle. GM, still
convinced that the electric vehicle would eventually die, argued against its own sales
people. Presented with a list of 4000 people on a waitlist, management concluded that only 50
people would have signed up for the vehicle.48 Even with celebrity endorsements, and the
governmental push towards a cleaner environment, GM was still not convinced that this
investment was worthwhile.
General Motors undermined the success of its EV-1 by leading a lawsuit against the mandate,
which GM eventually won. As a result, General Motors quickly stopped renewal of EV-1
leases, and took back the cars. Although informing the public that it would recycle the parts, it
was soon discovered that the EV-1s were crushed and disposed of in the dumps.
The company was at fault for the “failure” of its own electric vehicle. It did not invest in
increasing the battery charge from 120 miles, and it did not push hard enough for consumer
education.
Fisker Automotives
Fisker Automotives, named after the co-founder and Aston Martin designer Henrik Fisker,
failed to sustain its electric car, the Fisker Karma which was unveiled in 2008. Fisker
Automotive was a startup that focused on innovative technology, similar to Tesla. Fisker had a
sleek design, also similar to Tesla. But what lacked in this automotive company was its
inability to design, implement and sustain the new technology. Theoretically, the Fisker Karma
had a vehicle that would run smoothly and revolutionize the car industry. However, after a
while, the company and the public realized that the technology was not up to par and the
Fisker Karma was still at a prototype level.
There were many issues that Fisker faced, especially as a startup. The Department of Energy
set aside $25 billion to fund the production of clean-energy vehicles, and Fisker received over

$500 million of that government funding.49 With the generous amount of financial support from
the government also came increased pressure to produce.
The added pressure from the government led to the release of the Fisker Karma before it was
ready. Unlike Tesla, Fisker outsourced its car components, including its batteries. Its battery
supplier, A123 System, produced some faulty batteries which hurt the reputation of the Fisker
name.50 Suppliers were short on supplies, and with all of this outsourcing, quality control
became an additional issue that Fisker had to deal with. Fisker Karma car owners paid over
$100,000 for their cars, but were issued vehicles with software bugs and expensive repair
jobs.51
As a result of increased repair expenses and recalls, Fisker faced financial issues. It was soon
unable to pay back the government loans, and eventually, government funding and support
eventually stopped. Without financial backing or a working battery supplier, one of the most
important aspects of the electric car, the car manufacturer had no other choice but to look at
bankruptcy options and layoffs.
Fisker had looked promising to many, especially the government and consumers. However, it
could not deliver on its platform to produce an innovative car of the future because it was more
focused on the sleek exterior than the necessary, working internal systems that are essential to
the success of the electric vehicle.
Aptera Motors
Company founder Steve Fambro and CEO Paul Wilbur set out on a great endeavor with Aptera
Motors. The then car company was focused on developing an electric three wheeled
vehicle. The company was faced with financing issues, and looked toward the Department of
Energy loan program for assistance. The issues with this type of funding came early on. The
funding program was focused on Advanced Technology Vehicles. However, Aptera’s first loan
request was rejected because the government did not define a three-wheeled vehicle as a
car. During this time, Tesla and Fisker were both awarded millions of dollars ($465 million and
$529 million respectively) to develop their electric vehicles.52 Aptera decided to change its
approach and apply for government funding for both its three-wheeler model and to a four
door, four seater vehicle. The application was once again denied because the Department of
Energy believed that Aptera would be unable to pay back the loan under the current sales
projections. Once again, the company changes its strategy and requests money from the
Department of Energy to fund only its four door, four seater electric vehicle. This request was
met with a conditional letter from the Department of Energy which stated that the company
would receive $150 million if the company was able to raise $80 million from private
investors. Aptera was unable to do so, and three months later in December of 2011, the
company shut down.53

Many of the issues that the company faced stemmed from the financial issues. Aptera wanted
to create a vehicle that would revolutionize the way cars operated and looked. However,
because the company was so focused on the three-wheeled design, which lacked support from
its biggest potential funder (Department of Energy), the company was unable to move forward
with not only product designs, but system innovations, too. Without the access to capital and a
lack of government support, the company was unable to move forward with its idea and this put
an end to Aptera Motors.

