Brock University Gigafactories in China and Germany PESTEL Strategy Analysis

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Using environmental analysis tools, assess the strategy of launching Gigafactories in China and Germany in post coronavirus era. (effective, not effective, why? possible outcome...)

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The future of cars: Tesla General Electric Motors Tesla has high hopes for its high-spec electric cars FROM THE 1960s to the 1980s it was a General Motors plant. From then until 2010 it was used by GM and Toyota to make cars jointly. Now the giant car making factory at Fremont in Silicon Valley is in its third incarnation, as the manufacturing base of Tesla Motors, a maker of electric cars set up by Elon Musk, a founder of PayPal and of SpaceX, a rocket-maker. Mr. Musk is a man of big ideas. His long-term aim is to help colonies Mars and die peacefully there. His entry into car making, an industry that has been the graveyard of many ambitions, is almost as bold. Mr. Musk set up Tesla to hasten what he sees as the motor industry’s inevitable switch to battery power. Having started with expensive sports cars, to be followed next year by an equally upmarket sport-utility vehicle, the plan is eventually to move to more mass-market models and become a sort of “General Electric Motors”. Tesla’s current car, the Model S, with prices starting at $52,400, has won rave reviews. Electric motors produce maximum torque from a standing start, which can mean great performance. Tesla has many fans, especially among Californian tech-loving early adopters. They are vocal in rebutting the carmaker’s doubters, who are also not hard to find. So far Tesla is using only a quarter of the Fremont plant’s vast area. This year it plans to make just 20,000 cars as it concentrates on moving into profit. Mr Musk acquired the factory for $42m, far less than it would have cost to build, and bought lots of second-hand equipment. Tesla is doing a lot of things differently from the mainstream carmakers. It produces many key parts in-house, from the battery packs to the slick touch-screen control panels. It is setting up a network of free fast-recharging points for its customers to top up their batteries on the road. It is battling America’s powerful car-dealership lobby so it can set up its own retail outlets. And it is aiming to get its products from the drawing-board to the assembly line at the speed of Silicon Valley tech firms rather than the statelier pace of Detroit’s car giants. Tesla’s manufacturing chief, Gilbert Passin, says the Model S moved from first design to production in just over two years, something he reckons would take a traditional carmaker five or six years. Working in Tesla’s favor is its lack of baggage of any kind. It has no internal-combustion technology to defend, and thus no problem in reaching regulators’ ever tighter targets for fuel efficiency. It has no inherited pension and health-care liabilities and no auto workers’ union. In the past premium car brands have typically taken decades to establish themselves, but perhaps the “millennial” generation, used to seeing new smartphones rise and old ones fall, will be more open to start-up brands, especially ones from Silicon Valley. Much could yet go wrong. Any serious technical flaw could prove fatal to a new firm with no older revenue-generating models to keep it going. Established carmakers could decide to fight Tesla headon—indeed BMW’s new “i” range of electric and hybrid cars seems to be aimed at similar buyers. In the longer term other technologies, such as biofuels, might develop faster than the electric battery. Whether Tesla ultimately succeeds or fails, it offers some important lessons. As Mr. Passin points out, if a small company like his can produce a new car so quickly and frugally, surely car making giants can become leaner too. Another lesson is that car making is still glamorous, and people with Mr. Musk’s talent and bank balance still want to get into it. If he fails, someone else will have another go. The Chinese firms that have been sniffing around Fisker, a struggling Californian maker of hybrid petrolelectric cars, show that start-up carmakers with interesting technology can find willing financiers. A brief history 1 Tesla was founded not by Elon Musk, but rather by Martin Eberhard and Marc Tarpenning in July 2003. The two bootstrapped the fledgling auto company until Elon Musk led the company’s $7.5 million Series A financing round in February 2004, when Musk became the company’s Chairman of the Board. In February 2005, Elon Musk again led another round of