1

The Future of Innovation

MKT 421 Prof. Chelariu 12/10/2014 | | By: Mike Cutipa Brendan Saur Karina Lakhman Chris Musk Josh Caldwell

2

Table of Contents : Executive Summary ……………………………………………... 3 Introduction …………………………………………………….... 4 -­ -­ -­ -­ -­ -­ Mission Statement ……………………………………. 4 Company History & Present Situation ……………… 5 Elon Musk’s History ………………………………….. 6 Business Model & Retail Strategy ………………......... 7 Product Mix & Marketing Activities …………………. 9 The 4 M’s of Advertising ………………………………. 10

Internal Analysis ………………………………………………….... 11 -­ -­ -­ Organizational Culture ………………………………… 11 Organizational Structure ………………………………. 12 Unique Resources and Capabilities ……………………. 13

External Analysis ………………………………………………….... 14 -­ -­ -­ Customers and Competitors ……………………………. 14 Porter’s 5 Forces ………………………………………… 16 PEST Analysis …………………………………………… 18

SWOT Analysis ………………………………………………………. 21 Innovation …………………………………………………………….. 22 Strategic Framework & Strategic Alternatives …………………….. 23 Implementation ……………………………………………………….. 24

3

Executive Summary :
The intent of this project was to learn more about Tesla’s present situation and learn about what their goals are for the future. We chose Tesla for this project because collectively, we feel that it is one of the most groundbreaking companies to emerge in our lifetimes. Tesla’s commitment to creating a mass-­market zero emissions vehicle has yielded successful results that are helping to shape the automotive industry worldwide. Overall, they are disrupters in the automobile industry and lead by a futuristic entrepreneurial visionary. In our report, we will look into its charismatic CEO, Elon Musk. Musk’s entrepreneurial talent has lent itself to a number of fruitful ventures, and continues to drive Tesla’s expansion. We will also briefly discuss Tesla’s history, crucial company facts, organizational structures and culture, and business model before divulging into our more comprehensive internal and external analysis of Tesla Motors. Our analyses includes the 4 M’s of advertising, Porter’s Five Forces analysis, PEST analysis, and SWOT analysis. We will then touch upon Tesla’s commitment to innovation before concluding with our recommendations for Tesla regarding future product development and our suggested implementation of said recommendations.

4

Introduction :
Mission Statement
“Our goal when we created Tesla a decade ago was the same as it is today: to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible. If we could have done that with our first product, we would have, but that was simply impossible to achieve for a startup company that had never built a car and that had one technology iteration and no economies of scale. Our first product was going to be expensive no matter what it looked like, so we decided to build a sports car, as that seemed like it had the best chance of being competitive with its gasoline alternatives. I suspected that this could be misinterpreted as Tesla believing that there was a shortage of sports cars for rich people, so I described the three step “master plan” for getting to compelling and affordable electric vehicles in my first blog piece about our company. This was unfortunately almost entirely ignored. In order to get to that end goal, big leaps in technology are required, which naturally invites a high level of scrutiny. That is fair, as new technology should be held to a higher standard than what has come before. However, there should also be some reasonable limit to how high such a standard should be, and we believe that this has been vastly exceeded in recent media coverage.”

5

We believe this quote really does a great job at explaining Tesla’s ideology from the start, as they’ve started to grow and to where they are now. Tesla’s goal is essentially to accelerate the world’s transition to electric mobility with a full range of increasingly affordable electric cars. We’re really trying to catalyze change in the automobile industry. Tesla vehicles and EV’s powered by Tesla are fun to drive and environmentally responsible.

