Situational Analysis of Tesla Renewable Batteries - Report

This report provides a comprehensive situational analysis of Tesla's renewable batteries, examining the company's strategic challenges, product strategies, and external environmental factors. It delves into the Powerwall home battery and Powerpack industrial-scale battery, analyzing industry structure, potential entrants, substitutes, suppliers, and competitors using Porter's Five Forces. A SWOT analysis highlights internal strengths and weaknesses, as well as external opportunities and threats. The report also identifies criteria for sustainable competitive advantages, including engineering excellence, synergy, and competence. The analysis covers the projected high prices of lithium, compatibility issues, and affordability challenges, offering insights into Tesla's position in the renewable energy market and the competitive landscape it navigates.

Running head: Situational Analysis of Tesla Renewable Batteries 1
Situational Analysis of Tesla Renewable Batteries
Student’s Name
Institutional Affiliation

Situational Analysis of Tesla Renewable Batteries
Table of Contents
Executive Summary...................................................................................................................3
Situational Analysis of Tesla Renewable Batteries...................................................................4
1.0 Introduction..........................................................................................................................4
1. 1 Strategy Challenges Affecting the Tesla Renewable Battery Company.............................4
1.1.1 Projected High Prices of Lithium..............................................................................4
1.1.2 Compatibility.............................................................................................................4
1.1.3 Affordability..............................................................................................................5
2.0 Strategic Direction...............................................................................................................5
2.1 Product Strategy................................................................................................................5
2.2.1 Powerwall Home Battery...........................................................................................5
2.2.2 Powerpack Industrial Scale Battery...........................................................................6
3.0 External Environmental Analysis and Its Strategic Implications........................................7
3.1 Industry Structure.................................................................................................................7
3.1.1 Potential Entrants....................................................................................................8
3.1.2 Substitutes...............................................................................................................9
3.1.3 Suppliers...............................................................................................................10
3.1.4 Buyer’s power..........................................................................................................10
3.1.5 Industry Competitors............................................................................................11
4.0 SWOT Analysis.................................................................................................................11
4.1 Internal Strength..............................................................................................................11
4.2 Internal Weakness..............................................................................................................12
4.3 External Opportunities.......................................................................................................12
4.4 External Threats.................................................................................................................12
5.0 Criteria of Sustainable Competitive Advantages...............................................................12
5.1 Engineering Excellence...................................................................................................12
5.2 Synergy as a result of Cooperation with other Firms.........................................................13
5.3 Suppliers.............................................................................................................................13
5.4 Competence.....................................................................................................................13
Conclusion................................................................................................................................13
References................................................................................................................................15
Appendix..................................................................................................................................18

Situational Analysis of Tesla Renewable Batteries

Situational Analysis of Tesla Renewable Batteries
Executive Summary
Tesla Company has successfully established itself in the market by leading in the invention
and manufacture of the Electric Vehicles (EV) in the market. The company has been able to
dominate the EV market by due to its strategies and the production of luxurious vehicles that
aid Tesla to uphold the core values. These have also given Tesla a competitive advantage
over other large enterprises within the same industry. As a result, the company Tesla
continues to enjoy a significant market share, acquiring loyalty of the brand and generating a
lot of revenue through their modern innovations. The objective of this assignment is to carry
out a situational analysis of Tesla Motors Inc. About its technological innovations and
market forces. The report identifies the strategic challenges faced by the company and the
external influences affecting Tesla Batter. Afterwards, the external and internal environment
is analyzed alongside their policy consequences to identify factors that determine the creation
of value. Analysis on external and Industry will be followed by an internal analysis of the
company to determine the determinants of value creation. An analysis of the competitive
rivalry analysis and dynamics is also done to determine the likelihood of attack and
evaluation.

