AUTHORS: Srujit Biradawada & Friends (Aarti, Lucy, Laura, Sumer, Vincent & Joyce)
Tesla’s Supply chain graph
In-house Production and Vertical Integration
Tesla’s product is 80% made in house and vertically integrated. With that said, Tesla builds its own batteries to power their electric cars, they also build their own driver train systems and seats. Tesla also digitally deliver their product to the customer’s car from cloud in order to update their latest product.
They invested an extraordinary amount on advanced robotic technology which is designed for flexibility and interaction with several thousand workers, helps lower the tremendous cost and make their mid-class product like Model 3s affordable.
In addition, different than most modern automobiles are assembled from parts made by hundreds of suppliers and countries all over the world, Tesla own its own factories, dealership and service center. For example, Tesla pull in amount of investment and applying the facility a full-service auto plant in house. That functioning as a supplier park built in the immediate vicinity with helping supply large, heavy parts with extensive variations. In addition, Tesla built Gigafactory at scale factory in corporate with their alliance partner, this enable them to achieve economies of scale and minimize costs through innovative manufacturing, reduction of logistics waste, optimization of co-located processes and reduced overhead.
The Tesla Gigafactory is designed to reduce cell costs much faster than the status quo and, by 2020, produce more lithium ion batteries annually than were produced worldwide in 2013. By the end of the first year of volume production of their mass market vehicle, Tesla expects the Gigafactory will drive down the per kWh cost of their battery pack by more than 30 percent. (Eric Wesoff, 2014)
Beside from that, Tesla also vertically integrated through its direct to consumer sales strategy, that is to say, once the cars are made, Tesla sells cars directly to consumers through their website in corporate stores, in this way not only they gain opportunity to gather feedback from their customers but also they could reduce the inventory at very low level.
Tesla’s Stakeholder analysis
Tesla’s business strategy implication:
Tesla’s products are often viewed as an antipode to traditional car. All the innovation of the product leans on the format of the non-conventional way to think about business strategy, for example, one of its business strategies allowed it to penetrate the high-end market by creating an aspirational premium product and thereafter target the middle class and mass markets by launching the affordable Model 3 sedan. This would require Tesla to rethink their supply chain system and production planning in order to do an effective and timely delivery of the car, since the company’s success and future depends on this. Beside from that, from a strategy perspective, Tesla also aims for becoming an environmentally friendly company, thus they also enjoy several benefits from government and regulation.
Thus, all those strategies also indicate Tesla’s prop value and prioritize their focus and engagement for their stakeholders, below are the stakeholder analysis for Tesla Motors:
- As we mentioned previously, that tesla wants to enter high end market by creating top class product but also wants to enter middle class by launching affordable Model 3 sedan. Thus, customer stand as one key factor that influence Tesla’s income, also Tesla’s customer would be concerned about the quality of the product and justified the product pricing level of Tesla. To be able to satisfy such a demand, the company right now is trying to reduce the cost of batteries in the cars to reduce the overall cost of the finished product. Therefore, instead of buying batteries from Panasonic, Tesla is trying to establish the production of its’ own batteries to make the car more affordable to people. In addition, one of the main goals of the company nowadays is to widen the charging stations network throughout the world, what would improve overall customer satisfaction and service quality. That ensures that Tesla satisfies customers’ concerns as a stakeholder group.
- Supplier and the alliance partner like Daimler, Panasonic, Solar Edge
- As the world’s largest electric vehicle manufacturer, Tesla import best braking discs from Europe, and import the battery technology from Japan, All those partnership and collaboration with those supplier partner is also the key to the timely innovation and production , production as well as the customer services, hence those alliance partner have equal vested interest in the company’s success.
- Tesla’s early years were highly dependent on such stakeholder group as Investors. Similar to other corporate, they are crucial for company’s capitalization and cash flow. Investors as shareholders always cares about profitability and business growth. Tesla’s CSR is trying to satisfy such interests using long-term strategies, directed to transform the automotive industry. For instance, the decision to allow other organizations to use Tesla’s patents can widen the number of brands and products that use electricity and also can increase the demand for such products, which can help Tesla to grow more and more, that corresponds with investors’ interests. Tesla’s concerns about ecological side of the business addresses the communities interests, as we were pointing before, which can be beneficial also for investors, because if the image of the company is positive, than it can be growing and stay focused on new products or increasing quality that would allow it to sell more copies of the cars and stably increase its’ profits, satisfying investors and shareholders as a stakeholder group.
- The Government
- Tesla’s mission is to develop the sustainable automobile industry, to achieve that the government also plan an important role as a stakeholder group, governments are concerned about the legal actions and compliance of the company and the contribution to the State economic growth. Strategic plans of global expansion and an excellent record of Tesla perfectly satisfies such government interests.
How they influence each other?
