Master of Science in Technology Management (Management of Innovation and Technology)
(1) Final Project (40%)
– Each individual student should pursue a final report.
– Students should choose two or three firms (or more firms) that competed (or compete) against each other in the face of new technological changes. In addition, students should demonstrate what kinds of strategies they used for performance advantage. Also, they should explain why a firm shows better performance than its rivals. And explain why firms in direct competition pursue different strategies in the same technological change contexts.
– For example, in the smartphone market, while Apple tends to pursue an outsourcing strategy regarding its smartphone hardware, Samsung focuses much more on a make strategy (vertical integration). Digging into why those two firms pursue different strategies and how their performances are different could be a worthwhile individual report.
– In choosing a topic, try to be more creative, rather than going into cliché examples appearing on internet websites.
– Report format:
– 25 pages max. (You may add an appendix for data, extra graphs, etc.)
– Times New Roman font
– 1 inch margins
– 12 point font
– Double spaced
– Should submit the both hardcopy and softcopy.
– Late submissions will not be accepted. (Due : YYY.XXX, 6PM)
– Examples of project topics (students do not need to stick to these examples)
– Google vs. MS in the search engine market
– Toyota vs. Mercedes in the electric car market
– Tesla vs. Toyota in the electric car market
– Nintendo vs. X-box vs. PlayStation video game consoles
– Augmented Reality in the smartphone market – Nintendo vs. others
– Key issue in assessment is on whether a student develops his or her arguments convincingly.
– Performance Evaluation
– Problem definition (levels 1 to 5)
– Efforts to do extra research (levels 1 to 5)
– Creativity (levels 1 to 5)
– Argument Persuasiveness (levels 1 to 5)
Related syllabus and course material is attached
Classic Format
- Executive Summary (Maximum 2 page)
- This part is short summary of the main document below. Please follow the format;
- Motivation or objectives
- Brief description on markets or firms that you choose
- Main Arguments or Findings
- Significance of your report
- Main Document (No Page Limit)
- Background
- Why are you doing this project?
- Why is it important?
- Market or Company Description
- Why you choose these markets or firms?
- Why you choose specific period?
- Your comparison is fully comparative?
- Your choice is not biased?
- Analysis and Results
- How to analyze?
- What are your findings?
- Key Arguments
- What are your arguments, based on your findings?
- Your findings or arguments can be applicable to other markets or firms ?
- If not, why not ?
- Significance/contribution of your report
Emphasize why your reports are valuable
Report format
- In your report, the most important thing is I am not going to decode your project.
- MUST submit similarity check
- No page limits
- More important than number of pages is your content!!!
- Times New Roman
- 1 inch margins
- 12 points
- Double spaced.
- Should submit only softcopy
- Email title: ISE 549_Project 1_Your Name
- To: Ms.Kong (kong@connect.polyu.hk)
- Due data: 6PM, 28 Nov 2019
- Late submission will not be accepted
Topic
- Students should choose two or three firms (or more firms) that competed (or compete) for each other in the face of new technological changes. And, demonstrate what kinds of strategies they used for performance advantage.
- Your topic can be “why a firm shows better performance than the rivals?”
- Or, your topic can be “ why firms pursue different strategies in the same technological change contexts?
- For example, in the smartphone market, while Apples tends to pursue outsourcing strategy in smartphone hardware, Samsung is more focusing on a make strategy (vertical integration). Digging into why those two firms pursue different strategies and how their performances are different could be a worthwhile individual report.
- In choosing topic, try to be more creative, rather than going into cliché examples appearing on website
Grading Scheme
- Problem definition (level 1 to 5)
- Efforts to do extra research (level 1 to 5)
- Creativity (level 1 to 5)
- Argument Persuasiveness (level 1 to 5)
ANSWER
Tesla or Toyota? Which is the leading and most valuable electric car-making company?
The Battle of BEVs (Tesla) Strategy vs. Hybrids Strategy (Toyota)
Vs.
Tesla vs. Toyota in the Electric Car Market
Name of the student
Course
Instructor’ name
Submission date
Executive Summary
The electric car market is one of the sectors that has adopted disruptive and advanced technologies in the modern world that has resulted in significant economic, socio-cultural, and political changes and consumer trends. Just like Amazon is redefining the retail industry, Kindle redefining the publishing industry, and Airbnb disrupting the hotel industry, so does the electric car market disrupts the traditional car dealing innovatively. The project’s primary research question is “Tesla or Toyota?” This report answers the question by identifying the leading and most valuable electric car companies in the EV market. The project’s guiding objective is to make a conclusive and comparative study of Tesla Inc. and Toyota Motor Corporation’s differential performance and valuation in the booming electric car industry and market. The analyzed performance aspects include three key performance indicators: financial metrics, process metrics, and people metrics. Secondly, an environmental analysis regarding which corporate strategy adopted is the most sustainable is analyzed. The report uses a descriptive methodological design integrating qualitative, quantitative data, thematic analysis, and comparative study as supportive evidence.
