Macro- and Micro-Environmental Analysis of the Tesla Company - Coursework Example

TESLA CASE STUDY affiliation Executive summary Tesla is a motors company that is based in California, United States and is mainly concerned with producing and selling electric cars. The macro-environment of Tesla is analysed based on the pastel model. The factors analysed in this report include new laws, trade barriers, tax changes, government policy, and demographic changes. The automobile industry in the US is hugely affected by the decisions of the government. Policies of the government play a huge role in forming or breaking the industry in the coming days. Political changes in the United States and across the world mean that there is huge pressure to limit the use of CO2, resulting to reduced consumption of fuel consumption. The micro-environment of Tesla is analysed using the Porters strategic model. Threats of substitutes, Threat of new entrants, bargaining power of suppliers, bargaining power of customers and Intensity of existing rivalry are some of the factors affecting Tesla. Analysis of the Tesla Internal Environment is analysed using the resource-based theory. According to the resource-based theory, the possession of the strategic resources is a good incentive for the competitive advantage of an organization. Normally, a strategic resource is defined as an asset that is rare, no suitable, difficult to imitate, and valuable. A resource is something valuable to the level it enhances an organization to create some strategies that takes advantage of opportunities and ward of any potential threat. A PR crisis is a challenge Tesla has been facing. Fire incidents involving the S model hit the headlines all over the world, making the company to face one of its serious PR challenges in its history. Part of the business level strategy of the Tesla Company is to grow the business organically, through the expansion of its product offering, producing more attractive products, producing more affordable products, and expanding globally. Part of the cooperate strategies of Tesla has been forming alliances with other firms. Tesla cooperated with Panasonic to develop more efficient batteries, and in addition, the company has been cooperating with OEM manufacturers such as Daimler and Toyota. The elaborate plan to cooperate with Toyota is to manufacture more efficient electric vehicles. Table of Contents 1. Introduction 6 2. Analysis of the External Environment 7 2.1. Macro-Environmental Analysis (pastel analysis) 7 2.1.1. Political and Legislative Factors 7 2.1.2. Economic Factors 8 2.1.3. Social and Environmental Drivers 9 2.1.4. Technological Drivers 9 2.2. Micro-Environmental Factors (Porter’s Five Forces) 9 2.2.1. Threats Of Substitutes 10 2.2.2. Threat of New Entrants 10 2.2.3. Bargaining Power of Customers 10 2.2.4. Bargaining Power of Suppliers 10 2.2.5. Intensity of Existing Rivalry 11 3. Analysis of the Internal Environment (resource-based theory) 11 3.1. Tangible Resources 12 3.1.1. Financial 12 3.1.2. Physical and Technological 12 3.2. Intangible Resources 12 3.2.1. Human Resources 12 3.2.2. Innovation and Creativity 13 3.2.3. Reputation 13 3.2.4. Organizational Capabilities 13 3.2.5. Value Chain Analysis 13 4. Analysis of PR crises 14 4.1. General findings 14 4.1.1. Content 15 5.1. Business Level Strategy 17 5.2. Cooperative Strategy: Strategic Alliance 18 4.2.1. Powertrain Component and Related Sales 18 6. Conclusion 18 References 20 Appendix 23 1. Introduction Tesla is a motors company that is based in California, United States. Since its launch, this company has been facing challenges and, of course some success in its business as far as growth is concerned. Though based in California, this company operates its business in international level. On top of dealing with electric cars, the company also develops electric power trains as well as other technologies. Compared to other auto dealers, Tesla is so peculiar from them by being the only company that specializes in more other developments besides electric vehicles (Crane 2014, Mangram 2012). . The company is the online one to have launched showrooms in most parts of the world to showcase their model line before completing the process online. The mission of the Tesla has been to ensure continued production of high quality electric cars that are affordable to their customers from around the world. The company believes that by producing cheap electric cars and vehicles, the global usage of petroleum will significantly go down. The underway creation of link of supercharger stations is an important element of the range and usability of Tesla products. These stations have proved to vital components in ensuring that cars are charged at intervals, allowing their customers to drive for long miles without any problem. Collaboration with other companies has also been another key component that has ensured Tesla has maintained its competitive edge in the automotive market. Taking the United States as the point of reference, this report seeks to critically analyse the external and internal environment of Tesla Company. In addition, this report will analyse the Tesla PR crises, and finally, this report will dig out the various business strategies the Tesla Company has employed over time to gain a competitive advantage over its competitors. 