The Strategic Management Analysis of Tesla Motors Inc - Assignment Example

Report on Tesla Motors Inc Executive Summary The report is designed to demonstrate the strategic management analysis of Tesla Motors Inc. Tesla Motors, Inc is an automaker company, which manufactures, designs, and sells the electric cars as well as electric motor vehicle powertrain parts. The products of the company are electric luxury cars, rechargeable energy/power storage systems, and the automobile components. External environment analysis has been carried out to show how these factors have an impact on the operations of the company. Porter’s five forces analysis have been carried out to find out the temperament of competition within the automobile industry. The core competencies of Tesla Motors Inc lie in powertrain as well as in vehicle engineering. They have adopted focused differentiation tactics/strategy because it covers small segment of people who are less price sensitive and lies under middle to high income group. The company is concerned about its social responsibility and due to this reason manufactures electric cars and signifies that they have adopted the green initiatives. The report has focused on the business level and corporate level strategy of Tesla Motors Inc. Global strategy such as transnational strategy and the cooperative strategy have been suggested for the company to improve its efficiency and productivity. Modes of implementation should be strategic alliance and licensing because it will assist the company to increase its prestige and get high return on the invested capital. Table of Contents Introduction 5 Q1. Analysis of External Environment 5 1. Macro environment analysis: PESTEL 6 2. Micro environment analysis: Porter’s Five Forces Model 7 Q2. Analysis of Internal Environment 8 1. Resource based view (RBV) of Tesla Motors Inc 8 2. Value chain analysis of Tesla Motors Inc 9 Primary activities 9 Support activities 10 Q3. Analysis of Public Relationship (PR) crises 11 1. Corporate Social Responsibility (CSR) 11 2. Stakeholder Theory 12 Q4. Strategic Analysis 13 1. Business level strategy 13 2. Corporate level strategy 13 3. Suggested strategies 14 4. Implementation techniques for the suggested strategies 15 Strategic alliance 15 Licensing 15 Conclusion 15 Reference list 17 Appendices 19 Appendix 1 19 Introduction Tesla Motors, Inc was founded in the year 2003 and is headquartered in California (Teslamotors, 2015). It is an automaker company, which manufactures, designs, and sells the electric cars as well as electric motor vehicle powertrain parts. It had launched high-end edition car i.e. ‘Tesla Roadster’ as well as the ‘Model S’ which is a production car and now the company is launching its upcoming electric crossover sport utility vehicle (SUV) i.e. ‘Model X’ (Teslamotors, 2015). The company was first noticed due to the production of their ‘Tesla Roadster’ which was the first entirely electric sports car. In the middle of 2013, the company for the very first time posted its profits. The products of Tesla Motors, Inc are electric luxury cars, rechargeable energy/power storage systems, and the automotive components (Teslamotors, 2015). In developing the battery of the car, Tesla Motors Inc made an unexpected choice. Instead of building up a new special-use battery for the cars from starting, it gathered its rechargeable pack of battery from slightly customized commodity (Teslamotors, 2015). The main aim of this report is to analyse the external environment for the industry of Tesla Motors Inc, which includes the PESTEL and Porter’s five forces analysis. Analysis of internal environment of Tesla Motors Inc will be also taken into consideration including the resource based view and value chain analysis of the company. Further analysis of public relation crises will be done with the help of organisational ethics and corporate governance theory. This report will also include the strategic analysis of the company by taking into account the business level and corporate strategy. At last, an appropriate strategy will be suggested for the Tesla Motors, Inc. Q1. Analysis of External Environment An analysis of external environment provides information about the competition, business’s industry, and social and political environments on the macro and micro level aspect. These factors have an impact on the operations of the company but are not under the control of the company. Transformations in external atmosphere are mainly caused by the factors which are not under the control of the company. Regularly executing an analysis of external environment can help the companies to maintain or create the competitive advantage (Analoui and Karami, 2003). The external environment investigation for the industry of Tesla Motors Inc, i.e. automobile industry will be carried out. 1. Macro environment analysis: PESTEL A PESTEL (political, social, environmental, legal, economical, and technological) analysis is referred to a tool or framework used by the companies in order to analyse as well as scrutinize the factors which are related to macro environment and which influences the decisions of the companies. Its outcome is utilised