Situational Analysis of Tesla Renewable Batteries
Situational Analysis of Tesla Renewable Batteries
1.0 Introduction
Tesla Motors, Inc. is a firm based in America that designs, produces and trades in electric
cars and electric vehicles and powertrain machinery. The name of the company signifies the
founder Elon Musk, a scientist who is also known for creating the alternating current power
and induction motor. It was founded in 2003. In 2015, the company made innovations in the
energy sector by introducing the Powerwall home battery and the Powerpack industrial –scale
battery. Later in 2016, Tesla bought Solar City, the top provider of solar power systems in the
United States. Such massive developments indicate the seriousness of Tesla in the sector of
renewable energy (Tesla Motors, n.d.).
1. 1 Strategy Challenges Affecting the Tesla Renewable Battery Company
1.1.1 Projected High Prices of Lithium
According to Aulicino (n.d) Tesla Company is expected to incur billions of dollars to
establish a massive battery factory which means the company has to double the number of
lithium batteries they produce and further increase the lithium mined from the ground.
Lithium is rare in the current market, and a high demand for it implies extra high prices
because it is the key component of the Tesla battery. Furthermore, the world’s supplier of
lithium is Bolivia, which also has plans of creating an OPEC from the supply of lithium.
1.1.2 Compatibility
Rodrigues et a. (2015) asserts that based on the design of the Power wall battery, only two
inverters in the market can be compatible with it. This means that all houses with other
existing solar panels have to acquire a new inverter which is costly and renders the previous
ones redundant. Such a consequence has made most consumers not to adopt the Power wall

Situational Analysis of Tesla Renewable Batteries
battery. For those that do not possess solar panels will have to buy the complete system that
includes solar panels and an inverter. The number of solar panels needed is higher to power
both the home and the Powerwall. Another problem associated with the one of compatibility
is the integration of the batteries into the market. Batteries operate on a direct current while
the current market is used to and dependent on the alternating current which necessitates the
need for an inverter.
1.1.3 Affordability
According to Truong (2016), the current cost of the complete system that includes solar
panels and an inverter is inclusive of the costs of connection to the grid and installation.
Furthermore, the energy consumption rate of many homes in Australia is high seeing they are
dependent on electricity supply. A small scale Power wall battery of 7kWh is not likely to
make up for this and thus to completely rid of the dependence on electricity ( Motors, 2015).
This implies that a home will have to install more than one battery units to increase the
storage capacity, thus raising the costs even much higher.
2.0 Strategic Direction
2.1 Product Strategy
2.2.1 Powerwall Home Battery
One distinguishing feature of the Powerwall home battery package is that it is made up of
high-quality solar PV modules, comes with an inverter and the Tesla Powerwall, hence the
reason for its high sales volume (Randall, 2015). The entire system also comprises of all
needful connection materials, fixing and roof mounting. The wide range of the of options for
the solar system allows The Powerwall home battery components to be installed separately,
for instance, a customer can decide to install the solar system alone and the battery system at
later times. Furthermore, the system is upgraded on the move for automatic switch on at

Situational Analysis of Tesla Renewable Batteries
home and for charging the Electric car. As impressive as the Powerwall Battery is, it still
gives the customer the option of adding the Powerwall battery to the installed solar system.
Tesla in collaboration with the assigned technical team offers free advice on the best decision
to take based on the circumstance. This gives enough time for the customer to save and install
batteries later after observing on the usage of the Solar PV System.
Apart from the flexibility features, the Powerwall provides 13.2kWh of disposable energy;
the battery is charged on a daily basis which allows it to satisfy the electricity demands in the
evening for most of the average to large families. In addition to this, Tesla is in the process of
creating options for multiple connections of batteries to increase the capacity.
2.2.2 Powerpack Industrial Scale Battery
Shahan (2015) highlights that The Tesla Powerpack 2 is an advanced a flexible commercial
power storage whose technology is founded on a lithium-ion battery and is used in industrial
applications. The Energy Powerpack can be adjusted to fit various installations ranging from
100kWh to 100MWh with options of increasing it by 250kWh. Each Powerpack comprises of
sixteen pods linked to one DC output in parallel connection
The Powerpack is a modular system which can be scaled up to multi-megawatt hour solutions
for large commercial projects. The architectural design enables a multi-installation of the
system to suit a variety of industries. Because the system is fully integrated, the time taken
for installation is much shorter than other systems which have different vendors for various
components. Furthermore, the Powerpack comprises of an efficient inbuilt thermal
management system which allows the system to be installed anywhere without the necessity
for a power consuming HVAC system. Additionally, the internal thermal control system
regulates the temperature levels of the cell all the time, thus increasing the battery life and the
general efficiency of the system

