Strategic Perspectives, TESLA Company - Case Study Example

Strategic Perspectives, TESLA Company Case Study Executive Summary Nikola Tesla, among other proprietors, founded Tesla Motors in 2003. Since the major players in the U.S. automobile industry such as GM, Ford, and Chrysler produce standard vehicles in large quantities, Tesla Motors decides to specialize in electric powertrains and its components. Tesla vehicles namely the Roadster, Model S, and Model X, are essentially electric vehicles that have sold well in the United States that the standard vehicles. In this regard, this paper explores the internal and external business environment of Tesla Motors with a view of establishing is strengths and weaknesses in the value chain. In particular, this paper looks at PESTEL analysis and Porter’s 5 Forces Model as they relate to Tesla Motors. The report also assesses the value chain and resource base view of Tesla Motors with the intension of determining the key competencies and capabilities of the company. Finally, the paper explores the business level strategy and PR crises of Tesla Motors within the short span that it has been in existence. Introduction Tesla Motors have been in operation since Nikola Tesla, alongside JB Straubel and Elon Musk, founded it. Since its inception, the automobile company has been growing in terms of revenue and scale of operation largely because of its innovative strategies and growth of the industry. For example, Elon Musk, who is the current CEO of Tesla Motors, announced the first profitable Quarter for the company in March 2013. With Tesla Roadster as the company’s first production, cars, Tesla Motors has advanced over the years to design and manufacture Model S and cars with electric powertrains. Owing to the dynamic nature of the automobile industry and the Public Relations Crises that many companies within the automobile industry, Tesla included, undergo, it is important to carry out a thorough analysis in order to establish the financial and strategic position of Tesla Motors. Some of the major analyses that are crucial in Tesla motors case include strategic analysis, PR crises analysis, and the analysis of both internal & external environment of the company (Carlson 2013, p. 206). Analysis of the External Environment The external environment of Tesla Motors consists of all the factors that affect the operations and profitability of Tesla Motors and the industry, which the company lacks the capacity to control. Fundamentally, the external environment includes the events, entities, factors, and conditions that have significant impact on the company’s business decisions and operations, but Tesla Motors cannot influence. The external environment defines the opportunities, profitability, risks, and expansion of Tesla Motors in a number of ways. Two business models namely PESTEL (Macro Environment Analysis) and Porter’s 5 Forces Model (Micro Environment Analysis) can be used to assess the external environment of Tesla Motors, considering that the company has been in existence in slightly more than a decade in an industry flooded with multinational companies (Bowhill 2008, p. 331). PESTEL (Macro Environment Analysis of Tesla Motors) PESTEL involves the analysis of the macro environment of Tesla Motors. It is important for marketers at Tesla because the company can use the results of PESTEL to identify possible weaknesses and threats during a SWOT analysis. In essence, PESTEL analysis will involve the assessment of the Political, Economic, Social, technological, Environmental, and Legal aspects that determine the risks, opportunities, and decisions of Tesla Motors. PESTEL analysis is important in the sense that the automobile industry is vast with global presence, which means that the diversity in policies across the geographical span comes into play (Finne & Sivonen 2009, p. 188). Political Factors The American political climate is considerably stable, compared to most countries where automobile companies operate. In this regard, Tesla Motors has achieved significant growth and expansion over a span of a decade, which is commendable. In addition, the United States Federal government encourages local market for U.S. manufactured cars through favorable tax policies and foreign trade policies. This trend has created a level playground for all automobile companies operating within the U.S. market. Subsequently, Tesla Motors managed to outsell car such giants as GM Motors and Nissan in May 2013. Economic Factors The car business is huge in the United States considering that it contributes about 3% of the GDP. The economic factors can be divided into two categories namely micro economic factors and the macro economic factors. It is worth noting that Americans’ love for cars is perhaps one of the major micro economic factors. For example, America’s households owned 17% more vehicles than all the licensed drivers in 2011. Concerning the macro economic