Company History & Present Situation
Tesla Motors was founded in July 2003 by Elon Musk, Martin and Marc Eberhard. [1] From the start their idea was to disrupt the automobile industry by delivering new electrically powered vehicles to the market that release 0 carbon emissions. Their first vehicle, the Tesla Roadster hit the market in 2008. The company grew quickly being awarded and given fame for being an innovator in the industry. For example, they received loans from the Department of Energy by the U.S government because they were so happy to see a company really take the initiative to produce green transportation products [1]. By June 2010 Tesla went public releasing their IPO on the ASDAQ N stock exchange and resides under the symbol TSLA. In response to this Tesla also performed a strategic partnership with Toyota;; both companies announced they’d cooperate together on building electric vehicles and parts. In Q1 of 2013, Tesla posted profits for the first time in its history [1]. Presently Tesla’s main vehicle product is the Model S, which debuted in 2012. Tesla is currently headquartered in Palo Alto, California and has over 6,000 employees.

6

They currently have over 125 stores and service locations worldwide, and their products are available in 37 countries [1]. Tesla is still in the early stage of growth. Sales of the Model S are increasing;; revenues are increasing, though stock prices have fluctuated. Their product portfolio is also expanding with the upcoming Model X and an entry-­level car. Tesla recently announced plans to construct a new $5 billion factory complex in Nevada that will create some 6,500 jobs [1].

Elon Musk’s History
Elon Musk is an entrepreneur, inventor and investor. He has started many companies, some of these companies include: PayPal, Space X, SolarCity, Hyperloop, Zip2 and Tesla [2]. Today he presently is the CEO and CTO of paceX S , CEO and chief product architect of esla Motors T , and hairman SolarCity c of [2]. PayPal is one of his more notable creations but SpaceX is also a quite revolutionary company. SpaceX is a transport services company where they specifically transport objects from Earth to space. Initially they planned on transporting cargo to space stations but they now plan on privately transporting humans to the International Space Station and other destinations [2]. Before all of his success though he was originally born in South Africa and then at age 17 moved to Canada where he was able to gain Canadian citizenship through his mother [2]. He did this specifically to eventually move to the U.S, he knew that trying to get into the U.S as Canadian citizen versus a South African would be easier [2]. Musk was a very bright student receiving a bachelor’s degree from University of Pennsylvania in Economics [2].

7

Business Model and Retail Strategy
Tesla is a very unique car company, and their business model greatly differs from other automakers. In a vertically integrated process, Tesla develops, builds, and sells their cars through their company website and retail stores (dealers that are fully owned by Tesla). Their retail strategy, in particular, is a unique approach. Tesla is the only automaker to practice direct customer sales. Unlike other automakers, which franchise their dealers, Tesla maintains full control over its dealers and sales force. There are several advantages of this. First, it allows Tesla to maintain identical branding at all of its dealers. Second, it lets Tesla create a consistent web experience with its in-­person retail experience. Finally, it allows Tesla to offer the exact same pricing at every single dealer, with every customer paying a set price and having the same access to any discounts (excluding tax credits, which very by state) (Anwyl). Additionally, Tesla’s retail locations are not dealerships in the typical sense that a prospective buyer can simply walk up, look at cars on the lot, and drive home in a new car they purchased that day. Tesla’s “dealers” more closely resemble high-­end showrooms and galleries in mall-­like settings. Prospective buyers can get up close and personal with a Tesla, learn more about it and ask questions. However, they cannot buy a car from a salesperson at these brick-­and-­mortar locations. Instead, all Teslas must be ordered online via Tesla’s website. This benefits both Tesla and the consumer in cost savings by eliminating the middlemen.

8

Tesla is still a relatively young automobile company, and is pursuing a major expansion. The company has only been selling vehicles for just over half of its eleven-­year history. Stakeholders naturally have an interest in the company’s profitability. With Tesla’s relatively small sales figures, there is some cause for concern. Tesla has a responsibility to these stakeholders regarding its profitability, and is pursuing alternative sources of revenue to bolster its core product and sustain profitability. Tesla’s core product, its electric vehicle, generates substantial income for the automaker. Tesla has a 25% profit margin on the Model S [4], which retails for a base price of $70,000 and can be equipped to well over $100,000. Sales totaled 22,477 cars in 2013 [5] and through Q3 of 2014 sales had reached 21,821 vehicles worldwide [6]. In addition to the revenue generated by its car sales, Tesla has several other sources of revenue. They sell battery powertrain components to other automakers, such as Daimler AG and Toyota, to use in their own electric vehicles. Tesla also generates significant revenue from the sale of state of California-­mandated zero emissions vehicle credits. California awards these credits to automakers like Tesla, who build zero tailpipe-­emission cars. As of 2014, automakers are required to have at least 1% of their total vehicle sales in California come from zero emission vehicles. Most other automakers do not meet this standard. Tesla on the other hand, has a surplus of credits because they only produce zero emission vehicles. As a result, Tesla is able to sell its surplus of credits to other automakers that do not meet this standard. In the first quarter of 2013, Tesla’s $68 million profit came entirely from selling these zero emissions vehicle credits [7]. As of late, however, increased sales of cars have allowed Tesla to rely less on

