Company Analysis: Tesla Corporation - Case Study Example

COMPANY ANALYSIS: TESLA CORPORATION By Location Executive summary Tesla Company Inc. Entered the electric vehicle industry as an independent business entity in the early 2000s and since then the firm has recorded a tremendous growth. The company is famous for the car models like Sedan, Model S, Model X, and Tesla Roadster among others. Therefore, the focus of this report is to carry out both internal and external environmental analyses of Tesla Company by applying proper business models to explain the situation. The report begins with an external environmental analysis by using Porters Five Forces model to explain the industry forces and as well the Industry Level Theory to illustrate how the industry has evolved to its current stage. Then the report identifies some of the PR issues especially the car fires that have attracted a lot of concern from the public about the safety of the Tesla products. Moreover, the report concludes by recommending the alternative strategies that can help the company to maintain its dominance in the electric car industry. Table of contents 1.0 Introduction.............................................................................................................................4 2. 0 External/internal environmental analysis/industry analysis....................................................4 2. 1.0 Macro-environmental/internal analysis.....................................................................5 2.1.1 Porter’s Five Forces..................................................................................................5 2.1.2 Industry Life Cycle Theory.....................................................................................7 2.1.3 PESTEL Analysis.......................................................................................................8 2. 2.0 Internal strategic analysis/internal environmental analysis.........................................9 2.2.1 Resource based competence.................................................................................10 2.2. 2 Current strategy.....................................................................................................11 2.2.3 Product variety........................................................................................................12 3. 0 Public Relation issues affecting Tesla since 2008...............................................................13 4.0. Strategic alternatives...............................................................................................................15 5. Conclusion................................................................................................................................17 6.0 bibliography.............................................................................................................................18 7.0 Appendix.................................................................................................................................20 1.0 Introduction The establishment of Tesla Company was because most automobile manufacturers largely depended on the engine combustion that soon brought about the problems of environmental pollution (Tesla, 2013). In response, the company’s management considered that alternative automobile power would solve the problem and help the industry players to come up with innovative ways of saving energy costs and conserving the environment. Tesla Corporation entered the car industry as a manufacturer of electric vehicles with its headquarters in California and subsidiary companies in other parts of the world including the UK. Since entering the UK market, the company has recorded a tremendous growth with the introduction of unique models like the Model S, Tesla Sedan, Tesla Roadster, and Model X (Liu, Kang, Wu, Chen, & Hon, 2014). It is, therefore, necessary to carry out proper analyses of the Tesla case study including both industry and company analyses from a global perspective by using effective business models as well as theories to recommend the best alternatives that can enable the firm to maintain its industry dominance. 2. 0 external/internal environmental analysis/industry analysis Industry analysis involves the identification of the external forces that have direct impacts on the operations of a business entity. Tesla operates in the car industry where many factors affect automobile car manufacturing processes, sales services, and strategic decision making especially on the car models suitable for the target market. Besides, the company focuses on the design and development of electric cars, a sector that is fast peaking because of the environmental concerns. 2. 1. 0 Macro-environmental analyses 2. 