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. The figure below illustrates the essence of Tesla value chain analysis.

Tesla Value Chain Analysis

Tesla Value Chain Analysis

Tesla Primary Activities

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. The electric automaker leases “three warehouses totalling a massive 1.3 million square feet in the Oaks Logistics Centre in Livermore, Calif., just 20 miles northeast of the Fremont factory”[1] as a storage for raw materials.

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; and Tilburg, Netherlands.[3]  Generally, Tesla operations can be divided into two segments:

  1. Automotive. This segment comprises design, development, manufacturing, and sales of electric vehicles. Tesla produced only 101,420 Model S and Model X vehicles and 1,764 Model 3 vehicles in 2017.[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 2017, Tesla deployed 358 MWh of energy storage products and 523 MW of solar energy generation.[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 29 other countries 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.[7]

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.”[8] 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.”[9] 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.[10]

 

Tesla Service

Tesla had a number of high-profile customer service complaints in recent years. 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[11] and customers having to wait for weeks for repairs after the release of the new Model X in 2016.[12]

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”.[13] 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.[14]

Tesla Inc. Report contains a full version of Tesla value chain analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Porter’s Five Forces, Ansoff Matrix and McKinsey 7S Model on Tesla. Moreover, the report contains analyses of Tesla leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Tesla marketing strategy, ecosystem and addresses issues of corporate social responsibility.

Tesla Inc. Report 2018

[1] Field, K. (2017) “Tesla Warehouse Lease Deal: Largest in San Francisco Bay Area History” Inbound Logistics, Available at: https://www.inboundlogistics.com/cms/article/tesla-warehouse-lease-deal/

[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] Annual Report (2017) Tesla Inc.

[4] Annual Report (2017) Tesla Inc.

[5] Annual Report (2017) 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] Annual Report (2017) Tesla Inc.

[8] 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

[9]  Annual Report (2017) Tesla Inc.

[10] Solar Roof (2018) Tesla, Available at: https://www.tesla.com/solarroof

[11] 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

[12] 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

[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

[14] 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