The Stakeholder analysis shared above shows the key stakeholders that are of high importance to not only determine the company’s strategy but are directly responsible for the successful implementation of the same. Currently, Tesla’s focus is customer-centric, which is conducive especially for new players. Their exclusive service and other free charging, software and data connectivity features for the customers allows the company to create a loyal and happy customer base. The alliance partners have equal vested interest in the company’s success. Their partnership is key to timely innovation, production as well as service and hence very important for the company’s success. Tesla shares good relationship with most of its collaborators. The area which really needs more focus is the investors and shareholders. Tesla has made huge investments based on their long-term growth strategy. Currently the company is not profitable and losses are increasing every year. In this circumstance it is possible for investors to get impatient and lose interest. It is important for the company to keep shareholders interest in mind and revisit their strategy to incorporate returns and generate positive interest from investors.
Adding value for Management and Logistics efficiency
Even though Tesla’s supply chain is largely vertically integrated as they are able to produce 80% of the car parts internally, as highlighted there are a number of external stakeholders to the organization. As a result, it becomes essential particularly for a publicly traded company, such as Tesla, to create value not only for its stakeholders, but also create value across its supply chain in order to maximize profitability. To do this, Tesla has approached a number of different strategies.
- For customers, which may arguably be the most important stakeholder for Tesla, as they are the end users who determine demand and a products success and by extension profitability, Tesla has been able to create value through quality, design, and efficiency. As a cleaner and greener mode of transportation, Tesla is an environmentally conscious company that offers customers the ability to reduce their carbon footprint and contribute in a positive way in the efforts to combat climate change and the phenomenon that it encompasses. Being the first mover in the industry, Tesla has been largely successful in disrupting the automotive industry by being the first large scale mass producer of electric cars. Even though in its initial years, due to the cost of production the electric cars were seen as a more of a luxury and a status symbol, as the company has matured over the years and sophisticated its supply and supply chain, they have had the ability to launch models that are more affordable and can penetrate across various income groups. This has given customers from different social and economic backgrounds the ability to participate in a wider movement towards sustainability and environment friendliness while in turn creating goodwill for the Tesla brand.
- Suppliers & External Partners
- Despite its vertical integration, Tesla uses a number of suppliers and external partners to source materials and technology for its electric vehicles. As the largest producer of electric vehicles in the world, it is essential for Tesla to strike strong long-term relationships with its suppliers. For a brand that is synonymous with quality, it is important that it sources its material from similar companies. The majority of Tesla’s external suppliers come from Asia, Europe and the United States and provide key components for the electric vehicles like its lithium ion battery pack, the charger, and its electric motor. For this reason, Tesla’s partners are valued part of the company’s supply chain and its success. Even though in the long term, these partnerships are called into question as Tesla may move the production of certain components internal in order to maintain quality standards and control costs, in the short term, Tesla has been able to create considerable value for its partners. It is through these join partnerships and strong demand that the third-party companies have been able to scale their business as well. Being the suppliers to the largest electric vehicles have allowed them to grow larger while ensuring quality to match the standards the Tesla brand brings with it. This sets up the companies for future success, as the electric vehicle market is only projected to grow larger and larger, with intensive competition, these companies now have the right infrastructure to enter into partnerships with other companies as well.
- As a publicly traded company, Tesla has a responsibility to its shareholders. This responsibility can be and is measured in both fiscal and non-fiscal methods. Tesla launched its Initial Public Offering in 2010 at $17 per share, currently as of December 2019, each stock of Tesla is trading at approximately $340 per share, this highlights an almost 1900% increase in the stock in the past decade. Like all companies, there are both internal and market trends that ensure both high and low periods, however, Tesla has largely been able to ensure profitability for its shareholders. As more and more companies both within the United States and Internationally make attempts to enter the market, Tesla’s first mover advantage and economies of scale will allow the company to continue being the leader in the industry. Furthermore, with the potential of its business model and its disruption of technology such as long-range electric vehicle technology, battery technology, and artificial intelligence, the company has the potential to be a disrupter in many industries.
- The Government
- Governments are key stakeholders in all industries and technologies. As both a regulatory and executive force, the government has the ability to dictate a company’s success. A key partner for Tesla, a mutually beneficial relationship is in the best interest for Tesla. Tesla already has created immense value for the government domestically, but has the potential to do even more at an international level. As cars continue to be the most widely used and largest method of transportation for people and goods in the United States, Tesla’s commercial fleet of cars and trucks will have a greater role to play as the trend to move toward renewable energy and environment friendliness will only grow stronger over the years to come. Furthermore, as the only means of large-scale transportation that is not dependent on oil, Tesla plays a strategic role for the American government as fluctuating oil prices and volatile government from supplying countries continue to pose a threat. As a large American corporation, Tesla also has a considerable number of employees and generates value for the American company. As the company continues to grow and disseminate wealth towards it highly skilled workforce, the company plays a key role in producing value manufacturing and services. A tremendous opportunity for Tesla is the ability to strike strong partnerships at a state and domestic level. Large cities like Los Angeles, Phoenix, Dallas along with hundreds of smaller cities do not have an infrastructure of public transportation, as a result, cars continue to be the dominant method of transportation. Partnerships with State and Local governments in a move towards a more sustainable method of transportation, will be crucial for Tesla to continue ensuring value for customers and across its supply chain. Support from state and local governments will also be essential to building the infrastructure for a widespread growth of charging stations that will make Tesla even more competitive not only in the electric vehicle industry but in the automobile industry as a whole, as it will be easier for customers to travel longer distances, and for Tesla trucks to deliver goods further away.