Tesla Value Chain Analysis
Tesla value chain analysis is an analytical framework that assists in identifying business activities that can create value and competitive advantage to the electric automaker. Figure below illustrates the essence of Tesla value chain analysis.
Primary Activities in Tesla Value Chain Analysis
Tesla Inbound logistics
Tesla inbound logistics involves the receipt and storage of raw materials to build electric vehicles, energy storage systems and solar panels. Along with a standard set of raw materials, Tesla uses a range of scarce materials such as aluminium, steel, cobalt, lithium, nickel and copper. In the US, the company receives parts at its Fremont automotive factory from thousands of suppliers worldwide, including from its very own Gigafactory in Sparks, Nevada.
The electric automaker leases three warehouses totalling a massive 1.3 million square feet in the Oaks Logistics Centre in Livermore, California., just 20 miles northeast of the Fremont factory as a storage for raw materials. Additionally, in 2019, Tesla constructed 870,000-square-foot facility in Lathrop, California as a massive spare parts storage.[1]
Currently, highly sophisticated inbound logistics practices are not one of the main sources of value creation for the electric automaker. Tesla works primarily on a build-to-order basis, which means bottlenecks in parts supply could be a big headache.[2] Accordingly, it is critically important for Tesla to establish long-term strategic relationships with suppliers.
Tesla Operations
Tesla conducts vehicle manufacturing and assembly operations at its facilities in Fremont, California; Lathrop, California; Tilburg, Netherlands and Shanhhai, China. Generally, Tesla operations can be divided into two segments:
1. Automotive. This segment comprises design, development, manufacturing, and sales of electric vehicles. The company produced and delivered approximately half a million vehicles in 2020.[3] The electric automaker started Model Y production at Gigafactory Shanghai in December 2020. The table below illustrates annual production capacities of Tesla factories.
Tesla manufacturing capacity[4]
2. Energy generation and storage. This segment includes the design, manufacture, installation, and sale or lease of stationary energy storage products and solar energy systems, and sale of electricity generated by Tesla solar energy systems to customers. In Q4, 2020 Tesla deployed 1584 MWh storage and 86 MW solar energy, which is 199% and 59% YoY increase, respectively.[5]
High level of integration of robots into various manufacturing processes is the major source of value creation for Tesla. It has been noted that “up to eight robots at a time work on a single Model S in a choreographed routine, each performing up to five tasks: welding, riveting, gripping and moving materials, bending metal, and installing components.”[6]
Tesla Outbound Logistics
Tesla outbound logistics involves warehousing and distribution of electric vehicles, energy storage systems and solar panels produced by the company. Tesla ships electric vehicles to its own stores and galleries in the US and 35 other countries and regions worldwide. The company also makes direct deliveries of electric vehicles to customers. The electric automaker typically maintains a small inventory of vehicles at its stores for immediate sales. The majority of customers choose to customize their vehicles by ordering online.
Tesla does not deal with dealers and re-sellers, preferring to sell directly to end users. This can be mentioned as a significant source of value creation in Tesla outbound logistics for two reasons. Firstly, taking into account high demand for Tesla electric vehicles, direct sales decreases the time of delivery of vehicles to customers. Secondly, direct sales keeps the costs of Tesla cars from further increases. Tesla electric vehicles are already very expensive and selling them through dealers and re-sellers would have pushed the prices even higher.
Tesla Marketing and Sales
Tesla marketing and sales practices are unconventional, similar to other business practices of the electric automaker. According to CEO Elon Musk, Tesla “shells out virtually nothing on advertising and endorsements, and relies heavily on word of mouth.”[7] Accordingly, Tesla marketing strategy is also referred to as “Zero Dollar Marketing”. The ability to attract extensive media coverage at the global scale serves as a major source of value in terms of increasing the level of brand awareness in the global scale.
