External Environmental Analysis of Tesla Motors
Macrolevel environment (PESTEL analysis)
- Political: encouragement from government for electric cars, the development of free-trade contracts (opportunities);
- Economic: difficulties with economic stability (threat), reduction of costs on renewable energy and battery (opportunity);
- Social: growing recognition of low-carbon lifestyles, escalated choice of renewable energy, increased distribution of wealth in developing countries’ markets (opportunities);
- Technological: growing rates of automation, increasing recognition of online mobile systems (opportunities), growing levels of technological innovations (opportunity and threat);
- Environmental: developing environmental campaigns, climate change (opportunities);
- Legal: management of international patent security, policies on energy consumption (opportunities), dealership sales arrangement in the UA (opportunity and threat).
Industry environment (Porter’s model)
The strategic effectiveness of Tesla Motors can be analyzed according to Five Forces analysis, which investigates a company’s competitive rivalry (strong force), bargaining power of clients, bargaining power of suppliers, the risk for substitution (moderate forces), and the risk for new entrants (weak force). Competitive rivalry is the dominant force of Tesla Motors. Bargaining power of clients is maintained by low switching costs and a moderate number of purchases.
Bargaining power of Tesla’s suppliers is defined by their limited number and moderate integration. The threat of substitution comes from cheaper ways of transportation which may attract the clients. However, Teals Motors provides a higher level of customer satisfaction. The weakest force is the risk for new entry since it is hard to compete with Tesla’s brand and quality. Porter’s model analysis indicates that Tesla Motors should focus on the force of competition as their strongest advantage in business environment.
The major competitors of Tesla Motors are Ford, Chrysler, and General Motors. All of these companies have good reputation and popularity among the citizens and abroad, and their revenues are rather high. Apart from the threat of losing customers due to competition with these manufacturers’ popularity, Tesla Motors should also be worried about GM’s endeavors to join the electric vehicle market.
Internal Analysis of Tesla Motors
Company’s resources, capabilities, and competencies
- Resources: financial, human (designers, engineers), service centers, charging stations);
- Capabilities: public relations, brand management, powertrain development;
- Competencies: creating highly efficient battery-powered power trains and motors (Tesla Roadster, Tesla S).
Value, rarity, imitability, organization (VRIO analysis)
- Value: the biggest advantage of Tesla is their most updated production process. The state-of-the-art equipment makes it possible to design and produce advanced and upgraded products.
- Rarity: the company is exceptional at different levels, including availability, geography, and structure. An important fact is that Tesla Motors departments are situated near growing cities where there are many prosperous citizens. What concerns structure, Tesla does not have an equal in the production of such quality of sports cars. Availability is so far the limitation of a company, since its geographic rarity allows only a limited number of people to have access to the company’s production.
- Imitability: In spite of being a leader in its league, the risk of imitability is rather high. The threat has been increased with Elon Musk opening the patents to the firm’s coveted cars. However, the company’s exceptional attitude to environmental friendliness, sportiness, and comfort makes it difficult for others to match.
- Organization: Elon Musk has fantastic organizational skills. After several CEOs had failed to correspond to his high standards and expectations, he decided to run the company by himself. Because of his managerial talent, Tesla Motors reached worldwide fame, recognition, and popularity. The only drawbacks in organization are the dependence on government policies concerning electric cars.
Company’s value chain
Tesla’s value chain consists of the following components: design, engineering, manufacturing, sales and distribution, service, and charging. The company’s design includes its being situated in Silicon valley and the possibility to employ the most professional engineers. To eliminate waste and arrange an integrated product design, 3DLIVE and 3DVIA are used. Engineering level is strengthened by VMS used for the management of security system and warning about any problems.
At the manufacturing level, DELMIA software is utilized to plan the process. At sales and distribution level, DS software is used to predict sales based on the phase of the product’s life cycle. Strengths of service include the possibility to update the firmware by merely connecting the automobile to a computer. What concerns charging, Tesla Motors has a large number of supercharger stations where over three thousand of superchargers are available. There is a special mobile application called Model S App which shows when the car is charged.
Analysis of the Firm’s Current Business-Level and Corporate-Level Strategies
The company’s business-level strategy is a focused differentiation strategy. With such approach, the source of company’s competitive advantage comes from their method of differentiating the services and products. Diversification can be gained by entering other markers with its products. Tesla Motors can do so by selling their battery technology to other industries (for instance, to store solar energy). Another diversification option is the production of EV cars. These strategies are implemented via contracts about cooperation with native and foreign companies.
International strategies are rather crucial for the organization’s success and productivity. The mode of entry chosen by Tesla was exporting, and it was initiated in 2013. The geographical scope is Europe and Asia. Tesla delivered its Model-S in Europe 2013 and in Asia – in 2014. The strategy helped to increase the company’s profits. Even though the profits were not stable, it is clear that the development of international strategy will enhance Tesla’s business achievements.
Analysis of the Firm’s Performance
At present, the performance of Tesla Motors may be considered rather productive. Despite the recall of 1,228 Model S cars in 2013, Musk says that the company’s profit is at its peak of efficiently, with positive prospects. In 2013, Tesla’s stock was over $150 per share. What concerns market, Tesla’s unique position adds up to the company’s strength.
Tesla has an advantageous position among the competitors because it has more experience in producing EV cars, and its equipment and highly-skilled engineers make it possible to create sports cars of exquisite quality. Industry average puts Tesla next to such corporations as General Motors Chrysler, and Ford. Tesla’s current problem is not doing better than its competitors but managing the resistance of the market to EVs.
Over the past three to five years, Tesla’s trends include the stabilization of supply chain and manufacturing process and improving the execution. One of the significant changes was reducing the time necessary to build a car by forty percent.
The perspectives of company’s stakeholders are rather optimistic. Musk is convinced that Tesla Motors will bring a stable profit with the help of improved inventory management.
So far, the company’s competitive advantage is rather high, and it is concerned with the rarity of the product. However, in order to maintain this advantage, Tesla Motors needs to ensure stable development not to be outrun by General Motors which is planning to launch its EV projects.