to recognize weaknesses and threats of companies (Bowhill, 2008). Political factors: It highlights the chief regulations and laws, restrictions and security measures that can be relevant to the whole industry itself. The factors which have an effect on the automotive industry are the laws, political climate, taxation policy, and the government stability. Political climate includes laws and policies on export, import, production of automobile components and automobiles. These also incorporate regulations on permitting setting up of the manufacturing plants usually by the foreign companies (Kachru, 2009). Economical factors: It is related to the international economic growth, exchange rates, etc. prevailing in the automobile industry. There were elevated rate of automobile produced or created at a definite time that result in high increase in revenue as well as designs of new product. Due to this, a great amount of income restrained and then also supply was more than demand. For example, the automobile market of UK had an excess of approx 80% capacity in the year 2003, which froze €1.3 billion of the automotive industry (Kachru, 2009). Social factors: It mostly comprises of changes in demographics and cultures internationally, along with transformation in capacity and customer’s buying pattern itself. The social factors which have an effect on this industry are the growth in the urbanisation. The lifestyle as well as the preferences of customers impacts their selection of automobiles. Many customers are price sensitive which also affect the sales of premium automobiles (Rothaermel, 2012). Technological factors: Automobile industry’s technology is getting better in several ways. The technology is growing with various methods of decreasing carbon dioxide imitations and methods of lessening the pace of the battery failure in automobile itself. In the UK, most of the top automobile developers are making vehicles which alternate on dissimilar fuel systems (Kachru, 2009). Environmental factors: Global warming and environment pollution are the challenging issues threatening the car manufacturers. Hence the manufacturers of car should make electric and hybrid car. In UK, most of the automobile developers discovered a means of lowering the air pollution in order to be environment friendly (Kachru, 2009). Legal factors: The automobile companies need to comply with the regulations and laws related to their operations, for example gas emission regulations, vehicle regulations, as well as safety security issues (Rothaermel, 2012). 2. Micro environment analysis: Porter’s Five Forces Model Porter’s five forces framework examine the level of competition inside the industry as well as business strategy growth. It develops five forces which find out the competitive strength and thus the attractiveness or profitability of an industry (Hill and Jones, 2009). Porter’s five forces analysis of the automobile industry are carried out to find out the temperament of competition within the industry. The threat of fresh entrants: In the automobile industry, the threat is generally low because of the capital intensive factor as the quantity of capital which is needed to invest is normally very huge. Therefore, it acts as an obstacle for entry. Government policy and legislations also play a major role and act as a hurdle for new entrants (Ahlstrom and Bruton, 2009). The threat of alternative products or substitutes: In the automobile industry, it is generally high because customers switch easily if they get the similar model at low cost. In case of car industry, there are several cars that look similar, for example the average range Toyota looks similar to the Honda or Nissan. Therefore, product discrimination is very important in this context (Henry, 2008). Bargaining power of the buyers: In this type of industry, consumer’s bargaining power is comparatively high. The factors which affect the buying decision of the customers are the price, quality, environmental effect, and the appearance of the vehicle. The switching cost of the buyers is low because various brands are available with same price (Henry, 2008). Bargaining power of the suppliers: In this type of industry, suppliers’ bargaining power is usually low. When there are several providers in the industry, they usually do not encompass much power and because of that the industry manufacturers could simply switch to other supplier or provider if it is required (Ahlstrom and Bruton, 2009). Competitive rivalry: Rivalry among the existing companies is extremely high because of the excessive competition (Ahlstrom and Bruton, 2009). Q2. Analysis of Internal Environment An analysis of internal environment is a widespread review of entire aspects of operations, mission, and internal guidance of the company. The managers of company usually commence the internal analysis in order to be familiar with the areas of opportunities and risks (Havaldar, 2005). The internal environment of Tesla Motors Inc will be analysed in terms of resource based view and value chain analysis. 