29 Industry Structural Analysis
Industry Structural Analysis
The electric car industry is still an emerging industry so there are many unknowns and
complexities. Tesla is the only automobile company that exclusively produces electric cars.
Other automobile companies are primarily focused on gasoline cars and electric car models
are their secondary focus. Moreover, many automobile companies haven’t been producing
100% pure electric cars yet; they have only produced plug-in hybrids or hybrid electric cars.
Exploring Porter’s Five Forces of the electric car industry can hopefully clarify the forces driving
the electric car industry’s competition.
Threat of Entry: Moderate
The threat of entry for the electric car industry is moderate because barriers to entry are high
for new companies, but are significantly lower for existing automobile companies that are
beginning to invest in electric cars because they are more established and have the necessary
financial resources to fund the research and development of electric cars. It took Tesla eight
years of research, engineering and development to produce the world’s first premium electric,
zero-emissions sedan.54 Producing an electric car is a capital intensive and time consuming
process that takes years of designing, engineering, testing, and manufacturing. Some of the
major sources of barriers to entry are economies of scale, product differentiation, capital
requirements, and government policies.
Dominant industry leaders benefit from economies of scale with lower unit costs and higher
barriers to entry against newcomers. For example, Tesla’s Gigafactory, which is a partnership
with Panasonic, aims to reduce the costs of lithium-ion battery packs.55 Lithium-ion is one of
the most commonly used type of battery for electric cars. This joint venture will considerably
lower unit costs for Tesla and deter entrants because entrants must accept a cost
disadvantage or take a risk and enter with a larger scale.
Product differentiation builds a barrier that forces new entrants to formulate their own and
unique identification. Product differences, customer service, branding, and customer loyalty are
factors that help differentiate between different electric cars. Product differentiation is crucial for
the emerging electric car industry because it will build customer loyalty and help establish its
position in the industry. Luxury cars differentiate themselves primarily through brand name,
quality, customer loyalty and excellent customer service. By being the first entrant and securing
a niche market, Tesla has created strong product differentiation and prides themselves for their
quality, innovation, brand and customer service.

Capital requirements for manufacturing an electric car are high due to the upfront costs of R&D
along with manufacturing, advertising, and establishing infrastructure. During BMW’s early
experimentation with electric cars, BMW unsuccessfully tried to replace gas components of a
Mini Cooper with electric components in an effort to reduce costs.56 The build and design of
electric cars are different from traditional gasoline cars. Thus, building an electric car is not
simple and the knowledge of building a traditional gas car isn’t necessarily transferable to
building an electric car. The capital requirement to build an electric car is high due to the
intensive R&D, design process and safety testing that is required.
Switching costs are moderate for new entrants because existing automobile companies would
need to bear the cost of retraining employees, investing in new equipment, and testing new
vehicles. Employees would need to be retrained with the specific knowledge regarding electric
vehicles since the mechanics and the engineering of electric cars are different from traditional
gas cars. Companies will also have to invest in new equipment to be compatible and efficient
to produce new vehicles. It is also a timely and costly process to research, test and produce a
new vehicle.
Government policies may also deter new entrants from entering the electric car industry. There
are many laws and regulations that automobile manufacturers must follow, including vehicle
safety regulations, battery safety regulations and automobile manufacturer and dealership
regulations. Cars need to be in compliance with National Highway Traffic Safety Administration
(NHTSA) requirements, United States Federal Motor Vehicle Safety Standards (FMVSS)
requirements, as well as many other laws and regulations.57 Government policies create a
barrier for prospective new entrants seeking to enter the electric car industry.
Threat of Substitutes: Moderate
The threat of substitute products in the electric car industry is moderate because there are a
variety of vehicles for consumers to choose from. Aside from electric cars, alternative forms of
transportation include traditional gas cars, hybrid cars, plug-in hybrid cars, fuel cell cars,
bicycles, electric bikes, public transportation and more. However, the most direct substitute to
electric cars are hybrid cars because both electric and hybrid cars are environmentally-friendly
and sustainable vehicles, both striving to be alternatives to gas cars.
One of the most notable hybrids in the auto industry is the Toyota Prius, which is one of the
best-selling hybrids to date with cumulative global sales of around 9 million vehicles.58 Toyota
holds more than half of the hybrid electric vehicle market share. The Toyota Prius was the
most popular hybrid in America in 2014 and is considered to be the best-selling hybrid in
America in 2015. The Toyota Prius is successful because of its quality, reliability, price, fuel