Tesla engages in the sales of used cars as well. Moreover, Tesla’s used car business supports new car sales by “integrating the sale of a new Tesla vehicle with a customer’s trade-in needs for their existing Tesla and non-Tesla vehicles.”[8] The company sells Tesla and other brand vehicles to general public and via third-party auto auctions. Tesla sells its vehicles online and in company-owned showrooms. The electric automaker does not use dealership networks to sell its products. The company also offers opportunities to finance their Solar Roof through their home mortgage. The loan amount is equal to the total Solar Roof cost, less the estimated 30% federal tax credit.[9]
Tesla Service
Tesla had a number of high-profile customer service complaints in the past. This include, but not limited to a frustrated customer suing Tesla, after the company refused to return his phone calls or answer emails about servicing his Tesla car[10] and customers having to wait for weeks for repairs after the release of the new Model X in 2016.[11]
However, Tesla customer service practices have improved during the last few years. The electric vehicle company aims to own the customer experience and accordingly, does everything on its own, from production to sales. Tesla does not sell through dealerships so that customer experience is not subjected to a third party.
In its attempts to deal with customer complaints issues more effectively, the electric automaker allowed customers “to escalate their issues directly to a company executive”.[12] Tesla provides post-sales service at company-owned service centres and at Service Plus locations. The company is building 100 new service centres on top of 150 service centres it currently has. Moreover, Tesla is also rolling out 350 new on-demand service vans across the country.[13]
Tesla Inc. Report contains the above analysis of Tesla segmentation, targeting and positioning and Tesla marketing strategy in general. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Tesla. Moreover, the report contains analyses of Tesla leadership, organizational structure and organizational culture. The report also comprises discussions of Tesla business strategy, ecosystem and addresses issues of corporate social responsibility.
[1] Field, K. (2019) “Tesla Is Building The Parts Warehouse To End All Parts Warehouses” Clean Technica, Available at: https://cleantechnica.com/2019/01/29/tesla-is-building-the-parts-warehouse-to-end-all-parts-warehouses/
[2] Hogg, R. (2016) “Tesla’s supply chain set for a surge” Automotive Logistics, Available at: https://automotivelogistics.media/intelligence/teslas-supply-chain-set-surge
[3] Q4 and FY2020 Update (2021) Tesla Inc.
[4] Source: Q4 and FY2020 Update (2021) Tesla Inc.
[5] Q4 and FY2020 Update (2021) Tesla Inc.
[6] Dyer, J., Gregersen, H. & Furr, N. (2015) “Decoding Tesla’s Secret Formula” Forbes, Available at: https://www.forbes.com/sites/innovatorsdna/2015/08/19/teslas-secret-formula/#4db8e44d653c
[7] Leonhardt, M. & David, J.E. (2018) “Elon Musk: Tesla could produce a $25,000 car in around 3 years” CNBC, Available at: https://www.cnbc.com/2018/08/18/elon-musk-tesla-could-produce-a-25000-car-in-3-years–.html
[8] Annual Report (2017) Tesla Inc.
[9] Solar Roof (2018) Tesla, Available at: https://www.tesla.com/solarroof
[10] Cohen, A. (2017) “Why this Tesla fan thinks the company is losing its way” Automotive News, Available at: http://www.autonews.com/article/20170815/BLOG06/170819883/why-this-tesla-fan-thinks-the-company-is-losing-its-way
[11] Burke, K. (2016) “Tesla owners plagued by service delays” Automotive News, Available at: http://www.autonews.com/article/20161113/RETAIL05/311149995/tesla-owners-plagued-by-service-delays
[12] Ryan, K.J. (2017) “Tesla Is Taking a Risky New Approach to Customer Service” Inc. Available at: https://www.inc.com/kevin-j-ryan/tesla-taking-risky-new-approach-to-customer-service.html
[13] Ryan, K.J. (2017) “Tesla Is Taking a Risky New Approach to Customer Service” Inc. Available at: https://www.inc.com/kevin-j-ryan/tesla-taking-risky-new-approach-to-customer-service.html