2. Analysis of the External Environment 2.1. Macro-Environmental Analysis (pastel analysis) Based on the pastel model of macro-environment analysis, the external environment that is influencing the economic performance of Tesla Company can be analysed to a great deal. According to pastel model, there exists a myriad of macro-environment factors that affect the decisions made by various mangers of organizations(Bose 2008). Macro-environment factors include new laws, trade barriers, tax changes, government policy, and demographic changes. Specifically, this section is concerned with identifying and discussing external factors that touted to influence the performance of Tesla in terms of its profitability and risk (Zack 2009). 2.1.1. Political and Legislative Factors The automobile industry in the US is hugely affected by the decisions of the government. Policies of the government play a huge role in forming or breaking the industry in the coming days. Political changes in the United States and across the world mean that there is huge pressure to limit the use of CO2, resulting to reduced consumption of fuel consumption. The government of the United States, through the ministry of energy has been providing incentives to automakers in order to create fuel-efficient vehicles. Praem (2014) observe that fuel economy standards have forced auto-manufacturers to direct customer demand towards the idea of embracing alternative power-driven vehicles. Besides the incentives provided by the ministry of energy, the local government in the United States have adopted a plethora of policy incentives for the introduction of greener vehicles. In recent times, the US government has been offering tax credits to vehicle consumers, specifically for both upfront reduction and for covering various expenses related to home charging systems. For instance, the US government offers a tax credit of USD 7,500 to consumers to purchase plug-in electric vehicles (Praem 2014). Comparatively, in Europe, Norway and Denmark are on record as the countries that offer the highest incentives to buyers of electric vehicles. China and Japan are the two countries from Asia that are also on record that offer incentives to consumers of electric vehicles (appendix 2.1). 2.1.2. Economic Factors 2.1.2.1. Economic development The automotive industry business tends to be consistent with the overall business cycle. Appendix 2.2 reveals how the development of GDP in the world influenced sales of vehicle from the year 2000 to 2013. Consumer trends play a bigger role in automotive companies, as consumer sales are the largest source of revenue. The link between Global GDP, and automotive sales was zero point five from 2005 to the year 2013. Appendix 2.2 shows that the link between vehicles and economic growth was 0.8. 2.1.2.2. Commodity and Energy Markets Automakers are highly influenced by the price of crude oil, as the dynamic of gasoline prices greatly influences the consumer purchasing power as well as the cost of production. An increased price of oil greatly affects the automotive industry, by decreasing the demand of ICE vehicles, and increase search of electrical vehicles. For instance, the economic recession lead to the increased price of oil prices, and in 2011, more electrical cars were sold than ICE vehicles. 2.1.2.3. Raw Materials An increase in the prices of commodities accounts to pressured costs and margins that cannot be channelled to consumers, because of the competitive pressure as well the long-time in the industry. Because of this scenario, there is a direct impact on the profitability of the industry. For instance, if the global demand of the electric vehicles rises, the demand of the raw materials used to make batteries will also rise. 2.1.2.4. Interest Rates and Credit Availability Typically, most vehicles and cars are sold on credits and loans, and normally the U.S. is synonymous with the tradition of purchasing on credit. Due to this, interest rates are directly related with the demand of vehicles. If borrowing rates are high, most consumers tend to keep off from taking up loans because cars bought on credit are expensive. 2.1.2.5. Currency Exchange Rates The ability of a given industry to remain very competitive in the market is greatly affected by the currency exchange rates. As part of their growth plan, Tesla continues to operate in international markets because of the currency exchange rate that mostly favours the UD dollar. 2.1.3. Social and Environmental Drivers As time moves by, most vehicle consumers are gradually becoming aware of environmental consciousness. This trend is evidenced in a huge number of companies that are providing green alternatives. For instance, fuel efficiency, connectivity and safety were the top three determinants of automobile buyers in 2004 (Praem 2014). 2.1.4. Technological Drivers One of the major challenges facing electrical vehicles is the life of the batteries. The battery of the electrical vehicle is said to be the most technically challenging component of an electrical vehicle. Balancing the cost of batteries and improving the lifespan is something that has proved difficult for manufactures. 2.2. Micro-Environmental Factors (Porter’s Five Forces) The competitive nature of a company is determined by the likelihood of earning a return above the cost of capital. The more the competition it is, the lesser the chances of gaining returns above the normal (Saylor Foundation n.d). 2.2.1. Threats Of Substitutes A plethora of forms of transportation is available to consumers, and they include trains, buses, bicycles and aeroplanes. Though none of these transportation forms affects the flexibility and convenience of the car, the place where the consumer resides might make the use of public transportation more preferable. However, the threat of these alternatives is low as cars are concerned. 