financing to inject $13 million more into the company during the development of the yet-announced Tesla Roadster. Then, in 2007, the company raised a $40 million Series C co-led by Musk and Technology Partners. On July 11, 2005 Tesla signed a production contract for Lotus to manufacture complete cars minus the powertrain for what would become the Tesla Roadster. The following July, Tesla’s first production vehicle was unveiled by CEO Martin Eberhard and the company’s chairman Elon Musk at an inviteonly event at the Santa Monica airport. Tesla is now a officially a car company. By the end of 2007, Tesla is in a tough spot. The company is burning through money and in need of new leadership. In December 2007, Ze’ev Drori, a successful high-tech entrepreneur and proven chief executive, became CEO and President. Under Drori’s leadership, 10% of the staff was laid off but the company became profitable. Yet Drori wouldn’t last a year at Tesla. In October 2008, Musk succeeded Drori as CEO. Drori became Vice Chairman, but then left the company in December. By this time Musk had dumped $70 million of his own money into Tesla. Tesla sold 2,250 Roadster models between 2008 and 2012. It wasn’t easy. The company struggled to deliver orders on time while attempting to reassure potential buyers about its capability. The British car show “Top Gear” didn’t help — they rail the car, leading to a libel battle between Top Gear and Tesla. Top Gear wins. On June 30th, 2008, Tesla unveiled the Model S — the first car they’d really come to be known for. With a starting price of $50,000 and seating for seven, the Model S was supposed to be Tesla’s more “affordable” family sedan. In May 2009, Tesla enters into a strategic partnership with Daimler AG, which acquired a 10% equity stake in Tesla for a reported $50 million. Today, 10% of Tesla is worth billions. On June 29, 2010, Tesla raised $226 million in its initial public offering becoming the first America car company to go public since Ford in 1956. Tesla unveiled its first SUV and AWD vehicle on February 9, 2012, the Model X, with delivery (originally) expected for late 2013. The stunning gullwing-type doors featured in the concept will be included in the production vehicle. At the same time, Tesla quietly began building a small network of electric car charging stations throughout California. When the Superchargers were announced in 2012, there were six stations operational. There are now over 200 worldwide, and routes that allow Model S drivers to drive from coast to coast in the US. By 2013, Tesla was cruising along nicely, but then they hit their first big speed bump. Three Model S sedans caught fire following accidents. No one was seriously injured and the company quickly addressed the issues and stated their cars are safe — but not before its stock and public perception took a hit. Following the third vehicle fire, Tesla’s stock price dropped more than 20%. Following a tough 2013, Tesla found its groove in 2014. The stock price is soaring, up 47% from the low following the Model S fires. The company delivered its 28,500 Model S in July 2014 and are now charging forward with the introduction of new models. In the middle of 2014, Tesla announced that it would be using everything it’s learned about making cars so far to introduce a significantly more affordable model. Called the Model 3, it’s estimated starting price will be under $35,000. Alas, no solid release date is given at the time of announcement. Elon Musk tweets that he will “unveil the D”, garnering plenty of chuckles. He later claims the innuendo (“the D” tends to have a specific meaning on the Internet) was totally unintentional. In Tesla’s case, the “D” stands for “Dual Motor”. Three new Model S are introduced in January of 2015: the 2 Model S 60D, 85D, and highest-end P85D. Visually, they’re almost identical to the existing Model S; internally, though, they’re overcharged beasts. That second motor helps the $110,000 Model S P85D go 0-60 in 3.2 seconds (a time they’ll only improve later on). In something that would later become a trend for Musk, he shares his fear of unregulated artificial intelligence work. “I think we should be very careful about artificial intelligence,” he says. “If I had to guess at what our biggest existential threat is, it’s probably that.” Initially intended to go into production by the end of 2013, Tesla’s first SUV has seen its fair share of delays. They pushed the date back to 2014 to focus on Model S deliveries, then into 2015 so the company could put more effort into its debut in China. As of July 2015, it has yet to ship. The P85D was ridiculously fast from Day 