1. Resource based view (RBV) of Tesla Motors Inc The central principle of resource based view address the basic advantage by organising their resources. It is heterogeneity of the useful services accessible from its resources which provide each company its exclusive character. The idea of the company’s resources heterogeneity is generally the base of resource based view. Barney (1991) provides a more comprehensive and concrete framework to recognise the required features of the company resources to generate sustainable competitive benefit/advantage. These characteristics comprise of whether the resources are: precious or valuable which means that whether they utilize opportunities or counterbalance threats in the company’s environment; non-substitutable; inimitable; and uncommon among a company’s potential and current competitors. Tesla Motors Inc is regarded as a distinctive collection of intangible and tangible capabilities and resources. It includes physical or financial, human, technological, organisational, and commercial assets used by them in order to develop, produce, as well as deliver services and products to their customers. The tangible resources of Tesla Motors Inc are the financial resources and the intangible resources are the knowledge of the employees, skills and experiences, brand name, organisational procedures, and reputation. In contrast, the capabilities of the company are referred to their capacity to organize and synchronize different resources, generally in combination, by making use of the organisational processes. They are the intrinsically intangible, information-based methods that are usually firm specific as well as expanded over time by means of complex interactions between their resources (Teslamotors, 2013). The tangible resources of Tesla Motors Inc which can lead to their competitive advantage are the revenues which have shown a tremendous increase during the period of four years i.e. from $204.2 million to $3198.4 million (Bloomberg, 2015a). The company have over 150 suppliers or providers around the globe which provide them with more than 2000 parts. They have also generated more than $400 million from issuance of debt of long term and shares (Teslamotors, 2013). The intangible assets such as the skills and experiences of its employees lead to delivery of 10,030 cars in the first quarter of 2015 and it is considered as a new record of the company because it represents an augmentation of 55% over the first quarter of last year. The goal of Tesla Motors Inc is to hasten the world’s evolution with an entire range of reasonably priced electric cars (Bloomberg, 2015b). The core competencies lie in powertrain as well as in vehicle engineering. They are regarded as core competencies because it is Tesla Motors Inc only which has acknowledged that the expertise and technology needed to drive electric car market is electric powertrain. They have transferred their proficiency from the technology which is designed in Tesla Roadster to Model X, Model S, and other means of transport they plan to invent in future. The battery pack and powertrain of the company consist of modular design, thus enabling upcoming generations of the electric means of transport to include a considerable amount of technology (Teslamotors, 2013). Tesla Motors Inc had adopted focused differentiation tactics/strategy due to the reason that the customers are generally from upper and middle income levels, and they focuses on offering high performance as well as innovative electric cars. It leads to competitive advantage because the company is surviving due to their leading-edge expertise or technologies and product distinctiveness design. 2. Value chain analysis of Tesla Motors Inc The value chain investigation of Tesla Motors Inc encompasses the primary activities which are concerned with support and production activities and will assist to increase the value of the primary activities (See Appendix 1). Primary activities Inbound logistics: The parts are produced as well as delivered from various suppliers at accurate time, which helps to reduce the waiting period and therefore improves the production efficiency (Teslamotors, 2014). Operations: All cars of the company are manufactured in the Northern California with all required manufacturing operations. The process of operations are highly innovated as well as automated, and easily reprogrammed in order to produce various car models (Hill, Jones and Schilling, 2014). Outbound logistics: The distribution channels of the company comprises of their personal stores in almost 18 countries that play major role in educating the users about the advantages of the electric cars (Teslamotors, 2014). Marketing and sales: The Company spends no time and money on the traditional marketing as well as does not occupy any ad agency. Instead, the Tesla Motors Inc developed their own network of stores which is situated in wealth’s districts towards interacting brand awareness (Teslamotors, 2014). Service: The Company offer their customers warranty policy of 50,000 mile to boost their confidence as well as to decrease the operational costs (Hill, Jones and Schilling, 2014). Support activities Infrastructure: The Company has adopted flat organisational structure with its CEO accountable for top decision making