efficiency and mileage. Moreover, in 2017, Toyota will be releasing their all-new Prius Prime, a
plug-in hybrid, which combines electric and hybrid power and averages over 600 miles in
range.
Another rising substitute is the hydrogen fuel cell car. Hydrogen cars are a cleaner and greener
form of transportation because the only byproduct that leaves the tailpipe is water.59 Hydrogen
is also the most abundant element in the universe, so there will not be any shortages, unlike
traditional fossil fuels. Hydrogen fuel cells have been used to power other machineries and
buildings like generators, submarines and even spaceships.60 Hydrogen fuel cells are a reliable
source of energy but have yet to be adopted by the mass market because hydrogen fuel cell
stations are limited and need to be expanded in order to be competitive against traditional
fossil fuel and electric vehicles.
Bargaining Power of Buyers: Moderate to High
The bargaining power of buyers is moderate. There is only a modest concentration of buyers
since the electric car industry is still relatively new. For example, Tesla’s customers have no
negotiation power because they buy directly from Tesla at specified prices.61 Moreover, Tesla’s
cars have unique features that other cars do not have, such as advanced autonomous driving
capabilities, top-notch software, supercharging stations, premium quality, sleek design and
long driving ranges. Consumers are left with few alternatives if they want to purchase an
electric car that has such a wide range of features. BMW is also adopting set-price strategy for
their electric car line.62 This limits the buyer's bargaining power and influence to drive prices
down. Contrastingly, other automobile companies utilize dealerships and still allow for
negotiations.
Tesla was the leading seller of electric cars in 2015 and sold 25,700 units of the Model S,
compared to Nissan Leaf sales of 17,269 units.63 The top two sellers of electric cars, Tesla,
which provides a premium electric car, and Nissan, which has a more economical electric
option, shows that the electric car industry has two completely different buyers. When looking
exclusively at Tesla, Tesla was the top seller in 2015 indicating that many buyers of electric
cars were not concerned about price but rather quality and branding. According to Akshay
Aghakar, a sales specialist and a top seller at Tesla, about 45 percent of people who buy
Tesla’s Model S have not previously bought a car more expensive than $35,000. This means
that consumers are choosing to buy a Tesla as their first luxury car and price is not an issue.
Also, the volume of demand for Tesla is higher than its ability to produce, which further lowers
the buyers’ bargaining power. Tesla is a unique electric car that is distinctly different from other
electric cars, from its exterior and interior design to the technological advancement, enhancing

