Tesla Motors Business Analysis - Case Study Example

REPORT ON TESLA MOTORS’ BUSINESS ANALYSIS By Table of Contents Executive summary The automotive industry is among the largest industry in the world. Tesla Motor’s is the company that specialises in the design, manufacture, and the selling of the 100% electric cars and the advanced electric vehicle components. With approximately over 1063 Roadsters sold, Tesla Motors is the first company to achieve the commercial scale in the sale of the high performance electric cars. This report is aimed at analysing Tesla’s current operations both internal and external and provide the strategic recommendations in order to strengthen the competitive advantage of the company. The report will use different tools of strategic management analysis such the PEST and Porter’s five forces to analyse the company’s external environment and internal capabilities that have enabled it develop competitive advantages. Introduction Tesla Motors is an American company that specialises in the design, manufacture and the selling of the electric cars and the electric vehicle powertrain components. Founded in 2003 and using the technology developed at the California (headquarters), the company introduced the Tesla Roadster in 2008 (Tesla Motors, 2010b). The business was named after Nikola Tesla, a renowned physicist, and electrical engineer. The company’s objective is to increase the number of the electric vehicles (EV’s) in the market in order to boost its mainstream. The company has produced two models, the model S, and the Tesla Roadster, and it has also unveiled a third model, the model X. Tesla Motors is a new automaker that is well known as the Silicon Valley carmaker. The company has gained its nickname owing to the fact that it’s located in the Silicon Valley and has been following some of the Silicon Valley enterprise’s strategies. The focus of this report paper is on the review and analysis of the Tesla Motors and the electric vehicles that they design, develop and manufacture. Tesla Motor’s External Environment Analysis Porter’s Five Forces Model The Porter’s Five Forces model is relevant in the determination of how strong the company is in the industry from the competitive standpoint in the present and is helpful in the determination of how successful a company can in the future (Porter, 1985). Competitive Rivalry (low) From the worldwide perspective, the automotive industry is very competitive. The price wars between the international companies and the entry of the new firms such as Tesla, Kia and Daewoo are some of the prime examples of the competitive industry. From the dealership to the dealership the firms are competitive. However, a closer analysis of the automotive industry shows that the firms are not competitive owing to the fact that one parent company can have numerous subsidiaries that sell in the same market. Tesla Motors is one of the unique companies in the automotive industry that produces highway-capable zero-emission vehicles currently. However, this doesn’t stop the other more established manufacturers from trying to catch up with Tesla Motors. Despite automotive industry being one of the most intense industry, the niche that Tesla operates coupled with the strategic alliances makes Tesla one of the top companies in the electric vehicle niche. The introduction of the Chevrolet Volt (plug-in hybrid) in 2010 that is priced at a relatively affordable price as compared to Tesla’s Roadster bring competition to the Tesla Motor’s brands (Reis, 2010). The company should, therefore, consider its strategic position in the industry because competition is a very high-risk factor that should be put into consideration if it wants to become profitable. However, owing to the large industry size of the automotive industry, this allows the firms in the industry to prosper without having to steal the market share from the other. The large industry size for the Tesla Motors comes with a significant impact as it leads to the decreased costs. The fast rate of growth for the automotive industry not only in the United Kingdom, but also worldwide has attracted a lot of competitors (Mangram, 2012). However, the fast growth in the industry translates to fast growth of the revenue in the industry. Therefore, the fast growth of the automotive industry positively affects the Tesla Motors. Threat of New Entrants (moderate) In the automotive industry, the information leaking for the manufacturing techniques, increased demand for the supplier and the overall reduction of the costs that are associated with the manufacturing reduces the barriers to entry into the industry. The major players in the automotive industry must compete with the increased entrants by taking advantage of the established position in the market and raise the barriers to entry. In the automotive industry, other significant entry barriers that the early entrants have are the brand recognition, the learning curve barrier and the vertical integration of the suppliers. Having entered the automotive industry in 2003, Tesla Motors faces the challenge of being the new entrant in the industry. The industry requires a high capital expenditure making the company unable to make profits for the next 18 months. The automotive industry has low barriers to entry due to the higher demand for the environmental friendly vehicles. However, with the outlets for the available technology for the lithium-ion batteries, this means that Tesla Motors is at a level playing ground whereby any