Tesla Value Chain Analysis.
Introduction:
Tesla is a US-based automobile company that makes electric cars and a wide range of other energy products that help individuals and businesses reduce their carbon footprint through the use of renewable sources of energy. Elon Musk is the CEO of Tesla. Its headquarters are in Palo Alto, California, United States. In 2019, Tesla experienced a sharp rise in vehicle sales and revenue. This happened following the release of its most affordable car model — model 3. Otherwise, it only sold luxury car models.
The company is well known for its focus on innovation. Tesla cars are loaded with several smart technological features including autonomous driving technology and several more security features. The company strives to provide its customers pollution-free and unique while also a luxurious driving experience.
Tesla has managed its supply chain and production network very well. China is an important market where the demand for Tesla products has grown. The company is optimizing its value chain for higher efficiency and to deliver higher satisfaction to its customers in China as well as the other parts of the world.
The value chain model:
Michael E. Porter of the Harvard Business School introduced the concept of the value chain. This model includes the entire range of activities from the procurement of raw material to the production, marketing, sales, and after-sales service. Each of these stages adds value to the final product. Analyzing the value chain and optimizing it helps achieve superior results. Through the optimization of their value chains, companies can increase their operational efficiency as well as build new sources of competitive advantage. The value chain includes two kinds of activities — primary activities and support activities.
Read an analysis of Tesla’s Value Chain and how the company has optimized it for higher agility and stronger competitive advantage.
Primary Activities:
The primary activities in Porter’s value chain bear a direct relationship with the creation of products or services.
Inbound logistics:
Inbound logistics refers to the inward flow of goods into business which includes transport, storage, and delivery. Tesla has a large number of warehouses located in the United States (one in Taiwan), most of which are leased facilities. The principal manufacturing facility of Tesla which is owned by the company is located at Fremont, California, United States. This facility is used for warehousing as well as manufacturing. The approximate size of this facility is 5.5 million square feet apart from the other warehouses which the company uses for storage as well as delivery are located at the following locations:
- Livermore California.
- Lathrop, California
- Sparks Nevada
- Taipei City, Taiwan.
- Elkridge, Maryland and
- Bethlehem, Pennsylvania.
Tesla uses these facilities for storage as well as distribution.
The warehouse in Taipei City, Taiwan is used for storage as well as administration and service. The company has also leased several other facilities and warehouses in other corners of the world including North America, Asia, and Europe.
Operations :
Tesla was founded in 2003 by a group of engineers who dreamt of making electric mobility possible for everyone. In 2008, Tesla launched its Roadster and then later Model S. The company has its headquarters in Palo Alto, California, United States. However, the company has expanded its operations as well as manufacturing, sales, and supply chain network to various corners of the globe. Its European headquarters are located at Amsterdam in Netherlands, Europe. Tesla also has a manufacturing facility at Tilburg, where its operations include final assembly testing and quality control for Model S and Model X delivered to the European Union. Tesla’s Gigafactory 1 is located outside of Reno, Nevada. The company uses the battery packs manufactured at Giga factory 1 in its vehicles and energy storage products. It also manufacturers model 3 drive units at Gigafactory 1. Gigafactory 2 is a 1.2 million square foot facility in Buffalo, New York. Giga factory 3 is located in Shanghai, China. Tesla also has administrative offices in other corners of the world including North America, Europe, and Asia.
Outbound logistics:
Gigafactory one outside of Reno, Nevada is a leading manufacturing facility in Tesla’s manufacturing network. The Fremont, California facility of Tesla Motors contains several manufacturing operations including final vehicle assembly and end of line testing. Operation in Tilburg includes a parts distribution house for the company’s European service centers. The company has several warehouses in the United States, many of which are leased facilities where the company stores or ships parts and completed vehicles from. Production has begun at Gigafactory 3 in Shanghai, China as well from where Tesla ships completed Model 3 cars to its Chinese customers.