This project finds that Tesla Inc. is the leading and most valuable company in the electric car market than Toyota, and the winning strategy is with its BEVs strategy. Tesla’s revenues of 2019 are higher than those of Toyota, showing a CAGR revenue growth of 48% while Toyota is growing at 1%. When evaluating people’s performance metrics, Toyota (3.8) performs higher than Tesla (3.5) with a 0.3 difference in the rating and a higher number of employees. Regarding sustainability, the report finds that the emissions of EV production are relatively higher than the ICEs accounting for 15%-17% because of the battery type and size, but without, EV production produces lesser emissions than the ICE production. BEVs produce lesser CO2 emissions by 1,654 pounds in PHEVs and 2,073 pounds among HEVs. However, as the electricity becomes cleaner among the BEVs and Hybrids, the BEVs are the most suitable and future of low emission cars. The project concludes that the comparison of Tesla or Toyota shows that indeed, different firms’ strategies, including technological diffusion into the business models, processes, and systems, influence their performance and valuation in the market.
Table of Contents
1.1 Motivations and Objectives. 6
1.2 Brief Description of the Electric Car Market and Firms Chosen. 7
Figure 1: EV 2019-2030 Unit Forecast 8
Figure 3: EV Market Segment Analysis. 9
1.4 Significance of the Report 11
Figure 4: Tesla Revenues, Net Income, and Gross-Profit Margin. 15
Figure 5: Tesla Operating Metrics: BEVs. 16
Table 1: Sustainability Metrics. 17
Figure 6: Employee Ratings. 17
2.2.2 Analysis of Tesla in the Electric Car Market: BEVs Strategy. 18
2.2.3 Analysis of Tesla’s Success. 19
2.3 TOYOTA MOTOR CORPORATION.. 20
Figure 7: Toyota Revenues, Net Income, and Gross-Profit Margin. 21
Table 3: Sustainability Metrics. 22
2.3.2 Analysis of Toyota in the Electric Car Market: HEVs & PHEVs Strategy. 23
2.3.3 Analysis of Toyota’s Failure. 24
Table 5: Tesla vs. Toyota: Financial and Process Metrics. 27
Table 6: Tesla vs. Toyota: People Metrics. 28
Table 7: Tesla vs. Toyota: Sustainability Metrics. 29
1. INTRODUCTION
1.1 Motivations and Objectives
We live in an ever-changing environment and world where changes ranging from consumer trends to technological advancements occur now and then. All aspects of life have been influenced and impacted both positively and negatively with the evolving technology. This is because when technology changes, so do industrial, consumer, and market trends. For instance, in the automobile industry, the development and integration of disruptive technologies have enabled electric vehicles to develop, which will replace traditional gas-powered vehicles in the near future. Motivated by the need to analyze, examine, and understand the industrial and technological changes in the automobile industry, as well as why some firms are harnessing the competitive edge in the market than others, this project aims at analyzing the booming electric car industry and differential performance between Tesla, Inc. and Toyota Motor Corporation.
The project aims at making a conclusive and comparative study of Tesla Inc. and Toyota Motor Corporation’s differential performance and valuation in the booming electric car industry and market. It acknowledges the changing future, which we are experiencing with the electric car market being an example of disruptive innovation. However, it establishes the fact that this future in the automobile industry is not evenly distributed. The report identifies why some firms such as Tesla Inc. dominate the ECM (Electric Car Market), identifying technological diffusion factors, differential strategic and competitive strategies, types of innovations integrated, firm boundary decisions adopted in these two selected firms, and organizational routines exercised. The analysis of these factors establishes the success and failure causal factors of the two firms in the industry, making a comparative study and report of their comparative performance focusing on key performance indicators. These performance indicators include financial metrics (profit, market valuation, and bottom-lines), process metrics (strategies adopted, competitive advantage, efficiency measures), and people metrics (ETR, employee satisfaction).
1.2 Brief Description of the Electric Car Market and Firms Chosen
The electric car market has a global valuation of $162.34 billion as of the 2019 fiscal year, with an $802.81 billion growth projection by 2027, a 22.6% CAGR. Other financial analysts estimate the electric vehicle market’s growth from 3.269,671 units in 2019 to 26,951,318 units by the fiscal year 2030, as illustrated in Figure 1 (Markets and Markets, 2019). The industry’s highest revenue contributor is the Asia-Pacific, accounting for $84.84 billion, followed by North America. The electric car market produces vehicles powered by electricity, unlike the traditional fuel produced and powered vehicles. The key players in this industry include Tesla Inc., BMW Group, Nissan Motor Corporation, Toyota Motor Corporation, General Motors, and Ford Motor Company, to mention a few, each accounting for diverse electric car market share. Figure 2 illustrates the key players in the industry, outlining their market share in the industry. The market is consolidated with key players operating in a rather competitive environment. The key players are investing heavily in the manufacture of technologically advanced electric cars to enhance their product offerings. To remain competitive, companies in the industry are focusing on M&A, expansions regionally and globally, and strategic partnerships (AMR, 2020).
Figure 1: EV 2019-2030 Unit Forecast
Figure 2: EV Market Share
The electric car industry is categorized into four primary segments including by type (BEV, HEV, and PHEV) as illustrated in Figure 3: vehicle class segment (mid-priced and luxury): vehicle type segment (two-wheelers, passengers cars, commercial vehicles): and region market segment (North America, Europe, Asia-Pacific, and LAMEA) (AMR, 2020). The primary drivers of this industry and the booming status are the increasing demand for eco-friendly, fuel-efficient, high performing, and low emission cars, which is an incline in the greening strategy globally while addressing the global climate crisis. Secondly, there are prevalent and favorable governmental policies supportive of EVs production, including high investment from various auto-making companies.
