Tesla Motors as the Most Celebrated Company in the Automotive Industry - Research Proposal Example

TESLA MOTOR’S BUSINESS ANALYSIS By Executive Summary Tesla Motors, Inc. is one of the reputable and most celebrated company in the automotive industry because of its contribution in the design and manufacture of electric cars and car components. The company came to the limelight with the introduction of the Tesla Roadster electric car in 2008-2012, which was the first effective EV running on power. Conversely, with better R&D, the company has managed to adopt better technology and is developing efficient and innovative electric cars that are not only effective but also affordable compared to other products of competitors such as BMW, Mercedes, etc. Through its strategy of differentiation, Tesla has been able to gain competitive advantage in the design and manufacture of electric cars such as latest Model S and X, in addition to, to developing the world’s fastest supercharging stations for EV cars. Therefore, through this strategy, Tesla hopes to achieve the accelerated growth and significant competitive advantage in the production of electric cars in the automotive industry as demonstrated in the report by the use of different strategic management tools such as Porter’s five forces, VIRO analysis and PESTEL. Table of Contents Introduction 4 Bibliography 18 Tesla Motor’s Business Analysis Introduction Tesla Motors, Inc., founded by Martin Eberhand, Elon Musk, and Marc Tarpenning is an automotive company that has its headquarters located in the Silicon Valley, California. The company specialises in the designing, manufacturing and selling of the electric cars and the electric car components. Tesla Motors is the only automotive that specialises in the building and selling of the highway-capable electrical vehicles (Tesla Motors, 2010b). Introduced in June 2006, Tesla Motors has made a number of remarkable achievements by changing the public perception about the electric vehicles. With approximately over 1063 Roadsters sold, Tesla Motors in my view is the first automotive company to achieve the commercial scale in the sale of the high-performance electric vehicles. Unlike the other automobile manufacturers like GM, Ford, BMW, Toyota, and among others, the company sells cars through the company-operated stores instead of the dealership or distributors. This report aims at reviewing and analysing the Tesla Motors and the electric vehicles that they develop, design, manufacture and sale. External Environment Analysis The automobile industry in the United Kingdom is a very innovative and vibrant with about seven commercial vehicles manufacturers (Schein, 1993). The automobile industry has over the recent past undergone tremendous changes since its inception. This section will analyse the external automotive industry with specific keen interest in the United Kingdom (UK). PESTLE Analysis The PESTLE analysis is the acronym of political, economic, social, technological, legal, and the ecological factors that impact the organisations. The framework usually assesses the external environment so as to identify the opportunities and the general risks of the particular strategies, because the changes in the external valuables can have a significant impact on the industry in the long-run. Political The political factors highlight the main security measures, laws and the regulations, and the restrictions that apply to the automotive industry. For instance, the laws and regulations are critical to the automotive industry. They are normally brought about as a result of the environmental measures to be fulfilled by the automobile industry. The companies in this industry take certain care and precautions of the environmental issues during the manufacturing of their automobiles. The political factors in the UK and the EU zone have a great impact on the automobile industry. For instance, the newly produced cars in the EU must comply with the vehicle emission standards and regulations that are known as Euro Standards (Voelcker, 2014). The United Kingdom government has introduced the financial measures that are aimed at favouring the cars with the lower CO2 emissions. The automobiles with high CO2 emissions rate will be charged with the high tax. This has prompted companies such as GM, Toyota, Ford, and among others take certain precautions during the manufacturing of their automobiles. In regard to the political factors, there are industry regulations and trade policies such as “The Retail Motor Industry Federation (RMI) and The Society of Motor Manufacturers and Traders (SMMT)” that supports and promotes the interests of the UK automotive industry both abroad and at home (Motor Trend, 2014). Economic Factors With a phenomenal turnover of £60bn, the automotive industry is one of the major key sectors in the manufacturing segment in the United Kingdom accounting for approximately 2/3 of the total production and the entire sector (Yahoo Finance, 2011). Over the past few years, the prices of the automobiles have increased owing to the rise in inflation. In reference to the structural developments, the automobile industry more so in UK is one of the most demanding industry. The external price elasticity is greatly affected by the oil dependency. However, contrastingly, the high petrol