2.2.2. Threat of New Entrants For automotive industry, the threat of new entrants is not big because of the huge capital requirements. Because of these huge capital requirements, small players are kept out the competition leaving to the big wigs to square it out amongst themselves (Saylor Foundation n.d). 2.2.3. Bargaining Power of Customers The bargaining power of consumers is highly influenced by their sensitivity to prices. Because private households are the main consumers are the main source of profit, and are usually very sensitive to prices fluctuations, it makes automakers unable to offset a huge chunk of costs. These makers are then forced to sell their vehicles at a relatively lower price so as to reduce inventory (Gillespie 2011). 2.2.4. Bargaining Power of Suppliers The power of suppliers in the automotive industry is determined by two factors: raw materials and tier. Typically, tier suppliers focus on interior, exterior, power train, body, electrical or chassis. Because of this dependency, tier suppliers are at a disadvantage. Tier financial performance is varies based on region, business model, product focus and may show different extents of bargaining power. High quality materials are required in the premium segment. Because it is only a limited number of suppliers that are normally able to deliver the right materials, the premium manufacturers get higher switching costs in-relation to mass-market competitors. Typically, the competitive landscape for raw materials-suppliers is fragmented; most of the suppliers tend to sell to a larger of manufactures from various industries. 2.2.5. Intensity of Existing Rivalry The automotive industry is characterized by an intense competition with a rising cost of materials, stricter environmental regulation, and price pressure, forcing auto manufacturers to significantly reduce on costs and in return invest in com elementary fuel so as to stay competitive. In most developed countries, the automotive industry is at a stage of maturity, making the automakers to dig dip or more technology. Developing countries are not witnessing a fierce rivalry because of the relatively smaller size of the automotive industry. Globally, automotive industries are 33, with 22 of them based in Asia (Praem 2014). 3. Analysis of the Internal Environment (resource-based theory) According to the resource-based theory, the possession of the strategic resources is a good incentive for the competitive advantage of an organization. Ketchen and short (2015) contend that this competitive advantage of the organization will enhance an organization to enjoy relatively strong profits. Normally, a strategic resource is defined as an asset that is rare, no suitable, difficult to imitate, and valuable. A resource is something valuable to the level it enhances an organization to create some strategies that takes advantage of opportunities and ward of any potential threat. 3.1. Tangible Resources 3.1.1. Financial In terms of financial resources, Tesla is a fairly stable company with a current ratio of 0.97. According to Fleming (2014), this ratio implies to a near perfect ability of covering their current liabilities. Typically, the company dedicates about 3.74 times the amount of property, research, debt to equity, and extensive intellectual property to financial activities. 3.1.2. Physical and Technological At the ends of 2012, the Tesla property was valued at $562.3 million, equating to almost half of the company’s total assets. Fleming (2014) argues that this figure is quite substantial and denotes the company’s long-term sustainability, growth, and profitability. Tesla Company is equipped with one of the best physical and technological resources in the world(Anon n.d.). Fleming (2014) points out that the company’s physical and technological resources are really significant to its competitive advantage. 3.2. Intangible Resources 3.2.1. Human Resources The human resource advantage for Tesla Company is largely credited to the CEO and Co-founder Musk. Mr. Musk has been the man behind all the critical decisions of the company, ranging from vision to strategy. From his own accumulated wealth, Musk is known to have contributed a lot of capital to the company. Above all, the man has been at the fore-front to helping the company to overcome different challenges. Fleming (2014) calls musk as an epitome of the 21st century with the kind of wisdom of leading companies to greater business heights. 3.2.2. Innovation and Creativity Tesla is founded on a strong creative and strong environment. The technology, development components, and research of Tesla are touted to be the factors that are responsible for the competitive advantage of the company. Through this competitive advantage, Tesla Company has been able to develop some creative solutions that have helped the company to manufacture an electric vehicle that is fully operational with a long-life battery. The four main innovative strategies that are driving Tesla forward include power control, rapid charging, innovative drivetrain, and regenerative braking (Fleming 2014). 3.2.3. Reputation The objective to alter the normal operational culture of the automotive industry has been the main concern for Tesla for many years. Tesla has been committed to ensuring that vehicle consumers have refrained from using oil and gas vehicles. Fleming (2014) opines that the company has been in the fore-front in ensuring the environment is protected by manufacturing vehicles that are compliant to ensuring no harmful substances are emitted. 