1, but Tesla made it even faster after release — and they did so via an over-the-air software update, no less. The free update tunes the car’s wonderfully named “Insane” mode to get its 0-60 time from 3.2 seconds to 3.1 seconds. After weaker than expected sales in China, Tesla lays off hundreds in the country and begins replacing some of its regional executive team. One of Tesla’s biggest challenges: over half of the United States do not allow car makers to sell cars directly, instead requiring them to sell through third-party dealerships. New Jersey began enforcing this law in March 2014. Tesla fought this law publicly, and it was overturned by NJ Governor Chris Christie almost exactly one year later. “Range Anxiety”, or the idea that you might drive too far away from a sufficiently powerful charger to make it home, is a fear that many would-be electric vehicle buyers might have. Tesla addresses this with an update that constantly calculates your distance from a super charger. If there’s any chance you might get stranded, the car warns you… twice. Branching beyond cars for the first time, Tesla unveils a new business arm in April 2014 that focuses on ending our dependence on grid power and switching instead to solar energy. The first Tesla Energy product is ‘Powerwall Home Battery’, a massive battery for storing solar energy at home. The purchase of Michigan-based Rivera Tool marks Tesla’s first presence in Michigan — a state where the auto maker is not allowed to sell its vehicles directly. The tool company is renamed “Tesla Tool And Die” In May of 2015, the FTC throws its weight behind Tesla’s fight to sell directly to consumers. “A fundamental principle of competition is that consumers – not regulation – should determine what they buy and how they buy it,” writes the FCC. In a crazy move, Tesla manages to make the P85D even faster in July of 2015. The car’s “Insane” mode becomes “Ludicrous” mode, shaving the 0-60 speed from 3.1 seconds to 2.8 seconds. Alas, unlike the first improvement, the upgrade isn’t free this time. Requiring new hardware that can handle higher voltages without melting, the upgrade costs $5,000 for existing P85D owners. With this upgrade, the P85D becomes one of the Top 20 fastest accelerating production cars in the world. “It’s like having your own private roller coaster”, said Elon while announcing the enhancement. In something of a surprise move, Tesla announces that they will be reviving the Roadster line “in 4 years”. The Roadster was the first car the company ever made, but they ended its production in 2012 to focus on the more affordable Model S. In September of 2015, the first pre-ordered Model X’s are delivered, with the first handful of owners accepting the keys to their new rides directly from Elon on stage. It’ll take a while before most of the pre-orders are accounted for, though; by April 2016, new pre-orders are still backordered for months. Roughly 2 years after first discussing it, Tesla finally pulled back the curtain on their more affordable model, the Model 3, on March 31st of 2016. The base model will start at $35,000, do 0-60 in 3 under 6 seconds, and is scheduled to start shipping at the end of 2017. Like the Model S and X, it has a big ol’ tablet in the center of the dash — but it’s now rotated to be widescreen, rather than portrait. Preorders opened the night of the announcement. Before the announcement had even started, 110,000 cars had been pre-ordered. By the end of the night, they were at 150,000. This is 3x more cars than Tesla shipped in all of 2015. The great Elon Musk empire is uniting. Yes, Elon Musk’s Tesla offers to acquire Elon Musk’s solar panel installation company SolarCity for $2.8 billion. Together the companies could allow you to outfit your home with solar panels that power a giant battery for everything inside, as well as your electric car. If the deal goes through, it would see SolarCity stock exchanged for Tesla stock. The deal would pay a premium of 21 percent to 30 percent on top of SolarCity’s value of $2.14 billion, so Tesla would be buying SolarCity for between $2.59 billion and $2.78 billion worth of its stock. High stake gamble In 2014, Nevada had voted to grant Mr Musk $1.3 billion worth of tax credits and other benefits to ensure he builds Tesla’s $5 billion “gigafactory” for making lithium-ion batteries for its electric-vehicle (EV) programmed near Reno. Panasonic of Japan, Tesla’s partner in the lithium-ion venture, had already promised $1 billion towards the humongous plant. Tesla will build and manage the gigafactory and occupy half the premises to assemble battery packs for its electric