Strategic Analysis of Tesla Motors - Case Study Example

STRATEGIC ANALYSIS REPORT: A CASE STUDY OF TESLA MOTORS Executive Summary Tesla Motors was formed with the motive to have renewable energy use in automobile so that it helps the environment have a potential to earn from it. The use of technology of Tesla has been phenomenal as being a new firm it has crossed its nearest competitors in EV sales at US. Comparative analysis of the technology and utility that has given the brand a futuristic view of events that would build its strategies for further growth and development is discussed. The secondary sources have been used along with relevant theories where the context is equated with the Tesla’s case. The Asian nations like South East Asia, China India, Australia like markets have great potential for development. The competitive positioning needs to be cost based for higher range cars while the mass production of lower end cars or utility vehicles is going to be the ‘next big think’ where Tesla’s strategic edge shall be determined by their ability to grab bigger market share and keep developing superior EV cars. The recommendations are based upon the various developments those are occurring in the market. The development and strategies for improvement is the way that Tesla can afford to stay the way it is in trend where it aims to achieve a bulk of the forecasted 10% of EV. The use of Logistics and replicable mass production facilities with its cost effective infrastructure building needs to be the future guideline for strategic planning. The use of government policy guidelines like reduction of tax, rebates on EV purchase should boost the demands and Tesla is recommended to take the situation for its benefits. Table of Contents Table of Contents 2 Introduction 4 1. Analysis of Competitive Forces 4 Macro Environment: PESTEL 4 Porter’s Five Forces 6 Industry ILC Theory 7 2. Internal Strategic Analysis of Tesla 8 (Source: Wessner, 1999) 9 3. Public Relations: Ethics, CSR and Stakeholders 13 4. Strategic analysis and Suggestions 15 Reference List 20 Introduction The case of Tesla motors has been chosen to do a market analysis and review of the US Car manufacturing industry. The development of a business on the strategic basis of environment friendly automobile production for Tesla is an unique one. However they have competitors too who are into the same segment and are coming up fast globally. The strategic models of production, operations and integration of innovation are been critically analyzed to develop an over view of Tesla motors. 1. Analysis of Competitive Forces The analysis of Tesla motors is done in a macro-environmental perspective using the PESTLE model while Porter’s 5 Forces would suggest the competitive dynamics in the market of car manufacturing. Macro Environment: PESTEL The external environment for a business incorporates the study of various factors in a market that business is in, which gives the business a guideline to formulate its strategies to take best advantages from them (Hodgetts, 1991). However, the other view is that PESTEL enhance the capability of prediction for future issues those may occur and helps business to strategise accordingly to avoid any harm. Political: The political effects on a business represent the legislative and political framework of a nation in which the business operates. Therefore to combat the threat the business gets a policy wise support from the US government that has announced a tax credit of USD 7500 for Electronic Vehicle (EV) purchase and further the State Government of California has added a rebate of 2500 USD to boost the EV sales in US markets. The Zero-emission vehicle (ZEV) have shows its implications for both producers and users. Boost that the Political situation is creating has effects on the EV sales that encourage lesser use of fossil fuel. Further the sales and marketing designs that let the Dealerships had paid employees in-house to sale their products instead of developing an elaborate chain of outlets and Tesla even developed the online sales programme. This was not taken well by a lobby and the states like Texas and North Carolina to help the dealership lobbies those sold other cars or traditional fossil fuel cars, which had better margins. These are few political factors effecting Tesla. Economical: The business was new and was developed on a very new model that was not traditional assembly line which had the advantage of lesser space, in-house production of parts and the design was such that helped to assemble different variants in one chain and it made the production cost come down to a third of traditional assembly plant size which a capacity of producing 21,000 cars each year needn’t needed the manpower extensive and space dependent for up to 100,000 cars each year. Social: In US where the average car citizen and their car ratio is near 1.17 while it’s also estimated that an average household spends 15% of their income in car maintenance and use as on 2011. Considering all the future of Tesla is seems good where they wish to double their production by introducing high end racing cars and use the revenues for lower cost utility vehicle for mass production. Technological: This lithium-ion technology is new and has the entire function integrated in the 17’ panel set for rider’s ease of selection for utility. The rear wheel drive, battery placements at the base with centre of gravity equally distributed in each corner of the car makes the driving fun and easy over the other traditional technologies. Inputs like battery for better efficiency reduce the anxiety of the riders about the charging tensions and also are an eco friendly approach. Nevertheless, the development of integrated software has made the efficiency of road safety but also made maintenance of car with wireless