I already completed part I but I need help with part II, which will be analysis and evaluation of the proposed topic in part I. The Tesla part II file is a sample product of part II. Part II alone is 7000-word. Thank you!
MSIN300P Management Science Dissertation Patrik Birkle Part 2 EDITED MSIN300P Management Science Dissertation Abstract How can Tesla increase its sales share in the European electric vehicle market to 10% by 2025 through enhanced charging solutions? Word count: 6,989 Patrik Birkle Patrik Birkle 1 GLOSSARY 3 EXECUTIVE SUMMARY 4 1. INTRODUCTION 5 1.1 SUMMARY PART 1 5 1.2 TESLA’S CURRENT STATE 6 2. CHARGING 7 2.1 INTRODUCTION TO CHARGING 7 2.2 CHOOSING A CHARGING LEVEL 9 3. SUPERCHARGING 10 3.1 LEVEL 3 CHARGING 10 3.2 SUPERCHARGING COST 11 3.2 SUPERCHARGING REVENUE 12 4. PREDICTION 13 4.1 PREDICTING SALES NUMBERS 13 4.3 NECESSARY SUPERCHARGER STATIONS 16 4.4 ADJUSTING SALES – STATION RELATIONSHIP 18 5. COMMERCIAL EVALUATION OF RECOMMENDED EXPANSION 20 5.1 ANNUAL AVERAGE RECHARGES PER MODEL 21 5.1.A MODEL S/X 21 5.1.B MODEL 3 22 5.2 REVENUE GENERATION 23 5.3 PAST FINANCING OF SUPERCHARGERS 24 6. REGULATORY EVALUATION OF RECOMMENDED EXPANSION 25 6.1 REGULATORY TRENDS 25 6.2 IMPACT OF LEVEL 3 CHARGING STANDARDISATION 26 6.2.A CAPACITY OF SUPERCHARGER STATIONS 26 6.2.B POSSIBLE DEMAND FOR SUPERCHARGER STATIONS FROM OTHER EVS 26 Table of Contents 2 7. JOINING COMMERCIAL AND REGULATORY INSIGHTS 31 8. RECOMMENDATION 32 SOURCES 33 APPENDIX 37 BIBLIOGRAPHY 39 3 GLOSSARY EV - Electric vehicle OEM - Original equipment manufacturer ICE - Internal combustion engine VIN - Vehicle identification number 4 EXECUTIVE SUMMARY This paper recommends that Tesla should install 9,620 Supercharger Stations in Europe until 2025 to capture 10% sales share of the European EV market. Such investment will cost Tesla €2.585bn. Depending on the uptake of the Model 3, Tesla could potentially generate a profit of €221.3M or be left with €1.004bn to cover. Tesla’s main priority is to ensure the scaling of Model 3 production and sales as with a faster Model 3 uptake, more charging revenue can be generated. An increase in Model 3 production is likely to be accompanied by decreasing cost of borrowing, which will allow Tesla to fund the initial charging expansion. At the same time, regulation requires Tesla to open its charging infrastructure to other EVs. The additionally generated revenue from other EVs was found to be not enough to significantly help Tesla cover the charging expansion cost. The opening of its charging standard is likely to have negative consequences on current and potential Tesla customers. This paper found that these consequences can be mediated by offering more charging availability to Tesla vehicles through a reservation system and higher power to its vehicles. 5 1. INTRODUCTION 1.1 Summary Part 1 Part 1 of this paper delivered an introduction to Tesla, the EV market and explained the problem statement. Following, it recommended actions which support Tesla in being able to manufacture sufficiently to sell 635,500 vehicles in Europe by 2025. After a brief introduction to the EV charging market, Sierzchula et al.’s (2014) finding regarding the relationship between the amount of charging stations and EV uptake was found to not have held true since the paper’s publication. Therefore, one goal of this part is to find, refine or develop a model which can predict how different investments into charging will lead to additional vehicle sales. In order to understand the variety of investments possible, Mr Hoffstädter, Tesla’s Charging Manager for Germany, Austria and Switzerland, recommended that the second part should focus on regulatory, commercial and technical challenges related to EV charging. This paper focuses on the commercial and regulatory challenges as an insightful analysis of the technical challenges requires expert knowledge about electrical engineering and exceeds the scope of this paper. Prior to analysing the EV charging market and Tesla’s opportunities, this paper will update the reader on significant developments since submission of Part 1. 6 1.2 Tesla’s Current State Tesla’s 2017 annual report intensifies the picture drawn in Part 1 of a quickly growing, yet unprofitable company. Whereas revenue grew by almost 68% to over $11.7bn, the company’s net loss increased to $2.24bn (Tesla Inc., 2018). The production of Model 3 has slowly been increasing and hit an all-time high in the first week of April. The company has stopped releasing information during a quarter on the number of Model 3 productions per week, however multiple news agencies have determined amounts based on vehicle identification numbers (VIN). During the first week of April, Tesla was able to produce between 3,000 and 2,313 Model 3s (Tom Randall, 2018) (Lambert, 2018). It is emphasized that this amount was only recorded in