vehicles. Panasonic will use the other half for manufacturing the thousands of lithium-ion cells that go into each pack. Two innovations have contributed greatly to Tesla’s success, and distinguish its EVs from all others. The first, and most significant, is that its electric cars are capable of travelling 250 miles (400km) or more on a single charge, where other EVs manage between 75 and 110 miles at most. That puts Tesla’s electric vehicles more on a par with conventional petrol- or diesel-engined cars, and greatly reduces the “range anxiety” that plagues owners of other EVs. Tesla’s second distinguishing feature is that its EVs use thousands of standard laptop cells, rather than several hundred much larger and pricier proprietary units. In Tesla’s case, the small, cylindrical “18650” lithium-ion cells (so called because each is 18mm in diameter and 65mm long) are wired together to form a flat battery pack that stretches beneath the floor of the vehicle. The pack can be detached from the car’s underside and a fresh one bolted on in minutes. So far, no such battery-exchange service has been offered. But the option is there if needed. The biggest advantage of using standard 18650 cells is that they are a commodity item. Over the years, all surplus cost has been squeezed out of them by the sheer scale and competitiveness of the laptop business. Even on the retail market, 18650 lithium-ion cells can be bad for as little as $4 a piece. Tesla probably buys them wholesale for less than half that price. Apart from cost, there are technical advantages of using 18650 cells. Because they are small, they can shed heat rapidly. By pumping liquid coolant between them, Tesla can remove any heat produced so quickly that all individual cells are kept within a few degrees of one another. As well as preventing any damaged cell that overheats from affecting others, being able to keep all of them cool makes charging easier, improves reliability and lengthens battery life. It also allows more energy-dense materials to be used—which, in turn, reduces their weight and increases the vehicle’s range. One further advantage is that, because the liquid-cooling system itself has temperatrure sensors, the safety circuitry normally built into each lithium-ion cell—to prevent thermal runaway and the possibility of fire—is no longer necessary. That makes Tesla’s 18650 cells cheaper still to manufacture. While all EV makers are notoriously shy about revealing the costs of their lithium-ion batteries, the consensus figure for the industry is between $400 and $500 per kilowatt-hour. Given its unique advantages, Tesla is probably nearer $350/kWh. If that is the case, the 85kWh battery in its Model S 4 probably costs around $30,000—cheap, but still over a third the basic price of the vehicle. Tesla’s task now is to get battery costs down to less than $250/kWh. This is where the gigafactory comes in. When in full production, the plant will be capable of producing 35 gigawatt-hours worth of lithium-ion cells a year—more than the world's entire production of lithium-ion cells last year. When these are assembled into battery packs, they could provide power sources for 500,000 EVs. That is an awful lot, for J.D Power and Associates, a market research firm in California, expects EVs to make up less than 2% (ie, 1.3m) of all new cars bought around the world by 2020. Clearly, Mr Musk thinks the numbers add up. In 2013, his company sold around 20,000 Model S cars, its sole product at the moment. Having started to deliver vehicles to China and Europe, Model S sales could edge up towards 30,000 this year. From now on, though, the going will get tough. Carmakers such as Audi, BMW, Cadillac, Mercedes and Porsche have introduced luxury EVs of their own that will go head-to-head with the Model S. But Tesla is more than a one-trick pony. In late 2015, it launched its more affordable Model X, an SUV which is built alongside the Model S at Tesla’s assembly plant in Fremont, California, sharing many of the same components as well as the battery system. Following a recent expansion, the assembly line there can now produce up to 56,000 vehicles a year. That would be the upper limit of Tesla’s sales until its third-generation EV, the Model III, arrives in 2017. It is not clear where this will be assembled, but a dedicated line for 100,000 units a year has been specified. With an entry price of $35,000, the Model III is to have a range of at least 200 miles and compete in the executive (rather than luxury) segment of the market alongside such conventional vehicles as the BMW 3-series, Audi A4 and Mercedes C-class. If everything goes according to