Figure 3: EV Market Segment Analysis
The chosen firms for the comprehensive, well-structured, and conclusive report writing and comparative studies are Tesla Inc. and Toyota Motor Corporation. Tesla Inc. is a public, multinational American electric car company founded in 2003 operating in the automotive, energy storage, and production industries with its headquarters in Palo Alto, USA. In these three industries, Tesla Inc. focuses on designing, developing, manufacturing, and selling electric vehicles, energy storage systems, and installing, operating, and maintaining solar and energy storage products. Tesla Inc. operates in two primary segments: Automotive and Energy Generation and Storage segments. The automotive segment focuses on designing, development, manufacturing, and selling electric vehicles (Reuters, 2020). The Energy generation and storage segment focuses on designing and manufacturing energy storage systems and products for home, commercial, and site utility usage, as well as installing, operating, and maintaining solar and energy storage products, solar systems. The electric vehicles produced are Model S (sedan), Model X (SUV), and Model 3 sedan for mass market and customers.
Toyota Motors Corporation is a public, multinational Japanese automotive company founded in 1937 operating in the automotive, transportation industries with its headquarters in Tokyo City, Japan. In these three industries, Toyota Motors focuses on designing, developing, manufacturing, assembling, and selling passenger vehicles, minivans, and commercial vehicles. Toyota Motors Corporation operates in three primary segments: automobile, finance, and other business segments. The automobile segment focuses on designing, development, manufacturing, assembling, and selling passenger vehicles, minivans, and commercial vehicles (Reuters, 2020). Toyota focuses exclusively on developing HEVs and PHEVs, including Prius PHEV, RAV4 Hybrid, Camry, Corolla HEVs, Toyota, and Lexus HEVs. The finance segment focuses on the financing and leasing of vehicles. Finally, the other business segment focuses on designing, manufacturing, and selling houses and facilitating communication businesses. The company also engages in the manufacturing and sales of companies, Public Relations (PR), and research activities of businesses in North America and Europe.
1.3 Main Arguments
The project argues that Tesla Inc. is the leading and most valuable company in the electric car market compared to Toyota. To support this argument and claim, the project uses FY 2019-2020 to conduct a comparative study and analysis. It argues that Tesla leads in the automotive revenues, CAGR growth rates, average pricing, volume sales, gross margins, working capital ratios, and the vehicle/employee ratio (Trefis Team, 2020). The project argues that Tesla Inc. is the leading classic example of a disruptive innovator while Toyota is an example of a traditional-guard competitor sustaining innovativeness in the Electric Car market. Tesla integrates a leading innovator strategy, making the company produce not a cheaper or slightly better car but an alternative and superior car. The project argues that Tesla, unlike Toyota, through the BEVs strategy, used different technologies to create a superior car that serves and meets different needs.
On the other hand, through its HEVs and PHEVs strategy, Toyota pioneers a modification of the traditional gasoline powered car, providing it with electric capabilities. The project also argues that Tesla integrates a would-be automaker pure startup strategy, which through its master plan, has enabled it to reach global success and the most valuable market capitalization compared to Toyota’s vertical and massive investment in EV powertrains. Finally, the project argues that the trials EV market strategy, leader, and offensive market strategies adopted by Tesla have contributed to its market dominance compared to the specialist, fast follower, and defensive strategy adopted by Toyota (Marana, 2017). Through these different strategies, Tesla standouts as a market leader and remaining unchallenged by its competitors and is the future of low-emission cars.
1.4 Significance of the Report
The electric vehicle market is an industry supportive of the ever-changing technology in realizing economic revolution among companies as they develop revolutionary products and contribute to environmental sustainability through the greening strategy’s support. This report analyzes various strategies and strategic decisions integrated into two different firms: Tesla and Toyota in the same industry, identifying the strategies’ outcomes while producing differential performance. Key financial indicators are analyzed to determine which of the two companies is the EV market leader. The future of Low Emission Cars can be achieved through increased integration of electric vehicles, which are different in type: BEVs (Battery Electric Vehicles), HEVs (Hybrid Electric Vehicles), and PHEVs (Plug-in Hybrid Electric Vehicles). The report identifies the differential performance outcomes between Tesla’s fully BEVs strategy and Toyota’s H&PHEVs strategy, which establishes which strategy and type of EVs are likely to win the future of the low emission cars the greening strategy in the EV market. Conducting this comparative performance study between Tesla and Toyota, two’ cash cows’ in the industry, helps establish the relationship between technology adopted and strategies integrated, both business and corporate, analyzing how they influence their performance in the market. The findings, analyses, results, interpretations, and conclusions made in this report are essential as they provide a firm ground for decision-making on the effective and limiting strategies while seeking maximized bottom-line, competitive advantage, and success of similar companies in the electric car market. The information is valuable to both existing companies and new entrants as they seek to venture into the industry. Thus, in addition to being a decision-making tool, this report acts as a potential business set up cornerstone providing a blueprint to construct and enter into the EV market.