prices do not always lead to the fall in the demand for the vehicles because nowadays cars are more fuel efficient. The growing global markets and the currency alternations greatly impacts on the competitiveness of the automotive manufacturers in different countries. This has made the automotive industry be under intense pressure. In order to avoid this economic obstacle, the automotive industry not only in UK, but also around the globe has focused on the commitment and improvement on the productivity owing to the varying exchange rates (James &, Deighan, 2007). The automotive industry in the UK, in particular, has attracted foreign direct investments due to the quality and focused management making the industry have a significant share of the global automotive industry. Social Factors The social factors that impacts on the automotive industry includes the changes in the demographics and cultures globally in addition to the changes in the patterns of buying and capacity of the client itself. For instance, customers take a keen interest in the automobile label before making a purchase. The changes in the patterns of demand by the customers in the automobile industry can be attributed to the customers having problems especially during recessions (Myskova, 2011). Therefore, the social factors both from within and external can have a unanimous impact on the automotive industry. Technological Factors Technology in the automotive industry is one of the fastest changing and improving factors. In the automotive industry, there are new ways of the reduction of the CO2 emissions and new technologies for the reduction of the speed of the battery loss. The manufacturing companies must stay focused on the technological factors in order to thrive in the industry. Different companies have different rules that they have to follow strictly during the manufacturing of their automobiles. In order to stay focused on the technological factors, the manufacturing companies are moving towards the environmentally friendly ways of manufacturing vehicles. Toyota, in particular, is an excellent example that has produced petrol-electric hybrid cars. Tesla Motors is another example that has introduced electric vehicles thereby not only making it environmentally friendly, but also more economical (Motor Trend, 2014). Additionally, the car manufacturers are nowadays starting to introduce the Alternative Energy Vehicles that uses electricity, fuel cell, solar or hybrid, and hydrogen. Porter’s Five Forces The Porter’s five forces analysis is the framework for the business strategy development and the industry developed by Michael Porter in 1979. (Porter, 1985). Threat of New Entrants (moderate) There is a moderate threat of new entrants in the automotive industry making the threat of the new entrants low/moderate. Indeed, there are very few players that are willing to venture into the automotive industry because it requires relatively high capital requirements for setting up the distribution network and the manufacturing facilities. Additionally, the fact that the existing multi-national major stakeholders/competitors greatly benefits from the economies of scale and scope, tis makes it hard for the new entrants to offer competitive pricing. Finally, issues of security, durability and reliability are very salient in the automotive industry, and because the buyers majorly base their impression of the model on the manufacturers past performance on these issues, the new entrants can have extreme difficulties in the competition. Therefore, it takes many years for the new entrants to build a strong reputation to be competitive. Therefore, there is a lack of significant threat of entry for the Tesla Motors on the domestic or global scale. The entry into the automobile industry requires significant, technical, capital, and managerial expertise and the period that is needed to gain the market acceptance (Recargo, Inc, 2014). All of the factors mentioned above make the threat of the new entrants in the automotive industry to be very low/moderate. Threat of Substitutes (low) The threat of the substitutes in the automotive industry has been fairly mild in the UK. Many of the other types of the transportation are now readily available although none of them offers convenience, the utility value or the independence that is availed by the automobiles (Andric, Gajecki, & Korgol, 2007). Additionally, the switching costs that is associated with an employment of the different transportation like the train are relatively high in terms of the personal time that can be consumed. However, in terms of the monetary value, the use of the train as an alternative mode of the transportation is less expensive as compared to the fuel costs that is consumed on the same trips, parking, maintenance, and the car insurance. In the global urban characterized with the high population densities, the threat of the substitutes may include the mass transit, walking, bicycles that are relatively cheaper when compared to the automobiles. Due to this, the alternative modes of the transportation are always preferred. Similarly, the cultural or social attitudes keep the individuals from owning the automobiles that are within some parts of the globe. Competitive Rivalry (high) With the increased foreign competitors in the 1970’s