company can be able to replicate. This is, therefore, an external threat that the company faces because its technology can be easily imitated by its competitors. Power of Buyers (Low) There are numerous models and brands of cars in the automotive industry. The factors that affect the buyers to make the buying decision include; quality, appearance, the environment effect, and the price. The buyers are after the attractive and newly released models in addition to the quality of the vehicle. The two major buyers in the automotive industry include the private consumers (those who buy the cars for themselves) and the rental companies (offer cars for leasing). Overall the buyer bargaining power in the automotive industry is very small. However, when the foreign firms and the new entrants enter the domestic markets, the price collusion is usually disrupted as the domestic producers usually lower the prices in order to compete favourably with the new entrants/threats. However, when the buyers switch from one product to the next, then they can have a relatively higher bargaining powers. For instance, Daimler-Chrysler, Ford, and GM suffer from the buyer switching to the much lesser degree due to their past and present consolidations of the other manufacturers that make it likely in the event of the buyer switching the products. Tesla Motors heavily relies on the relationship with the Toyota, Daimler and Lotus as the company also sells its cars to the individual customers. Tesla Motors has approximately 17 dealership locations in the North America and has a very small inventory (Tesla Motors, 2011). As a company that has not been well established in the market, its brand loyalty is not well established. However, for Tesla it relies most of its income from the strategic alliances with other companies such as Toyota that helps the company in developing the next generation of the electric vehicles using the Tesla technology. Bargaining Power of Suppliers (Low) In the automobile industry, the suppliers have little power. This is because numerous suppliers usually rely specific auto manufacturers to buy their products. Each of the manufacturers has many suppliers. For instance, Toyota has approximately more than ten different suppliers in the United States. Usually, the main qualifications for the suppliers include the quality, delivery of the products and the cost. Therefore, if the suppliers are unable to meet these basic considerations, it will be hard for them to survive. There are different kinds of the suppliers in the automotive industry; there are those for braking system, frame and classics, the cooling system, engine and electrical system, and among others. In the automotive industry, there is no credible threat of the supplier to the product toward the maker. Most automotive companies have many interchangeable suppliers. Depending on the firms size in the industry, the suppliers can have a large bargaining power. The new entrants and the small firms have even less bargaining power with the suppliers, and hence the suppliers, in this case, demand higher prices. Therefore, the larger the firm, the larger the bargaining power the firm has with the supplying firms. Substitute Products (Low) The substitutes in the automotive industry are far and between, but they are on the rise. For instance, from the public transportation in the form of the buses to the taxis and even the newly built trams are the direct substitutes for the metropolitan driving. Trains, boats, airplanes are also the substitutes for the long distance travel. The replacement of the petrochemicals with the biochemical brings benefits to the automakers because not only can the manufacturer save the money by avoiding the costly permits and the compliance penalties, but also the reduction in the hazardous waste disposal costs. The introduction of the electric cars in the automotive industry by the Tesla Motors in the automotive industry is a good example of the substitute for the petrol. Additionally, these types of cars are designed to be eco-friendly (Schein, 1993). PESTLE Analysis The PESTLE framework evaluates the external environment variables in order to identify the general risks and opportunities of the specific strategies, because the changes in these factors can lead to the significant transformation of the industry in the long-run (Witcher and Chau, 2010). Political The political factors play a critical role in the automotive industry. The political factors highlight the main rules and regulations, the security measures and the restrictions that apply to the entire automotive industry. The political factors that affect the automotive industry include; laws and regulations that are usually brought up by the environmental measures in order to be fulfilled by the automotive industry. For instance, firms such as Toyota, GM, and Tesla among others have to take certain precautions in the manufacturing of their automobiles. The hybrid vehicles have great demand and favourable support from the government owing to the eco-friendly emissions. For instance, all the newly produced vehicles must comply with the EU vehicle emissions standards and regulations-Euro Standards. The UK government has introduced the financial measures so as to favour the cars with the lower CO2 emissions by charging high tax to the vehicles with high CO2 emissions (Yahoo Finance, 2011). Similarly, different introductions of new schemes in European and US automotive industry are in strict regulations so as to produce high mileage