Marketing and sales:
The automobile industry is marked by heavy competition. Most companies use several marketing channels including both traditional and digital channels of marketing for the promotion of their products and brand. However, compared to the other leading automobile brands in the industry, Tesla invests a lot less in marketing. The company uses its website as well as other digital channels for marketing and promotion. Elon Musk also uses social media ( Twitter) to engage Tesla fans and followers from all over the world.
Tesla has established a large network of company-owned stores and galleries. These stores are used for marketing as well as sales and service. While on the one hand, these stores help the company promote and strengthen the Tesla brand, on the other they enable it to obtain customer feedback faster. These stores and galleries are premium outlets located in major metropolitan markets where they enjoy higher visibility. Many of the stores combine retail sales with after Sales Service.
Moreover, the company is growing its network of service centers since it was found that opening a new one in a new geographic area could increase demand. Tesla has also established a large network of superchargers and destination-chargers. The company continues to grow this network throughout North America, Europe, and Asia. By focusing on product innovation and after-sales service, the company has maintained a strong image in the global market. It has always maintained a strong focus upon building the image of a customer-oriented and innovative brand that sells high-quality products and invests in maximizing customer satisfaction. China is a leading market of Tesla products and the company has established several retail outlets there in the metropolitan cities including Beijing, Shenzhen, Guangzhou, Nanjing, and Shanghai. In the United States, Tesla has established an extensive network of company-owned stores and galleries. California, Florida, and Texas have the highest number of Tesla stores.
Products and services:
Tesla introduced its first product, Roadster in 2008 which was followed by the launch of Model S. The company launched model X in 2015 and then Model 3 in 2016. The products and services portfolio of Tesla includes the following products - Model S, Model 3, Model X, Model Y, Cyber truck, and Roadster as well as energy products. The Cybertruck is a newly released truck model from the house of Tesla which looks a lot like a Sci-Fi vehicle. The truck is powerful, environmentally safe, and made for a safer driving experience. Tesla also offers a large range of power products including storage products and solar tiles among others. The company offers after-sales service through its large network of retail stores and service stations located in various corners of the world.
Support activities:
Primary activities in Porter’s value chain are linked to support activities. The support activities improve the effectiveness or efficiency of the primary activities.
Technology:
Worldwide, the automobile industry has is experiencing intense competition. The market for alternative fuel vehicles has also evolved a lot. Several of Tesla’s competitors including BMW have brought fully electric cars to the market and plan to expand the range of fully electric and hybrid vehicles. Technology is the main source of differentiation in the global automobile industry. Autonomous driving technology and electric mobility are currently the hottest technological areas in the auto industry. Tesla is one of the leading firms at the helm of research and development in both of these areas. In fiscal 2018, the company invested $1.46 billion in research and development. Compared to the previous year, the R&D expenses of Tesla increased by $82.3 million or six percent. Investing in technology has helped Tesla continuously improve its products and grow its attractiveness in the global market.
Infrastructure
Tesla is organized into two main divisions based on product categories. They are the automobile segment and the energy product segment. The administrative structure of Tesla is different. Elon Musk is at the top as the leading decision-maker. Tesla’s chief financial officer (CFO) is Zachary J Kirkhorn who leads the accounting, finance, and other related areas. Tesla also has vice-presidents to lead the other several divisions including production, engineering, sales, finance, etc.
HRM:
As of 2018, Tesla employed 48,817 people full time. The company depends upon thousands of its talented employees for running the organization and maintaining high operational efficiency. HR management has emerged as an important area of focus for most technology organizations since it is important to attract and retain talented employees to stay competitive. Tesla is now placing a higher focus on HR management to find faster growth and to increase its competitive strength.
Procurement:
The vehicles manufactured by Tesla use thousands of parts that the company sources from thousands of suppliers worldwide. Tesla has developed strong relationships with several key suppliers. There are some important parts like cells and other key system parts for whose procurement, the company has built close relationships with their suppliers. While Tesla has several suppliers of some raw materials, for many others, it depends on single sources. Panasonic is one of the leading Tesla suppliers. It has been a long-term supplier of battery cells for Tesla vehicles.
Other Sources:
Tesla Annual Report 2018 (ir.tesla.com)