2. BACKGROUND AND ANALYSIS
2.1 Background
Undertaking this project that focuses on conducting a comparative study of the success and performance of Tesla Inc. and Toyota Motor Corporation is for environmental and economic purposes. An article I read regarding “Environmental Economics” inspired it. The article outlined and recommended the increased integration of electric vehicles, energy storage, and improved battery technology as political-economic potential solutions to the global climate crisis. The global climate crisis is a global menace that requires all individuals’ input and consideration from a personal to national and global level (Israel & Subramanian, 2020). Economically, technology plays a crucial role in redefining economic activities, operations, systems, and procedures. Just like Amazon is redefining the retail industry, Kindle redefining the publishing industry, and Airbnb disrupting the hotel industry, so does the electric car market disrupts the traditional car dealing innovatively. Technological adoption has become a competitive advantage among companies maximizing their performance in generating products and providing services. For this reason, the electric car market and industry highly aligned and resonated with individual research interests.
The chosen companies are Tesla and Toyota, key players in the EV market. I choose Tesla specifically as it integrates a specific strategic environmental sustainability plan to reduce GHG emissions and carbon footprint (Sule, 2016). Moreover, Tesla is a leading global producer of electric cars (BEVs), depending on the largest market share, which, according to 2020 statistics, is 17.95% (Wagner, 2020). On the other hand, Toyota Motor Corporation was chosen as a comparative subject. It also embraces environmental sustainability and a pioneer and leader of HEVs and PHEVs, another type of electric vehicle, however, with lower performance than that of Tesla. The reasons for taking the project are for individual, professional, and academic purposes. Academically, an objective of the course Management of Innovation and Technology (MIT) is to establish the relationship between technology adopted and strategies integrated, both business and corporate, among modern corporations and firms analyzing how they influence their performance in the market.
Moreover, this project provides a platform to apply theoretical knowledge, including technological diffusion factors, differential strategic and competitive strategies, types of innovations integrated, firm boundary decisions adopted in these two selected firms, and organizational routines exercised. Thus, the project becomes essential as it molds and provides a solid background to practically understand IT’s management in the real world and applicability in real-world scenarios, which builds my professional reasons and career trajectories. Individually, the project is enlightening, providing environmental, economic, and technological knowledge applicable in the ever-changing modern world.
2.2 TESLA
2.2.1 Overview of Tesla
Tesla Inc. is a public, multinational American electric car company founded in 2003 operating in the automotive, energy storage, and production industries with its headquarters in Palo Alto, USA. In these three industries, Tesla Inc. focuses on designing, developing, manufacturing, and selling electric vehicles, energy storage systems, as well as installing, operating and maintaining solar and energy storage products. Tesla Inc. operates in two primary segments: automotive and Energy Generation and Storage segments. The automotive segment focuses on designing, development, manufacturing, and selling electric vehicles. The Energy generation and storage segment focuses on designing and manufacturing energy storage systems and products for home, commercial, and site utility usage, as well as installing, operating, and maintaining solar and energy storage products, solar systems. The electric vehicles produced are Model S (sedan), Model X (SUV), Lexus ES Hybrid, and Model 3 sedan for mass market and customers. As of the fiscal year 2019, Tesla Inc.’s valuation and revenue were $253B, with 48,016 employees, a 2% decrease, a valuation of $392.7B, and a 14.52% growth rate. It operates in 12 primary locations across the globe. As of the fiscal year 2020, Tesla Inc. has a share price of $461.3; a 4% increase, a $386.8 B market capitalization, and quarterly revenue of $6.04 B (Craft, Tesla, 2020). Below are summaries of Tesla’s operating metrics, sustainability metrics, employee ratings, financial ratios, and revenues.
Figure 4: Tesla Revenues, Net Income, and Gross-Profit Margin
Figure 3 shows a revenue of $253B in FY 2019, an increase of 14.5% from FY 2018. In the FY 2020 Q2, the company’s gross profit is $1.3B, gross profit margin of 21%, net income of $129M, and Tesla’s EV contributing to $383B (Craft, Tesla, 2020), a 15.36 EV-to-Revenue ratio (GuruFocus, 2020). During FY 2019, the automotive segment contributed 84.7% of the revenue and 85.8% in FY Q2 2020 (Tesla, 2020). Figure 4 below summarizes the operating metrics of the BEVs produced and delivered quarterly.
Figure 5: Tesla Operating Metrics: BEVs
Sustainability metrics in an organization measure the environmental performance of an organization and the organization’s ability to deliver long-term performance and value to the stakeholders assessing economic, social, and governance factors (Mahajan & Bose, 2018). The environmental sustainability metric, in this case, is the most important as the figures outlined directly contribute to identifying and establishing whether the BEVs strategy integrated by Tesla could be the future of low emission electric cars compared to the HEVs &PHEVs strategy metrics and performance adopted by Toyota. According to the impact report of 2019, below is an analysis of its sustainability and impact metrics (Tesla, Impact Report 2019, 2020).
| Metrics | Value |
| GHG Emissions | 0.32 kWh/mi |
| Energy Efficiency | 90.7 mpg/4.8 miles/kWh |
Table 1: Sustainability Metrics
Employee ratings in Tesla Inc. are rated at an average 3.5, with corporate culture and values earning 3.5, work/life balance 2.7, senior management 3, compensation and benefits at 3.7, and career opportunities at 3.5 (Craft, Tesla, 2020).