9

these credits as a source of revenue. In the fourth quarter of 2013, Tesla posted a net income of $46 million, of which did not include any zero emissions vehicle credits [8,9]

Product Mix and Marketing Activities:

Tesla’s current product mix is comprised of vehicles and accessories. At present, the only car in their lineup is the Model S sedan. The Model X crossover will be released within the next year, and Tesla is currently planning a smaller, less expensive car expected the next few years. The Tesla Roadster, which is no longer produced, is available for purchase in pre-­owned form. Accessories include vehicle accessories and apparel. Tesla’s largest source of advertising comes from its brick-­and-­mortar showrooms, not advertising and media campaigns [10]. Tesla strategically places its “dealer” showrooms in large areas of shopping such as malls and high-­end etail clusters. This r causes a lot more foot traffic simply walking by, and actually going in and checking out the showroom than typical car dealerships. This in itself is a key marketing tool that helps Tesla gain brand awareness [11]. Tesla’s marketing team is currently comprised of only seven people. As of late, Tesla does not have any plans to run any traditional or new media advertising campaigns in the near future [12].

10

The 4 M’s of Advertising:
Market: The target market for Tesla is middle aged affluent consumers who tend to balance high end luxury goods with social responsibility, or being green. The demographics of this market segment do not affect how Tesla conducts business as who is driving the car is not so much important as whether or not they can afford to drive the car. Geographically some consumers may not be as interested in Tesla’s products because a lack of charging stations. Yes, you can charge the car at home but some may wish to charge on the go. Motivation: Consumers are interested in buying Tesla’s products because of the brand image and reputation. Tesla is known as a prestigious and luxuries brand that comes with a life style and has a high perceived value from consumers. With that being said, what motivates them is the image they will be seen as having when driving their vehicles. In that consumer’s social group they will be seen as environmentally friendly with very good taste as the cars look very sleek, sophisticated and modern. Lastly, another motivating factor is the safety behind the vehicles. The Tesla model S has received the highest safety rating of any car ever manufactured in the world! Message: The company’s marketing communications should really follow the way the brand has been positioned. How your message comes across with what you’re saying,

11

how your saying it and where your saying it should all coincide with the portrayed lifestyle that consumers see as engrained in the brand. Media: We believe that Tesla does need to work on its marketing a little bit. It is a very small department and Tesla could use more employees to help out with their marketing and rely less on customer advocacy. To do this we would suggest they start doing more commercial advertisements on channels their target market is most likely to be watching, like major news stations. Also we believe it would be a good idea for Tesla to do more with print and digital marketing. They should be placing ads in for example, Forbes magazine, Wall Street Journal, and maybe even National Geographic. With their digital ads we believe they would have success not only on these companies websites mentioned above, but also maybe advertise on major search engines like Google.

