[SOLVED] Tesla Motors and the U.S. Automotive Industry

I’m trying to study for my Management course and I need some help to understand this question.

Strategic Management

Assessment

Read ‘Tesla Motors and the U.S. Automotive Industry’ case and write a report covering the following tasks:

• Critically assess the attractiveness of the U.S. Car Industry using the Porter’s five forces model? Draw a strategic group map with conclusions?
• Analyze Tesla’s present generic strategy with implications.
• Review Tesla’s strategic capabilities using VRIN framework.
• Evaluate the growth strategies adopted by applying Ansoff Matrix.

Your report must be focused, must demonstrate extensive reading. You must critically examine the relevant issues. Descriptive answers would not fetch the higher grades. The following criteria will be used to evaluate your written analysis:

ª Analysis of issues and

ª Understanding of concepts

ª Referencing and use of proper referencing style

ª Research rigor

ª Structure, Vocabulary and Cohesiveness of the written analysis

Note:

• Assessment I carries 60% weighting and constitutes the submission of a written report (40% weighting of) and a Viva Voce (20% weighting of the module).
• Students have to ‘pass’ both the written component as well as the viva to pass the assessment.

INSTRUCTIONS (for written case analysis)

• The written Case Analysis has 40% weighting in this module.
• The written analysis of the case should be in the report format and not exceed 3000+/-10% words.
• A reference list in Harvard style must be included
• Unacknowledged use of work of others (plagiarism) is regarded as a dishonest practice and will be will be penalized

Grading System (Starting Feb. 2015)

Tesla Motors and the U.S. Automotive Industry

THE BIG THREE—GM, Ford, and Chrysler—ruled the U.S. car market for most of the 20th century. Protected by high entry barriers, highly profitable GM had over half of the U.S. market to itself, Ford and Chrysler both did well too. Then, in the 1960s and 1970s, foreign carmakers entered the U.S. market, at first mainly by importing vehicles from overseas plants. Foreign makes included the German brands Volkswagen (also owner of the Porsche and Audi brands), Daimler, and BMW, and the Japanese brands Toyota, Honda, and Nissan. By the 1980s, these foreign entrants had intensified competition and threatened the Big Three’s market share, such that the U.S. Congress passed significant import restrictions. Not to be stopped, the new players responded by building U.S. plants to comply with the new rules. More recently, Korean carmakers Hyundai and Kia have begun making and selling cars in the United States.

Although globalization paved the way for significant new entry into the U.S. auto market, the worldwide car manufacturing industry has seen few new entrants. In fact, no new major car manufacturers have emerged in the past couple of decades simply because few industrial products, save for jet airplanes and nuclear power plants, are as complex to build as traditional cars powered by internal combustion engines. Large-scale production is necessary for car manufacturers to be cost-competitive. Taken together, these factors create significant entry barriers into the car manufacturing industry. Would you say, then, that a Silicon Valley technology startup, attempting to break into this industry, might be running a fool’s errand?

Enter serial entrepreneur Elon Musk, who creates and runs new ventures to address not only economic but also social and environmental challenges. Musk looms large in the public imagination and has even been likened to the fictional Tony Stark, aka the Iron Man, Marvel Comics’ eccentric inventor. Indeed, Musk made a cameo appearance in Iron Man 2. During the Internet boom, Musk made his fortune by developing an early version of Google maps and by co-founding the online payment system PayPal. The sale of both companies amounted to close to $2 billion, and Musk’s share allowed him to focus on his lifelong passions in science, engineering, and space.

His most recent companies include SpaceX, the first private company to deliver a cargo payload to the International Space Station; Solar City, basically the Walmart of solar panel installations; and, of course, Tesla Motors. Currently, Tesla receives most of Musk’s attention.

Faced with the formidable entry barrier of large-scale production, Tesla sidesteps the hurdle by producing all-electric cars. Compared to complex gasoline engines, electric power trains use relatively simple motors and gearboxes with few parts. The Tesla Roadster, an $110,000 Sports coupe with faster acceleration than a Porsche 911 GT, served as a prototype to demonstrate that electric vehicles can be more than mere golf carts.

After selling some 2,500 Roadsters, Tesla discontinued its production to focus on its next car: the Model S, a four-door family sedan, with a base price of $71,000 before tax credits. The line appeals to a larger market and thus allows for larger production runs to drive down unit costs. The Model S received an outstanding market reception. It was awarded not only the 2013 Motor Trend Car of the Year, but also received the highest score of any car ever tested by Consumer Reports (99/100). Tesla manufactures the Model S in the Fremont, California, factory that it purchased from Toyota. By 2015, it had sold some 60,000 of the Model S worldwide. Tesla also worked on a newly designed seven–seat electric vehicle – the Model X – an attempt to combine the best features of an SUV with the benefits of a minivan; the first batch came out in 2016. The third model in Tesla’s lineup is a smaller vehicle that will cost around $35000 and has a range of 200 miles per battery charge. The Model 3 was on sale in 2017.

Although Tesla Motors has successfully entered the U.S. automotive market using innovative new technology, its continued success will depend in other firm and industry factors. While industry forces have been favorable for a long time in the US automobile industry, recent dynamics have lowered the profit potential of competing in this industry and this reduced its attractiveness. Now that Tesla Motors has demonstrated how new technology can be used to circumvent entry barriers, other new ventures may soon follow. There are also nontraditional competitors entering the electric vehicle market. Google, for example has been working on a self-driving car, unveiling a proto type in 2015. Apple is also investing in an electric car under the code name ‘Titan’. None of these has the performance of a Tesla, both are firms with established brand names and credibility and significant financial resources. In addition, the old line car companies are also adopting the new technology by introducing hybrid or all electric cars, further increasing rivalry in the industry. The Nissan Leaf, with a sticker price of about $30000 before tax incentives, is the world’s bestselling all electric vehicle worldwide, with more than 200000 vehicles sold.

Tesla Motors completed its IPO on June 29, 2010, the first IPO by an American automaker since Ford in 1956. On the first day of trading, Tesla’s shared closed at $23.89 abd generated $226.1 million for the company. By fall 2014, Tesla’s stock has risen to over $285 per share before starting to slide below $200 in spring 2015. Nevertheless, Tesla’s market capitalization is almost one-half that of GM, although Tesla revenues were a little over $3 billion in 2014, while GM’s were $155 billion.

Source: FRANK T. ROTHAERMEL (2017), Strategic Management, 3rd Edition, New York, McGraw Hill Education.