Figure 6: Employee Ratings
Financial ratios enable the analysis and evaluation of a company’s financial health and performance. Those analyzed include profitability ratios (Gross profitability, net profitability, ROA, ROI, and ROE) and leverage ratios (Debt/Equity ratio, Debt/Asset ratio), and efficiency ratios (annual inventory turnover) (Inc, 2020).
| Ratio | 2019 | 2020 (June 30) |
| ROA | -2.25 | 0.33 |
| ROE | -10.28 | 1.20 |
| ROI | -4.0 | 0.61 |
| PE | 0.0 | 562.40 |
| Gross profitability | 16.56 | 20.99 |
| Net profitability | -3.50 | 1.73 |
| Debt/Equity | 1.80 | 1.32 |
| Debt/Assets | 0.39 | 0.30 |
| Inventory turnover | 4.9 | 1.19 |
Table 2: Financial Ratios
2.2.2 Analysis of Tesla in the Electric Car Market: BEVs Strategy
Tesla is the world-leading producer of BEVs and the most valuable automaker. The company is worth twice as much as Toyota, whose high valuation is contributed by the 85.8% automotive business. Over the years, BEVs have become massively integrated and accepted in the market, enabling them to sustain long-term growth. The incredible speed in Tesla’s market entry, global integration, and local responsiveness has profoundly boosted the BEVs’ attractiveness. Various aspects and strategies have played a key role in this speedy valuation of BEVs (Cloete, 2020). One, innovation played an essential aspect as Tesla is a leading classic example of a disruptive innovator. It has enabled it to adopt a leading innovator strategy of developing superior and alternative products using disruptive and radical innovations as it introduces a new meaning in cars that meet different needs. Secondly, the BEVs strategy has been supported immensely by Tesla’s master plan enabled through its ‘would-be automaker’ pure startup strategy, trials EV market strategy, leader, and offensive market strategies. Tesla first creates a low volume and expensive BEV, whose reception and sale are high resulting in high revenues. Thus, these high revenues become a source to generate larger volumes of less expensive BEVs in different market segments (Pure-startup strategy) (Marana, 2017). Tesla ensured that it did not meet the mass market directly, but tried to boost the attractiveness and ‘coolness’ of its BEVs through the sporty and speedy features, instead of just focusing on selling them as substitutes of ICEs, creating a long-term Tesla experience and effect among consumers. This is an example of the trial strategy, which includes introducing a few models followed by a diversification strategy of introducing more models in all segments a company wishes to compete in. After the first model’s success and the building of a strong brand image, Tesla gradually increased the volumes and differentiated its available model, slowly reducing the pricing and refining the technologies adopted. With a comprehensive and useful marketing plan, Tesla efficiently conduct direct sales distribution, provide high-grade car services, and offer a supercharging network and system ahead of competition available for BEV users in all EV stations for the company and partners (Shipley, 2020).
2.2.3 Analysis of Tesla’s Success
The EV market presents a diverse portfolio of powertrains in which firms can adopt differential innovation strategies and choose which powertrain to invest in. Tesla’s technological diffusion capabilities are high and exceptional, as the firm integrates the right and appropriate technologies to support its BEV products. More importantly, the entry timing is strategic, as, in the contemporary world, the fight against the global climate crisis has placed Tesla’s products at a higher competitive advantage. The Environmental Economics article outlined and recommended the increased integration of electric vehicles, energy storage, and improved battery technology as political-economic potential solutions to the global climate crisis (Israel & Subramanian, 2020). Critically analyzing these solutions, they mirror Tesla’s two primary business segments, including the Automotive, Energy Generation, and Storage segments (Reuters, 2020). Therefore, the right timing provided Tesla with a competitive operating milieu, not too late or too early entry. It is a market with increasing demand, and the competition is not overly overcrowded.
Tesla has adequately harnessed the relative advantage, including having charging infrastructure and systems ahead of the competition, producing diverse battery types with varying prices, cost leadership, and higher durability levels of its BEV products. Compatibility levels are relatively high as there are prevalent and favorable governmental policies supporting EVs production; hence, everyday utilization without restrictions is picking up and spreading globally slowly (Marana, 2017). Tesla’s strategy and distribution channels maximized customer trialability, as the electric cars have highly been adopted among nations and regions. Tesla enjoys positive network externalities through value creation strategies such as expanding the markets, providing charging systems, ensuring effective distribution and providence of high-end services that maximize Tesla experience and effects (Lobo, 2020). Many people who have trial-driven Tesla’s BEVs have a typical pattern: (I like it- I want one- I purchased one). Addressing the negative network externalities, Tesla integrates strategic M&A and partnerships with plants to boost innovativeness, acquire needed technologies and manufacturing infrastructure.