factors, the three largest automobile companies in America namely, GM motors, Ford, and Chrysler, experienced a slump in 2012 although Tesla motors was not affected. The American economy has been growing, although slowly, over the years. In addition, the U.S. Dollar remains the most popular international currency, which contributes positively to the United States economy and all its sectors, including the automobile industry. Social Factors Car buying remains an unquenchable desire for a vast majority of the Americans. Americans’ love for cars continues to grow, especially when it comes to Sport Utility Vehicles (SUVs). Tesla has taken advantage of the general preferences of Americans when it comes to cars by designing and manufacturing cars that are suitable for the American roads and lifestyles like the Model S. in addition, latest 20% of American households on multiple cars in order to fit into the American lifestyle. Young and middle-aged people contribute a greater percentage of American car buyers on an annual basis. Technological Factors Rapid technological changed has revolutionized the marketing of cars and Tesla Motors has taken the lead in this regard since its inception. Fundamentally, the modern automobile industry is governed by technological change, particularly in America and other developed states. Tesla motors emerged during the technological age and it has enhanced its technological input as far as manufacture, distribution, and communication are concerned. Perhaps the most notable evidence of how technology has affected the operation of Tesla Motors is its Roadster. Tesla Motors produced the Roadster as its first high-end electric vehicle with a high performance at a retail price of U.S. $ 109,000. Since GM Motors, Ford, and Chrysler, are producing equally competitive cars in terms of technological efficiency, the automobile industry has continued to be highly competitive, especially for young automobile companies like Tesla Motors (Finne & Sivonen 2009, p. 188). Environmental Factors The automobile manufacture is an industry that contributes immensely to environmental degradation through massive carbon emission by its products. Since the beginning of the 21st century, the world has become more conscious of the environment than never before. Global environmental bodies, in association with government agencies have taken the environmental fight to manufacturing companies. Tesla recognizes fully the environmental impact of its cars. In this regard, the company has sustained the production of environmentally friendly cars such as the Roadster and Model S, which are essentially electric cars. International environmental policies that require greener production and reduction of carbon footprint in all manufacturing industry have influenced major decisions in Tesla Motors. Besides, most car buyers are becoming more conscious of the environment and they prefer to drive environmentally sustainable cars. This customer preference has influenced major manufacturing decisions of leading automobile industries in America and globally, tesla included (Faarup 2010, p. 46). Legal Factors Product safety and consumer rights & laws continue to be the American automobile manufacture and distribution industries. Some leading car companies such as Ford have faced several legal battles that have cost them millions of Dollars in the past. For instance, Ford had to recall its entire fleet and compensate the victims of various accidents because of the failed ignition system in most of its cars. It implies that Tesla Motors and other car companies have to be diligent enough to avoid legal hurdles and compensation risk that may reduce their profitability. Porter’s 5 Forces Model (Micro Environment Analysis of Tesla Motors) This model involves the analysis of the five crucial factors that determine the competition of the automobile industry in which Tesla Motors operates. The five forces include bargaining power of suppliers, bargaining power of buyers, threats of new entrants, threat of substitute products/services, and industry competition. Since these factors determine the competitive advantage of Tesla Motors, they have a significant influence as far as the attractiveness of tesla motors is concerned (Bowhill 2008, p. 331). Buyer Power The bargaining power of customers in the automobile industry is low, especially in the United States. Perhaps of the underlying reasons for low supplier power is the fact that Tesla Motors sells its cars in small quantities and not in bulk, sometimes by order. Since Tesla Motors enjoys low competition, the American car buyers have little influence as far as the company’s distribution, sales, and profitability of the company are concerned. The fact that Tesla’s cars like Model S and Roadster are unique vehicles gives it a head start as far as reducing buyer power is concerned. Tesla Motors does not produce standard cars like GM Motors and Ford do, which