technology. Economic: The possession of EV is a cheap option for the users in the longer run while the Car manufacturing units of US that represents 3% of the GDP and employs over 1.7 million people would have the opportunity to develop this market that has been now been keener towards Japanese Utility vehicle those are cheap and have more fuel efficiency per gallon. This trend is expected to change if the new trends of car sales. Legal: The previously discussed changing norms of European Union and US that are concentrating and encouraging EV production to have a non polluting automobile to come in with legal benefits like tax rebate and shall have a major effect on car manufacturing. Porter’s Five Forces The competitive dynamics of the Porter’s 5 Force as proposed in 1985 shows the market situation for a business determining its position to its competitors (Amrollahi and Akhgar, 2013). Thereat of New entrants: The threat from new entrants is high for EV manufacturers. The government support and the in-house capabilities of the manufacturer for integration and assembly at a lower cost and better flexibility has made the difference which creates the barriers of entry into such sector easy for new players. Bargaining power of the Buyers: The power of bargaining in EV segment is moderate for the consumers. The government support along with a smaller competitiveness in the EV segment has made the choice of consumers open for EV but the cost of change would be higher for the users which keep the bargaining power moderate. Threat of Substitutes: The substitute of EV is practically none other than cycling or walking involving a lot of physical activities and is not actually a substitute in strict sense. Used cars can be an option but do not compete as a substitute at all when it comes to ZEV segment. Further, services like Hartford Electric light Company like individual service providers who offer exchangeable battery services make the power sources convertible but the customization and cost involvements in such a venture is not that motivating for consumers. Again, such services are very rate and are not a sector as a whole but a substitute that is into conversion business and not manufacturing. All these keeps the threat of Substitute low for the sector altogether. However, the market is gaining momentum and the same would change the threat perspectives gradually and radically with growth of oligopolistic market modifications (Boyacigiller, 1991). . Bargaining power of suppliers: The EV industry is new and needs various supplies which are technologically superior and are specialized in its own field. The example of Panasonic is one, which are supplier for Tesla, where the Research and development activities with continuous design and use of materials is evolving, for improvements. These additions along with a very few suppliers like Lotus for Software and control enhancements has made the bargaining power of suppliers high in this sector. This may change with time when there is more competitiveness. Industry ILC Theory The late 1800s saw the advent of EV concepts and it is still developing. The life cycle of the product therefore at a stage where it is standing on a space that has given it the needed impetus for demand creation and further development. The segment is comparatively new in industrial terms and is yet to reach its peak since the innovation has no limits in this form. The change of design and growth of market in outbound markets like china has just started. Research and development along with mass production and demand generation for Global EV is yet to peak. Thus the lifecycle for the sector is in its initial stage, as just started, and peak in automobile segment (Bloomberg, 2015). This gives the business to be the first mass Auto-producer evolving after World War II in US and have a larger potential to start from here on. 2. Internal Strategic Analysis of Tesla The internal strategic analysis would give the idea to the managers of how to best utilize the effectiveness and efficiency of the business operations to be at par with the competitive businesses in the same market. The selection of the model in this case suggests the view that management can use to get an overview of the business in consumer’s perspective and add resources and processes to have a value increment. The same for Tesla is discussed from its innovation and operation perspectives. The Four box business model from Johnson and Christensen the 4 box business model is as follows. Figure 1: Four Box Model of Business Analysis (Source: Wessner, 1999) Consumer’s Value Perception: The technology is a big part in the Tesla’s product and production where the entire outlook and product was something new and had a specific target to build cars that suites US consumers while have minimum effects on environment. However, it may be pointed that the structure of the management and newness of the business incorporation compared to its competitors may have a perception challenge among consumers. The business has developed a partnership with Panasonic to develop batteries with longer power back up while takes least time to get charged (90 Seconds). The Tesla cars have been widely supported by the government who is aware of the environmental damages that car pollution causes. The newness of technology that remains to have a wider and complete pros and cons study left, gives the impression of a car that runs with Electricity. Today other than Tesla (that started as a specialized business of EV manufacturer) other traditional Automobile manufacturers like Nissan, Toyota, BMW, GM, Honda etc are entering this EV market along with their products, simultaneously. Un-proved technology has the disadvantage of fear and is unsure of electric fuel charged automobile, from consumer’s perspectives. However the