plan, adding the Model III to its line-up could raise Tesla’s total output to 150,000 units a year. Hence the need for the gigafactory. Tesla already accounts for a large proportion of its suppliers’ output of 18650 cells. Panasonic recently built a new battery factory in Japan to help meet Tesla’s future demand. Even so, Tesla could face a serious shortage of lithium-ion cells if the gigafactory is delayed in any way. At this point, Babbage admits he is a bit lost. The circle he has trouble squaring is the difference between a plant capable of producing 500,000 battery packs a year, and Tesla’s likely output of less than a third that number of EVs. The cavernous plant could, of course, be run on one shift instead of three. But that would defeat the object of using its economies of scale to drive the cost of batteries down by at least a third. Tesla could always add other EVs to its range—a panel van, a sportscar (to replace Tesla’s original Roadster), or even an urban runabout like the Mercedes Smartcar. But none would mop up anything like enough spare capacity to change things significantly. There is always the chance that Tesla could become a big supplier of lithium-ion battery packs to other EV makers. The company already provides a limited number to Mercedes and Toyota (both of which have minority stakes in Tesla) for a couple of their small EVs. For wider acceptance, though, many proud names in the automobile industry would have to eat crow and admit they had chosen the wrong lithium-ion form-factor. That is unlikely to happen. Then there is the possibility of selling “grid-storage” batteries to electrical utilities—for buffering the unpredictable nature of renewable wind and solar energy. SolarCity, a company closely associated with Tesla, has talked also about producing solar panels with battery packs for consumers to install at home. However, neither the residential nor the utility market can be considered volume businesses. The whole point of Tesla’s gigafactory was to use its vast economies of scale to drive down battery costs—so the forthcoming Model III could be competitively priced at around $35,000. To achieve the promised 200-mile range, the Model III will need at least 60kWh of battery capacity. (The 5 Nissan Leaf, somewhat smaller than the proposed vehicle, gets 75 miles from its 24kWh battery.) If Tesla’s battery costs remain over $300kWh, the Model III’s pack is going to cost around $20,000. And if that is the case, no way can Tesla sell the Model III for the price quoted without losing money. At $250/kWh, the Model III will begin to make a profit, and at $200/kWh Tesla will be rolling in it. Assuming, of course, cheap natural gas has not slammed the brakes on all EV sales by then. The one thing to be said about Mr Musk is that, no matter the challenge, he has always delivered. Babbage is a keen admirer of his achievements in space as well as on the road, and sincerely hopes he is wrong about Tesla’s fortunes. He has cast longing eyes at the Model S on numerous occasions. A much cheaper Model III could be right up his street. As Tesla becomes more like a regular carmaker, it faces a bumpier ride The eye-catching falcon-wing doors that adorn Tesla’s Model X set it apart from other big and expensive SUVs. But like the firm’s Model S, a stylish and speedy saloon, the biggest difference lies under the bodywork: it is powered by a battery. Tesla has accelerated into the automotive fast-lane by making electric cars that appeal to rich folk keen to burnish their credentials as environmentally aware techies. But at the end of March 2017 it is launching the Model 3, a cheaper motor aimed at the upper end of the mass market. It will be a far harder sell. Tesla has hitherto thrived in a niche. Other carmakers crammed bulky and expensive batteries into petite “city” cars. Tesla put a bigger power-pack into large and expensive ones (prices start at $70,000), more readily absorbing the cost of the battery. This also gives the cars a decent range of more than 250 miles (400km) between charges, and lightning acceleration. In 2015, after just over ten years in business, Tesla’s sales surpassed 50,000 cars. By 2020 it hopes to sell 500,000 a year, mostly Model 3s. These will cost as little as $35,000 (before the generous subsidies many governments dish out). But it is entering a part of the market where competition is intense and profit margins slimmer. Its achievement so far is, nonetheless, remarkable. The roadside is littered with the wrecks of new entrants unable to take on the established carmakers, from Tucker in the 1940s to DeLorean in the 1970s and latterly Fisker’s failed