cars along with the increased automobile sales and the productions. Economic Factors The economic factors are usually related to the exchange rates, the global economic growth and certain business settings that are inherent in the automotive industry. For instance, the production of high rates of cars during a certain time results to the increased revenue and new product designs. This makes high amount of the revenue be restrained even though the demand is less than supply. Over the recent past, the prices of the automobiles have increased owing to the rise in inflation. The main factor that affects external prices elasticity is due to the oil dependency. The automotive industry is one of the most demanding industry in terms of the infrastructure. Due to the increased global markets, the currency alternations makes the automotive industry be under a lot of pressure. The industry focuses on the commitment and the improvement of the productivity owing to the different exchange rates such as Euro. This impacts on the profitability of the UK-based industries. The income level of the consumers has increased in the past few years leading to the increased purchasing powers of the customers going up. This is the reason for the increased buying rate of the vehicles. Some of the changes in the economic environment in the automotive industry include; increased prices of the vehicles, increased government taxes, and among others. Social Factors The social factors that affect the automotive industry include the changes in the demographics and cultures globally. For instance, the demographics of certain customers and their preferences vary. Some customers are more into the stylish, luxurious and sporty cars. The changing in the buying patterns of the customers in the automotive industry is due to the recessions during different mature markets. Technological Factors In the automotive industry, the technology is maturing with the introduction of many new ways of the reduction of C02 imitations and the new ways of reducing the speed of the battery loss in the automobile itself. Currently, different companies in the automotive industry have different rules to follow in the production of their automobile such as the environmentally friendly motors. Indeed every firm in the automobile company is moving towards the production of the environmentally friendly vehicles, Toyota and Tesla being the perfect examples of those. Tesla’s Analysis of the Internal Environment Resource Based View The firm’s competitive advantage usually lies in its resources. In order to the firm to sustain the competitive advantage, it requires that its resources are immobile and heterogeneous. The first mover competitive advantage is one of the components that best suits the Tesla Motors. The emerging industry of the electric vehicles has over the recent years emerged as the “mover and shaker.” Being one of the few companies that specialises in this industry, Tesla Motors has been able to offer the sporty, luxurious vehicles that not only attracts the environmentally conscious clients but also the luxury and sporty consumers as well. Tesla Motors has established itself in quality, cost, and efficiency by offering attractable and 100% energy efficient in the automobile. However, a lot of people ask what the economic value of Tesla is? A firm’s competitive advantage is usually measured in its ability to be able to create the economic value more than the rival firms. The electric cars have given the company competitive advantage through the production of the energy efficient vehicles that makes it stay ahead of its competitors. Tesla’s Strategy A firm’s strategy is its theory of ways to achieve the high levels of the performance in the industries and markets that it operates. However, in the case of the Tesla Motors and its CEO Elon Musk, the definition of the strategy is constantly being reinvented. For instance, Tesla Motors is famous for making energy efficient, luxurious, and 100% electric automobiles that are available to everyone at a cheaper price (Andric, Gajecki and Korgol, 2007). However, the company’s technology is not yet efficient. Presently the company has opened up patents to the general public due to its immense care for the world than the size of the wallet. Corporate Resources The company is presently selling its vehicles in the growing number of the company owned showrooms and online. Selling of the patented electric powertrain components to the other auto manufacturers in order for the company to get its EVs to the customers. The company has partnered with Mercedes and Toyota so as to supply the batteries and the charging systems. The company demonstrates that there is a pent-up consumer demand for the vehicles that are bot efficient and high-performance, thus serving as the catalyst and the positive example to the other automakers, The company’s excellent upper management team that is selected from the top automotive and technological firms led by the Product Architect and its CEO Elon Musk has boosted the company a lot. Tesla Motors is widely recognised brand by the visual appeal of the firm’s offering and enormous marketing effort. Additionally, its patents and innovative technology of the drivetrain and battery keeps Tesla Motors ahead of its competitors. Tesla Motors has access to the financial resources. According to Tesla’s 2012 financial report, the company generated approximately over $400 million from the issuance of the shares and the long-term debt. This is approximately $50 million in the stock issued to the Toyota and $30 million in the stock issued to the Panasonic (Tesla, 2013). The company’s tangible resources are also evidenced by having more than 150 suppliers globally that provides over 2000 parts to the Tesla Motors. It should also be recognised that Tesla Motors was the first company to market with the luxury zero emission vehicles that give the company the advantage to be ahead of its competitors. Core Competences The low cost of the Tesla Motor’s battery pack that allows the company to sell Model S at the reasonable price with the 300 mile range when it is still the combination that other electric vehicles in the automotive industry are yet to deliver. This is due to the Tesla’s superior battery technology that gives it a competitive advantage over the other companies. Tesla Motors has over forty patents awarded and approximately over 200 patent applications pending technology to supply all the future models. This aids the company in complying with its emphasis on the zero emissions, aesthetic and performance of its cars. Capabilities Tesla Motor’s has developed ability to apply the commoditized small cylindrical lithium batteries (which is used in the consumer electronic) to cars through the good proprietary management of power. Additionally, the company self-driven employees promote the company’s development. The great partnership with other companies like Toyota, Daimler AG, and the Panasonic supports the Tesla battery technology R&D as well as the future business innovations. Value Chain According to Porter (1985) “According to Porter (1985) “Value chain is the analysis of a business as a chain of activities transforming inputs into outputs that creates value for customers; for analysing the sources of competitive advantage, value chain, forms a tool, a means to evaluate the activities performed in an organisation and how they interact, in a systematic manner.” (Porter, 1985). Tesla Motors owns almost most of their value chain, from the production and the design to the customers. This makes Tesla Motors to be set aside from its competitors and helps it to reduce the cost and control the quality. The company’s CEO Elon Musk is one of the innovative, entrepreneurial types who is deeply involved in operations of the Tesla Motors (Davis, 2010). Part of Tesla Motor’s success can be attributed to its value chain. The company through its Supply Chain Vice President, Peter Caisson has transformed the purchase organisation from the tactical decentralised entity to the strategic global commodity type of organisation. Its Tesla Motor’s zeal to test, design and produce vehicles faster than its competitors using its value chain in its ground-breaking vehicle design and performance. Tesla conduces the powertrain and the vehicle assembly and manufacturing operations at the Tesla factory that is located in California and the Tilburg, Netherlands. In order to guarantee seamless and efficient process, Tesla Motors obtains most of its components from the single reliable and qualified supplier (Moskva, 2011). This is because the company wants to control the inventory costs, warranty serving, customer feedback and product pricing, it owns its distribution channels of the galleries and stores. In order to sustain the long-term growth, the company understands the need to design, build and to achieve the market acceptance of the new models. Analysis of PR Crises Crisis Communications Case Study: Tesla Motors On the October 1st of 2013, Tesla Model S caught the fire leading to setting ablaze of the lithium-ion-powered cars. This incident was a bad publicity for the company. However, the company responded quickly by first contacting the Model S owner. They later explained to the public about what had happened and then apologised for the unfortunate accident. The company used the reputation management concepts to do the following; they were transparent –throughout the process, the company was open to the public about why, what and how of the situation. Additionally, the company posted the correspondence that they had with the Model S owner on the company’s website/blog. Secondly, the company issued the official statement on the website. On the October 4, 2013 just three days after the incident the CEO issued the statement on the blog about the incident. In his statement, he explained about the incident and how the company responded. Thirdly, the company ensured that the situation is turned around. The company through the crisis management ensured that the situation is acted upon timely to maintain its reputation in the public. Strategic Analysis Business level strategies Tesla Motors is presently operating in the North America, Japan, Australia and Europe. Most of the company’s sales and service centres are located in the US while in the overseas, the sales and service centres are located in the densely populated areas such as Paris, London, Munich, and Tokyo. Tesla Motors has formed the strategic coalitions with companies such as Daimler, Toyota, and Panasonic in order to provide the electrical components that they can be able to sell under their name. This, therefore, ensures that Tesla Motors has the global presence although not to the same extent as the major automobile companies. However, what sets the global strategy of Tesla apart from the traditional automakers is the company’s ability to purchase their cars online. While this doesn’t satisfy the normal consumer, it allows the company to minimize the costs by not building the