makes it unique (Faarup 2010, p. 46). Supplier Power The bargaining power of suppliers in the automobile industry is low since most of the car producers depend on multiple suppliers. In addition, substitute products exist in large supply in the automobile industry. It implies that suppliers do not have much bargaining power since the car producers can source their supplies elsewhere. The supplier, therefore, has to contend with the needs of the car manufacturer because the manufacturer is at liberty to switch suppliers, a move that can be detrimental to the antecedent supplier. Owing to the close association between product strategies and supply chain, Tesla Motors has to choose the suppliers who are both efficient and cost effective. It means that suppliers have to bargain more in order to secure contracts with Tesla Motors (Finne & Sivonen 2009, p. 188). Threat of Substitute Products/ services The possibility of new substitutes driving Tesla Vehicles out of the market or affecting its profitability is considerably low. Although such substitute cars as hybrid vehicles, use of public transportation, and hydrogen vehicles exist, they contribute a small percentage of the U.S. automobile market. Thus, the substitutes pose little threat to the survival of mainstream vehicles within the industry. Besides the high level of differentiation of Tesla electric cars, it is worth noting that the existing substitutes like hybrid cars are of low quality and not as efficient as Tesla vehicles. This fact reduces the magnitude of threat posed by substitute vehicles to Tesla vehicles (Witcher, & Chau 2010, p. 91). Threat of New Entrants Threats to new competition in the American automobile industry are significantly high, considering that the incumbents have no capacity to bar new entrants. America’s automobile industry is liberalized and Tesla Motors has been highly productive because of absence of barriers in the market even as GM Motors, Ford, and Chrysler were the largest operators during its founding in 2003. In this regard, the automobile industry will tend to attract new investors because of its profitability. However, the high cost of switching and start-up are high, barring willing entrants. Moreover, existing companies, particularly Tesla Motors, have developed a strong brand identity that ensures their competitiveness through product differentiation (Dransfield 2004, p. 444-445). Industry Rivalry All the other factors revolve around industry rivalry because existing rivalry within the industry is at the core of Tesla’s microenvironment. The intensity of competition within the industry is high with the main rivals of Tesla Motors being Nissan, Ford, GM, and Chrysler. The rivalry is particularly instance in the United States as opposed to other parts of the world because most Americans prefer to buy local brands. Initially, the big three, namely GM, Ford, and Chrysler, controlled the automobile industry, particularly in the United States. However, times have changed and the industry has expanded and the companies gone global. Client diversity, in terms of philosophy and culture, has only intensified the competition among the leading automobile manufacturers and distributors. The manufacture of trucks and cars involves significantly high costs also plays a primary role in heightening industry rivalry. Additionally, consumers incur considerably low switching costs for various models and makes of cars, increasing competition among major players within the industry (Witcher, & Chau 2010, p. 91). Analysis of the Internal Environment Resource Based View of the Company Concerning resource capabilities and competencies of Tesla Motors, it is worth noting that the company has a number of resources and capabilities at its disposal that tend to give it a competitive advantage. The production plants, services centers, and IPR (powertrains) are the most important resources that tesla Motors hold in high regard. Owing to the importance of such resources, a number of competitors have also cropped up to rivals its resource, particularly the powertrain. In addition, the financial resource form a critical component of Tesla Motors resource base although its importance is depreciating due to the considerable loans that the company owes to other institutions. Brand value and alliances with other automakers are considerably important resources to tesla Motors although the level of competition is this regard is equally high. Perhaps it is worth noting that the showrooms and charging stations (superchargers) are the least important assets of Tesla Motors because a number of them are standardized (Cattaneo, Gereffi, & Staritz, 2010, p. 258). Tesla Motors’ most cherished capability is the powertrain development (RnD) because no automakers have developed similar or superior powertrain in the United States. Tesla Motors used this capability to gain competitive advantage over other automakers in the U.S. market. Mass