bid to sell upmarket petrol-electric hybrids. Tesla’s classy design and nifty technology—a touchscreen instead of an instrument panel, and autonomous-driving capabilities—have ensured that only the Mercedes S-Class, which Daimler-Benz has spent decades refining, outsells it among large luxury saloons. Tesla has shown that the barriers to entry in the car industry are far lower than widely assumed. The company bought a factory in Fremont, California, from GM and Toyota for just $42m, after the American firm pulled out of their joint venture and filed for bankruptcy in the wake of the financial crisis. Tesla also bought equipment to kit it out cheaply, from other carmakers struggling to cut their capacity. It is run frugally. Sanford C. Bernstein, a research firm, reckons Tesla’s total capital spending and outlay on research and development so far is under $4 billion—one-seventh of what Volkswagen spends in a year. And in Elon Musk, its ebullient boss, it has a figurehead whose relentless promotion has quickly established Tesla as a luxury brand in an industry where convention suggests this should take 25 years. Tesla has also rewritten the economics of making electric cars. It tackled high costs by stringing together hundreds of small, mass-produced laptop batteries. Tesla claims that its power-packs cost half what big carmakers pay their suppliers for custom-designed large-format batteries, and that its gigafactory, a huge battery plant close to completion in the Nevada desert, will cut costs by another 30%. It will need all its superior performance to stay ahead. Tesla currently has no direct competitors. Yet Apple looks set to launch a luxury electric car. Battery costs for other carmakers are also falling fast. 6 In a couple of years Audi, Jaguar and other premium-car makers plan electric vehicles on a par with Tesla’s two priciest cars. Launching the Model 3 will put Tesla’s business model under far more strain. Other carmakers look on its extreme vertical integration with bemusement. If Mr. Musk fancies himself as the next Henry Ford, his factory certainly resembles the Model T’s production line, where iron ore and rubber went in one end and a car chugged out the other. Other carmakers are now largely brand managers, assemblers and systems integrators, ensuring that all the parts they buy from suppliers work in harmony when bolted and welded together. This serves to spread risk and push costs to suppliers. Tesla makes most of its parts in-house. Mr. Musk regards this as a competitive advantage. Firms “build value by doing hard things,” he reckons. But tooling, forging and design suck up capital. The firm is far more integrated even than carmakers of yesteryear. It has sought to attract buyers and tackle “range anxiety” by building its own worldwide network of more than 3,500 roadside “superchargers”. These can put an 80% charge on the battery in 40 minutes, and Tesla drivers can charge up without charge. It is a bit like Ford opening its own filling stations and giving away the petrol. Whereas other carmakers sell their vehicles through networks of independent dealers, Tesla sells directly to the public, through its website and in showrooms located in shopping centers. This means it keeps the retail markup, but it is unclear how much, if at all, this offsets the cost of maintaining the showrooms. And dealer networks are useful in other ways: they assume a lot of risk by paying for cars when they take delivery of them, rather than when they sell them. In all, Tesla’s way of working requires lots of cash. Barclays, a bank, thinks the firm will burn through $11 billion over the next five years, and will not generate significant profits until then. Investors have willingly stumped up so far but many analysts question whether Tesla is worth its current market capitalization of $29 billion, more than half the value of GM, which makes nearly 10m cars a year. The worry is that entering the mass market will change the way Tesla makes cars, the sort of customers it chases and the competitors it faces. Tesla thinks of itself as a technology company but the Model 3 will make it more of a large-scale manufacturer. It is unclear how well suited it will be to the task of designing and churning out cars at far higher rates than now. Mr Musk admitted that the design of the Model X was overly ambitious, especially the fancy doors, delaying its launch by many months. Tesla will henceforth have to attract customers who want to buy a car not an engine, as Berenberg, another bank, puts it. The wealthy customers it has now often own more than one car, and can afford the luxury of charging facilities