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Value Chain Configuration for Tesla Motors in Brazil

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A strategic analysis of potential value chain configuration of Tesla Motors for a successful entrance in the Brazilian market. This study was done as part of my MBA studies as I am an enthusiastic Tesla Motors fan, and a strong supporter of electric vehicle industry. Feedback and comments are welcome.

Publié dans : Industrie automobile
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Value Chain Configuration for Tesla Motors in Brazil

  2. 2. TESLA MOTORS IS ARGUABLY THE MOST INNOVATIVE ELECTRIC AUTO MAKER 1. en.wikipedia.org/wiki/Tesla_Motors  Tesla Motors, Inc. is an American company that designs, manufactures, and sells electric cars and electric vehicle powertrain components1.  Tesla Motors gained widespread attention following their production of the Tesla Roadster, the first fully electric sports car. The company's second vehicle is the Model S, a fully electric luxury sedan.  Tesla also markets electric powertrain components, including lithium-ion battery packs to automakers including Daimler and Toyota Revenue US$2.013 (2013) Operating income US$61 million (2013) Net income US$74 million (2013) Total assets US$2,417 million (2014) Total equity US$667 million (2013)
  3. 3. THE ELECTRIC VEHICLES INDUSTRY IS STILL EMERGING BUT VERY COMPETITIVE • High entry costs • Breakthrough is a must • Tacit knowledge required in high tech New Entrants : Low • All major brands are competing • Emerging market competition in low cost segment EV Industry : High • Battery Suppliers: High for Industry but Low for Tesla is building it’s own factory • For other components varies: Medium Suppliers : Medium • Large number of substitutes • Hybrids, Bio-diesel • Other emerging tech like Hydrogen Fuel Cell • Conventional combustion engines Substitutes : High • Price sensitive, demanding consumers: High • Options available but not many “viable”, all lack either $ or performance: Low Consumers: Medium
  4. 4. THE INDUSTRY HAS CLEAR BUT CHALLENGING SUCCESS FACTORS Electric Vehicles Industry - Key Success Factors Quality & Design Cost Vehicle Autonomy Government Policy, Incentives & Compliance Vehicle Commercialization Target Audience Battery Commercialization Recharge Pricing & Payments Charging and Service Stations Need to match non-EV to attract masses Regulation can make a big difference Sale, renting, leasing option. Different income have different preferences Sale, renting, leasing options Free vs. Per Usage Prepaid vs. Postpaid Infrastructure, availability and density of stations To be competitive with non-EV. TCO attractiveness Low at 50km, Med 51- 150km, High >150km
  5. 5. Note: this is not Tesla Motor’s official strategy. We have reverse engineered their strategy based on their market moves and investor presentations. REGARDLESS OF THE CHALLENGES TESLA HAS AN AMBITIOUS PLAY-TO-WIN STRATEGY Increase Market Share Vision Strategic Goals Objectives Supporting Practices To drive the world’s transition to electric mobility by bringing a full range of increasingly affordable electric cars to market. Move Fast Do the Impossible Constantly Innovate Reason from “First Principles” Think Like Owners We are ALL IN Expand Production Grow customer support • Increase market share (500k vehicles by 2017) • Launch 3rd gen price (30- 35$k price range) • Increase battery supply • Augment production capacity • Increase by 75% stores & service centers (2014) • Grow supercharger network 200% (2014)
  6. 6. Design Engineering Mfg Sales & Distribution Service Charging Value Chain (owned by Tesla) TESLA HAS RECONFIGURED AND TAKEN FULL OWNERSHIP OF ITS VALUE CHAIN WITH A SERIES OF DISRUPTIVE STRATEGIC INITIATIVES Component Suppliers Financing Electricity Suppliers Customer Value System Re-thinking Sales: Apple inspired owned flag ships stores - NO DEALERS , NO CMO, NO AD AGENCY Re-thinking Charging & Service: FREE CHARGING at Tesla Supercharging Stations 90 SECS BATTERY SWAPS, NO OIL CHANGES Re-thinking Battery Supply: building a solar powered GIGAFACTORY capable of the today’s world capacity production Re-thinking Business Model: SELL EMISSION CREDITS , LICENSING OWN TECHNOLOGY, IN CAR ADVERTISING, OPEN SOURCED PATENTS PORTFOLIO