Internal Analysis :
Organizational Culture
The culture at Tesla is centered on the customer. To keep themselves up to date on changing customer needs and market conditions, they perform a lot of intelligence generation. Tesla is a market driven company as they center all of their products on reusable energy. Although they do have a small marketing team, all of their products are produced to satisfy both their customers and the Earth. To compete with other luxury brand car companies they have implemented a market orientated strategy into their organizational culture. They are most importantly focused on their customers,

12

competition and cross-­functional coordination. The model S was specifically released to target consumers who like luxury sports cars, every groove and feature to the car was aimed at satisfying their consumer’s needs and placing the heat on their competitors, such as BMW and Mercedes. There cross-­functional coordination is by far a huge reason as to why Tesla is able to deliver the value to the consumers that they do. Entire departments at Tesla are to collaborate to enhance idea generation and problem solving. Though focusing your products around your customers, competitors and the Earth are important elements to have in your organizational culture, so is hiring the right people. The organizational culture at Tesla is very much a survival of the fittest type of setting. Tesla is extremely selective who they hire and when finally hired the person has to quickly produce results and add value to the company or they e fired. Tesla is known to be very ’ r critical of its employee’s performance, where your tenure at the company is dictated by the tenure of your hard work. Because of this I would say the company falls into the category of a Market (the rocket) oriented organizational culture.

Organizational Structure
The organizational structure at Tesla is run very similar to many other companies where the boards of directors are in charge. Elon Musk is in charge of the company as CEO and also is the head director on the board. The responsibility of the board is to serve as a prudent fiduciary for shareholders and to oversee the management of the company's business. To fulfill its responsibilities they maintain strong communication with those just underneath the board. -­level executives and VP are also at the top running the C ’ s

13

business with everyone else below them. This type of organizational structure is very common in many businesses, but what is still unique is the amount of cross functional collaboration that exists in Tesla. Elon Musk at any time could be involved in many different projects across many different departments. This is very unlike most CEOs who don't participate in such depth with lower level workers. This makes the employees feel their organizational culture is truly something special, knowing they are encouraged to express concerns at any time and not be scared of the higher ups in the company. This reinforces the trust and respect of the leadership at Tesla from the lower level employees where the structure of the company is running efficiently. The lower level employees trust in their superiors knowing, because of how clear the communication is between them, they understand the problems they e dealing with and are on the same page in ’ r diagnosing solutions to them.

Unique Resources and Capabilities
Elon Musk is a major asset to Tesla, as the lead visionary and architect of their current expenditures. He has been directly responsible for much of the innovation that has a led to the advantage Tesla enjoys. This is a major point of concern, as Musk is a volatile asset at best;; and will most likely be looking for his next adventure.

If Elon Musk wins out as the first unique resource than we can follow up with technology as their non-­human capital resources and capabilities. We can use the batteries as a microcosm of the major advantages that Tesla has in the technology realm. While the battery cost is significantly lower than its competitors;; a two hundred dollar

14

difference, the ranges are also a major point of value. Tesla batteries max out at a range of 300 miles. This is a huge advantage when compared with the closest of EV competitors. Ford Focus come in second at 100 miles followed by the lLeaf at 73 miles and Chevy Volt at 35 respectively. This is a major disparity and therefore an equally major distinct capability that leads to a distinct advantage.

External Analysis:
Customers and Competitors
Tesla is a niche car manufacturer. It is the only all-­electric, commercial luxury sports vehicle, which makes Tesla’s customers and competitors very unique. While exploring Tesla’s customers and competitors, we can simultaneously look at its 4 M’s of advertising. This consists of to whom Tesla markets and who the market consists of, what motivates customers to buy, what message Tesla is relaying to consumers, and how Tesla communicates to its consumers through media. Tesla’s market consists of early adopters, consumers that are seen as affluent, educated, and motivated by social prestige. Consumers are also viewed as highly technologically literate. Model S owners typically have an income of over $100,000, and they consist of mostly men. Tesla is a status symbol and customers see owning one as part of defining their personal brand. The social prestige of owning a sleek, sophisticated, luxurious vehicle that is also environmentally friendly is the main, but not the only motivator. The vehicles safety also influences buyers. In fact, Tesla’s model S received

15

the highest safety ratings out of any car ever manufactured. Tesla sells so well because the message it relays is the the driving force for customers, but its not all about the look. Musk says, “It is more than just a company, it is more than just a product. There is a cause there that really matters”, and this is something that all consumers know. The Model S is often compared to the Chevy Volt and Nissan LEAF because they are the top three selling all-­electric or extended-­range electric cars. However, it attracts a completely different type of buyer. On average, Tesla owner are younger and wealthier than owners of the Volt or LEAF. Customers are not particularly price-­sensitive and seem to typically place a premium on service and design, making Tesla’s main competition luxury vehicles rather than electric. Model S Chevy Volt Nissan LEAF