Situational Analysis of Tesla Renewable Batteries
3.0 External Environmental Analysis and Its Strategic Implications
For an extended period of time, the Lithium Battery Manufacturing industry emphasized
more on the production of lithium batteries for select markets that comprised of the electronic
producers and defense suppliers. Because of substantial investment in research and
innovations in new applications supported by the US Government, the industry has changed a
lot for the better. The intervention of the government through its incentives had reduced
production costs and improved the sustainability of the innovation in a variety of
applications. The increase in demand for the lithium batteries in the automobile industry led
to the growing production of the cells and, this demand is expected to reach 16.4% of revenue
increase annually (Carter, 2015, para. 1, p.1). Tesla battery has ventured into the industry and
is indeed expanding its territories by the introduction of the Powerwall House Battery and the
Powerpack Industrial Scale Battery. However, this industry is facing stiff competition from
China that has also invested heavily in the production of lithium battery which is likely to
infiltrate the market (Carter, 2015, para. 2).
3.1 Industry Structure
The key players in this industry are Nissan Leaf, Tesla Motors, Ford Motor Company and
General Motors. All these companies are both buyers and manufacturers of lithium batteries.
The key suppliers are wholesalers of Metals, companies that mine Lithium Carbonate and
Hydroxide which substitutes the producers of Gasoline and Natural Gas. The fresh entrants
into this industry are organizations that are establishing manufacturing plants for the lithium
batteries. Additionally, industry rivalry exists among the firms with developed manufacturing
plants that compete globally. The industry analysis is done using Porter’s Five Forces of

Situational Analysis of Tesla Renewable Batteries
competition namely Potential Entrants, Substitutes, Buyers, Suppliers, and Industry
Competitors.
3.1.1 Potential Entrants
The threat of entry is the main force that affects any industry that is thriving well with excess
returns on its cost of capital which to the new firms is a major attraction thus leading to the
decline of profits to the competitive level. Many factors determine the level of competition,
but the main one is the barrier to entry, which is further analyzed by considering the large
needed capital Investment, the advantages of Economic of Scale, Barrier laws, and Industry
Incentives.
Capital Requirements
Because the industry is already initiated but still developing, and it’s based on intensive
technology innovation, the kind of money needed to purchase and setup the necessary high-
tech machinery and equipment is of medium level. According to Carter (2015), the
investment requires $0.18 for each dollar spent. Furthermore, the professional workforce is
mandatory for the initiation of the operations which makes the capital requirements very
costly. This is of advantage to Tesla Battery Company because of its many years of
progression and success in the industry in addition to the fact that the company has acquired
the leading producers of solar products, e.g., Solar City.
Economies of Scale and Total Cost Advantage
The new companies venturing into the market may benefit from its possession of patented
technology and manufacture lest expensive lithium batteries. However, due to the in-depth
research by the already established firms on how to lower the cost per Kilowatt hour (kWh),
competition is always high. For example, 24M created and patented a new process that would

Situational Analysis of Tesla Renewable Batteries
reduce the cost of production (Grießer, 2017). According to Nelson et al. (2012), the cost per
Kilowatt-hour is from $300 to $500. But large capital is required to establish a large plant
sufficient to manufacture new batteries.
Legal Barriers
The industry must be subject to the laws and regulations both from the federal government,
the state and environmental groups because of the dangerous effect of lithium batteries. The
rules govern all the processes in the manufacture of lithium battery from its storage,
treatment, discarding, transportation, and discharge of any dangerous materials associated
with the production to the environment. Because of this, the firms are forced to meet all the
costs related to federal industry standards which are very costly to sustain. Gaines & Cuenca
(2000) asserts that the necessary cost to acquire the authorization of a battery pack for
commercial purposes and air transport costs from $10,000 to $20,000.
Industry Incentives
The two primary initiatives of the government to advance technology with the aim of
searching for the alternative source of fuels are the ATVM (The Advanced Technology
Vehicles Manufacturing Program) and the ARRA (the American Recovery and Reinvestment
Act). A total of $25 billion loans has been authorized under the ATVM program to
manufacture fuel efficient cars but only $8.4 billion loans to the ARRA for the production of
electric vehicles that are using lithium batteries. Furthermore, $1.25 billion was offered to
Tesla Motors by Nevada from the states’ tax incentives to help in the building of the Giga-
factory (Trop & Cardwell, 2014). Such incentives may excite new entrants, but the
qualifications are very high.