  7. 7. Quality & Design Cost Vehicle Autonomy Government Policy, Incentives & Compliance Vehicle Commercialization Battery Commercialization Recharge Price & Payments Charging & Svc Stations IN DOING SO TESLA IS RAPIDLY BUILDING A COMPETITIVE ADVANTAGE VRIO Analysis - $5b battery Gigafactory - Free recharge at superchargers - Full value-chain ownership Costly to imitate Target Audience Key Success Factors - Tesla cars have great design - The only EV car reaching 300 miles on a single charge. Rare - The Powertrain components are bought by Daimler and Toyota to produce vehicles Valuable - Shared CEO and only ~24% margins but… - Economies of scale achieved by Gigafactotry and no dealers network Organized to capture value ✓ ✓ ✓ ✓ ✓
  8. 8. TESLA IS RAPIDLY INCREASING ITS INTERNATIONAL PRESENCE BUT BRAZIL IS NOT ON THE MAP YET - BRAZIL THOUGH IS AN INTERESTING MARKET - TOTAL CAR SALES FORECAST OF 5.7 MILLION IN 2016 (68% INCREASE FROM 2011) - MAJOR CAR MANUFACTURERS PLAN TO INVEST US $25 BN BY 2016 1. Erber 2010. 2. Rezend, Mota and Duarte 2010 3. http://www.forbes.com/sites/joannmuller/2012/10/05/why-the-worlds-automakers-are-loving-brazil EV MARKET IS AT EARLY STAGES - SALES EXPECTED TO DOUBLE WITHIN 15 YEARS (IN M UNITS)*. FIGURES BELOW INCLUDE ALL TYPE OF VEHICLES, NOT RESTRICTED TO CARS1 Brazilian automotive industry on the global scale ranks: • 6th place for country in scale • 5th place in consumer market • 12th in terms of exports • 13th in imports • 1st in production of vehicles using renewable fuels
  9. 9. BRAZIL THOUGH HAS A SERIES OF INSTITUTIONAL VOIDS1 Product market High taxes restrain from growth. Electric vehicles do not receive government incentives and the vehicles are taxed based on the higher excise tax rate about 120%2. A Model S retailing around US$90, in Brazil would end up costing about US$200k 1. https://economics.rabobank.com/publications/2014/january/how-to-tackle-the-custo-brasil/ 2. Coutinho, Castro and Ferreira 2010 3. 2013 Talent Shortage Global Survey of the Manpower group, Only 14% of Brazil’s roads are paved. No electric charging network stations in isolated areas Infrastructure One of the worst red tape requires on average 152 days to start a new venture. Time to start a new venture Low level of education leading to a local Talent shortage. Brazil was the second worst scoring country among the 42 countries surveyed2 Human Capital Taxes Fitter margins Production & distribution cost Endemic corruption and likeliness of luxury vehicle theft Lobbies, corruption and violent crime
  10. 10. TESLA’S COMPETITORS HAVE ALREADY ESTABLISHED A PRESENCE AND ARE TRYING TO INFLUENCE THE GOVERNMENT IN THEIR FAVOR  June 2014 signed a memorandum of intention to produce electric car in Rio de Janeiro.  The National Association of Automobile Manufacturers In Brazil –is proposing the Brazilian government to exempt the import of electric and hybrid vehicles, expanding production to 20171. 1. http://electriccarsreport.com/2013/07/brazil-may-be-the-one-to-open-the-doors-to-electric-vehicles/#ixzz37jXSvmkB  If approved, Brazilian automotive industry may invest less or not at all in the efficiency of combustion engines. The importation of electric/hybrid vehicles will allow manufacturer obtain government incentives, because the calculation of the efficiency is done on the average consumption of all products and not individually.  If the proposal is accepted in full, the domestic industry will have a good way to prevent competitors. There won’t be production incentives until 2017, automakers with factory in Brazil (accounting for 88% of sales) will be protected against new players like Tesla Nissan Leaf operating as a taxi in Rio de Janeiro