concepts are fast changing. The multiple entries of businesses with large investments into EV sector is happening as the perception of consumers are changing. The other threat is innovation in the same segment which may change the dynamics making Tesla another example life the Fisker Automotive. Profit Formula: The economical advantage with in-house technology use and economy in loner run with friendly government policies has made the financial aspects of the Tesla business stronger. The social or the cultural aspect of consumer’s inherent beliefs has made the market to develop a taste Tesla’s business to follow the policy to improve and develop the EV which had ZEV a trend of consumption with few constraints like fuel or charge used by the car being a choice of car purchasers. The Electric Power train venture with Toyota that expects the business to generate the other branch and diversification giving the scope to diversify on railroads too, another 300 million USD project with Daimler is the pipeline. This is the diversity in terms of business’s value chain development that would give it flexibility to be reliable on two products instead of one. The governments’ and social behaviour is the biggest opportunity. The strategic growth of the Nissan’s volume of sales has failed which gives the Tesla to use the same market trends for EV to use and increase its market share. The efficiency that the business has used in doing Research and development has made most improved battery, increased efficiency. Again the in-house production and assembly of the 90% of entire production cycle has made the business more cost effective to its competitors, giving cost and operational flexibility. The Government and social attitude is the best opportunity to be used. The combination and flexible capability of Tesla to produce different cars and designs in platform with nominal changes and lesser supplier has created both cost effective and efficient machines. Today being a new company the market capital of Tesla is a quarter of BMW already and is growing and in 2013 first half the brand has exported 40,000 cars to Europe. The model that the CEO wishes to operate in is to make high end cars and utilize the sales revenue to produce cheaper utility EV for mass consumption. Therefore the model states that the sales of high end cars have to succeed to make such a thing happen. Nevertheless, the Board of directors are from non-automobile segment prior to formation of Tesla that may be a threat when it comes to making a technical decision making going wrong. Key Processes and Resources: The US average population to car ratio is 1.17 and this represents the huge potential that Tesla has in its own market. Further the cheap sourcing of material from the businesses that could not fit the competitive market scenario is sourced making the entire production cycle cheaper and faster which enables to create the volume without much changes in production line. The other one is the benefit of service that is led by a mobile Tesla Range names team of mechanics and engineers while another part is that being a Lotus (The IT Giant) partnered product the design has integrated wireless maintenance and monitoring facility helping clients to have maximum efficiency while giving the preventive maintenance. Nevertheless, the example of Nissan’s Leaf was used to compare the offerings in the segment. In 2007 Nissan developed its mass production infrastructure for Leaf the EV with Renault did their shared investments in UK and US which Tesla is yet to achieve as they are US based. Therefore the scope of Europe market gives Volkswagon and Nissan an upper hand in terms of location presence. The sales model of Tesla has a conflict of interest with the dealership lobbies that may lead Tesla to invest upon new distribution system development for future growth. The dealership lobby is a current threat that might make the business changes its marketing operations. Further, since the parts of Tesla cars are customer made the spare parts market have standardised spares on the shelf making the cost disadvantage for consumers for repairs or replacements. Value Chain analysis The best part of Tesla is in its value chain development where its model has been a quarter of the other traditional manufacturer giving it an advantage over others. The value chain generated by building the business manufacturing, research and development while making Business to consumer relationships reducing distributor’s commission and extension of product line had been a value addition developer for Tesla. Figure 2: Value chain analysis Flow (Source: Faulconbridge, 2015) Inbound Logistics: Tesla has developed a process to develop and assembly of products in a fashion that makes 90% of the assembly and production in-house. Panasonic is their major partner in its Battery Development projects. Therefore since the suppliers are less the integration is mostly in-house the value chain of inbound logistics in terms of cost advantage of Tesla is huge. Operations: Unlike other manufacturers Tesla has assembled and produced the needed parts in their plant itself which are customised. However the production line has been assembled in a way that is very flexible which gives not only cost but time and skill advantage as well for Tesla over others. One production line for several designs is the key behind the value generation for Tesla along with other various reasons. Again the team is new and innovative which give a competency to Tesla to stay from stretch and produce and train its manpower in accordance to their needs and not traditional recruitments which have larger cost involvements to gather experienced people for a new production facility. Outbound Logistics: The Outbound logistics has shipped 40,0000 cars to Europe in 2013 but the distribution and