1.1 1Porter’s Five Forces Porter’s Five Forces model is a firsthand tool that offers quick industry analysis to identify how suppliers, potential entrants, substitutes, buyers, and industry competition can affect the operations of a company (Lee, Kim & Park, 2012). Suppliers bargaining power Suppliers have strong bargaining power and can influence the operations of the company in the sense that supply chain management focuses on choosing clients who can help in saving the overall costs of production. Tesla has had two suppliers since its entrance into the electric car industry with the Lotus Elise providing body and chassis while Panasonic provided the lithium battery (Tesla, 2013). The Lotus Elise as a supplier is in a different locality with Tesla, and this implies that the company must spend more on the cross-boundary business operations characterised by strong bargaining power. Besides, Panasonic provides the Lithium battery though the company has to endure spending more to sustain the supply chain since it provides the strategy competitive advantage in the electronic car manufacturing industry. However, the company has another group of suppliers bringing automobile assemblage parts and around 150 of such suppliers do not have strong bargaining power. Barriers to market entry In the electric cars market, there are many barriers to market entry but Tesla is experiencing the barriers because it has already reached the economies of scale stage with the Model S and the Roadster model (Tesla, 2013). The company is also experiencing high revenue volatility because of the tremendous developments in technology and research though Tesla suffers from low sales volume especially in overseas countries like the UK and the Far East. Besides, the electric car industry is capital intensive because it requires a large investment in terms of infrastructure for charging the electric vehicles and also the maintenance costs. However, the company has responded to this barrier through technical expertise, brand recognition, and skilled human resources. On the other hand, the electronic vehicle is fast evolving thus the barriers will be easy to handle through strategic decision-making. Threats from substitute products The industry experiences low threats from the substitute products because the possible alternatives to electric vehicles include flex fuels, hydrogen, mass transportation, and natural gas (Tesla, 2013). All of the substitute products still depend on fossil fuels to some extent. Besides, natural gas and hydrogen require complex infrastructure though Tesla vehicles have been integrated to form the smart grid. Bargain power of buyers The company faces low bargaining power from buyers since it offers them differentiated products that combine eco-consciousness, performance, prestige, and luxury. Moreover, the company faces low competition because Toyota Prius, Nissan Leaf, and Chevrolet Volt are some of the potential competitors (Tesla, 2013). Furthermore, the available substitute products cannot match Teslas attributes, and this explains the low bargaining power of the buyers. Low bargaining power is also due to the numerous government incentives that offer tax credit deduction to potential customers for using environmentally friendly vehicles. Rivalry between firms However, there is fierce rivalry among the competitors because Tesla’s continued growth is a threat to the existing industry players like BMW and Nissan (Tesla, 2013). The two major competitors have dominated a larger share of the market because the FRA: BWM and Nissan Leaf has received a positive reaction from the market. 2.1.2 Industry Life Cycle Theory The Industry Life Cycle Theory can also be used to analyse Tesla’s external environment since the model describes the various stages that an industry goes through from the first point of introducing a product into the market to the eventual decline (Peltoniemi, 2011). In the early stages, the industry players engage in product design and positioning thus establishing the range and the boundaries of the particular industry. The electronic car manufacturing dates back to the late 1800s implying that the industry is not in the introduction stage. It is an established industry with opportunities for new firms to enter with their unique motor vehicle models and designs. In fact, Tesla entered the industry in the early 2000s and has since dominated the market with unique car models (Tesla, 2013). The next stage in the ILC theory is the innovation phase when there is a decline in the product innovation, and this marks the beginning of process innovation where the dominant design arrives (Peltoniemi, 2011). The Motor vehicle industry has passed the product innovation stage, and industry players are now focusing on manufacturing processes that will ensure that they dominate the industry. Tesla has already entered the market with the Model S as the current dominant design and there is also room for other competitors to come up with new models that may knock off Tesla’s designs as the dominant models (Tesla, 2013). In the cost or the Shakeout Phase, companies have already settled for the dominant design and have also achieved economies of scale as with the case with the main industry players like Tesla, BWM, and Nissan (Peltoniemi, 2011). Therefore, small players can be acquired or can exit if unable to manage the competition. For example, Tesla purchased the NUMMI, a former joint venture between GM and Toyota (Tesla, 2013). Besides, barriers to market entry are high in this stage because industry players are already established and are dominating the market. Analysis of the electric automobiles reveals an industry that is match towards the growth stage as evident from the manner in which the industry players are focusing on making large profit margins. Tesla is already leading in motor vehicle design and is using every means to maximise profits. However, the industry is not anywhere near the decline phase as competition is stiff with the opportunity to innovate unique designs owing to the development of the technological sector (Abdulsater et al., 2014). 