production, electric vehicle (EV) market leadership, and financial management are the second most important capabilities of Tesla motors after RnD. Tesla Motors also performs well in brand management, public relations (PR), and marketing & sales although these capabilities rank low according to the importance of tesla Motors capabilities (Dransfield 2004, p. 444-445). Value Chain Inbound Logistics Tesla designs and manufactures the Roadster in California in conjunction with Lotus. Essentially, Tesla manufactures the powertrain of Roadster in California while Lotus manufactures the body and chassis in UK. The assembly is done in California where various fleet of Tesla vehicles are stored and distributed. The inbound logistic of tesla is not as complex as that of other automobile companies since it actively involved in the entire value chain of its cars (Hintze 2015, p. 14). Operations Operations take place in two bits for most of Tesla vehicles. The powertrain is manufactured by Tesla in-house plant while the body and chassis are manufactured in the UK. The final product is completed in the United States. Most of the cars produced by Tesla are designed by computers to precision before the prototype head to the manufacturing unit (Moser 2006, p. 17). Outbound logistics Since Tesla Motors does not have independent distributors, it manages the storage and sale of its cars independently. Most of the tesla cars are sold by order as opposed to mass production because of the uniqueness of such cars. In this regard, tesla motors has its warehouse in California where all its finished products are showcased for consumers to view. More often than not, interested customers order their preferred vehicles from the showroom (Kersten, Blecker, & Herstatt 2007, p. 45). Marketing and Sales Since Tesla Motors markets its cars on the platform of technology, it uses the same technology to conduct marketing and sales. Most of the communication between marketing/sales executives of Tesla Motors and clients take place online. Tesla uses its website and other search engines to market it latest products such as the Model S and the Model X. Tesla Motors use speed, handling, and comfort as the hallmarks of its cars when conducting its marketing operations. Perhaps its good marketing strategy has yielded results since the company sold more units than BMW and Ford in 2013 (Hintze 2015, p. 14). Analysis of PR crises Tesla Motors versus ‘The New York Times’ In February 2013, Tesla Motors ran into public relations crisis after a test drive by The New York Times journalist turned chaotic. In essence, Tesla Motors requested Broder, who is a journalist with The New York Times newspaper, to take its Model S for a test drive and compile a report about the vehicle in terms of handling, comfort, speed, and efficiency. Elon Musk, who is the CEO of Tesla Motors, was fully aware of the impending test drive and he was eagerly waiting for the PR report. However, what the journalist compiled in his report was the opposite of what the entire Tesla Motors fraternity, and to an extent the public, had anticipated. Fundamentally, the journalist’s report thwarted every feature in the Model S that Tesla Motors had campaigned dearly for previously. In the aftermath, a fierce public relations tussle ensued between Tesla motors and The New York Times newspaper (Ghuman & Aswathappa 2010, p. 36). Obviously, it is nearly impossible to beat any section of the press in a PR battle, as Tesla Motors was doing. Nonetheless, Tesla Motors, through its CEO, submitted a strong rebuttal in its website that sought to straighten the record. Although the PR fight appeared to be between Elon Musk and Broder, it was affecting the images of both institutions. In particular, Tesla Motors suffered dented reputation in the hands of Broder, who appeared determined to highlight the ‘negative’ aspects of the Model S. The PR crisis nearly affected the sales of Model S but the company CEO tabled facts that indeed proved the falsification of flaws by The New York Times reporter. In the end, Tesla motors won the confidence of its esteemed customers and the public at large that the Model S was indeed an efficient and convenient electric vehicle (EV) (Thompson 2001, p. 232). Strategic Analyses Business Level Strategy Tesla Motors accrued a net income of more than $10 million by May 2013. This income came largely from its sale turnover of $560 million during the period. It implies that the financial base of Tesla Motors has been growing over the years. Owing to the favorable prospects in the automobile industry, Tesla motors anticipates more sales and profits, particularly from its high performance electric vehicles. Perhaps the innovative strategy of Tesla Motors enabled it to outsell Audi 8 and BMW & in 2013 (Harrigan & Harrigan 2003, p. 209). Indeed, innovation is a critical component of Tesla’s operation strategy. The company has also fostered good employee