adding value out of outbound logistics needs to be developed by the business by incorporating the manufacturing facilities all across, near to the market to achieve best values out of production. Marketing and Sales: The marketing started where the business has paid employees at distributor’s outlet to gain consumers for Tesla that made the law formation from manufacturers lobby to have one distribution for one particular brand. The savings by not going for new development of stores and franchisees has given Tesla a cost benefits. With the use of e-commerce means the businesses has further reached closer to consumers without much change in business strategies and add cost advantage. Services: The development of the car was made with IT giant Lotus which has formed a control that enables preventive maintenance and wireless monitoring easier for the business to get a low cost on services. However the critiques have the view that the Tesla rangers used by the brand to do physical maintenance is going to be costly in the longer run while the custom made parts too make act as a disadvantage to services, post sales stage. 3. Public Relations: Ethics, CSR and Stakeholders For a business the primary objective is to venture into a market with a competent offerings that would generate returns to the investors and also serve the community and society in which it operates to get an image for itself and have a stronger image for long term sustainability and market share. Nevertheless, Faulconbridge (2015) suggests the strategic outlook of a business determine the lines of ethics it flows and therefore gives an observer the Corporate Social responsibilities and stakeholder’s involvement and intentions with its market operations. Thus from the Public Relations point of view the operational style of the business and its culture is evident from its CSR and Stakeholder’s involvements. Ioannou (2009) suggests that for a business to be multinational needs to develop a culture of change and social acceptance to exploit the cultural differences while transverse geographical differences. Developing a organization wide objective and operational ethics clarity can let the forwards movement possible for Tesla. Ethical Perspectives of CSR: The impact of environment is huge when we compare the statistics of pollution caused by automobiles across the globe using fossil fuel. Further the depleting resources of Fossil fuel have added to the problem for humanity and its growth too. Therefore the idea of having something that has the ability to change the environment and help humanity socially is the target of Tesla which has the opportunity to build profits inbuilt in the model of CSR itself. The business objectives of Tesla have helped in developing its strategies. Further the change of habits of using EV instead of traditional vehicle has not yet been developed and has seen the closing of such manufacturer in the past as it could not compete financially or otherwise with traditional companies. Here comes the ethical outlook of Tesla which instead of having a wide range of barriers could sustain it and is committed to a long term battle to improve the EV car market scenario. Therefore they have invested into development of free to use supercharger stations for consumers using EV which is deemed risky as the volume of EV to traditional vehicles is low. Therefore this is a huge investment but is also a step forward that would build the needed physical infrastructure for community to get involved in EV acquisition over the other cars. Therefore the ideology of having the environment friendly zero emission vehicle for its market share to grow and in the process would increase the market share of Tesla alongside generate the socially needed change of perceptions about EV. The safety features and recyclable batteries of Tesla have improved the opportunity of cost savings and lesser anxiety for this new technology support availability. Further, the innovation dependent sector of EV has the ability to increase the market share globally with innovations that would make the American society to generate jobs and reoccupy the lost space in the global automobile markets. Thus the organizational motive as discussed is to be the largest car manufacturer of this new-gen car of EV and be the mass manufacturer. The other big benefit that the researcher identifies is the competitive growth of the ancillary industries like battery manufacturing, alternative renewable energy development and supply companies a boost aiding other forms of pollution control measures. Therefore this has given the substantial ability to the businesses related to develop and grow and improve for a sustainable CSR and ethical structures. The growth of the corporate structures and style of functioning is another key for a business’s improvements. Vertical integration of capacity for mass production and horizontal integration off continuous improvements would enable product development and market development and generate awareness among the people about the long and environmental utility that would initiate a change in the traditional approach towards environment friendly ways and products, generating a social change steadily (Johnston and Bate, 2003). However it is also very evident that the competitors are coming up fast with new technologies and innovations to aid the EV sector. Therefore Tesla needs to develop its local markets for a future global share and market presence. 