BUSBTC301 Business Foundations I
This course utilizes a business plan development model to study the interrelationships among business functional areas and provide an understanding of how businesses create value. It provides skills for successful team management and business communication, including an understanding of the language of business, considers the economic, legal, and social environments in which business operates, and introduces the principles of responsible business practices.
In the word document below, I did research for and contributed the revenue streams section of this business model analysis of Tesla, Inc. In the business model canvas poster, I worked on the revenue streams section as well as the key resources section.
Included below are the five Bridge to Career Program Outcomes, and my justifications for meeting all of them:
1) Explain how business functions interact to create value.
Business functions work together by supporting each other's needs and contributing to the success of the business. Businesses require a lot of different components to be successful.
2) Interpret and convert financial and other data into relevant information to solve common business problems.
In the online business simulation, my team and I analyzed the potential profit of each computer model we could try making and made decisions based on our maximum potential.
3) Communicate professionally with diverse internal and external stakeholders.
We met once at the beginning of the semester and from then on did all of our communication and meetings online. By using email and social media tools, we were able to complete all of our assigned tasks on time and with high grades.
4) Collaborate respectfully with diverse team members to execute projects.
My team had students from a variety of backgrounds who each had their own reason for taking this course. We worked together well and were able to help eachother accomplish each of our learning goals.
5) Demonstrate an understanding of responsible business practices.
In our online business simulation, we worked on developing computers in emerging markets. This involved analyzing the needs of the market and developing products for consumers at prices which were mutually beneficial. Operating this online business involved coordination among our team members and everything from marketing to manufacturing and setting production amounts.
Business Foundations I - Term Project Section Three: BMC Building Blocks 5-9
Tesla, Inc. Business Model Canvas
Lisa Murphy, Devan Karsann, Ronda Anderson, and Sara Church-Cowart
Boise State University
June 22, 2017
Analysis of Tesla, Inc. Business Model Based on Blocks 5-9
Executive Summary
Upon analyzing Tesla, Inc.’s Business Model Canvas, several conclusions were made. First, there are quite a few business segments including Tesla’s manufacturing of the electric vehicles and high end advanced technology. According to Tesla’s key resources, Tesla will need to keep abreast of the latest and most advanced technology for their vehicles for the sport enthusiasts. Tesla plans to encompass key activities such as having their business center around manufacturing high end products for consumers. Tesla reaches its business segments by focusing on transaction revenues and increasing cash flow. The company plans to keep current with technology and production to attract new customers. The movement to building their own vehicle parts, producing lithium-ion batteries, and distributing advanced superchargers all over the U.S. will ensure that Tesla continues to make its mark in the auto industry. Tesla’s key partners will strengthen technology for the computer-based electric vehicles and help manufacture vehicle production. Tesla will provide safe and reliable products while maintaining cost structure. Much of Tesla’s success will rely upon the models designed, production of batteries and vehicles, and sales.
Revenue Streams Strengths of Tesla, Inc.
Tesla has been moving towards making all purchases ownership based instead of lease based (Prenzier). A larger number of ownership purchasing means that their business models revenue streams are considered transaction revenues. This type of revenue helps Tesla increase their cash flow by having more immediate capital available. Another strength of Tesla’s revenue streams is fixed menu pricing, which offers equal pricing to a large customer base. Although these high-end electric vehicles are relatively very expensive, Tesla continues to be successful because of their business model. This indicates that their pricing model is favored by consumers who would prefer to pay the same price for a car as other customers do, rather than going through a bartering system.
Revenue Streams Weaknesses of Tesla, Inc.
The pricing mechanism used by Tesla is Fixed Menu Pricing, in which, “Predetermined prices are based on static variables” (Osterwalder, Pigneur). The disadvantage of Tesla’s fixed prices is incompatible with many individuals’ finances. When not as many people would consider purchasing products from a company, the potential number of asset sales decreases. This can negatively affect the revenues of a company if they have not already optimized prices for their benefit. Another weakness of Tesla’s revenue streams is its current balance between types of products. Tesla plans on their vehicle revenue streams to be a smaller portion in the future, but currently make up a significant portion of its revenue (Marks). Changing their business plan and focus will take a lot of careful planning and effort to be made to explain this change in focus to their stockholders.
