Automotive Industry and Tesla - Case Study Example

Automotive Industry and Tesla Name: Institutional Affiliation: Automotive Industry and Tesla Company Background Since the inception of TESLA Motors in 2003 by a group of silicon engineers, the company has grown in popularity and sales. The engineers that founded the company wanted to prove that electric cars can also be awesome. The company uses an AC motor that descends from the original design of 1882. The company’s headquarters are located at Palo Alto, California. It has over six thousands employees. Furthermore, it has stores and service location in over 125 countries. However, the company is still meditating on expanding its presence in other parts of the world. This is aimed at reducing the risk and uncertainties associated with concentrating on a single market (White & Ingrassia, 2014). Market Forces TESLA is operating in a market that is largely dominated by multinational companies. Furthermore, with the increasing levels of globalization resulting from liberalization of markets, efficient flow of information, technological advancement, and integration of markets, the level of completion in the automotive industry has increased tremendously. This has resulted from the entry of global companies which have a huge financial base to segment the market, position their products strategically in the market, and attract the customer loyalty towards their products. This has affected the demand for the company’s cars. This is because people are still glued to their preferred model and they are unwilling to change their tastes and preferences to new entrants because they are concerned about the safety of the cars being produced (White & Ingrassia, 2014). Furthermore, the major players such as General Motors have been able to contract major suppliers. This is to prevent them from being lured by the competitors to frustrate their production process. As a result, the company has been struggling with getting a constant supplier of the necessary materials. This aspect is making it hard for the company to increase its overall complete units. This explains why the firm has just produced approximately 2500 Roadsters in 2008-2012. However, although the number has gone up in the past two years, the company is yet to reach its full potential. Industry Trends Automotive industry has changed its focus from producing to satisfy the demand to developing new and innovative cars which will play a significant role in developing customer loyalty towards their brands. As a result, the companies in this sector are increasing their budget towards innovation. Furthermore, the firms are diversifying their markets to different parts of the world. This is in an attempt to increase the market volume and position their brands in the new markets before new investors become interested in the same markets. This has enabled major firms such as Toyota, Honda, and General Motors to set up barriers of entry for the new businesses (White & Ingrassia, 2014). Global warming is threatening the sales of various cars in the market. People are becoming more concerned about their environment. Therefore, major players in the industry are shifting towards producing cars that emit a small amount of harmful gases. This is aimed at capturing the interests of environmentally conscious people. Therefore, for TESLA to penetrate the market, it must draft new strategies of tackling the competitive challenge being posed by the competitors. Major Affects One of the major aspects that are influencing the automotive industry is technology. In the past five years, major car producers have invested heavily on the current technology. This aims at reducing the cost of production. Technological advancement has enabled many firms to produce a high number of cars in order to meet the increasing demand. Moreover, the toughening economic conditions which results from the integration of economies has created a challenge to the business to look for more effective ways of reducing human labor. Therefore, many businesses are now able to produce high quality cars at very low costs. Hence, they are using low cost strategy to attract the customers and expand the market through incorporating low income earners in their segmentation strategy. However, although TESLA has been investing heavily in the latest technology, it has not been able to reduce the costs of the cars significantly. As a result, it continues to target customers of high social class who can be able to afford their cars. Nevertheless, the largest market segment composes of middle and low income earners. Therefore, in order for TESLA to increase its profit margin which will be crucial in supporting the company’s expansion program, it should focus more on investing in the modern technology. TESLA has put more focus on the American market. This is influencing its growth because the market has been hijacked by General Motors. Therefore, the sales in the market are very minimal to support the expansion program that will lead to an increase in the company’s overall profits. Furthermore despite the company majoring on a new venture of producing electric cars, there is less effort which is directed towards marketing of the cars (White & Ingrassia, 2014). As a result, majority of the American population are not aware of the existence of the company and its products. Areas of Improvement TESLA should improve its marketing strategy. With the current digital age, competition has shifted from the market to the media. Winning the media battle means winning the markets’ heart. Major automotive companies are using a large part of their profit towards marketing their brand name. Therefore, in order for the company to achieve a long term objective of stepping in the global market, it should increase its funding towards the marketing department. The company should focus on audio, visual, and print media. Moreover, it should turn its attention towards the social media (White & Ingrassia, 2014). Currently, companies are using social media to market their products. Customers are shifting from traditional media to social media in order to search for their product of choice. They are therefore, using the reviews of other customers on the products to make their purchasing decision. Businesses are also using social media as a research tool. With the increasing competition, market research has become an expensive activity. This is also because many companies have internationalized their operations. TESLA should therefore shift towards the social media in order to conduct a thorough research on the target media. In addition, it should collect frequent responses from the customers (White & Ingrassia, 2014). This would make it possible for the business to make the necessary changes when needed, an aspect that will improve its competitive advantage in the market. At the moment the company can use a quarter of its profits to reach the target market through advertisement. TESLA should improve its customer relationship management. Currently, customer retention is very significant in the modern market. This is an important aspect during the penetration of new markets. The company should develop a system that will be used to track the customers and communicate with them frequently. Their purchasing behavior should be recorded frequently. This system will not cost a lot of money to introduce. However, its impact is very high. Therefore, the intervention will require approximately, 50,000 dollars to start operating. This will be strong enough to keep records of customers who are located in different parts of the world. Projections In case the company implements the above recommendations, it will record an increase in the number of sales. This will be replicated in the overall profits of the business. However, if they are not implemented, the firm is likely to lose its market share to the multinational companies which are ready to take risks in order to increase their market share. Moreover, the implementation of both recommendations would increase the company’s global reputation. Therefore, it would reduce the cost of internationalizing its activities. References White, J. B., & Ingrassia, P. (2014). Comeback: The fall & rise of the american automobile industry. New York: Simon & Schuster. Read More