unnecessary service and sales centres (Rothaermel, 2012). Tesla Motors value innovation potential helps the company to achieve the brand market recognition and the market presence. In fact, Tesla Motors does not use the conventional advertising. The setting of the primary facilities at the Silicon Valley (a region that is home for the world’s largest technology corporations) demonstrates the company’s intentions for making the first market impression of high technology and innovation (Rothaermel, 2013). Owing to the fact that the company’s customers are mostly from the middle class and the upper-income levels, the company uses the focused differentiation business strategy. The company, therefore, focuses on the provision of the high performance and creative electric vehicles to the market. Corporate Strategy The corporate strategy is the market penetration and the related constrained. Tesla Motors intends to enhance their influence on the present markets with their electric vehicles products. Additionally, the company markets their electric powertrain components to the other automakers. Tesla Motor’s corporate strategy has been to imitate the typical technological-product life cycles and enter the automotive industry with the expensive and high-end products that are targeted at the affluent customers. The company is also moving towards the most competitive markets at the lower price points. The premium products at the affluent customers are the famous business strategy that is mostly used in the Silicon Valley and the global technology industry. While Tesla’s Roadster’s base was priced at US$109,000, its Model S has its base price at US$57,400 and Tesla plans to launch the US$30,000 vehicle (Wheelen, & Hunger, 2012). One of the Tesla’s main goals is to increase the number and variety of the electric vehicles (EV) that is available for transmission to the mainstream consumers through; selling of its own cars in the company-owned showroom and online, the selling of the powertrain components to the other companies, and serving as the catalyst and the positive example of the other companies. Additionally, the company focuses on the pure electric propulsion technology. Suggested Strategies With the launch of Chevy Volt and Nissan Leaf both of which are relatively less expensive that the Tesla’s Roadster, the company should consider the global expansion. Additionally, owing to the fact that Tesla Motors has the ability of selling their Roadster domestically only in some states, it’s obvious that the company should consider expanding domestically then consider adding to the other parts of the world. The company should consider the virtual workforce management strategy. Another suggested strategy is that with the company only offering single model (that is considered luxurious) it’s not worthwhile for the company to go global. The commitment of the resources that it would take to go completely global versus the potential money that could be earned as a result in the short-term can be disastrous. The company should, therefore, concentrate on its current strategy of having the selected few sales and service centres at the densely populated places. Implementation of Strategies The company should consider virtual workplace management. This is because the specific nature of how the company manages the global workforce is unknown. The company should, therefore, consider implementing virtual workplace management to manage the various aspects of creative, manufacturing and engineering processes efficiently. However, one of the biggest challenges that the company will face in the implementation of this strategy is best explained by Symons and Stenzel (2007) when they asserted, “Trust is difficult to build, influence is difficult to express, self-leadership is required, and communication is often ambiguous”. Additionally, working as a team in a virtual environment requires “cooperation, collaboration commitment and co-ordination, from team members, working physically apart most of the time” (Symons & Stenzel, 2007). Conclusion The automotive industry is a sector with a large history, and the strategies that have been implemented by the companies in the industry play a vital role in the growth of the industry. Tesla Motors is one of the innovative, new and small participants in the automotive industry. Its lithium-ion battery cells development is renowned as being one of the most important advances and success in the industry (Ricks, 2006). Owing to its lithium-ion cells development, the company has the greatest opportunity to venture into the automotive industry successfully. Additionally, the company’s strategic decisions and management have been excellent. However, the company needs to implement the aforementioned strategies in order to compete effectively in the industry. The company’s current threat is the industry rivalry and the power. Bibliography Andric, T., Gajecki, K., Korgol, W., 2007. Environmentally Friendly cars – Who are the buyers and what affect them? Davis, J., 2010, October). How Elon Musk Turned Tesla Into the Car Company of the Future. Wired Magazine, 18 October, 2010. Mangram, M. E. (2012). The globalization of Tesla Motors: a strategic marketing plan analysis. Journal of Strategic Marketing, 20(4), 289-312. Myskova, R., 2011. A new measure of employee satisfaction. Global Journal of Business Research. Oliveira, J. P., 2014. Sustainable development, strategy and costs at Tesla. Porter, M., 1985. 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