the value of their cars. There is currently no electric car like Tesla and buyers are willing to pay
more for this premium product.
On the other hand, more price sensitive buyers may look into government incentives. There
are government tax credits when buying hybrids or zero-emission vehicles, and the different
amounts might influence decisions on which vehicle to purchase. In California, the Clean
Vehicle Rebate Project (CVRP) offers up to $7,000 in electric vehicle rebates for the purchase
or lease of new, eligible zero-emissions and plug-in hybrid vehicles.64 The rebate amount in
California for zero-emission electric vehicles is $2,500. In addition to the state rebate, there is
also a federal tax credit of up to $7,500. As there are increasingly more electric car options and
when price is an important factor for buyers, buyers will have more bargaining power.
Additionally, there are low switching costs when the buyer is switching from one company’s
product to another’s. All electric cars are generally very similar when it comes to driving the car
and charging the car. There are little differences when you switch from one company’s electric
car to another company’s electric car. With low switching costs, buyers will have more
bargaining power.
Bargaining Power of Suppliers: High
Supplier power is high because there are only a few suppliers to many electric car companies.
Tesla uses over 3,000 purchased parts which are sourced globally from over 350 suppliers.65
The bargaining power of suppliers who supply raw materials, like steel and aluminum, and
other components of the car is lower because they provide commodity items for which there
are substitutes, and automakers tend to buy these items in high volume. The most important
element of an electric car is the battery, which determines the range, longevity and charging
abilities of the car. The major providers for batteries are LG Chem, Samsung SDI, and
Panasonic Corporation, and top automakers are increasingly choosing these three companies
as their suppliers.66 There are only a handful of battery suppliers while the electric car industry
is expanding rapidly and these suppliers provide an essential input for electric cars. With
technology changing so rapidly, automakers are not willing to take the risk of producing their
own battery and few battery companies can meet the challenging demand to build innovative
batteries with costs, quality, size, and weight that automakers request. Also, there are no
available substitutes and to change from one supplier to the next would be difficult due to
contract and commitment bounds. Therefore the bargaining power of battery suppliers are
high.
Tesla is vertically integrating because aside from manufacturing and directly selling their cars,
Tesla has built their own Gigafactory, which supplies their batteries. Tesla also recently bought

SolarCity, which manufactures solar panels. Tesla is producing its own batteries when most
automakers are outsourcing to other companies. Tesla also plans to sell solar panels which will
power homes and charge the electric cars in those homes. So since Tesla is their own supplier
for batteries, they have control over pricing and they can significantly lower their battery prices
as well as their overall cars.
Intensity of Rivalry: Moderate to High
The intensity of rivalry in the electric car industry is moderate to high because currently, there
are several distinctive industry leaders but as more automobile firms enter the electric car
industry, the intensity of rivalry will inevitably rise. The electric car industry is an appealing and
expanding industry with many major automobile firms releasing their own electric car within the
next few years.
Major industry leaders in the electric car industry includes Tesla, Nissan, BMW, Fiat,
Volkswagen and Kia. Cumulatively since 2010, Nissan Leaf (97,513 units) is the best-selling all
electric car followed closely by Tesla Model S (80,461 units) and then BMW i3 (22,488 units).67
Since all electric cars are somewhat similar as it provides a mean of transportation, automobile
firms utilizes distinctive branding. For example, Tesla is known for their luxury design,
advanced innovation, and high performance, displaying their vehicles in showrooms/galleries,
which is unique and different from traditional car dealerships. Contrastingly, Nissan Leaf
appeals to a demographic who are seeking for a greener vehicle but are also more price
sensitive. There are diverse competitors where different companies are targeting different
target markets as well as offering different innovative designs and technologies. Also, there is
low switching cost to switch from one company to another, which contributes to the intensity of
rivalry to be higher.

Intensity of Rivalry:
Moderate/High
- Few major
competitors
- Lack of switching
costs
- Diverse
competitors
Threat of Substitute
Products: Moderate
- Hybrid vehicles
- Hydrogen fuel cell
vehicles
Bargaining Power of
Suppliers: High
- Three major
battery suppliers
- No available
substitute
Bargaining Power of
Buyers: Moderate/High
- Low switching
costs
- Price sensitivity
customers
- Luxury car buyers
Threat of Entry:
Moderate
- High barriers to
entry
- High capital
requirement
- Established auto
companies have
an advantage