Revenue Streams Recommendations of Tesla, Inc.
Due to cost constraints, individuals who purchase vehicles from Tesla may not also be able to buy solar panels and power walls. Tesla can attempt to expand their energy product customer base by offering discounts to vehicle purchasers. This action could influence individuals to make additional purchases they were not already considering. Another recommendation for Tesla is to increase the advertising of energy products to individuals who would make purchases. This includes residential and utility end-users. If Tesla wants to increase the revenue streams to products other than their vehicles, they will need to make other necessary changes as well.
Key Resources Strengths and Weaknesses of Tesla, Inc.
Tesla, Inc.’s key resources include strengths by sales and personal delivery of their vehicles to their customers at their convenience, after their vehicle has been produced and delivered to a Tesla store. According to Tesla’s website (2011), “Tesla stores entice, inform and engage prospective customers with innovative touch-screen interfaces, knowledgeable product specialists, and a virtual design studio where they can customize their own premium Model S sedan.”. Tesla’s product specialists (sales and delivery employees) share their knowledge about the different batteries made by Tesla, Inc. manufactured at their new Gigafactory. The knowledgeable product specialist provides information about the different lithium-ion battery capacities and the miles a battery will allow a Tesla vehicle to travel. According to Money.CNN.Tech (2017), “Tesla (TSLA) said it expects to "finalize locations" this year for as many as three new Gigafactories.” Another key resource to increase sales revenue is Tesla’s vehicle designers. The designers look to create appealing vehicles for the luxury enthusiasts “from the ground up”, Franz (2011). According to Tesla’s website and Chief Designer Franz von Holzhausen (2011), “Tesla’s design team created the design prototype with fundamental understanding of the realities of production...Every millimeter of the car has been considered by the design and engineering teams.” Tesla’s weaknesses include manufacturing and the time it takes to receive your vehicle after placing an order. According to Seeking Alpha (2016), “If there is one word often used regarding Tesla Motors (NASDAQ:TSLA), it is “delays”. Whether it is getting things out in time, promises from Elon Musk, CEO, or meeting financial guidance, the electric vehicle maker is usually late.” These delays frustrate customers and don’t boast well for future sales and profits.
Recommended Key Resources for Tesla, Inc.
The following are recommended key resources for Tesla, Inc. to improve profits and achieve their goals. According to the Pride, Hughes, Kapoor textbook (p.38), “(Tesla) Accelerates the world’s transition to electric mobility with a full range of increasingly affordable electric cars. We’re catalyzing a change in the industry.” It is recommended Tesla start car production of newer models and design with the latest technology using their “internal experts to develop, patent, and product their own.” textbook (p.38). When key resources are not available to produce vehicles, Tesla can look in-house for products to increase production. Another key resource is technology and Tesla, Inc. takes the initiative to be innovative and this helps the company grow. For example, the “The aluminum body is engineered for superior handling, safety and efficiency. With the most energy dense battery pack in the industry, and best-in-class aerodynamics, Model S has the longest range of any electric car in the world with a single charge. (Tesla, 2011). Furthermore, it is recommended Tesla increase the number of supercharging stations to meet the growth of sales and demand. According to Money.CNN.Tech (2017), “Tesla plans to double the number of Supercharger stations in North America in 2017…”. Tesla also needs to continue the path of incorporating the latest technology for their vehicles. “As always, our over-the-air software updates will keep customers at the forefront of technology…” Tesla statement, Verge website, (2016).
Key Activities Strengths for Tesla, Inc.
There are numerous key activities that Tesla, Inc. should be focused on to enhance their business goals and strategies. Engineering, Supply Chain Management, Marketing and Sales should be among Tesla’s top priorities for their key activities on their Business Model Canvas to continue their domination of the electric automobile market. Engineering revolutionary electric automobiles is what put Tesla, Inc. on the map. According to the article, Business Model Canvas for Tesla Motors located in Business analysis and Research Lab SICSR, Tesla, Inc. “designs and builds (the) bulk of the PCB (Protective Circuit Board) assembles in the car.” (2015) Tesla, Inc. must also manage a supply chain that relies on other companies to produce various components. “Central infotainment and instrument clusters are outsourced to leading technology companies.” (BMC for Tesla. 2015) This allows the most advanced technology to be utilized in the Tesla automobiles. However, the rest of the software and hardware is still internally engineered. Tesla, Inc. is also showing strengths in Engineering advancements in the reduction of cost to produce lithium ion battery packets. According to the article, About Tesla located on the website Tesla.com, Tesla, Inc. has joined in a partnership with Panasonic to assemble a “gigafactory in Nevada that will facilitate the production of a mass-market affordable vehicle, Model 3.” (2017) The gigafactory will not only specialize in car production, but will also produce battery packs intended for stationary storage that benefits businesses and residences in many different energy concerns.