one week. Wired, a technology-focused magazine, reports that in Q1 2018 Tesla hit a weekly production rate of 800 Model 3s (Stewart, 2018). This demonstrates an improvement compared to prior quarters yet is still far away from Tesla’s goal of 2,500 Model 3s per week by the end of Q1 2018 and calls in questions whether the company is able to meet its goal of producing 5,000 Model 3s per week by the end of June. The meagre improvements in production rates accompanied by Tesla’s increasing burn of cash and maturing bonds in 2019 led Moody’s, a rating agency, to downgrade the company’s bonds issued last year to junk (Caa1). This is particularly worrying because, according to a BloombergMarkets analysis, Tesla has “to raise over $2bn not only to cover its cash burn this year, but an additional $1.2bn of debt that comes due by 2019” (Smith, 2018). The downgrade of Tesla’s credit rating was accompanied by a fatal accident of a Tesla Model X driver using the Autopilot system sending the company’s stock price plunging temporarily by 25% in March (Picture 1). Since then, the company was able to recover some of its lost stock price. Accident 7 2. CHARGING 2.1 Introduction to Charging Part 1 defined EV charging as “the process of recharging the batteries of an EV” (Birkle, 2018) and explained the difference between different charging powers (Level 1 to 3). The following section will analyse the competitive landscape of EV charging solutions by analysing charging connectors, locations and arrangements. An initial Quid search demonstrates the varied nature of companies present in the EV charging market (Quid 1) [1]. The plethora of similarly sized clusters indicate that there are many different stakeholders involved in building and operating EV charging infrastructures. Equally, the general proximity of clusters demonstrates the dependence of each part on others. The reason why there are no OEMs represented in this analysis is due to Quid’s search algorithms [2]. Based on this Quid analysis, a representation of the actors involved in providing EV charging infrastructure can be generated (Picture 2). Patrik Birkle 8 Tesla is one of the few providers of charging solutions which provides many aspects of the infrastructure. The company builds and installs chargers and respective batteries and provides information and payment systems. Within charging infrastructure, there exist different types of chargers that can be distinguished based on the power they supply. 9 2.2 Choosing a Charging Level This paper recommends Tesla ways in which to increase sales through charging infrastructure. It was shown that this infrastructure is very diverse and involves many sections. Therefore, to give insightful and targeted recommendations, this paper will focus on one type of charging station. Prior to identifying which solution this paper will address, a categorization of charging stations is provided. Level 1 Level 2 Level 3 Power <3.7kw><22kw>22kW Location Homes Restaurants, carparks, hotels Major transit corridors Tesla equivalent Wall Connector Supercharger Tesla offers two different chargers. A Wall Connector retails for €500 for individuals through a program called Home Charging. Businesses such as restaurants can apply for two free Wall Connectors to be installed on their parking facilities. This program is called Destination Charging and has recently been amended by the Workplace Charging program which installs free Wall Connectors if a company enters a fleet agreement with Tesla. Depending on the grid access, Wall Connectors can provide up to 22kW. Wall Connectors do not have a payment system which means that Destination Charging partners cannot charge users for the charging. Superchargers currently supply 120kW and cannot be bought, hence are always operated by Tesla. This is due to the installation of Superchargers requiring specialised access to the grid and being more challenging as batteries need to be installed. In comparison to Wall Connectors, Superchargers provide payment infrastructure which allows Tesla to pass on the electricity cost to customers. As the Wall Connectors for Home Charging and Destination Charging programs are not operated by Tesla directly, the company does not release information on the amount of stations and Wall Connectors. This lack of reliable information would require estimates on which all further quantitative analysis would depend. Additionally, there are many competitors producing and operating Level 1 and Level 2 chargers and differentiation between each solution is marginal. This is not the case for Level 3 chargers where the amount of competing solutions is smaller and they exhibit more differences. Levinson et al. (2017) analysed how changes in each charging level correlate with EV uptake, defined as the quantitative growth in EV sales year over year, in the USA. As most Level 1