Situational Analysis of Tesla Renewable Batteries
3.1.2 Substitutes
Fossil Fuels and Hydrogen Fuel Cells are the primary substitutes in this industry with
electricity being the major threat substitute and affect the demand for the Tesla lithium
Battery. An increase in the price of Fuel causes a corresponding increase in the cost of
electricity usage, thus a high demand for lithium batteries. But since the cost of electricity
usage is averagely lower, and then the demand for it is higher but to a certain extent because
the popularity of Tesla Batteries drives its demand. The general awareness of climate change
has also continued to weaken the demand for electricity due to its dependence on fossil fuels
to run its turbines.
3.1.3 Suppliers
The presence of fourteen ASX listed companies with lithium deposits and four ASX
companies that meet the requirements of JORC in Australia makes it the world’s number one
producer according to U.S Geology Survey (2016). For instance, the Neometals Ltd found in
Western Australia chiefly mines lithium among other metals.; the Pilbara Minerals Ltd also
found in the western Australia mines for lithium and tantalum and covers about 800Km2.
(Australian Shares, 2014). This implies that the competition for Lithium metal in Australia is
not that stiff for an already established firm like Telsa. However, with the increasing interest
in natural energy, more entrants are expected to venture into the market which may lead to
the drop in the supply of lithium in the market and a further increase in competition among
lithium battery manufacturing firms.
3.1.4 Buyer’s power
Approximately 34% of the leading companies that manufacture lithium batteries are also
players in the production of electric vehicles. These companies include Tesla Motors with
8.4% market share, GM with 8.5% market share, Ford with 8.9% market share, and Nissan
with 12.6% market share the lithium battery production. All these companies were serviced

Situational Analysis of Tesla Renewable Batteries
with loans for the manufacturing of lithium battery except Tesla Motors that entered into a
contract with Panasonic for the supply of lithium packs while it builds the Giga-factory in
Nevada which is expected to provide large lithium batteries that all the other companies
combined. Such investments which tend to increase the demand for lithium whose supply is
limited shifts the bargaining power of the suppliers. For instance, Tesla will require an
amount of approximately 24,000 tons of lithium hydroxide to its Giga-factory for it to attain
its goal thus forcing it to source for more from different suppliers (Martin et al., 2017).
Therefore, it is not expected for the buyer power to rise until the production of lithium rises to
levels higher than the demand.
3.1.5 Industry Competitors
The profitability of the sector is dependent on the competition between firms. Furthermore,
leading firms are determined by comparing companies of different sizes and their
corresponding market share. For example, Tesla Motors leads the market in the manufacture
of luxury electric vehicles as well as lithium batteries and thus enjoys the freedom in
determining its prices, whereas, Nissan is dominant in the production of electric vehicles and
thus sets the price of its car (the leaf) and lithium batteries. Therefore, the industry doesn’t
have diversity in competition because only a few companies are involved in the production of
lithium batteries. As a result, those customers that can afford Tesla batteries will adopt them,
but those that cannot continue with their respective sources of energy.
4.0 SWOT Analysis
4.1 Internal Strength
Tesla has incorporated a culture of innovation to its processes which enable the company to
own various patents for the Powerwall and Powerpack batteries (Witt, 2013). The company is
also lead by Mr. Elon Musk who is an award winner in many awards. He also serves as the