Key Activity Weaknesses for Tesla, Inc.
Marketing and Sales for Tesla, Inc could be considered a strength or a weakness. In many ways if Marketing and Sales were done aggressively with advertising and salespeople Tesla, Inc. would be untouchable in the electric automobile segment. However, currently advertising is nonexistent with limited showrooms, where potential buyers can gain exposure to the product. These are the reasons I would consider Marketing and Sales weaknesses for Tesla, Inc.
Key Activity Recommendations for Tesla, Inc.
A key activity recommendation would be to utilize television commercial adds to expand the potential customer base. This would educate and give product awareness to the mass population about Tesla’s eco-friendly fully electric sports automobile.
Key Partnerships Strengths for Tesla, Inc.
Tesla Inc’s ability to produce an electric vehicle at such a large scale is a feat no other car manufacturer has been able to do. Producing a fully electric vehicle means designing a product completely different than any other carbon combustion engine vehicle. This requires collaborating with other firms and establishing solid long-term supplier relationships. Although it seems to be challenging to find key partners and suppliers for Tesla’s electric automobiles (EA), Investopedia has spent significant time gathering a list of about twenty-four companies. Each company provides some kind of part or service to the overall product. In the article, Who Are Tesla’s (TSLA) main suppliers? by J.B. Maverick, it lists several companies like; AGC Automotive, Fisher Dynamics, Inteva Products, and ZF Lenksysteme. For the past few years Tesla has been in contact with Panasonic Corporation to produce lithium ion cell batteries.
Key Partnerships Weaknesses for Tesla, Inc.
This battery is one of the most important components of the EA, and securing a steady stream of batteries is crucial to the long-term success of this company. According to the 2016 Annual Report, Tesla has experienced a few setbacks in production simply from an inconsistency with suppliers. “We are dependent on our suppliers, the majority of which are single source suppliers, and the inability of these suppliers to continue to deliver, or their refusal to deliver, necessary components of our vehicles in a timely manner at prices, quality levels, and volumes acceptable to us would have a material adverse effect on our financial condition and operating results.”
Key Partnerships Recommendations for Tesla, Inc.
This supply chain is a vulnerable point for the firm. Options seem to be; manufacturing their own parts, securing a long-term supplier for multiple parts that work exclusively with Tesla, and/or redesigning their vehicles to require less expensive and more easily acquired parts.
Cost Structure Strengths for Tesla, Inc.
Tesla, Inc. has a value driven cost structure. They work directly with their customers either through their retail stores or online ordering. According to their website, “...Tesla’s products would be cars without compromise. Each new generation would be increasingly affordable, helping the company work towards its mission: to accelerate the world’s transition to sustainable energy.” The mission says it all, and the market strategy has been a bold one. Currently they have two factories in California, two in the Netherlands, and one manufacturing facility in Nevada. Tesla has a unique cost structure since they work in the realm of alternative energy. They should build a large infrastructure but they also receive Federal loans and government subsidies to fund their productions.
Cost Structure Weaknesses for Tesla, Inc.
In the article by Investopedia, Tesla Stock: Capital Structure Analysis (TSLA), for most car producers the manufacturing costs are the largest hurdle to overcome when starting out in the car industry. Tesla is not different, in fact, they predict the company will not make a profit until the year 2020 because of the large investment needed to gain a hold in this industry.
Cost Structure Recommendations for Tesla, Inc.
As was mentioned, Tesla has several different model vehicles currently being offered to customers. They began with the very expensive luxury vehicles and are now targeting the mass population with their affordable version, Model 3. The recommendation for this company is to aggressively pursue the Model 3 and leverage the customer brand loyalty.
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