Tesla New Product Line: The Competitor Analysis

Introduction

Tesla Motors is a leading auto manufacturing company that designs, develops, and distributes electric vehicles across the U.S. In the last few years, the company has proven its ability to create innovative car designs and technology. The company’s primary markets include the U.S., China, and Europe. The company was formed in 2003. The company is manufacturing electric cars that are energy efficient with minimum effects on the environment (Tesla Motors, 2016). The company is planning to manufacture electric bikes with the same technology it uses for its cars. In this report, the company’s decision to launch electric motorcycles is considered. For this purpose, the current report includes the competitor analysis and cost analysis of the new product based on estimations of various cost factors.

Business Decision

The business decision considered in this report is the launch of electric motorcycles by Tesla Motors. The company has a strong management team and skilled labor that can design and manufacture innovative products. Therefore, it could be stated that the company has the ability to manufacture energy efficient electric motorbikes. The company can expand its customer base by targeting different market segment. It could help the company to improve its current business position by generating higher earnings. Recent reports suggest that the company is still in its designing phase and it is yet to finalize its decision to go ahead with the new business. Considering the complexity of the new business venture by Tesla Motors, the following section presents findings related to the competition in the U.S. market.

Competitor Analysis

Zero Electric Motorcycles

Zero Electric Motorcycles is based in California, U.S. The company started its operations in 2006. In the last 10 years, the company has excelled in manufacturing electric motorcycles that are highly efficient and lightweight. The company uses a technology referred to as ‘Z-Force electric powertrain’ that gives great power to its motorcycles (Zero Motorcylces, 2016). Presently, the company manufactures six different models of electric motorcycle. The company had distributorships and dealerships across the U.S. The company’s strategy is to develop cutting edge technology and create innovative designs of its motorcycles, The company’s objective is to become a global brand and sell its products internationally (Zero Motorcylces, 2016). Moreover, the company’s focus is on manufacturing electric motorcycles that are affordable to customers. The price range of its motorcycles is US$8,495-US$10,995 that makes them highly competitive (Zero Motorcylces, 2016).

Victory Motorcycles

Victory Motorcycles was formed in 1998. Its primary focus is on addressing the changing trends in the U.S. market. The company has a strong brand and its motorcycles are highly appreciated by customers. The company manufactures electric motorcycles and sells them in the U.S. The company has only one model of electric motorcycle that is Empulse TT (Victory Motocycles, 2016). Empluse TT uses a battery that increases the intensity of energy. The battery only requires 3.9 hours to charge and it generates 10,400-watt hours. Empulse TT is one of the most powerful electric motorcycles available in the U.S. The price of Empulse TT is US$19,999, which is very high as compared to other motorcycles. The company’s strategy is to deliver high performance electric motorcycles with innovative designs (Victory Motocycles, 2016).

Lighting Motorcycles

Lighting Motorcycles manufacturers heavy bikes that use electric energy. Presently, the company manufactures and sells only one model of electric motorcycle that has a retail price starting from US$38,888 (Lighting Motorcyles, 2016). The company is a leader in manufacturing sport bikes as it was the first company to successfully design and develop electric heavy bikes. The company has set new challenges for other companies to design and manufacture high-performance motorcycles (Lighting Motorcyles, 2016).

Energica Motor

Energica Motor is another electric superbike manufacturer based in Italy. In 2008, the company had set up CRP USA that manufacturers motorcycles and sells them in the U.S. market. It also provides support and repair services to customers. CRP USA has three divisions including “CRP Meccanica, CRP Technology, and CRP Service” (Energica, 2016). Currently, the company’s manufactures three different models that are innovative and provide great speed and stability to riders. The starting price of Energica superbikes is $33,000 (Energica, 2016).

Cost of Production

The production process includes different stages starting from the concept development to the final product development. The company incurs various costs at each stage of production that need to be estimated before the production process initiates. Tesla Motors is planning to launch electric motorcycles in the U.S. market. For this purpose, it is important for the company to determine various cost factors that could affect the product price. These cost factors are related to different stages of production. However, the cost analysis carried out in this report considers the total amount of each cost factor to determine the estimated total cost of the production process. The company estimates selling 7,000 electric motorcycles in the first year of production. The following table provides a list of different cost factors and their estimated values.

Description Type $
Direct Labor Variable
 Designers 225,000
 Engineers 180,000
 Machine Operators 150,000
 Business Developers 75,000
 Technicians 80,000
Total Direct Labor 710,000
Direct Parts Variable 62,503,000
Variable Overheads Variable 301,000
Fixed Overheads Fixed 250,000
Total Costs 63,764,000
Cost per Unit 7,000 9,109

Table 1: Cost of Production.

The company estimates that the cost of producing an electric motorcycle is US$9,109. The table provided above indicates different cost factors including direct labor, direct material, variable overheads, and fixed overheads. It implies that certain cost factors are variable as their value changes with changes in production output. The fixed overheads do not change with changes in production output. For Tesla Motors, these include the cost of factory, robotics, machinery, and warehousing, etc.

It is also highlighted that the company needs to make changes to its existing production processes. The company needs to purchase new machinery such as molding machines, paint unit, and testing unit, etc. It is estimated that the new business will require an initial investment of $25,000,000. Furthermore, the company must arrange funding for the first year of production. It is estimated that the company requires start-up fund of US$88,764,000. The company must determine if it has sufficient equity to fund the new project. If the company does not have retained earnings then it must borrow the required amount from banks. The company’s balance sheet as of December 31, 2015 indicated that it had negative retained earnings of US$2,300,000 (Tesla Motors, 2016). Therefore, it is not possible for the company to use its equity for the new project. There are other two options available to the company. The company can issue new shares at the current stock price. Moreover, the company can borrow from banks or investment companies. In both cases, shareholders’ interests will be affected. The review of the company’s financial statements for the year ended 2015 indicated that the company would fail to obtain additional debt as its leverage position was weak. Therefore, it can raise capital by issuing new shares authorized by the Security Exchange Commission (SEC).

Conclusion

From the discussion provided above, it could be highlighted that there are several companies in the auto manufacturing industry that are manufacturing electric motorcycles, and they are targeting two specific market segments. Victory Motorcycles and Zero Electric Motorcycles are manufacturing low priced high performance electric motorcycles. Their strategy is to increase their production volume and cater a larger international market in the coming years. The other two companies are manufacturing heavy bikes and their focus is to target premium-priced segment. The direct competitors of Tesla Motors are Energica Motor and Lighting Motorbikes as both companies are manufacturing sport bikes powered by electric batteries. It is also reported that many other companies including Harley Davidson and BMW have developed prototypes of electric motorbike. The competition is likely to become intense in the coming years as companies strive to lower their cost of production and develop innovative designs to cater larger markets. Furthermore, the company’s financial results for the year ended 2015 indicated that it could have problems raising additional capital from banks. Therefore, it should consider issuing new shares in the capital market.

References

Zero Motorcylces About Us – The Story. (2016). Web.

Victory Motocycles – Our Story. (2016). Web.

Energica – About US. (2016). Web.

Lighting Motorcyles – News. (2016). Web.

Tesla Motors, Inc. (TSLA). (2016). Web.

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