  11. 11. TO SUCCEED TESLA NEEDS TO RECONFIGURE IT’S VALUE CHAIN TO ADAPT, COOPERATE, AND FACILITATE A RAPID ENTRANCE INTO THE MARKET Design Engineering Mfg Sales & Distribution Service Charging Value Chain (owned by Tesla) Component Suppliers Financing Electricity Suppliers Customer Value System Open Local Assembly Facility Partner with local player (e.g. JV to deploy superchargers at Petrobras stations) Deploy & connect highly urbanized centers High import taxes Lack of infrastructure Mix international and local talent (both top managerial and skilled labor positions) Time to launch new venture Internationalization of Activities Institutional Voids Red tape, lobbies & corruption Note: the detailed rationale of the proposed changes is in the appendix
  12. 12.  Tesla Motors is a very attractive, innovative, and fast growing Electric Vehicle manufacturer. Currently they don’t have a presence in Brazil  Judging from the analysis performed, Brazil is an attractive but very challenging market. This might explain the lack of Tesla presence in the country  To be able to make an accurate entry recommendation we would need to perform a thorough market analysis  Our study has instead highlighted a set of changes to the existing value chain configuration, that Tesla should adopt to successfully execute its strategy in Brazil CONCLUSIONS & RECOMMENDATIONS
  13. 13.  http://en.wikipedia.org/wiki/Tesla_Motors  http://ir.teslamotors.com/  http://www.slideshare.net/lmaioli/strategic-marketing-for-tesla-motors-uc- berkeley-extension  http://www.slideshare.net/nkhattab/tesla-strategic-management-final-30084939  http://www.slideshare.net/TheMotleyFool/5-disruptive-reasons-to-buy-tesla-motors  http://prezi.com/pztxvxbtz3ct/business-strategy-tesla-motors/  http://www.thunderbird.edu/blog/faculty/washburn/2011/04/17/tesla-toyota  http://www.technologyreview.com/news/426909/can-tesla-survive/#comments  https://www.youtube.com/watch?v=D9h1Kx-2bpM  http://michael.schwanzer.info/uclan/BT3001/a1.pdf  http://www.marketplace.org/topics/sustainability/teslas-secret-success-selling- emissions-credits  http://www.teslamotors.com/2014shareholdermeeting  http://prezi.com/qlunzh5h7lug/?utm_campaign=share&utm_medium=copy&rc=ex0 share  https://economics.rabobank.com/publications/2014/january/how-to-tackle-the- custo-brasil/ REFERENCES
  14. 14. APPENDIX
  15. 15. RATIONALE FOR TESLA’S VALUE CHAIN RECONFIGURATION IN BRAZIL Open Local Assembly Facility Partner with local player (e.g. JV to deploy superchargers at Petrobras stations) Deploy & connect highly urbanized centers High import taxes Lack of infrastructure Mix international and local talent (both top managerial and skilled labor positions) Time to launch new venture Red tape, lobbies & corruption Large scale endeavors require strong local knowledge, network and influence. Quite often foreign multinationals have failed to roll out businesses in Brazil because of such reasons. The locals refers to this as “Custo Brazil” that would translate to “the actual cost of doing business in Brazil”. http://en.wikipedia.org/wiki/Brazil _cost Effectively launching and operating a business is extremely hard due to various and cultural and legislative factors. Lobbies and corruption go also hand in hand, and the automotive that sector has strong ties with the oil industry. Forming a strategic alliance with an existing Industry juggernaut of the likes of Petrobras is paramount to obtain the right level of political influence and access to critical resources. Brazil extends over a vast area and only 16% of roads are paved, on the other hand population is concentrated around key urbanized areas. Just the state of Sao Paulo is home to 40 million Brazilians, about 1/5 of the country population. Connecting the 8 major cities will allow access to about 120 million people Opening a local assembly factory is a common practice that has been adopted by Ford, GM, Fiat, Volkswagen. Main vehicle component can still be manufactured overseas but by assembling the various parts in Brazil the company can avoid the high import taxes for finished goods. The Brazilian government enforces a strict protectionist policy.