35 Competitor Analysis: BMW
Competitor Analysis: BMW
Overview
Bayerische Motoren Werke, better known as BMW, is a German
based automobile manufacturing company. The BMW Group AG
serves as the parent company of BMW, MINI, and Rolls-Royce.
Known for its unparalleled combination of high performance and
comfort of luxury, BMW is among the top ten automakers in the world.
With recent social and technological changes towards more
sustainable ways of transportation, BMW has created a series of
environmentally sustainable cars for the mass market. This would be the BMWi series, which
currently provides the i3 and i8 as options. Through BMW’s four company pillars: growth,
shaping the future, profitability, and access to technology and customers, BMW will be able to
excel and achieve their stated goals. BMW continues to demonstrate their ambition for
excellence through the multiple awards they receive every year. This would include “The World
Green Car of the Year” in both 2014 and 2015 for the BMW i3 and BMW i8, respectively. In
addition, the BMW i3 also won “World Car Design of the Year” in 2014.68 Their mission
statement up to 2020 is to be the “world’s leading provider of premium products and premium
services for individual mobility”.69
History
In 1916, Gustav Otto (pictured on the right) founded BMW, to
manufacture aircraft engines. This is where the inspiration for
their logo came from, which is supposed to be a white-and-blue
propeller. Production of aircrafts came to a halt in 1923 because
of the Treaty of Versailles, which banned Germany from
producing aircrafts. This political and legal change forced BMW to
improvise and look towards ground transportation.
In the 1930s BMW soon realized that automobiles would become
the preeminent mode of transportation, replacing motorcycles.
They established themselves by acquiring British Austin model, and not long after did it start to
drawing its expertise in high-performance engines and aerodynamic designs. These would
later lead to manufacturing of world-class automobiles such as, the legendary BMW 328 sports
car from 1936. However, even with all the engineering triumphs, BMW remained a niche player
in the luxury car market. There were multiple times during history where BMW faced weak

financial positioning and threat of takeover by Mercedes-Benz, however in 1959 the firm was
rescued by Herbert Quandt, a wealthy German and reclusive industrialist. BMW didn’t really
establish itself as what we see today until the 1960s when the company “found its stride when
it combined its high-performance sports car engineering with the comfort of luxurious cars.”70
This would move the company standing from 69th to 11th among Germany’s top corporations.
By the 1990s BMW grew exponentially, employing more than 116,000 people worldwide and
located in 140 nations. In 1997, there was a 10% increase in deliveries of new cars over the
past year worldwide. BMW growth led to a higher customer demand for more choices. Cars
manufacturers were forced to respond with an acceleration of new model development and
increase in model variation. This example demonstrates consumer’s high buyer power and
BMW’s shift towards a mass market product. However, this also led to more opportunities for
other automakers such as Japan, Korea, and U.S. to enter the market once the European
market barriers fell. BMW views itself as a “manufacturer of unique automobiles for a clearly
defined, exclusive and demanding clientele all over the world.”71
Assumptions
BMW assumes that they will continue to excel at producing efficient and high performance
cars. Throughout the 100 years that BMW has survived as a company they have been able to
establish a reputable brand that consumers seek to buy. With BMW being a mass marketed
product, the consumer market has set standards that BMW must exceed each year. In order to
stay ahead of the curve, BMW is constantly innovating. We assume that BMW will also
continue to pursue their goals of becoming sustainably efficient and producing little to no
carbon dioxide emissions. In the automotive industry, many people are focusing of the social
and global issues that we are facing with climate change. In order to achieve their goals of
sustainability, BMW assume that the company will expand their alternative energy fleet and
slowly phase-out their gas cars.

Financial Statement Analysis
Ratios
Derived from the BMW Annual Report 2015:
ROCE 16.34%
ROA 6.17%
ROIC 10.73%
ROE 15.38%
Net Profit 6.02%
Asset Turnover 1.03
Current Ratio 1.22
Debt Ratio 0.60
Debt to Equity Ratio 1.49
There are three financial measures that BMW should focus on: increasing return on capital
employed, increasing sales volume, and increasing revenue. Increasing return on capital
employed is a key performance indicator used in the automotive segment. BMW’s strategic
target for their automotive segment’s RoCE is 26%. The higher the ratio, the more favorable it
is for the company because it means that there are more dollars being generated by each
dollar of capital employed. In 2014 BMW forecasted that there would be a moderate decrease
in RoCE, however there was actually significant increase of 10.5 % pts. Another important
financial measure would be sales volume. The 2014 annual report forecasted that there would
be a solid increase in units from 2014-2015. There was a 6.1% increase, totaling of 2,247,485
units. However, BMWi only totalled at 1.5% of BMW’s total sales volume. Lastly, it is important
that there is an increase in revenue. BMW forecasted to have a solid increase, which was later
that there was a significant increase, specifically in Q1. Overall there was a 13.8% increase in