2.3 TOYOTA MOTOR CORPORATION
2.3.1 Overview of Toyota
Toyota Motors Corporation is a public, multinational Japanese automotive company founded in 1937 operating in the automotive, transportation industries with its headquarters in Tokyo City, Japan. In these three industries, Toyota Motors focuses on designing, developing, manufacturing, assembling, and selling passenger vehicles, minivans, and commercial vehicles. Toyota Motors Corporation operates in three primary segments: automobile, finance, and other business segments. The automobile segment focuses on designing, development, manufacturing, assembling, and selling passenger vehicles, minivans, and commercial vehicles. The finance segment focuses on the financing and leasing of vehicles (Reuters, 2020). Finally, the other business segment focuses on designing, manufacturing, and selling houses and facilitating communication businesses. The company also engages in the manufacturing and sales of companies, Public Relations (PR), and businesses’ research activities in North America and Europe. As of the fiscal year 2019, Toyota Motor Corporation’s valuation and revenue were $21B, with 370,870 (2019) and 359,542 employees (2020), a 3% decrease, valuation of $186.1B, and 2.88% growth rate. It operates in 29 primary locations across the globe. As of the fiscal year 2020, Toyota Motor Corporation has a share price of $461.3, a 4% increase, a $19.4 B market capitalization, and quarterly revenue of $7.6B (Craft, 2020). Below are summaries of Toyota’s operating metrics, sustainability metrics, employee ratings, financial ratios, and revenues.
Figure 7: Toyota Revenues, Net Income, and Gross-Profit Margin
Figure 6 shows a revenue of $21B in FY 2019, an increase of 2.9% from FY 2018. In the FY 2020 Q2, the company’s gross profit is $1.4B, gross profit margin of 18%, net income of $613.1B, and Tesla’s EV contributing to $341.9B. The EV-to-Revenue ratio is 1.37 (GuruFocus, 2020). During FY 2019, the automotive segment contributed 87.6% of the revenue and 53.4% in 2020. By the FY 2020, Toyota has sold about 15 million hybrid electric vehicles; in 2012, it sold 237,000 Prius models; in 2018, the number reduced and sold 87,600 Prius PHEVs and in 2019, 63,700 of them. For the RAV4 Hybrid, in 2019, it sold 44,900 HEVs, 38,500 Camry and Corolla HEVs, and 247,000 Toyota and Lexus HEVs (Voelcker, 2019). In FY 2019, vehicles produced were 8,985,186, and those sold were 8,976,795. Toyota’s impact report and sustainability report according to the 2019 annual report is outlined in Table 3 below.
| Sustainability metrics | Value |
| GHG Emissions | HEV – 44.4 mpg/ PHEVs – 37.9mpg or 0.367 kWh/mil |
| Energy Efficiency | 39.1mpg |
Table 3: Sustainability Metrics
Employee ratings in Toyota Motor Corporation are rated at an average 3.8, with corporate culture and values earning 3.8, work/life balance 3.5, senior management 3.2, compensation and benefits at 4, and career opportunities at 3.4 (Craft, 2020).
Figure 8: Employee Rating
As discussed above, financial ratios enable the analysis and evaluation of a company’s financial health and performance. Those analyzed in Toyota’s case include profitability ratios (Gross profitability, net profitability, ROA, ROI, and ROE) and leverage ratios (Debt/Equity ratio, Debt/Asset ratio), and efficiency ratios (annual inventory turnover) (Inc, 2020).
| Ratio | 2019 | 2020 (June 30) |
| ROA | 3.8 | 0.26 |
| ROE | 9.8 | 0.69 |
| ROI | 6.4 | 0.4 |
| PE | 8.70 | 12.35 |
| Gross profitability | 18.0 | 11.94 |
| Net profitability | 6.2 | 3.4 |
| Debt/Equity | 1.0 | 1.1 |
| Debt/Assets | 0.20 | 0.23 |
| Inventory turnover | 8.9 | 1.7 |
Table 4: Financial Ratios
2.3.2 Analysis of Toyota in the Electric Car Market: HEVs & PHEVs Strategy
In the electric car market, companies venture into diverse powertrain portfolio. Toyota’s chosen powertrain portfolio includes both the hybrid and plug-in hybrid electric vehicles. Just as Tesla is the BEVs leader, so is Toyota with the hybrid EVs. In the electric car market, Toyota is an example of a traditional-guard competitor sustaining innovativeness, integrating the specialist, fast follower, and defensive strategies, despite the massive vertical investment in PHEV and HEV powertrains (Jervey, 2019). As a traditional-guard competitor sustaining innovativeness in the EV market, Toyota adopts a defensive and follower strategy whereby it responded quickly to Tesla, the fast mover in the production of EVs. Instead of taking the offensive strategy of producing full BEVs, it resulted in the HEVs and PHEVs, which included modifying the ICE vehicles hybridizing or giving them BEV like traits and benefits (Voelcker, 2019). Through the HEVs and PHEVs strategy, Toyota pioneers modified and traditional gasoline-powered cars, providing electric capabilities. Toyota does not believe in integrating battery technologies in fast and efficient environmental and GHG emission solutions.