4. Strategic analysis and Suggestions The corporate strategies of Tesla are unique as the line of production is new in itself. The three major strategies that are identified are as stability, growth and Turnaround strategies of business (Sharp and Zaidman, 2009). Tesla follows the stability policy along with growth. Since the concept is to establish the product and innovation in global scale and market is primary. The expected growth is projected to be 10% of entire volume of automobile by 2020 and would increase subsequently. The objective of the business is to be the largest mass producer of EV globally. Thus the business is investing heavily into infrastructure development and innovation to see the future stability and growth (Usselman, 2002). Further, the inward look into the macro environmental factors that give insight into the future developments for better guided strategies which would lead the business to success. The Growth strategies that the business is following is to consolidate upon the business line in the sector and diversify into other sectors to balance the risks that may come due to unevaluated macro or micro changes those have adverse effects. However, Spiekermann and Wegener (2008) suggest that the corporate strategies are formulated keeping the stakeholder’s expectations in mind which gives the objective opted for. Nevertheless Morsing and Roepstorff (2014) argue that the power politics among the stakeholders forms a major part of the strategic decision’s guidelines. Within organization there is a formal structure of hierarchy, influence and control capacity over the resources, power of skill and competence along with the ability to control over ecology and involvements in execution of the decided policies. This goes for the internal stakeholders while the external stakeholder’s control of strategic resources like market, demand, investments is greater and also have a great deal of influence on internal environment and have influence on strategic implementations. Possession of knowledge and skills and influence on internal links by external stakeholders is another factor (Mazzucato and Semmler, 1999). So when stakeholders are integrated with their ideas in business it gives a better result in terms of objective formulation and resource utilization. New market development shall be the key to the futuristic growth and development for Tesla. The amount of investments for such market development models and plans has to be grounded first which shall give the business an edge over others to establish plants and logistic networks for EV production. The changing dynamics of Global business needs localization for Globalization as the value chain with outbound logistics shows above. Nevertheless, the savings and skill development are issues which also needs to be addressed where in Future markets Economy of Scale would matter as the key to differentiate and be profitable in near future, as it is in traditional car industry today (Boyacigiller, 1991). For Tesla the 2013 FYI saw Tesla outperforming GM and Nissan in terms of sales volume. This indicates to the reader that the brand that is new to the aforesaid has developed and used innovation as key to growth. The brands are closer to the idea of ‘me too’ in the EV segment however for Tesla the ZEV and EV was the core of its business development. Therefore the research and development, integration, usage benefits, superiority in technology was focused onto one particular segment over the aforesaid competitors. Since the US is the market where people with licence to car ratio are 1.17 and the market is huge which in future has to change due to the environmental needs have a great advantage over other manufacturers. Tesla is suggested to use this space to occupy the market where older cars get disposed for a new EV that suites both social and environmental need to make the profitability better. The sales of new car give the retailer a margin that is higher in case of Gasoline cars and have some legal restrictions. Tesla may look it as an opportunity to deal in E-commerce mode to take and deliver orders reducing the number of dealership development they need to do for physical sales. Again the acquisition of machinery at lower cost was another strategic advantage for the business which reduces its infrastructure cost low. Therefore via e-commerce they save an amount otherwise commission would have taken while the lower cost of manufacturing facilities would further give it a cost advantage which enhance consumer’s product value perceptions. Figure 3: Ansoff’s Matrix (Source: Sharp and Zaidman, 2009 ) Thus as per the matrix have two dimensions like product and market where the other two markets are New and Existing. Other than that the matrix insists upon marker penetration, development diversification and new market acquisition. The strategy for growth of Tesla follows the entire 4 matrix well in each of the market that it is in. Tesla has developed market and diversified for Rail Car technology in US, as an extended business wing. Further in new markets they need to establish a market and social awareness and for existing markets it needs to grow the market share in the sector that it has in 2013. Manufacturing most of items in-house along with specialized suppliers like Panasonic for Li-Ion batteries superior to its nearest competitors have added advantage where the business could add to its economy of scale. The production strategies or internal operations are such that it can be modified for larger mass production of a variety of vehicle without many changes in production line. The utility of design has given the space and the touch screen panel has made the drive safe and more reliable for the car users. The recommendation of developing regional markets where such production model can be adapted would give Tesla the lost glory of US car manufacturing and market share as was in 1960-70s. All these activities shall need to have a mix of price and quality standard that attracts the consumers of international markets. The issue of climate change along with speed and style are key to Tesla’s success. 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