revenue with the actual outcome of 85,536 Million Euros, or about 79,465 Million USD. During
2015, the U.S. dollar had an average exchange rate of 1.1 to the Euro. This was because of
the monetary policy the European Central Bank and the US Federal bank caused the U.S.
dollar to appreciate in value against the Euro.72 A 2017 BMW i3 has an MSRP starting from
$42,400 versus a 2016 Tesla Model S which has an MSRP starting at $66,000. Any additional
cost will be from added features because, both BMWi and Tesla have set prices that are non-
negotiable.
Finance
The 2015 stock market year was very volatile, with the Chinese economy, the weakness of the
Euro, the Greek debt crisis, and many more political and economic events. Especially with the
“loss in value of the euro against the U.S. dollar, provided a boost for European exports and
contributed to a more amenable stock market climate”.73 In addition, the news of other diesel
competitor manipulation caused a negative effect on investor sentiment. BMW’s common stock
in 2015, was 601,995 (number of shares in 1,000) which has stayed the same since 2011.
BMW’s Preferred stock in 2015 had 54,809 (number of shares in the 1,000) which was a slight
increased from 2014’s 54,500 (number of shares in 1,000).74
Capabilities
Organizational Structure: Supervisory Board
Management at BMW Group is devised of two main boards, the supervisory board and the
management board. The supervisory board serves a variety of duties for the company, many of
which are to manage and supervise the management board. In general, the supervisory board
closely monitors BMW’s business performance and macroeconomic developments in the
market. Supporting the board of management by advising them on significant projects and
plans, as well as managerial changes. The supervisory board makes the rules and insures that
everything the board of management is doing is within the laws and rules of BMW and the
countries they work in. The Chairman of the supervisory board is Norbert Reithofer, who was
previously the Chairman of the board of management. In addition to the chairman of the board,
there are also four deputy chairmen and multiple members that evaluate the actions of the
board of management.

Chairman, Dr. Norbert Reithofer
Reithofer was previously the Chairman of the Board of
Management, so he would not only provide insight into what
the new Chairman of the Board of Management is thinking,
but he would also have a greater understanding of what his
new job requires. He has been working at BMW since 1991,
which means he has a well-rounded understanding of how
the company operates, as well as its strategies and goals.
Deputy Chairman, Manfred Schoch
Schoch was born in 1955 and studied industrial engineering
at Karlsruhe Technical University. He would later join BMW
AG in 1980 where he now sits on multiple committees. He is Chairman of the Works Council in
Munich, BMW AG, and the European Works Council. His work experience demonstrates that
he has a great understanding of how to advise people and what would be best of the situation.
Deputy Chairman, Dr. Jur. Karl-Ludwig Kley
Kley was born in 1951 and received an industrial business apprenticeship at Siemens AG. He
went on to study law at Ludwig Maximilians University in Munich and practical training in law in
Hamburg and Johannesburg, South Africa. He served as a member of the executive boards of
multiple companies, generally with an emphasis on finance. His well-rounded background
would give him a better understanding of the legality of the projects the Board of Management
proposes.
Deputy Chairman, Stefan Schmid
Schmid was born in 1965. He started out with an apprenticeship in power plant electronics as a
metalworking foreman. He later joined BMW AG in 1985 and became a member of the
Chairman of the Works Council in Dingolfing. In addition, since 2004 Schmid became the
Deputy Chairman of the General Works Council. Schmid’s background gives him indepth
knowledge of the process of manufacturing and how operations are handled.
Deputy Chairman, Stefan Quandt
Quandt, was born in 1966, the youngest of the Deputy Chairmans. He received his degree in
industrial engineering from Karlsruhe Technical University, just like Schoch. Since 1996,
Quandt has worked as an independent entrepreneur. His father was Herbert Quandt, the
wealthy industrialist, who helped save BMW from bankruptcy in 1959. He is a large
shareholder, therefore his decisions can be influenced by self-interest.