Toyota produced 5 hybrid EVs, 1 plug-in, and absolutely no pure BEV. This is an illustration of the specialist investment strategy. Toyota has focused on the hybrid and plug-ins EVs market segments, a strategy that has made it a pioneer and leader of HEVs and PHEVs, other types of electric vehicles. It has become the leader because it has a large market share on this type of EVs compared to its competitors Honda, Hyundai, to mention a few. Hence, believing it has the most outstanding market with more accessible diffusion capabilities. However, until recently, according to its 2019 annual report, Toyota seeks to invest in pure or full BEVs similarly to Tesla (Toyota, 2019). This sudden change of strategies is in the quest to push hydrogen technology, which has minimized its popularity and has been temporarily abandoned due to BEVs’ hype and competitiveness. Hybridization of ICEs seems to have been overtaken by BEVs’ accelerated performance and competitive dynamics, including the emphasis of BEV exemplary performance, efficiency, cost reduction, and presence of supportive charging technology and system.
2.3.3 Analysis of Toyota’s Failure
Toyota’s technological diffusion capabilities can be categorized as relatively low, as many of its early adopters of the HEVs and PHEVs have shifted to using the fully electric vehicles. The first adopters could have adopted the newly developed hybridization of ICEs for economic reasons as the HEVs and PHEVs are relatively cheaper than the BEVs or championing and contributing to the greening strategy of lowering GHGs and carbon footprint (Marana, 2017). However, as the BEVs popularity, coolness, and attractiveness intensified, these early adopters among new or laggard adopters discovered the BEVs with the cool, maximized efficiency, speed, and sporty features, making the purchases for reasons inclusive of the first two and for opulence, which is most people’s ‘American dream.’ Hence, Toyota may not have adequately and successfully surpassed the chasm barrier. Toyota’s pull strategy of its vehicles in society despite having numerous advantages was diminished by Tesla’s push strategy supported by leading and winning strategies. Even worse, when Tesla diversified and lowered its BEV costs and prices, stiff competition arose, making it the preferred brand with the highest market share, thus preventing further expansion of Toyota’s brand (Jervey, 2019). This could be the reason for their new decision to adopt the BEV strategy.
Compared to that of Tesla, Toyota’s relative advantage is low, especially when addressing the compatibility and ways of addressing network externality effects in the electric car market. As noted, Toyota has become an outspoken laggard competitor in the EV race, establishing that hybrids and plug-in-hybrids are the fastest and most effective strategy for attaining zero or minimized GHGs and carbon footprint compared to BEVs. However, many authors have identified this as a conservative and traditional strategy with Toyota’s primary reason for not venturing into fully electric vehicles like Tesla being battery capacity shortage and incapacitation, which Jervey (2019) supports using the ‘fuzzy math’ technique. This conservative strategy and self-inflicted battery incapacitation have constrained its HEVs and PHEVs strategy (Jervey, 2019). Nevertheless, these types of EVs have been deemed compatible and sustainable. The long-term strategic decision to invest in hybrids and developing fuel cells has impeded growth and maximized its lagged electrification journey in the EV market.
3. PERFORMANCE COMPARISON: TESLA AND TOYOTA
Tesla or Toyota? That is the main research question. In answering this question as well as identifying the leading and most valuable electric car company, the analyzed performance aspects include three key performance indicators: financial metrics, process metrics, and people metrics. Secondly, an environmental analysis regarding, which corporate strategy adopted is the most sustainable is analyzed. Sustainability in modern corporations is crucial as through CSR; firms are aligning with the greening strategy to address the global climate crisis.
This project compares the performance, value, and sustainability strategy, establishing whether Tesla Inc. is the leading and most valuable company in the electric car market compared to Toyota, as the research projects. Tesla’s revenues of 2019 are higher than those of Toyota, showing a CAGR revenue growth of 48% while for Toyota growing at 1%. More importantly, Tesla’s market capitalization is higher than that of Toyota, with a difference of $270.4B as of FY 2020 and 17.95% market share for Tesla compared to 2.12% Toyota’s market share in the EV market. The volume of cars delivered in 2019 is more elevated in Tesla than in Toyota, thus showing the revenue and gross profit variations. Toyota seems to lag with its R&D. looking at the operating metrics; the EVs delivered in 2019 are higher in Tesla with a difference of 36,600. However, when analyzing the ability of the companies to manage their inventories efficiently, Toyota leads nine times compared to five times of Tesla. Secondly, Tesla’s processes and operational metrics seems to be lower compared to Toyota’s, and it needs to scale up seems it has maximized its automation in production. This slowing is seen through the vehicles/employee ratio. In 2019, for every full-time employee in Tesla, 9 vehicles were produced while in Toyota, 24 cars were produced. Overly, despite the statistics, Tesla is currently the most valuable electric car company, and the winning strategy is with its BEVs strategy. Besides, as of October 27, 2020, according to NASDAQ, Tesla’s stock price is $424.68 a 1.05% increase and $132.46 stock price, a 0.29% decrease.