process and then authority is provided to the managers of lower level. Tesla Motors Inc gain benefits from its organisational structure because of better process of communication, therefore eliminating lag time and delays (Hill, Jones and Schilling, 2014). Human relationship management: The Company employs partners of High Street for the hiring process in order to make use of the talented staff. They also provide their employees the company shares. The strong management team is the strength of the company (Hill, Jones and Schilling, 2014). Technology development: The Company lays emphasis on ploughing back entire money on research and growth/development to minimise the cost and also to remain innovative, as well as to maintain their image. Uniqueness in the design of the product gives the sense of superior quality and value (Hill, Jones and Schilling, 2014). Procurement: Tesla Motors Inc has developed good association with the strategic suppliers in order to gain considerable benefits for every party. They have also developed short-term contracts with other providers, to replace the components with the alternative sources in case of any failure (Hill, Jones and Schilling, 2014). The value chain analysis shows that the primary activities are linked with the support activities as the better process of communication between the managers of lower level help in eliminating lag time and delays and therefore help the company to improve the production efficiency. Uniqueness in the product’s design gives the feeling of superior quality and it increase the product value as well as the customer value by providing them with superior product at affordable cost. The Company lays emphasis on investing their entire money on R & D to minimise the cost. Moreover, offering warranty policy to their customers boosts their confidence and also decreases the operational costs. The leading-edge expertise or technologies and product distinctiveness design leads to competitive advantage. Q3. Analysis of Public Relationship (PR) crises 1. Corporate Social Responsibility (CSR) CSR is referred to the notion of management whereby, companies incorporate environmental and social concerns in the operations of business and it also include the communications with the stakeholders. CSR is mainly a way by which the company attains a balance of social, environmental, and economic imperatives (Unido, 2015). Tesla Motors Inc is concerned about the environmental issue by designing, manufacturing, as well as selling electric transport system and also the electric car powertrain components. They also owns their service and sales network as well as sells the electric powertrain elements to other manufacturers of automobiles which shows the corporate social/public responsibility of the company (Teslamotors, 2014). In the social responsibility investment scorecard, Tesla Motors Inc gained the top position in the green initiatives and in its diversity acceptance practice. They prefer gender equality. The strongest leadership of the company in the social responsibility/accountability is how the consumer appetite and auto industry is pushed by them to think hard and long about the vehicles which is battery-powered. Tesla Motors Inc is identified in terms of building efficient car which does not make use of oil and in the near future, it can also be entirely carbon neutral. One of the causes why Tesla Motors Inc is liked by its customers is its disruptive technology. This is taxing the standard of what we actually believe the car is. The company also gets top rating from the campaign of Human Rights, which is stupendous (Teslamotors, 2014). 2. Stakeholder Theory The stakeholder theory states that the main goal of the company is to serve wider societal interests ahead of value creation/formation for the shareholders alone. The stakeholders are the suppliers, distributors, competitors, regulators, customers, owners of aggressive technologies, policy makers, and government agencies. Stakeholders are referred to those groups or individuals who rely on the company to fulfil their personal objectives as well as on whom the company depends (Donaldson and Preston, 1995). The main characteristic of stakeholder theory is that the stakeholders have various goals and they seek several advantages from the company. The employees get job security, society wants an unyielding economic base, and the investors seek dividends. The theory further describes that these dissimilar interests control the company in their own definite ways (Donaldson and Preston, 1995). It is both a normative and descriptive theory. It is termed as descriptive in the sense that it operates as a means of defining how a firm is created and controlled. In terms of normative theory, it advocates how a company should be operated or run. It suggests that an efficient company will take entire stakeholder groups into its consideration while formulating fundamental policies (Donaldson and Preston, 1995). Tesla Motors Inc’s stakeholder theory concept reflects that the company is not just a profit-making mechanism for the major executives and the elite investors. Besides that, it is a social institution which means