and the 1980’s, the rivalry in the automotive industry has become more intense as the firms compete on both the non-price and price dimensions. This has made different companies in the industry to provide different incentives so as to attract the customers to purchasing their products. Additionally, the fact that the automotive industry is mature means that the competition is very fierce, and the rivalry will only increase with time (Oliveira, 2014). The industry growth for the automotive industry is flat, and that numerous competitors that have similar market shares fight for the leadership and all the competitors have huge capital leverage. For instance, the Japanese competitors have the cost leadership advantage as compared to the North American manufacturers like the Chrysler and GM. This cost advantage is important to the manufacturers in staying competitive at the current stage of the automotive industry’s life cycle. The market for the automotive industry demands innovative designs that are in line with the emerging socio-cultural trends. Companies such as Tesla Motors that has newly available technologies for capitalising on this trend have designed the vehicles that eco-friendly and stylish (Rothaermel, 2013). In addition, although UK market do not leave the room for the growth, the other parts of the globe are developing, and the citizens have increasing amounts of the disposable incomes. For instance, more individuals are purchasing new vehicles in Central and South America, Asia, and the Eastern Europe. Therefore, in order to stay ahead of their competitors, the opportunistic companies must develop the strategies that are in line with those cultures so as to seize the foreign growth. Buyers Bargaining Power (low) The establishment of the strong relationship between the buyers and the automotive industry in the UK is critical. The relationship between the ultimate customers and the industry the entire power favours the customers. Due to the relative standardisation of the automotive commodity nature and the switching costs that is related to the selecting of the product from the competing brands in the industry, the buyers wield a lot of power. Supplier Power (low) The supplier power in the automotive industry is low. This is because there are numerous suppliers that rely on, on the specific auto manufacturers, to buy their products. For instance, a majority of the automobile companies have a variety of the suppliers. In order to qualify to be a supplier for the automobile company, the supplier must meet certain qualifications such as cost, products delivery and the quality. In the event, that the suppliers are not able to meet these basic qualifications, it will be difficult for them to survive. Different types of the suppliers exist in the automotive industry. Some of them include those for classics and frame, braking systems, cooling system, the electrical and engine system, among others. Depending on the size of the automotive company, the supplier power can have considerably large bargaining power. For instance, the new companies and small ones have relatively less bargaining power with their suppliers making them demand higher prices (Snyder, 2014). Tesla Motor’s Internal Environment Analysis Using Resource Based View Resources, Competences and Capabilities Tesla Motors is widely regarded as an innovative company culture and brand identity. The company has the design and the engineering competencies. Its engineering expertise is centred on the power-train components. In addition to this the company holds proprietary resources among them 117 patents on the technology that involves the power-trains and the battery productions. In a move that was aimed at surprising the industry, the company announced on June 2014 that it was going to enforce its patents to “Good Faith” use. This was an apparent strategy that was aimed quickening the adoption of the electric car productions. Solomon (2014) argues that the move was partly aimed to offer complementary products by the company like the power stations. If this is realised, the value of the company can considerably increase especially for the power stations. As previously noted, the issue of the recharging is a main barrier to purchase for consumers. Tesla has also strategically positioned the issue of a patent as reinforcing its green society, the ecological brand image. VIRO Analysis VIRO analysis on the Tesla Motors suggests that the company currently possesses the sustainable competitive advantage in the all-electric, luxury segment. The company’s differentiated and unique product is quite valuable and is currently very rare in the luxury segment (Motor Trend, 2014). In addition, given the brand equity, barrier entries and the propriety knowledge and the technological difficulties, Tesla’s position is costly to imitate. The company is strategically organised to capture this value, effectively positioning the brand and the capturing of the revenue. The technology in the electric cars is becoming progressively rapid and the company’s ability of staying ahead of its major competitors in the R&D (such as the battery development) and the building of the brand image will be a key determinant of the sustainable development of the company. Additionally, the recent announcement that is related to