Starting Price: $71,070 $34,995 Male Buyers: 83.9% Buyers 18-­44 yrs. old: 33.1% Income Under $50,000: 5.7%
The Model S Buyer Profile

$28,800 71.2% 46.3% 13%

75.9% 37.9% 12.9%

Male: Female: 83.9% 16.1%

16

Income under $50,000: Income $50,000-­$99,999: Income over $100,000: 18-­44 yrs. Old: 45-­64 yrs. old: 65+ yrs. old:

5.7% 17.2% 77.3% 33.2% 50.6% 16.2%

Porter’s 5 Forces
Porter’s Five Forces model can be used to evaluate the electric vehicle industry environment, and to determine Tesla Motor’s position in the value chain. The stronger the forces, the lower the potential profit, and the less attractive the industry is. The goal for Tesla is to minimize the strong forces, and exploit the weak forces. The Threat of New Entrants in the electric vehicle industry is a low to moderate threat. There are considerable entry barriers in this industry. For totally new companies, entering the industry requires considerable capital and resources to start up. For existing car companies, it is a little easier as they have more resources. For any car manufacturer trying to enter the market, there are high research and development costs, coupled with considerable time required to bring an electric vehicle to the market. EVs are uncharted waters for most companies, so creating an electric vehicle is more difficult than a regular gasoline-­powered car. There is also the overall low sales numbers of EVs, as well as the failures of companies like Fisker (which could possibly be revived as a competitor to Tesla) to consider. Expected retaliation is not anticipated by existing EV manufactures.

17

The automobile industry thrives on competition, and it is generally expected that when once manufacturer has success in a segment, others will follow. The Bargaining Power of Suppliers is a high threat. Suppliers in the industry are heavily concentrated. For some components, only one supplier is responsible for their manufacturing. The battery cell packs, crucial to the car, is one of those instances. Tesla and Panasonic jointly developed the current battery packs, but Panasonic is solely responsible for the actual manufacturing [13]. In the electric car industry, suppliers are very critical. All automakers depend on these suppliers to manufacture critical components of their vehicles. The Bargaining Power of Buyers is a low threat. Buyers are moderately concentrated in this industry. Electric vehicle buyers tend to have moderate-­to-­high incomes. They also tend to be the “early adopter” type. This is beginning to change as EVs are becoming more mainstream. The switching costs for buyers are low in this industry. There is minimal cost and inconvenience involved for them in switching vehicle brands. This, however, is somehow offset by Tesla’s brand image as one of the most stylish and prestigious in the industry. There is low standardization of products in the industry as well. Every electric vehicle is different. They each have unique features, styling, and driving dynamics. The Threat of Substitutes is also a low threat. There is not a high availability of credible substitutes with attractive attributes. Luxury automakers are beginning to sell electric vehicles, but none compare to the Tesla Model S in terms of size, performance, and luxury. The Tesla Model S is the most like a traditional sports sedan.

18

Rivalry Among Competitors is a moderate to high threat. Most automakers currently have an EV in their lineup, although they are not necessarily luxury-­performance EVs like the Tesla Model S. Some automakers do have plans to enter this territory in the future, however. The exit barriers in this industry are high. Exiting this expanding industry would be a sign of failure. Tesla has the most to loose among other companies if they exit this industry. They are the only manufacturer to produce electric vehicle exclusively. The competitive stakes in this industry are also high. Maintaining its position in the electric vehicle market is getting more difficult with more entrants in the segment.