at home. They use the Tesla to salve their consciences with a “trip to church on Sunday”, as the boss of a rival carmaker jokes. Buyers of its cheaper model may rely on it as their sole vehicle, and lack space for home charging, making its range and the availability of public chargers more important. They may also care less about image and the environment, and more about cost and performance, putting the Model 3 in competition with fossil-fuel cars such as the BMW 3 Series and Mercedes CClass, not just other electric cars. Even in the market for electrics, Tesla will no longer have the road to itself. Other makers are constantly boosting their battery cars’ range. A new version of the BMW i3 will go for 120 miles before plugging in. GM’s Chevrolet Bolt, which hits forecourts later this year, may cost a bit more than a Model 3 but boast a similar, 200-mile range. 7 Analysts reckon Tesla will at best have ramped up its production to 320,000 cars, rather than its target of 500,000, in 2020. But perhaps that doesn’t matter. Mr. Musk insists he is more interested in disrupting the car industry, and advancing the switch to electric cars, than in playing by his rivals’ numbers game. Among the Silicon Valley neighbors Tesla likes to compare itself to, “full stack” vertical integration is all the rage, and the biggest tech firms are less interested in making things than they are in creating software “platforms” on top of which a variety of services can be built. So, Tesla’s ultimate aim may be more to create a platform for slick electric, autonomous cars that can also be built by others, in the way that various smartphone brands run on Google’s Android operating system. In that case, how well the Model 3 sells may not be the main determinant of the firm’s value. Tesla’s Chinese factory just delivered its first cars Tesla signed the deal to build its third Gigafactory back in July 2018, and it follows its first two US Gigafactories in Nevada and Buffalo, New York. Tesla started construction of the Shanghai factory itself in January 2019, and by October it said it was already producing vehicles on a trial basis. Reuters notes that the factory is up and running just 357 days after construction started. In December 2019, Tesla has delivered the first cars produced by its Chinese Gigafactory, just under a year after the company broke ground on its first factory located outside of the US. Reuters reports that the Model 3 vehicles were delivered to 15 of Tesla’s employees as part of a ceremony. The deliveries were made well within schedule by the company, which had previously said it wanted to begin delivering its Chinese-made cars before the Lunar New Year on January 25th, 2020. The locallyproduced cars already offer a large price saving over imported models, and a Bloomberg report recently said the company could lower prices further as it cuts costs and uses more locally-sourced components. The deliveries mark an important milestone for Tesla, which hopes to use its Shanghai factory to gain a foothold in China, the world’s largest market for electric vehicles. It’s hoped that the local factory will help to speed up deliveries and insulate the company from the ongoing trade war between US and China. The Shanghai Gigafactory is the first wholly foreign-owned car plant in China. The Standard Range Plus Model 3s produced in the factory will be sold for 355,800 yuan (around $50,000) before subsidies, while models imported into the country currently start at 439,000 yuan (around $63,000), according to Reuters. Next year could see prices drop further according to Bloomberg, as Tesla cuts costs and starts using more local components to reduce prices by as much as 20 percent. Now, the challenge for Tesla will be ramping up production. The company has said that it hopes to produce 3,000 Model 3 cars per week by early next year, according to Electrek, increasing to as much as 500,000 vehicles a year within two to three years — an average of just under 10,000 a week — according to the agreement it originally signed with the Chinese government back in 2018. 