3.2.4. Organizational Capabilities Tesla has been founded on turning intangible assets into very creative outputs. Taking into account the critical application, research, and development, the company’s success is based on these principles. 3.2.5. Value Chain Analysis The value chain of Tesla is mainly controlled and managed internally. Over every aspect, the value chain of Tesla maintains control, ranging from development, manufacturing, customer-facing to research (Fleming 2014). Every point of production and assembly is controlled by these factors and thus they create a certain efficiency that is not superior to the traditional automotive oligarchy. The differentiating factors are responsible for creating their value chain. In terms of competitive advantage, these factors have ensured that the company has stood out from its competitors in the business front. 4. Analysis of PR crises The Tesla Model S fire crisis is one of the major public relations the company has been struggling to deal with in recent times. At its launch, the Tesla Model S had a good start to its existence that is was branded as the best ever tested electrical car by reports of the independent automotive magazine. Out of a score of 100, the model was found to be 99%, with the only problem being the time of recharging as compared to gasoline cars. In terms of safety, the car was labelled the safest car ever tested by the American National Highway Traffic Safety Administration (NHTSA). However, Bigum (2014) reveal the Tesla Company started to experience some public relations problems due to the problems their model S started to have. Fire incidents involving the S model hit the headlines all over the world, making the company to face one of its serious PR challenges in its history. 4.1. General findings To correctively analyse how Tesla has handled it PR crisis with the media, the findings should be divided into form and content. According to crisis communications theory, content is defined as what an organization basically says and does Bigum (2014). On the other hand, form is defined as how a specific organization ought to respond to crisis. The first section includes the content and how Tesla has been able to successfully handle its communication with the media. Tesla has been able to successfully to manage to handle its PR problems in the media. In a nutshell, the adjusting information by Tesla has been the summary of the accidents as well as the mitigation plans that have been put in place to stop future occurrences. The media seems to accept Tesla’s adjusting information because of the use of the victim stakeholder approach (Coombs 2004, Aertsen, Jaspaert, & Van Gorp 2013). The media interprets this approach from Tesla as being very objective. Precisely, this is an indication that the role of the media in gate-keeping is more willing to include this form of information, because with victim stakeholder there is a lot of validity and content to the corporate fraternity. 4.1.1. Content 4.1.1.1. Deny Posture Tesla has been able to utilize the deny posture both in the attacking the accuser, scapegoating and in denial. In general a term, this strategy of dissociating Tesla from any connection to the fire crisis has not been well consumed within the media circles. It is just only one media outlet that has been able to cover the response from Tesla, which mostly entails pointing blame fingers to the accuser. 4.1.1.2. Diminish Posture Justification Tesla has been widely using the diminish posture justification so as to reduce the negative impact and crisis responsibility caused by the crisis. This strategy has in return been used by the media, meaning that the strategy has to a greater extent worked. A bigger factor in the success of this strategy depends on the technical details as well as the multiple comparisons to gasoline cars. 4.1.1.3. The Rebuild Posture of Compensation Tesla has been utilizing direct efforts and actions when addressing stake-holders. The strategy involves three sections of compensation and they include car update, extended fire warrantee, and potential retrofit, and all are included in the media coverage. 4.1.1.4. Bolstering Posture The company has been employing bolstering posture in order to improve its relationship with the stakeholders as well its reputation in the outside world. It has been however very difficult for Tesla to include these strategies in the media coverage. What they have only managed to include in the media coverage is the reminding strategy. The media has failed to cover the ingratiation strategy by Tesla of praising stakeholders including investigative journalists and victims. 4.1.2. Form 4.1.2.1. Be quick Stakeholder theory asserts that organizations ought to respond swiftly to crisis, because just like the media, stakeholders require the information of the crisis circumstances. Put into Tesla context, the company has not been able to respond quickly to the fire crisis. The press release from Tesla Company regarding the third and fourth fire incidents were reported after three days since the incidents took place. 4.1.2.2. Avoid No Comment Public relations require avoidance of such answers like “no comment.” In the minds of stakeholders, such comments will imply that you are guilty and that you want to avoid comments because you might make further damage. Bigum (2014) observes that the Tesla spokesman at one point was quoted saying “no comment.” 