2.1. 3 PESTEL Analysis Political Favourable policies developed to ensure it that the electronic vehicles are adopted reduce emissions. In fact, the European Union has policies that set standards for vehicle carbon emission. Economical The recent global financial recession reduced spending rates and the demand for high-priced luxury goods The global economy is recovering from the recession, and there are increasing numbers of the middle-class and upper-class. The uncertain future of non-renewable sources of energy is making people shift to electronic cars. Sociological The changing trends in the society: people are now more sensitised on environmental conservation and have shifted to environmentally friendly products. Technological Availability of many recharging stations is a unique market opportunity for Tesla The electric vehicle charging infrastructure continues to grow since its introduction in 2011. Environmental Increased rate of awareness about the impacts that operations of companies leave on the environment. Environmental conservation has become a way by which companies brand their products. Legal Governments worldwide are supporting the electronic vehicles because they are environmentally friendly and alternatives to non-renewable energy sources that pollute the environment especially the fossil fuels. 2.2. 0 Internal strategic analysis/internal environmental analysis 2.1 . 1 Resource-based competence Good financial base and performance Internal strategic analysis of an organisation encompasses looking at the key competencies in terms of resources and a variety of products. In terms of tangible resources, Tesla boasts of a good financial base since recent reports show that the company has generated billions of dollars from long-term debt offerings and issuance of shares. In 2012 alone, the company generated approximately $400 million from trading in shares (Tesla, 2013). Product value chain Morever, the company has a good supply chain with over 150 suppliers who provide around 2000 automotive parts for assemblage (Mark, 2013). The value chain analysis is a model that can be used to evaluate Tesla’s situation. For instance, the company focuses on unique product features with the fast development of new products. In this context, Tesla has the capability to develop new products thanks to the technical expertise. Nonetheless, consumer technical support is another element of the Value Chain analysis that Tesla has been focusing on and the customers have easy accessibility to available spare parts (Zhou, Li, Kang & Gong, 2013). Besides, the company has done everything that the model suggests as the criteria for adding value to the product including building brand reputation, focusing on product quality, and training employees on customer support (Sirmon, Hitt, Ireland, & Gilbert, 2011). Besides, value addition to the products is further supported by good infrastructure especially technology and effective human resource management The company boasts of being the first to introduce luxury zero emission electronic vehicle. The implication is that Tesla has an expertise base whose innovativeness is behind the development of competitive products like the Model S and X that received good market responsible (Tesla, 2013). Therefore, Tesla has a unique mix of tangible resources, and this explains its dominance in the industry with superior motor vehicle models. Nonetheless, the intangible resources explain the company’s dominance in the motor vehicle industry. For instance, Tesla’s success is much attributed to the excellent upper management team that despite having no prior knowledge of the industry has changed the industry competition since 2003 (Tesla, 2013). On the other hand, the management comprise of some the most experienced individuals in the industry like Elon Musk, who has succeeded has a dedicated CEO and a product architect (Musk, 2013). On the other, the executive management has created an organisational culture that supports innovativeness, and this explains the frequency in developing and designing models that meet the expectations of the esteemed customers (Karamitsios, 2013). Innovative technology and the drive-train patents are also some of the reasons for Tesla’s position above its competitors. Besides, the Lithium battery is an added advantage since major competitors like Nissan, BWM, FORD, and GM have do not have knowledge of harnessing the resources to manufacture vehicles that take into consideration health and safety of the