8 Tesla’s speed in setting up Gigafactory 3 bodes well for Gigafactory 4, which the company’s CEO Elon Musk announced in November will be located in Berlin. The company says that it wants its European Gigafactory to be operational by 2021. Musk says his eventual plan is to build as many as 10 or 12 Gigafactories around the world. Tesla is proving itself as a carmaker In its quest to “accelerate the world’s transition to sustainable energy” Tesla is different to other carmakers. Their mission is less to change the planet and more to make and sell as many cars as possible. Despite its technological lead in electric cars, Tesla has struggled with the mundane task of massproducing vehicles. Of late, however, the firm has started to hit production targets. It is even turning a profit. That such milestones seem modest by car-industry standards has not stopped investors from swooning. Tesla’s market capitalization surpassed $100bn in January and is now only exceeded by one other carmaker, Toyota, a Japanese giant. It is worth more than Germany’s Volkswagen, which made more than 10m cars last year, 30 times as many as Tesla. It has lapped premium rivals like bmw (with a market value of $47.5bn) and Daimler ($51.2bn). The latest indication that Tesla is at last making an impression as a manufacturer came with its fourth-quarter results, unveiled on January 29th. After years of losses the firm made an operating profit—of $359m—for the second quarter in succession (though it still lost money for the year). Its boss, Elon Musk, was uncharacteristically restrained but noted revenues in 2019 of nearly $20bn without spending cash on advertising. Earlier in the month Tesla also revealed delivery numbers that pleased analysts and seemed to show that the firm has put behind it what Mr. Musk had called “production hell” around the Model 3, its first mass-market car. Profits and production are not the only reasons Tesla is joining the automotive mainstream. New products and plants are also on track. Its Cybertruck, an angular pick-up straight out of a 1980s sci-fi flick, which Mr. Musk unveiled in November, is set to hit roads in 2021. This year Tesla will launch the Model Y, a smaller SUV, and the Roadster, a pricey sports car. It has just started making Model 3s at a new “Gigafactory” in China, showing that it could react far more swiftly than leaden-wheeled competitors; it got the plant in Shanghai up and running in 11 months. It is set to break ground on another in Germany. If all goes to plan, reckons Morgan Stanley, a bank, Tesla will be making 2m vehicles a year by 2030 and its operating margin over the next decade will average 8.3%. That would put it close to the current output and profitability of both BMW and Daimler (at least before their margins began to be 9 squeezed by heavy investment in electrification, both to catch up with Tesla and to meet European emissions rules). But then why is Tesla worth twice as much? For one thing, its electric-car technology leaves rivals in the dust. It is also unencumbered by the legacy of a business based on internal combustion engines, which, reckons UBS, another bank, could make it the world’s most profitable carmaker. Jefferies, one more bank, points out that a stronger balance-sheet (should it in fact strengthen) would allow Tesla to start thinking beyond merely making cars. It speculates that the firm may confirm it is working on a project to develop a “million mile” battery, which will set a new standard for energy density and lifespan. Its ambitious expansion nevertheless faces many challenges of the car industry: spiraling labor costs, warranty issues, cut-throat competition as rivals (including go-getting Chinese ones) close the technology gap. For the time being, Tesla may bask in a Big Tech valuation, predicated on its disruption of car making. Investors appear keener than ever to condone its joyride. But if recurring profits do not materialize, expect them to confiscate the keys. Questions 1. Identify the strategies that Tesla adopted. Explain the motivation and evaluate the effectiveness. 2. Please do a PESTEL environmental analysis of the firm. 3. Please do a 5 forces analysis of the industry. 4. What would be your assessment of the challenges (internal and external) and opportunities of the firm? 5. Regarding the challenges or issues that company faced or faces, what would be your suggestions to resolve them? 6. Tesla is still a new startup with a short history of 17 years, yet the firm is very successful. What’s your explanation of its success? 7. Assess the strategy of launching Gigafactories in China and Germany in post coronavirus era. 10
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Strategy analysis

P E S T EL analysis stands for, P-political segment, E-economic segment, S- social
segment, T-technological segment, E- environmental segment, and l-legal segment. This
environmental tool gives an analysis of the strategy for an effective factory. Setting up gigantic
factories in China and Germany would be effective in post Coronavirus but based on various
aspects, as discussed below.
In setting up a big factory in china, ...

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