relations, which has enabled it to achieve good results. Human resource is perhaps the most critical tool that Tesla has manipulated to its advantage through fair remuneration and effective training & development (Ireland, Hoskisson, & Hitt 2012, pp. 99-103). When it comes to corporate governance, it is worth noting that all the employees, directors, and officers of Tesla motors operate under high standards set by the Board of Directors. Quality is an important operation strategy for Tesla and it enhances quality and standards by inculcating a philosophy of good corporate governance in all its employees and stakeholders. Investors can monitor how Tesla Motors is being managed through the Board of Directors, which act as prudent fiduciary in this regard. The Board of Governors are responsible for the management of the internal environment of Tesla Motors by ensuring that all the stakeholders adhere to the set guidelines, which are subject to modification (Hill, C, & Jones 2007, p.65). In order to stimulate growth, Tesla Motors can manipulate some of the factors within its internal environment namely, expansion of infrastructure and store, and execution of projects. The company can also improve the quality of its products in order to foster productivity. Perhaps the major drawback to the productivity of Tesla Motors is the high cost of batteries for its electric vehicles. The cost of such batteries currently stands at USD 320 per kWh, which is untenable if Tesla is to remain a key industry player. The automobile industry is fundamentally capital intensive and Tesla needs to execute its impending projects correctly, considering that the company is still a young player in the industry (Goldman & Nieuwenhuizen 2006, p. 75). Tesla Motors have projected to have a production capacity of at least 500,000 vehicles by 2020. This massive projection requires equally massive internal input. In essence, Tesla Motors plans to mobilize all its resources to achieve this objective with experts approximating unit sales to reach 400,000. In addition, experts project the EBITDA-margin of Tesla Motors to be 14.5% by the year 2020. In essence, the current market price of tesla vehicles is expensive compared to prices offered by the vast majority of its competitors. Ten years after its inauguration, Tesla motors embarked on massive production of Tesla Roadster and Model S as its first production cars. With the Model X one the way, which is an electric crossover SUV, Tesla Motors is set for takeoff in terms of productivity and market outreach (Dransfield 2001, p. 77). Strategies Suggested for future/Evaluation, and Implementation Modes/Techniques Tesla Motors focuses on its strategic goals and strategic objectives as crucial components of its corporate strategy. In regards to strategic goals, Tesla Motors entered the automobile industry with the aim of releasing new models of cars, preferably electric cars in order to limit competition from the standardized cars by other cars producers. In addition, Tesla Motors plans to produce various components of electric powertrains in large quantities and probably patent the same. The overall aim of the company in this regard is to create market for the electric powertrain components where it will supply such components to other carmakers. Tesla will control the market of electric powertrain components because it will patent such product thereby limiting competition and unauthorized imitation from other companies. Perhaps one of the most intensive strategic aims of Tesla Motors is to construct a wide network of charging stations for its cars, which are largely electric vehicles (EV) (Carlson 2013, p. 206). When it comes to the strategic objectives of Tesla Motors, it is worth noting that Tesla Motors set to produce 400 cars every week by 2013. The company wanted to increase its production capacity in a well-coordinated expansion plan. In addition, the company’s objective was to achieve an average sale of 20,000 of the Model S cars by the end of 2013 financial year. The attainment of these strategic objectives depended heavily on the business level strategies that the company has put in place. By 2015, Tesla motors plans to design and build third generation cars with an average price of $30,000. In order to ensure that such cars run efficiently and effectively, the company plans to develop over 100 superchargers stations for charging the cars. The stations will be situated strategically across the United States depending on the number of customers in any given particular location (Daim, Pizarro, & Talla 2014, p 234). Tesla Motors focuses on its strategic goals and strategic objectives as crucial components of its corporate strategy. In regards to strategic goals, Tesla Motors entered the automobile industry with the aim of releasing new models of cars, preferably electric cars in order to limit competition from the standardized cars by other cars producers. In