| KPI (2019) | Tesla Inc. | Toyota Motor Corporation |
| Total Automotive Revenues | $253B | $21B |
| CAGR Growth Rates | 14.52% | 2.88% |
| Gross Profit | $1.3B | $1.4B |
| Gross Profit Margins | 21% | 18% |
| Net Income | $129M | $631.1B |
| Market Capitalization | $286.8 B | $19.4B |
| Vehicles Delivered (EVS) | 368,000 | 330,400 |
| Operating Expenses (R&D+ SG&A) | 19.2 (6.5/12.7) | 13.4 (3.7/9.7) |
| Vehicles Delivered (EVS) | 367,000 | 330,400 |
| Inventory turnover ratio | 4.9 | 8.9 |
| Vehicle/Employee Ratio | 8.8 | 24.2 |
Table 5: Tesla vs. Toyota: Financial and Process Metrics
When evaluating people performance metric, Toyota performs higher than Tesla, as well as having a higher number of employees. The 0.3 difference is seen in the higher performance of Toyota in all metrics, showing better work and life balance, inclusive organizational culture and values, highly-priced compensation and benefits package, and a conclusive strategic senior management.
| KPI | Tesla, Inc. | Toyota Motor Corporation |
| Employees (2019) | 48,016 | 370,870 |
| Employee Rating | 3.5 | 3.8 |
| Employee changes | 2% decrease | 3% decrease |
Table 6: Tesla vs. Toyota: People Metrics
Regarding sustainability, the emissions of EV production is relatively higher than the ICEs accounting for 15%-17% more production emissions depending on the battery size. However, assuming batteries product emissions were not accounted for, EV production produces lesser emissions than the ICE production (Zbikowski, 2020). Vehicle usage emissions in the USA for gasoline-powered vehicles is 11,435 (5.2 t) CO2 pounds, plug-in hybrids are 6,109 (5.2 t) CO2 pounds, hybrids are 6,528 CO2 pounds, and all EVs are 4,455 (2.02 t) CO2 pounds. Looking at these figures, BEVs produce lesser CO2 emissions by 1, 654 pounds in PHEVs and 2,073 pounds among HEVs. Electric vehicles require an average of 1.67 years to offset the required emission values than gasoline cars. For larger capacity batteries, this would require electric vehicles would require 5.53 years to produce lesser emissions than ICE cars (Engineering Explained, 2018).
However, among the BEVs and Hybrids, as the electricity becomes cleaner, the BEVs are the most suitable and future of low emission cars.
| Metrics | Tesla Inc. | Toyota Motor Corporation |
| GHG Emissions EVs | 0.32 kWh/mi | HEV – 44.4 mpg/ PHEVs – 37.9mpg or 0.367 kWh/mil |
| Energy Efficiency | 90.7 mpg/4.8 miles/kWh | 39.1mpg |
Table 7: Tesla vs. Toyota: Sustainability Metrics
4. KEY FINDINGS AND ARGUMENTS
This project finds that Tesla Inc. is the leading and most valuable company in the electric car market compared to Toyota. Its financial performance supersedes that of Toyota, including the stock price, market capitalization, total automotive revenues, R&D, CAGR revenue growth, and EVs delivered in its operations metrics. However, its overall operationalization strategy ranks second, as Toyota produces more vehicles per employee, has better and efficient inventory management. Secondly, Tesla Inc. is the leading classic example of a disruptive innovator while Toyota is an example of a traditional-guard competitor sustaining innovativeness in the Electric Car market. This finding is supported by the diverse strategies integrated that have proven Tesla’s being the most successful than Toyota’s. Tesla integrates a leading innovator strategy, making the company produce superior cars with higher attractiveness, ‘coolness,’ efficiency, sporty and speedy features. The project argues that Tesla, unlike Toyota, through the BEVs strategy, used different technologies to create a superior car that serves and meets different needs. Moreover, Tesla integrates a would-be automaker pure startup strategy, which, through its master plan, has enabled it to reach global success, highest market share, and the most valuable market capitalization.
The project finds that the differences in strategy adoption between Tesla and Toyota have resulted in different performance and ways of implementing and addressing aspects of technological diffusion, network externalities effects, and relative advantage features. In sustainability, the project finds that the BEVs strategy of Tesla wins the battle against the PHEVs and HEVs strategy of Toyota as the future of low car emission and sustainability. Besides, according to Toyota’s 2019 report, it is considering integrating the BEV strategy and developing fully electric vehicles despite the previous conservation remarks.
5. SIGNIFICANCE, CONTRIBUTION, AND CONCLUSION
The comparison of Tesla or Toyota shows that indeed the differential strategies adopted by different firms, including technological diffusion into the business models, processes, and systems affect their performance and valuation in the market. For instance, this project concludes that the BEV strategy integrated by Tesla alongside other leading and offensive entry and operational strategies have resulted in its high performance, an EV market leader, a leading disruptive technology developer, and is twice the value of Toyota a mature and cash cow in the automotive industry. Tesla’s strategies have elevated its success not only in the EV market segment but also in the entire automotive industry. On the other side, Toyota the oldest automotive firm between the two, remains lagged in the electrification strategy with strategies that seem to deter its progress rather than accelerate its growth, hence the minimal market capitalization, market share (2.12%), financial performance and health. Conducting this comparative performance study between Tesla and Toyota, two’ cash cows’ in the industry, has helped establish the relationship between technology adopted and strategies integrated, both business and corporate, analyzing how they influence their performance in the market. The information is valuable to both existing companies and new entrants as they seek to venture into the industry. Thus, in addition to being a decision-making tool, this report acts as a potential business set up cornerstone providing a blueprint to construct and enter into the EV market.
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