owners (Tesla, 2013). Key capabilities Internal analysis of the company also reveals some of the key capabilities that the company has been using to overtake its competitors. For instance, the company has the ability to use the small lithium cells, materials commonly used in the development of consumer electronics, to motor vehicle manufacture through efficient proprietary power management. On the other hand, the employees add to the companys capabilities because they are empowering as well as self-driven thus promoting the developmental efforts of the company. Besides, the organisation uses strategic partnership to gain competitive advantage. Tesla has always partnered with Daimler AG, Panasonic, and Toyota (Tesla, 2013). These partners especially Panasonic have been supporting the company’s battery technology through research and development as well as helping in future innovations. 2.2 0 Current strategy Business level strategy The case study also reveals that Tesla adapts effective corporate strategies to help in managing and sustaining competition in the industry (David, 2007). Teslas business strategy focuses on differentiation because the target market comes from the middle and the upper-income levels. Therefore, the company focuses on providing the market with high performing and creative electric vehicles especially cars. Porter’s Generic Strategy model shows that business entities use cost advantage and product differentiation to gain competitive advantage (Kim, Nam & Stimper, 2004). Corporate level The company also uses Corporate Level Strategy that entails market penetration, and Tesla has been spreading its influence on all the current electric cars market with the unique products (Christodoulou & Patel, 2014). Besides, the company markets the components of the electric cars to other manufacturers of automobiles. International level Tesla also adopts the International level strategy where the focus is on the transition to the international market (Hitt, Ireland & Hoskisson, 2012). In this case, the company has been focusing on the receiving good response from the domestic market as well as expanding to the global markets that have high growth potential. Cooperative strategy Moreover, the company adopts the cooperate strategy especially strategic alliance where it has formed partnerships with firms like BMW, Daimler AG and Panasonic to carry out research and development on how to develop the most efficient batteries (Tesla, 2013). 2.3 Product variety It is also vital for internal analysis to identifying the extent to which Tesla provides product varieties to the target market. Apart from the electric cars, Tesla Motors also manufactures powertrain components like the Lithium battery packs. In 2008, the company introduced the Tesla Roadster that became the first all-electric sports car capable of navigating the highways. The product received a good reception in the market since it is highly performing with good speed, 250 miles coverage an hour and Lithium battery capable of storing twice the energy (Tesla, 2013). Besides, the company introduced the Tesla Sedan to cater for the mid-level customers with a lower pricing. Besides, there are initiatives aimed at developing new sedan model, as well as an SUV vehicle. In 2014, Tesla introduced the Model X whose design blends the good features of a sports utility vehicle. 3. 0 Public Relation issues affecting Tesla since 2008 Environmental protection Despite the general notion that electric cars were meant to reduce the environmental impacts of fossil fuels from engine combustions, Tesla’s executive management has had to deal with public concerns especially from accidental fires (Kaiser, Kahn & Locke, 2014). In fact, in most occasions, car accidents involving Tesla vehicles have all resulted in fires though no vehicle owner has ever succumbed to incidents. However, there was a growing concern from the public about the frequency of these fires where the lithium-battery would ignite upon coming into contact with metals. Therefore, the executive management had to come out to deal with such issues as a way of making sure that the company has a good reputation, and the events do not tarnish the brand image (Tesla, 2013). Conversely, some sections of the public were also questioning the extent to which the lithium products are safe to the environment and if there could be any potential hazards the lithium waste would leave on the environment. Therefore, the many issues attracting public interests have prompted the management to adapt strategies for managing relationships and reputation with the public and integration of corporate social responsibility is an example of such initiatives. Corporate social responsibility Corporate social responsibility has been part of Tesla’s operations for quite a long time now with the focus on both internal and external environment (Aguinis & Glavas, 2012). Corporate social responsibility is a new concept in the modern organisational context that holds organisations responsible for their actions including looking at the welfare of the surrounding communities as well as creating