addition, Tesla Motors plans to produce various components of electric powertrains in large quantities and probably patent the same. The overall aim of the company in this regard is to create market for the electric powertrain components where it will supply such components to other carmakers. Tesla will control the market of electric powertrain components because it will patent such product thereby limiting competition and unauthorized imitation from other companies. Perhaps one of the most intensive strategic aims of Tesla Motors is to construct a wide network of charging stations for its cars, which are largely electric vehicles (EV) (Ireland, Hoskisson, & Hitt 2012, pp. 99-103). When it comes to the strategic objectives of Tesla Motors, it is worth noting that Tesla Motors set to produce 400 cars every week by 2013. The company wanted to increase its production capacity in a well-coordinated expansion plan. In addition, the company’s objective was to achieve an average sale of 20,000 of the Model S cars by the end of 2013 financial year (Dransfield 2001, p. 69). The attainment of these strategic objectives depended heavily on the business level strategies that the company has put in place. By 2015, Tesla motors plans to design and build third generation cars with an average price of $30,000. In order to ensure that such cars run efficiently and effectively, the company plans to develop over 100 superchargers stations for charging the cars. The stations will be situated strategically across the United States depending on the number of customers in any given particular location (Hill, C, & Jones 2007, p.65). Conclusion Tesla Motors has come a long way to post an impressive performance in the highly turbulent and dynamic automobile industry. Since the three major players namely GM Motors, Ford, and Chrysler, produce standard vehicles, Tesla motors incorporate technology to come up with Electric Vehicles (EV). The internal and external environments of Tesla Motors indicate sufficient room for expansion if Tesla incorporates the appropriate strategies (Dransfield 2001, p. 41). In essence, Tesla Motors, through its CEO Elon Musk, has capitalized on its capabilities and resource base in order to gain competitive advantage over its major rivals such as BMW, Nissan, and Ford. Nonetheless, tesla Motors has had its fair share of PR crises, especially at the hands of The New York Times reporter who sharply criticized the sustainability of Model S. Through vigorous corporate and business-level strategies, Tesla motors has managed to beat the big players in the industry, Besides, Tesla Motors has rolled out strategic objectives and aims that will see its expansion in the market by 2015 (Goldman & Nieuwenhuizen 2006, p. 75). Reference List Bowhill, B 2008, Business planning and control: Integrating accounting, strategy, and people, Wiley, Chichester, England. Carlson, W B 2013, Tesla: Inventor of the electrical age, Princeton, Princeton University Press, New Jersey. Cattaneo, O, Gereffi, G, & Staritz, C 2010, Global value chains in a post-crisis world: A development perspective, World Bank, Washington, D.C. Daim, T U, Pizarro, M, & Talla, R 2014, Planning, and road-mapping technological innovations: cases and tools, Springer, Cham. Dransfield, R 2001, Corporate strategy, Heinemann, Oxford. Dransfield, R 2004, Business for foundation degrees and higher awards, Heinemann, Oxford. Faarup, P K 2010, The marketing framework, Academica, Aarhus. Finne, S, & Sivonen, H 2009, The retail value chain: How to gain competitive advantage through Efficient Consumer Response (ECR) strategies, Kogan Page, London. Ghuman, K & Aswathappa, K 2010, Management: concept, practice, and cases, McGraw Hill, New Delhi, Tata. Goldman, G & Nieuwenhuizen, C 2006, Strategy: sustaining competitive advantage in a globalized context, Juta, Cape Town. Harrigan, K R & Harrigan, K R 2003, Vertical integration, outsourcing, and corporate strategy, Beard Books, Washington, D.C. Hill, C, W L, & Jones, G R 2007, Strategic management: an integrated approach, Houghton Mifflin, Boston, Mass. Hintze, S 2015, Value chain marketing: A marketing strategy to overcome immediate customer innovation resistance, Springer, Cham. Ireland, R D, Hoskisson, R E, & Hitt, M A 2012, Understanding business strategy: concepts plus, South-Western Cengage Learning, Mason, OH. Kersten, W, Blecker, T, & Herstatt, C 2007, Innovative logistics management: competitive advantages through new processes and services, Erich Schmidt Verlag, Berlin. Moser, R 2006, Strategic purchasing and supply management a strategy-based selection of suppliers, Dt. Univ.-Verl, Wiesbaden. Sehgal, V 2011, Supply chain as strategic asset the key to reaching business goals, John Wiley & Sons, Hoboken. Thompson, J L 2001, Understanding corporate strategy, Thomson Learning, London. Witcher, B J, & Chau, V S 2010, Strategic management: Principles and practice, Cengage Learning, S.I. Read More