that it is concerned about the environmental problem and therefore makes electric cars and also benefits large section of local community. The company shares reward policy for its workers and also make affordable electric cars so that it can be purchased easily by the middle income group customers (Teslamotors, 2014). Besides having these ethics in their operation, Tesla Motors Inc is facing some issues regarding its public image. It comes out that the company is having some problems with its vendors and suppliers and because of that they are experiencing some impediments in ramping of Model S’ production, which could damage the image of the company as well as their operations (Teslamotors, 2012). Second issue related to public relationship is that due to having problems with vendors and suppliers, Tesla Motors Inc is facing unfavourable effect on their operating results and business prospects. The failure of suppliers/providers to deliver the important parts of the vehicle at a precise time affects the financial performance of the company as they are not able to meet the demand. So, they are required to deal with the manufacturing issue (Teslamotors, 2012). Third issue related to the public relationship of the company is that they are getting threat from the incumbent automobile manufacturers and because of this the financial position as well as the future plan of the company could be hampered as it is greatly linked to the success of Model S. If they will remain unsuccessful to fulfil the demand of the customers then it can lead to their decreasing financial operations (Forbes, 2012). Q4. Strategic Analysis 1. Business level strategy There are two forms of business level approach/strategy, and they are differentiation and cost leadership strategy. Differentiation strategy is applied when the product of the company is unique in terms of its quality and design and so the company set the premium price for their product. Cost leadership strategy is applied when the company is offering same product at low cost to gain the cost advantage (Ireland, Hoskisson and Hitt, 2011). Tesla Motors Inc has adopted the focused differentiation tactics/strategy because the customers are generally from upper and middle income levels, and therefore the company focuses on offering high performance as well as innovative electric cars. It mainly focuses on the small segment of people who are environment conscious and attracted by beautiful and stylish look of the cars. Tesla Motors Inc has not adopted the hybrid or low cost strategy due to the reason that it does not encompass the enough production capacity and capital to compete on the basis of cost. The company is surviving due to its cutting-edge technology, unique design and quality, which draw customers and allow them to pay for their products. Therefore, this is regarded as a very proper position for the company in the present environment which provides them competitive advantage. 2. Corporate level strategy It could be the growth strategy which is also known as Ansoff matrix and it incorporates market penetration, product development, market development, and the diversification strategy (Rogers, 2001). Market penetration strategy: It means offering the current product in the current market which is considered as the least risky strategy (Rogers, 2001). Market development strategy: It means providing the existing product to the new customers (Rogers, 2001). Product development strategy: This strategy is applied by selling the new product to the current customers (Rogers, 2001). Diversification strategy: The companies adopt the diversification strategy when they decide to offer the new products to the new customers. It is regarded as the most risky strategy because going into an unidentified market with new product means that lot of techniques and new skills required. Thus, adopting this strategy means that the company is placing itself in great uncertainty (Rogers, 2001). Tesla Motors Inc has adopted the strategy of market penetration because they wanted to increase their impact on the present market by providing their current services and products. Besides this, they market their powertrain elements to other automakers also. 3. Suggested strategies It is suggested that Tesla Motors Inc could adopt the transnational strategy which is a global level strategy. It means that they can focus on the local markets as well as can also expand their international markets. It will help them to achieve both local responsiveness as well as goal efficiency. Second strategy which is suggested for Tesla Motors Inc is the cooperative strategy. They can form affiliations with many companies. The cooperation of research and growth/development branch of the Tesla Motors Inc and other company will help the company to develop more well-organized batteries. The projected strategies will be assessed with the help of suitability, feasibility, and acceptability (SAF) framework. Suitability: The transnational strategy is suitable for the company as it fits with the company’s values. The suggested strategy will make complete use of the strength of the company, which are the strong technical team and investment in the R&D sector. Acceptability: The cooperative strategy will be easily accepted by the stakeholders such as government agencies, owners of aggressive technologies, etc because they are making electric cars which do not pollutes the environment. Feasibility: Tesla Motors Inc will be easily able to execute the suggested strategies in terms of the resource capabilities because they employ partners of High Street for the hiring process in order to make use of the talented employees. The strong management team will help to improve the financial performance. Hence, the strategies or approaches are feasible to implement. 