PEST Analysis
Tesla naturally operates in an environmental and social realm. Their mission of combining luxury with electric vehicles. This natural position has the potential to ensure long term success. While performance and luxury is paramount to the Tesla’s corporate mission, they also operate in the corporate social responsibility era. This being such a ‘hot button’ issue;; with some groups trying to outlaw gas cars by 2040 there is major opportunity for growth in the realm of EV. It is really when we look at the social and technological factors that a true advantage TESLA has over automobile makers;; traditional or electric. In order to get a better idea of the macro influencers;; we will look at certain factors the the PEST matrix: Political:

19

The political environment that TESLA finds itself in is remarkably favorable. Some key points to take into consideration when evaluating the political climate is the current push in congress for greener technology and corporate social responsibility (CSR). Some legislation is in place to challenge the production of oil dependent vehicles, with the intent to eliminate production by 2050. While competitors are looking to expand into the EV market, Tesla is uniquely positioned as the only company completely dedicated to the EV market. Equally as strong is the Department of Energy commitment ’ s to Green products granting $465 million loan to Tesla in 09. Tesla does have some obstacles that are a direct hindrance to their internal growth. There are local laws in place that do not allow for the manufacturer to sell directly to the consumer. This in theory is to protect the brick and mortar car dealerships. Tesla has responded by implementing an online sales strategy utilizing only brick and mortar showrooms, and fulfilling demand through their online verticals. Technology: This is a major area in which our competitive advantage begins to really take fruition. One of the monumental core competencies lie within Tesla battery. Through a ’ s four year exclusive deal Panasonic has created the most efficient and cost effective batteries in the EV market. For comparison the maximum range for a Tesla is 300 miles, while the closest competitors reach only 100 miles at the most. They do this at a much lower cost as well allowing for investments in other technologies to set apart Tesla not only in the EV market but in the luxury car industry overall.

20

The largest area for concern for Tesla here is the lack of charging stations. Even with the most efficient battery on the market long distance travel is stymied by unavailability of charging stations. This tide however is also in flux as Tesla has released their EV patents. This will effectively allow companies with more disposable income to help purchase the infrastructure for these stations. This is also a major area for innovation that Tesla can capitalize on. Driverless cars, fuel cells, hydrogen based energy etc. Given Musk and Tesla propensity to ’ s ’ s innovate these are major areas in which Tesla can capitalize on for future sustained growth. Environmental / Social: Tesla not only operates in an area ripe with technological developments, they operate in an area that is heavily favored in Social and Environmental spheres. Social issues surrounding Oil consumption have been a major issue over the last twenty years and lately have become paramount in the scientific community as well as the consumer mind. Tesla has the added benefit of appealing to this growing mindset through their emission-­less product lines. Economic : Since the bailout and the economic recovery;; the auto industry is poised to see a fourth year of growth. With sales expecting to top around 16.7 million;; a 2% increase from last year. During the recovery act the auto industry received a major amount of

21

funding, but so did green technology, creating a positive Economic environment for Tesla to thrive in.

SWOT Analysis
Tesla, a company world renowned for being a manufacturer of specialty sports cars has brought about a revolution in being environmentally conscience and still maintaining a sleek modern look. Certain components of this company have made it possible to be successful in an incredibly tough market such as the auto industry. To identify what key factors either help or go against Tesla we have prepared a SWOT Analysis. Strengths :1st electric sports car-­The Roadster, Reputation of being pristine, Direct to consumer sales worldwide, Weaknesses : Still developing, Production is still more expensive compared to competitors, CEO Elon Musk is spread

Innovation in battery packs, Highest safety thin with other companies such as SpaceX, ratings of any vehicle, They Re-­sell their battery packs to other companies. The brand has a high perceived value. Opportunity : Plans for a car under $40,000, new markets for their battery as well as the supercharger network, the battery can possibly be implemented in many other applications Threats : Other companies electric cars/hybrids, Gasoline cars, Legal issues, Past issues with battery fires, car dealerships still a very new brand that doesn’t have the weight compared to such names as Ford