Organizational Structure: Board of Management
The management board is the equivalent to America’s C-suite. The management board
specifically focuses on topics regarding economic development and the prospects of key world
regions. There is constant and close collaboration with the board of management and the
supervisory board. Informing each other of the status of projects and acquisitions on a regular
basis. This can be seen through their regular reports on current sales and workforce figures, as
well as the discussions on the economic developments and performance around the world.
Chairman, Harald Kruger
Krüger was born in 1965 and joined BMW in 1992. He slowly worked his way up from project
engineer at the Spartanburg plant to a Member of the Board of Management responsible for
Human Resources, then the After Sales of BMW group and Production. Finally in 2015, when
Reithofer was picked for the Chairman of the Supervisory Board, Krüger was picked as
Chairman of the Board of Management. Krüger was an obvious choice because of his vast
knowledge of the company and its inner workings within different departments and sections.
Human Resources, Milagros Caina Carreiro-Andree
She was born in 1962 in Boboras, Spain. She trained as an industrial representative and had
her start at Vossloh Aktiengesellschaft, Werdohl in 1984. From 2006-2012 she held many
executive positions and was a member of the Management Board of responsible for HR at
Schenker Logistics AG. In July 2012, Carreiro-Andree became a member of the Board of
Management of BMW AG, specifically responsible for HR.
Recently, both the supervisory board and the board of management have been moving
towards a generational change. This shift towards younger board members would ensure
personnel continuity and help shape BMW’s future strategy. This can be seen through the
recent managerial changes in 2015. Before the shift towards a younger board, the Chairman of
the supervisory board was Professor Joachim Milberg, who was 72 years old at the time. The
Chairman of the board of management was Norbert Reithofer, who was 59 years old.
Therefore, Harold Kruger (pictured on the right) would replace Reithofer as the Chairman of the
board of management, who was only 50 years old.75

Figure 8: BMW’s Company Structure76
The composition of corporate structure greatly affects a company’s corporate culture and plays
a key role in how the company operates. However, all of these are even further impacted by
country culture. BMW being a German company can be described by Hofstede’s six
characteristics: Power Distance, Individualism, Masculinity, Uncertainty Avoidance, Long Term
Orientation, and Indulgence. The chart shows that Germany has high uncertainty avoidance,
high masculinity, high individualism, low power distance and low long term orientation. This is
clearly shown through BMW’s corporate culture and structure. Germany is considered to have
low power distance and high individualism, meaning that they encourage the ability to be
independent and self-reliant, as well as, emphasizing the importance of co-determination and
direct and participative communication. This is characterized through BMW’s clear
responsibility, mutual respect, and trust for each other. However, Germany also has a strong
aversion towards uncertainty and the unpredictability of things. This is highlighted in one of
BWM’s primary goals “to avoid risk which could jeopardize the trust our customers,
shareholders, business partners and the general public place in BMW Group.”77 Their high
masculinity demonstrates that the culture is really driven by competition, achievement, and
success. Which is evident of BMW’s constant need to innovate and cater to the evolving needs

of their customers. Germany is also more inclined towards long term orientation which
indicates that they are a pragmatic country, with people who can adapt easily in changing
conditions and persevere to achieve results.78
Operations
The company operates in more than 140 countries and has 30 production and assembly
facilities in over 14 countries. They are constantly innovating new products through their 12
research and development centers around the world. These centers are located in countries
like Austria, Germany, the United States, Japan, and China. These locations make sense,
since about half of BMW’s revenue comes from inside Europe, whereas the rest is mostly split
between the United States, and China.79
Operations management, if done well, can reduce cost of products and services by being
efficient, as well as increase revenue through increased customer satisfaction in producing
quality goods and services. BMW is able to be efficient because of their effective team
management and support for cross-functional teams. Utilizing these diverse set of people can
help solve problems more efficiently and effectively.80 In addition, BMW has created a great
structure of easy change management. BMW research and development is continuously

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