the open sourcing patents quickens the pace of the competitors in imitating the firm’s technological capabilities (Solomon, 2014). Tesla’s Value Chain The company has a fairly horizontal integrated value chain especially for its Model S. Tesla Motors controls most of its primary and support functions, including the manufacturing and designing of the Model S in the US. The Automotive News (2014) noted that the company outsources the battery production to the Panasonic. However, the company is building the battery manufacturing ability in the US. In the last few years, the organisation used the Taper VI, selling the batteries to the Toyota and the electric powertrain components to the other automotive manufacturers (Tesla Motors, INC., 2013). Tesla Motors also handles the sales and service through selling directly to the customers around the world. The majority of the charging stations are privately owned in the Europe and the US, such as GE, Gridpoint. Conversely, the company has been developing its supercharger stations allowing for 30-minute battery charges. The company has 106 in the North American, 9 in Asia, and 54 in Europe costing $500,000 USD per station in the construction (Sherman, 2013). Although this can be an expensive venture, investing in the charging infrastructure by the company is a critical to increasing the market share. By controlling this aspect of the value chain, the company can be certain of its sustainable existence. For instance, the private car charging company, Better Place’s 2013 bankruptcy is cited as hurting the electric markets in the Israel and Denmark (Berman, 2013). By controlling the value chain activity, the company adds value to offering of the service-free services to its customers. It’s widely known that Tesla could end up outsourcing some of its non-core competency value chain activities, although this could be costly (McKinsey & Company, 2013). I think that the biggest benefit of the company tightly integrating its value chain activities is the control over then quality. The integration allows the Tesla Motors for the precise understanding of the supplier/buyers, production efficiency and the protection of the propriety information. As the company’s brand awareness and the image get stronger, and the market continuous to expand, the company gains more flexibility in outsourcing without having to risk its brand equity. PR analysis The Crisis Communication Case Study: Tesla Motors The company’s analysis of the PR crisis can be related to the 1st October, 2013 when the Tesla Model S was caught on fire leading to setting of the fire of the lithium-ion-powered cars. This incident led to the bad publicity of the company. In order to restore the public confidence, the company first got in touch with the Model S owner. Then later they issued a public statement about the incident accompanied by the apology. Applying the reputation management concept, the company was transparent during the incident. Secondly, Tesla Motors an official statement on their website. Three days after the incident, the company’s CEO issued the statement on their blog about this incident. He explained the cause of the incident and how the company effectively responded in bringing the situation to normal. This PR analysis pinpoints about the company’s crisis management in ensuring that the situation was quickly brought to normal in a timely manner to restore the public confidence (Telsa, 2013) Strategic Analysis Current Business Level and Corporate Strategies Tesla Motors competes with the differentiation strategy. Historically the company focused on the luxury car market, differentiating the company by combining the electric technology and the performance with the ecological positioning (Symons & Stenzel, 2007). For instance, the battery range of Tesla significantly outperforms its competitors. In furtherance to the technological advancements and the innovative styling, the company differentiates with the ecological marketing, the strong brand images with the brand loyalties and the value added services like the charging stations and the financing (Reis, 2010). The company’s initial product offering, the Tesla Roadster (2006) and the Model S (2012), were the expensive vehicles that were targeted at the wealthy, early adopters. Although Tesla has signaled that it may target the broader customer base with the less expensive versions of the Model S with the projected price of between $35-40,000, although this high be still too high for the mass appeal (Myskova, 2011). Although the company is operating in a competitive market, its lack of the competition in the luxury electric market, the company’s leading battery range, highly differentiated products, its network of the charging stations and the strong brand reputation can be combined to offer the company a competitive advantage (Wang, 2014). The cost of the battery greatly impacts on the final price of the Tesla car. The company needs the economies of scale in order to drive the cost down. Tesla Motors announced that it planned in cutting the battery cost significantly. The company is also building two large battery factories. This is an evidence of Tesla’s strategy for the battery cost reduction, in the volume manufacturing (Johnson, Scholes, & Whittington, 2006). Tesla is yet to diversify because