initiatives to protect and conserve the environment (Servaes, & Tamayo, 2013). Tesla is already engaging in corporate social responsibility by investing in manufacturing and development of electric cars that have zero emissions and does not consume the fossil fuels (Tesla, 2013). However, the safety of the electric cars is still a big issue though the company has always come out to make it clear to the public that the cars do not pose owners to danger. In fact, a report on the car accidents revealed that no one has ever been injured, and this shows that the cars were designed while keeping in mind the safety of the passengers or the drivers. Corporate social responsibility also involves issues of stakeholders engagement and it is the moral obligation for organisations to include everyone with the vested interest in the organisation engages in the crucial decision making processes (Servaes, & Tamayo, 2013). Tesla is a transparent corporation and is trading in different stock markets in world. The management has always been fast to respond to information needs of the stakeholders and frequently consulting them about the car designs that best suits the market. Organisational Ethics There is also an ethical concern about the Tesla’s electric car’s contribution to environmental pollution (Tesla, 2013). The company brands itself as being in the forefront about the green initiative, but this may not be the case since the electricity may have some amount of pollution to the environment. When the public seek to get full information from the management, the organisation always brushes the claims insisting that electric cars mean no harm to the environment by reducing greenhouse emissions. However, the executive management does not understand that ethical principles obligate the company provide the public with full and accurate information about the product (Bazerman, Gino, Shu & Tsay, 2014). Therefore, though the management has been dodging the public’s quest to know exactly if the electric vehicles may cause some, remaining silence on the issue is putting the company’s reputation at risk and the implication is that in future, the company may lose some customers. The utilitarian ethical theory applies in this context since the model focuses on all the subjects and people affected by the particular actions (Hill, Jones, & Schilling, 2014). As the case of Tesla Motors, the organisation has the ethical obligation to make the right decisions for deciding on the suitable electric vehicle designs and models with the least harm to the users and the environment. 4.0. Strategic alternatives Both the internal and external industry analyses reveal that Tesla has a problem with its supply chains as the company is yet to guarantee sufficient lithium battery supply (Tesla, 2013). The case study shows that the companys few suppliers are charging very high prices, but there are no varieties even after partnering with Panasonic as the supplier with high value. The production of the electric vehicles also cannot increase without the management focusing on innovation, and this will call for creating the organisational culture that supports innovativeness among the employees. The company is already boasting of the strong and competent human resource base with the knowledge and skills on strategic business management. To increase the supplier levels, the executive management should put more efforts on the cooperative strategy as the alternative to supply chain management issues and the remedy to the low volumes of products supplies (De Wit & Meyer, 2010). In fact, the company should invest more in the strategic partnership with Panasonic and Fellowes, as the new managing director should also consider how to use Research and Development as a strategy to improve Teslas competitive advantage (Motavalli, 2013). Aside of the strategic partnerships, the company can also consider joint ventures as a way of diversifying risks but only part of the business. For instance, the subsidiary companies in countries like the UK can enter into joint ventures with some business entities since this can increase its market share. Diversification is also required with the supplier chains so that the company can expand its scope of production. Though it has already diversified into both electric vehicles and powertrain components, there is still the need to venture into new opportunities of product development. Already the Mark X model marked the first move to diversify its products the company should do more on product diversification (Tesla, 2013). In fact, the differentiation is a very effective strategy that most leading multinational corporations like Apple have used for gaining competitive advantage. The SAF (suitability, acceptability, and feasibility) model can evaluate the differentiation and the cooperative strategy effectively (Hill, Jones & Schilling, 2014). The suitability of the cooperative strategy is impressive strong business partnerships laid the foundation for the Tesla electric car business. The partnership was an opportunity to diversify into the lithium battery products as a means of gaining competitive