4.1.2.3. Be Accurate The crisis communication theory asserts that it is better to offer accurate answer because it is better than a quick response. To this one, Tesla has scored because they have been able to respond slowly but accurately. They for instance responded to the third and fourth fire incidents after three days but their response was accurate 4.1.2.4. Be Consistent The crisis communication theory requires all members of an organization to be well informed so as to offer consistent answers (Harrison & Wicks 2013, Bridoux & Stoelhorst 2014). The Tesla Company has not been able to score in this aspect as only two members are mentioned in the report of the fire incidents. 5. Strategic Analysis 5.1. Business Level Strategy Part of the business level strategy of the Tesla Company is to grow the business organically through the expansion of its product offering, producing more attractive products, producing more affordable products, and expanding globally. University of Oregon Investment Group (2013) contend that the company is planning to launch a new model in addition to its current Tesla Roadster and Model S. Tesla is looking forward to launching model X, and bring it to the market in 2015 (Milstead, D 2013). In addition to launching model X, Tesla is planning to lower the price of model S by launching a cheaper version to it. This strategy will allow the company the space to gain competitive advantage in the market of electric vehicles. As part of the future plans, the company is planning to launch innovative products into the market. Tesla has been committed to producing innovative products to the automotive industry. Besides the fact that the company produced an all-electric car that moves at a high speed of 60 in 4.2 seconds, the company has also included some of the most spectacular technology in the internal make-up of the car. In the future, Tesla is planning to continue producing very innovative cars that will completely change the face of the automotive industry. University of Oregon Investment Group (2013) posits that one such innovative change will be to increase the overall range their cars can move after every single charge. In the year 2013, Tesla opened several stores in Asia and Europe as part of its continued business strategy to ensure it has capitalized in those areas with high customer demand. The plan is to increase the supply of its brands in oversees market. Currently, Tesla does not have any supply of the model S in oversees market. 5.2. Cooperative Strategy: Strategic Alliance Part of the cooperate strategies of Tesla has been forming alliances with other firms. Liu et al (2014) argue that Tesla cooperated with Panasonic to develop more efficient batteries. In addition, Tesla has been cooperating with OEM manufacturers such as Daimler and Toyota. The elaborate plan to cooperate with Toyota is to manufacture more efficient electric vehicles (UNITED STATES 2012). Toyota has been in the industry for long, so their innovative expertise was touted by Tesla to be one of the best. In terms of production and engineering, Toyota is well placed because of its long-serving period in the car industry (Mangram, 2012, Mangram, ME 2013). 4.2.1. Powertrain Component and Related Sales Tesla entered into partnership with Toyota in 2010 to manufacture a powertrain system to be used for the fully electric Rav4. This partnership was believed to profit Tesla with huge amounts money, in the region of $100 million by 2014. This relationship with Toyota is believed to be the greatest strategy by the managers of the company as the greatest deal to move the business of the company forward. 6. Conclusion As observed in the analysis, Tesla can be said to be having some strengths and weaknesses. As for strengths, the company incorporates hundreds of patents for research programs with the aim of manufacturing some the best electric car brands in the world. Due to the excellent R&D program, the company has a legal competitive edge to protect its interests over the established oligarchs in the automotive industry. The organizational capabilities of the company have ensured that Tesla has leveraged its assets into multiple sources of revenue generation and are supported by excellent logistical and operational activities that are consistent with use of high technology. For instance, improving battery strength has been at the core interest of Tesla management and strategic planning. The company is placing itself as the leading provider of electric cars, especially in North America and Europe. Tesla is at the same time leveraging their development and research programs to extents of creating beyond their own vehicles. This has been helped by the partnerships the company has been entering with other companies such Toyota, Mercedes Benz, and many more other companies. The CEO of Tesla, Elon Musk has been the most invaluable source of knowledge and inspiration for this company and he has proved to be indispensable for the company. The single location of manufacturing in California is one of the main weaknesses the company is facing. Public relations problems have also been other critical challenges Tesla Company has been facing in the recent times. Previous fire incidences involving Tesla cars have been well documented, and these have remained to be an issue in as far as the image of the company is concerned. References Aertsen, T, Jaspaert, K, & Van Gorp, B 2013, From Theory to Practice: A Crisis Simulation Exercise, Business Communication Quarterly, 76, 3, pp. 322-338, EBSCOhost, viewed 12 April 2015. Bose, R2008, Competitive Intelligence Process And Tools For Intelligence Analysis. 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Appendix Appendix 2.1 Appendix 2.1: Electric vehicle incentives in Tesla’s main markets (Praem 2014). Appendix 2.2 Appendix 2.2: Sales growth (%) and how it was related with GDP Read More