22

Innovation
It is an understatement to say that Tesla is a company committed to innovation. Tesla’s first vehicle, the Roadster, is an example of radical innovation, using new technologies and creating a new market for all-­electric vehicles that are dynamically styled, performance oriented, and driver focused. According to Elon Musk, Tesla’s “master plan” in short is: “1) Build a sports car 2) Use that money to build an affordable car 3) Use that money to build an even more affordable car 4) While doing above, also provide zero emission electric power generation options” [14] Step 1 was accomplished with the Tesla Roadster. Step 2 has been accomplished with the Model S. The Model S is also an example of radical innovation – it has created a new market for electric sedans that are luxurious, sporty, and capable of being a car large enough for a family. It has also leveraged a number of new technology and powertrain innovations. Step 3 is still in development. Tesla is planning a new smaller, less expensive model. They are also soon releasing a crossover vehicle, the Model X, which shares many components with the Model S. The Model X is not so much a radical innovation, but an example of architectural innovation. As the Tesla’s continues to grow, they will begin showing more signs of incremental innovation, as they improve existing products and broaden their offerings with new products that share more of Tesla’s existing

23

technologies. This “master plan” closely adheres to the industry life cycle. The Tesla Roadster and Model S came at the introduction of mass-­produced electric vehicles, appealing to the early adopters. With new products on the horizon, Tesla is continuing to invest in this growing industry, with products that seek to appeal to the early majority.

Strategic Framework and Strategic Alternatives
Through the internal and external analysis’ we were able to see what strengths and weaknesses Tesla possessed, as well as what opportunities and threats Tesla faced. We then explored what political, economic, social, and technological factors affected the company. This helped us understand Tesla’s existing framework, and in understanding it we came up with three potential strategic alternatives to assess: Diversification: Diversify Tesla’s product line would be beneficial because it would open new markets and expose the brand more by shining light on it from multiple places. However the cons outweighed the pros. Diversifying the products that Tesla offered would put it at high risk for failure, it would draw focus away from what Tesla already stands for, it could confuse consumers as to what Tesla is, what it does, and what its image is. Customer intimacy: Though Tesla has a certain level of customer intimacy due to the way the vehicles are sold, we felt that expanding the level of intimacy would be beneficial. It would keep current customers pleased, motivate them to buy more and buy again, and also develop a

24

deeper bond. Yet, this isn’t something that would have the potential to make a significant difference. New Product Development: Developing new products is what we found most beneficial for Tesla. Short term, the development of a few more vehicles, such as an SUV and a 2-­door sports car, would open up new segments, has potential for higher overall sales, would show commitment to product development, heighten profit margins from utilization of existing components and add more Tesla options for consumers to chose from. The only risks this alternative would face would be that it could potentially cannibalize the sales of the Model S, which could be made up with the profit from sales on the other products, and that there might not be a high enough demand for the new vehicles. For a long term goal of product development, we believe that Elon Musk could and should look into “Energy by Compost.”

Implementation
In order to implement new product development, Tesla would have to increase its R&D, and market research in order to identify a target market. They would need to see what is in high demand, what is popular, what consumers expect from a vehicle, and what would set it apart from others. With adding products, Tesla would be integrating horizontally which would be less expensive than diversifying the product line because a new product would essentially be a modification and extension of what is already existing, allowing the use of existing machines and materials.