advantage. Therefore, the strategy is suitable, and the company should maintain it as its key competence. Besides, both the PESTEL and Industry level analyses shows that the company is capable of implementing the strategy and also has the financial capacity to handle imminent risks (Tesla, 2013). Differentiation is also the foundation of Teslas success since the product identifies in the market as a unique brand that differentiate itself from the other brands through unique design. The models S and X are some of the companys car models that received good market attention ; thus there should be differentiation into more complex and unique car designs (Tesla, 2013). Nonetheless, the strategies are feasible as Tesla has already partnered with Panasonic to avail the lithium battery powered electric cars. On the other hand, the stakeholders have supported Tesla’s move to use the lithium batteries as the key competence for gaining competitive advantage. Some of the weakness of the company is that it has been recording low volume of sales, below the expected levels, and this calls for increased awareness of the product through appropriate marketing initiatives (Thompson, Strickland & Gamble, 2008). Tesla has been marketing itself as a company that focuses on speed, comfort, handling, and low emissions while building its products. The Model S became known in the market as a car that was designed with cost savings and reduction in motor vehicle servicing and repairs (Mangram, 2012). In this case, has a good marketing message but should refocus on promoting its products through the right channels as the modern business environment enjoys various advertising platforms including social media. In fact in countries like the UK where the social trend is defined by the use of social media, the company can increase more sales if there is more investment in the brand awareness creation. 5. Conclusion Tesla Company entered the motor vehicle industry having a group of young inexperienced personnel, it is quite a mystery that the company is currently dominating the motor vehicle industry with the electric car models. History of the company shows that environmental friendless especially the reduction of emission was the rationale behind the business idea and company has grown to become accepted by many customers worldwide. However, the company is not immune to challenges that face organisations and external and internal environmental analyses reveals that the company has to overcome some obstacles to stay competitive in the market. However, uniqueness and innovation has ensured the company is leading other competitors like BMW, GM, and Nissan among others. From the micro and macro-environmental analyses, it is imperative to conclude that the company should maintain its strategies of product differentiation and strategic partnerships since they are the reasons behind the development of unique models including Tesla Sedan, Tesla Roadster and Model S as well as the new Model X. Bibliography Abdulsater, A, Balasubramanian, A, Wang, B, Madani, F, Mansour, M, & Talla, R 2014, Technology Road Map for Tesla Motors Sedan EV, In Planning and Roadmapping Technological Innovations (pp. 215-238), Springer International Publishing. 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SupplierBusiness, viewed from http://www.autonews.com/assets/PDF/CA843311210.PDF Motavalli, J 2013, As it increases production, tesla worried about battery supply,The New YorkTimes, Viewed from http://wheels.blogs.nytimes.com/2013/09/06/as-it-increases-productiontesla-worries-about-battery supply/?_php=true&_type=blogs&_php=true&_type=blogs&_r=1 Musk, E 2013, Blog. Retrieved 03 16, 2014, from Tesla:http://www.teslamotors.com/blog/mission-tesla Peltoniemi, M 2011, ‘Reviewing Industry Life‐cycle Theory: Avenues for Future Research’, International Journal of Management Reviews, vol. 13, no. 4, pp. 349-375. Servaes, H, & Tamayo, A 2013, ‘The impact of corporate social responsibility on firm value: The role of customer awareness’, Management Science, vol. 59, no. 5, pp. 1045-1061. Sirmon, DG, Hitt, MA, Ireland, RD, & Gilbert, BA 2011, ‘Resource orchestration to create competitive advantage breadth, depth, and life cycle effects’, Journal of Management, vol. 37, no. 5, pp. 1390-1412. Tesla, 2013, Tesla Motors Inc. 2012 Annual Report, Palo Alto: EDGAR Online. Thompson, A, Strickland, A & Gamble, J 2008, Crafting and Executing Strategy, (16th ed), Maidenhead: McGraw-Hill Zhou, X, Li, S, Kang, L, & Gong, X 2013, ‘Research on Express Logistics Competitiveness Based on Value Chain Analysis’, Economic Management Journal, vol. 2, no. 1, p.9. Appendix Appendix 1: using value chain to evaluate a company Appendix 2: annual financial performance of Tesla Appendix 3: Competitive Profile Matrix of Tesla Success Weight Tesla BMW GM factors Rating score Rating Score Rating Score Market capacity/brand loyalty 0.3 4 1.2 2 0.6 2 0.6 Employees 0.2 3 0.6 2 0.4 4 0.8 Net Income 0.1 3 0.3 3 0.3 2 0.2 Pricing 0.2 4 0.8 3 0.6 2 0.4 Environmental friendliness 0.1 4 0.4 3 0.3 2 0.2 Strategic partnerships 0.1 3 0.3 2 0.2 3 0.3 1.00 3.6 2.4 2.5 Read More