it operates on the single business. The company has a single product in the luxury automotive industry. The company’s growth strategy involves the value creation through the vertical integration and expansion of the market share. Given the company’s single businesses that are on average more profitable, the strategy allows the company to focus on the core competencies (corporate level strategy). The company has also formed the non-equity and equity strategic partnership with the companies such as Toyota (equity), Panasonic (non-equity) and the Lotus (non-equity) (Ricks, 2006). The company’s lack of the alliances allows it to have more control over the operations that it carries out. Suggested Strategy International Strategy The company follows the international corporate strategy through the direct investment with the low need for the global integration and the low need for the local market responsiveness. If this strategy is successfully, the expansion of the global market will increase the production volume and create the much-needed economies of scale for the company. Globally, Tesla Motors sold about 22,300 vehicles in the 2013. The international strategy is important in that it will enable the company in extending its limited product line’s life cycle. Tesla Motors primarily operates in the US and Europe, with some of the adoptions in the Asia. China, in particular, is part of the company’s long-term growth strategy. The company is also planning in manufacturing and selling its cars in China in the next 3-4 years. This strategic move that is meant at avoiding the “China’s 25% import tariff” (Automotive News, 2014). Strategy Implementation The company has limited channels of sales that operate primarily through the website and some of the company’s service centres and stores. The website channel is the most robust although, with the information ranging from the charging stations to the information on the government incentives (Oliveira, 2014). If Tesla successfully implements its direct-to-customer sales model, the company could disrupt an automotive industry that is currently controlled by the dealerships. Tesla Motor’s differentiation strategy has worked successfully in the cultivation of the brand awareness although the sales have been anything but robust. Given that the company is fairly new and that it operates with the few real competitors, the company has a growth opportunity both abroad and home. In furtherance, the company’s strategy in building the charging locations and to incentivise more of the infrastructures through the opening of its patents has the potential of strengthening the company’s competitive advantage through the value-added services (Tesla Motors, 2011). For instance, it should be noted that California led the sales of Tesla because the majority of the charging stations are situated within the state (Palin, 2013). The future strategic implementation is focused on the growth. The company’s future strategy is focused on leveraging the integrated value-chain to drive down the production costs through the new technology and the economies of scale. These will go a long way in saving costs and offering of the new, low-priced products, thus leading to the companys growth. Additionally, the company recently moved to relate directly to the social considerations. The barriers to the customer adoption are battery range, price and the infrastructure (Yahoo Finance, 2011). The company has been presently working on the lowering of the price through the cost saving, building of the longer range batteries and the leveraging of the internal and external resources so as to develop the network of the changing stations (Mangram, 2012). The other notable areas of the company’s growth include the international expansion. Tesla has its locations throughout the Europe and has the plans to expand to other regions such as Asia. The company’s implementation plans are focused on the direct investment (an international strategy) that is consistent with its present US process and structure (Mutikani, 2014). Conclusion The automotive industry has been encountering various challenges. Today’s challenges that face the automotive industry calls for the car manufacturers to innovate new ways that can be able to create value. The Porter’s five forces analysis provides an insight into the understanding of the various strategic approaches that are viable in tackling some of the challenges that faces the industry and in specific the Tesla Motors. To successfully adapt in the automotive industry, Tesla Motors Inc. needs to be able to respond quickly to the changes in responsiveness, resilience and variability. Owing to the company’s lithium-ion cells development, it, therefore, means that it has the greatest opportunity of venturing into the automotive industry in a successful manner. In furtherance, Tesla Motor’s strategic decisions have been phenomenal owing to the excellent management team. However, the company can achieve its objectives through leveraging of the strategic areas that have been mentioned above. Bibliography Andric, T; Gajecki, K; Korgol, W., 2007. Environmentally Friendly cars – Who are the buyers and what affect them? The department of Business Studies. International Business Program. 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