4. Implementation techniques for the suggested strategies Strategic alliance Cooperative strategy will be implemented by means of strategic alliance with other companies. The strategic alliance will assist Tesla Motors Inc to improve productivity, efficiency as well as financial stability. It will also help in increasing the prestige and credibility (Neelankavil and Rai, 2014). Licensing Transnational strategy will be adopted by means of licensing agreement. Tesla Motors Inc could transfer manufacturing expertise and supply the materials and components to the licensee in exchange of payments and performance. As transnational strategy is a global strategy, therefore it will require more monetary capital and expertise. The benefits of licensing are that it needs little amount of capital and also offer soaring rate of return mainly on the invested capital (Neelankavil and Rai, 2014). Conclusion The report is prepared to analyse the external and internal environment of Tesla Motors Inc to know what factors have an impact on the operations of the company. The political factors which have an effect on the automobile industry are the laws, political climate, taxation policy, and the government stability. The lifestyle as well as the preferences of customers has an influence on their decision while making selection of automobiles. Porter’s five forces analysis have been carried out to find out the characteristics of competition within the automobile industry. The tangible as well as intangible resources of Tesla Motors Inc lead to their competitive advantage. Their core competencies lie in powertrain as well as in vehicle engineering. The company had adopted focused differentiation tactics/strategy due to the reason that its customers are generally from upper and middle income groups. Distinctiveness in the product’s design gives the feeling of superior quality to the customers and it increases the product value. The company has adopted the green initiatives by manufacturing the electric cars. Emphasis is given on the business level and corporate level strategy of Tesla Motors Inc. Appropriate strategies has been suggested for the company to improve its productivity and efficiency. Strategic alliance and licensing techniques will assist them to increase credibility and get high return on the invested capital. Reference list Ahlstrom, D. and Bruton, G., 2009. International management: Strategy and culture in the emerging world. United States of America: Cengage Learning. Analoui, F. and Karami, A., 2003. Strategic Management in Small and Medium Enterprises. United States of America: Cengage Learning. Barney, J., 1991. Firm resources and sustained competitive advantage. Journal of Management, 17(1), pp.99-120. Bloomberg, 2015a. Tesla Motors Inc: Financials. 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Strategic management theory: An integrated approach. United States of America: Cengage Learning. Hill, c., Jones, G. and Schilling, M., 2014. Strategic Management: Theory and Cases: An Integrated Approach. United States of America: Cengage Learning. Ireland, R.D., Hoskisson, R. and Hitt, M., 2011. Understanding business strategy. United States of America: Cengage Learning. Kachru, U., 2009. Strategic Management: Concept and Cases. New Delhi: Excel Books India. Neelankavil, J.P. and Rai, A., 2014. Basics of International Business. New York: Routledge. Rogers, S.C., 2001. Marketing strategies, tactics, and techniques. Connecticut: Greenwood Publishing Group. Rothaermel, F., 2012. Strategic management. New York: McGraw-Hill. Teslamotors, 2012. Tesla Motors, Inc. [online] Available at: < http://ir.teslamotors.com/secfiling.cfm?filingid=1193125-12-402293&cik=1318605> [Accessed 17 April 2015]. Teslamotors, 2013. Tesla Motors, Inc. Annual Report on form 10-k for the year ended December 31, 2013. [online] Available at: < http://ir.teslamotors.com/secfiling.cfm?filingid=1193125-14-69681&cik> [Accessed 17 April 2015]. Teslamotors, 2014. Tesla Motors, Inc. Annual Report on form 10-k for the year ended December 31, 2014. [online] Available at: < http://ir.teslamotors.com/secfiling.cfm?filingid=1564590-15-1031&cik> [Accessed 17 April 2015]. Teslamotors, 2015. Tesla: About Tesla. [online] Available at: < http://www.teslamotors.com/about> [Accessed 16 April 2015]. Unido, 2015. What is CSR? [online] Available at: < http://www.unido.org/en/what-we-do/trade/csr/what-is-csr.html> [Accessed 17 April 2015]. Appendices Appendix 1 Porter’s Value Chain for Tesla Motors Inc. (Source: Hill, Jones and Schilling, 2014) Read More