25

Bibliography
[1] -­ "Tesla Motors." Wikipedia. Wikimedia Foundation. Web. 10 Dec. 2014. [2] -­ "Elon Musk." Wikipedia. Wikimedia Foundation, 12 Oct. 2014. Web. 10 Dec. 2014. [3] -­ Anwyl, Jeremy. "Tesla's Challenge to Franchise Dealers Could Be Just What the Industry Needs." orbes F . Forbes Magazine, 5 May 2014. Web. 3 Dec. 2014. [4] -­ "Tesla Earnings Review: Profits Decline But Tesla Still On Track To Meet Full-­Year Targets." orbes F . Forbes Magazine, 9 May 2014. Web. 3 Dec. 2014. [5] -­ Hirsch, Jerry. "Tesla Motors Ends Year with Higher Sales but Still a Big Loss." os L Angeles Times . Los Angeles Times, 19 Feb. 2014. Web. 3 Dec. 2014. [6]-­ Cole, Jay. "Tesla Reports Profit In Q3, Beating Street Estimate Of Slight Loss – More Model X Delays." nside EVs I . 5 Nov. 2014. Web. 3 Dec. 2014. [7]-­ Knittel, Christopher. "California's Auto-­Emissions Policy Hits a Tesla Pothole." nline.wjs.com O . The Wall Street Journal, 14 Feb. 2014. Web. 3 Dec. 2014. [8]-­ George, Patrick. "Tesla's ZEV Credit Win Should Silence Some Of Their Critics." alopnik J . 20 Feb. 2014. Web. 3 Dec. 2014. [9]-­ Hardigree, Matt. "Tesla's Earnings Beat Estimates As They Sold A Ton Of Cars." alopnik J . 19 Feb. 2014. Web. 3 Dec. 2014. [10] -­ Reynolds, Siimon. "Why You Should Copy Tesla's Way of Marketing." orbes F . Forbes Magazine, 1 Sept. 2013. Web. 9 Dec. 2014. [11] -­ D'Arcy, Paul J. "Tesla Model S: The Disruptive Marketing of an Electric Car." cience of Revenue S . 20 Jan. 2014. Web. 9 Dec. 2014. [12] -­ McCarthry, Michael. "Tesla Generates Small Sales, Big Buzz Without Paid Ads." dvertising Age News A . Ad Age, 10 June 2013. Web. 9 Dec. 2014. [13] -­ "PANASONIC AND TESLA REACH AGREEMENT TO EXPAND SUPPLY OF AUTOMOTIVE-­GRADE BATTERY CELLS." esla Motors T . Tesla Motors, 30 Oct. 2013. Web. 9 Dec. 2014. [14] -­ Musk, Elon. "The Secret Tesla Motors Master Plan (just between You and Me)." esla Blog T . Tesla Motors, 2 Aug. 2006. Web. 3 Dec. 2014.

26

Karina’s Citations: Groom, Nichola. "Tesla Targets Broader Audience with Electric Sedan." euters R . Thomson Reuters, 26 Mar. 2009. Web. 10 Dec. 2014. Garthwaite, Josie. "Tesla Motors' Success Gives Electric Car Market a Charge." ational N Geographic . National Geographic Society, 21 May 2013. Web. 10 Dec. 2014. Ganos, Todd. "Game Changer for Tesla." orbes F . Forbes Magazine, 1 Mar. 2013. Web. 10 Dec. 2014. Blanc, Martin. "The Three Golden Markets For Tesla Motors." usinessetc.com B . Bidness ETC, 6 May 2014. Web. 10 Dec. 2014. LeBeau, Phil. "The Young and Rich Snapping up Tesla's Model S." nbc.com C . CNBC, 13 Aug. 2013. Web. 10 Dec. 2014. LeBeau, Phil. "Consumer Reports: Tesla Model S Among Best Reviewed." nbc.com C . CNBC, 9 May 2013. Web. 10 Dec. 2014. Einstein, Paul A. "Investors Plug Back in after Tesla Earnings Report." nbc.com C . CNBC, 8 Aug. 2013. Web. 10 Dec. 2014. Mikes Citations: Weisenthal, Joe. "The Tesla Model S Just Got The Best Safety Rating Of Any Car In History." usiness Insider B . Business Insider, Inc, 20 Aug. 2013. Web. 11 Dec. 2014. Rogowsky, Mike. "Tesla's Huge Battery Deal Suggests Sales Could Quintuple Within 4 Years." orbes F . Forbes Magazine, 30 Oct. 2013. Web. 11 Dec. 2014. Wang, Ucilia. "A Manufacturing Lesson From Tesla Motors." orbes F . Forbes Magazine, 8 Aug. 2013. Web. 11 Dec. 2014. Humphries, Matthew. "Tesla Will Launch a $30,000 Model E by 2017 | News | Geek.com." eek.com G . Geek, 3 July 2014. Web. 11 Dec. 2014. Ohnsman, Alan, and Mark Niquette. "Tesla's Direct-­Sales Push Raises Auto Dealers' Hackles." loomberg.com B . Bloomberg, 10 Mar. 2014. Web. 11 Dec. 2014.