Tesla Motors : A Strategic Analysis
Table of contents Serial No. 1
Content Executive Summary Tesla Motors : Brief profile
Page No. 2 3
2 3 4 5 6 7
Leadership Company timeline External Analysis Internal Analysis Success factors and positioning Strategic options and evaluation
4 4 5 9 14 15
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Strategic challenges faced
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8 9 10 11
Strategic recommendations Conclusions References Appendix
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Executive summary
Tesla motors has been able to achieve significant success in its mission of transforming the automotive landscape by shifting the focus to sustainable transport. The environmental factors as analyzed from PEST analysis are largely favorable and the industry forces despite being competitive and challenging are not likely to have any significant adverse impact on strong competitive advantage that Tesla motors enjoys. The business on account of distinct core competencies has been able to achieve a dominant position in electric vehicle segment and enjoys strong regulatory and financial support from government. The business has a strong vertically integrated supply chain and has been able to incorporate innovative approach to product development. The diversification strategy of the business has been in accordance with the core competencies and despite challenges like product delays, liquidity crunch it has been able to dominate the industry. The business by focusing on emerging markets and appealing to middle class segment with its model 3 is likely to achieve cost leadership position and thus will be able to sustain its competitive advantage.
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1. Tesla Motors : Brief profile
Tesla motors founded in 2003 by Marc Tarpenning and Martin Eberhard is amongst the most innovative automobile company engaged in designing and development, manufacturing and sales of high performing electric vehicles, clean energy storage systems and power train components (Tesla 2018). Tesla continues to engage in disruptive technologies. By selling its electric vehicle through its own stores Tesla is able to educate customers about the financial and economic gains. Tesla offers to the customers facility of customizing their cars and offers individualized services that sets it apart from other automakers making it a leader in electric vehicles ( Appendix 1 ). Tesla has developed supercharging stations capable of being tracked and are regarded as fastest charging stations and they have been located strategically at city centres and along highways to ensure convenience and accessibility to electric car vehicle owners. Tesla’s super charging stations backed by efficient design of batteries offer significant competitive advantage to Tesla that is hard to imitate. Strong consistent brand image and reputation , focus on sustainable and clean energy use and safe , unique and attractive design of vehicles has helped Tesla to create a strong brand image in a niche market. Model S for example has been able to achieve the highest safety rating and has also been recognized as the “Car of the year� in 2013 (Tesla 2018). Mission: Accelerating transition to sustainable energy (Tesla 2018).
2. Leadership The success of to a significant extent be attributed to visionary leadership of Elon Musk who initially engaged in developing and selling digital platforms like paypal . Success of Tesla is an ample evidence of a business driven on the basis of ambitious , focused foresight and vision of Musk. Musk possesses a strong drive for innovation and a passion for challenging existing norms and at the same time also looks for pragmatic revenue generating ways. Musk actively pursues opportunities for innovation and availed services of George Blenkenship who was responsible for developing the innovative Apple retail stores. His exemplary leadership skills have been duly recognized and he was given the prestigious Edison award in 2014 . Under his leadership Tesla motors has achieved significant progress. Musk is known for his dogged determination and in order to motivate the workers to complete the target production he often spent all his time at the factory. 3
3. Company timeline :
4. External analysis 4.1. Opportunities and threats
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4.2. PEST analysis
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4.3. Porters five forces model
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4.4. Competitors analysis
4.5. Degree of turbulence
Degree of turbulence in automobile industry is high as reflected by spate of mergers and acquisitions, continuous focus on improving fuel efficiency, stringent regulations for carbon emissions and automotive companies continuous engagement in adding more features and better design.
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5. Internal analysis
5.1. Strengths and weaknesses
5.2. Competitive advantage •
Mega supply chain of batteries produced in house .
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Growing network of supercharging stations owned by Tesla and this is one aspect that other players have not considered. Moreover the pricing is hassle free as included in the car price.
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A unique software and electronic culture comprising of touch screens, mobile apps, motor control diagnostics, battery voltage management and traction and stability control.
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A strong reputation and image of developing exciting products that can be regarded as ground breaking like the Roadster.
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A strong reputation and image of sincerity towards serving customers, working in an ethical and moral way , striking an emotional chord with the customers (Zach 2015).
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5.3. Key stakeholders
Thus the key stakeholders for Tesla would include shareholders, senior management, strategic partners and senior leadership and their interests needs to be accorded greatest priority as they will play a critical role in shaping the strategic orientations and effective implementation (Johnson et al. 2011).
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5.4. Value chain analysis
Support activities •
Firm’s infrastructure: A lean organizational structure her resulted in cost efficiency and faster decision making fostering creativity and innovation. Leadership of Elon Musk has helped Tesla achieve significant market position.
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Human resource: A people focussed progressive human resource policy focuses on talent retention and aligning employees interest with the organizations interest by offering higher salaries , employee stock option plans and encourages initiative and creativity .
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Technology: Tesla has state of the art technology infrastructure that has helped it achieve success in its disruptive technology endeavours and it has been able to incorporate advanced technologies such as autopilot system, enhanced safety features and on board diagnosis system in its electric vehicles .
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Procurement: Tesla motors has a strongly bonded collaborative relationship with over 350 suppliers globally for supply of several components and raw materials and a strategic partnership with Panasonic for supply of battery cells (Johnson et al. 2011).
Primary activities •
Inbound logistics: Tesla has created a disruption free production by manufacturing several components at its own facilities and practices lean inventory practices for achieving cost efficiency.
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Operations: Tesla is strongly vertically integrated and produces several components in houses and assembles electric vehicles at its California plant. The Gigafactory in US engages in production of battery cells and packaging materials under one roof offering economies of scale advantages. Core competencies in crash test simulations and computer aided design have helped Tesla enhance safety standards.
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Outbound logistics: Tesla has manufacturing plants and
warehouses located at
strategic locations for distribution. The Tesla factory in US caters to the US and Canadian market while the European market is served by the Tilburg facility in Netherland reducing the overall lead times. •
Marketing and sales: Tesla has refrained from leveraging traditional advertising media relying significantly on social media marketing, word of mouth publicity and 10
public relation activities . Product placement has been one of most widely used promotional tool and the model S and Roadster have appeared in some of the most popular movies. Tesla stores are highly visible, well designed and reinforce the premium positioning and fashionable image of the brand (Johnson et al. 2011). •
Services: Tesla has over 150 company owned service centres supported by trained engineers and it has also developed a strong network of super charging stations.
5.5.Organizational culture
Organizational culture of Tesla accords significance to innovation and offers significant empowerment to employees encouraging them to look out for ideal solutions and continuous improvement that would help it maintain its competitive edge in the electric vehicle market. Thus the corporate culture can be regarded as an innovative problem solving culture. It is characterized by speed reflecting upon the significance of rapidly responding to changes taking place in the business environment. Employees are encouraged to think out of the box and look beyond conventions and the focus is on constant innovation seeking to develop electric vehicles based on cutting edge technologies (Tesla 2018). The company motivates and encourages employees to think like owners and strives to align the workers interests with the strategic objectives of the workers. There is a strong focus on developing a strong team spirit and this unifying culture facilitates synergistic benefits for Tesla.
6. Success factors and positioning
6.1. Key success factors •
Focus on improved technology and efficiency of batteries as this is likely to drive down costs significantly making products affordable for customers.
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Charging infrastructure : Quality and convenience of charging stations is critical for continued performance of electric vehicles.
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Customer training, education and awareness is of critical significance in order to enhance popularity and sales of electric vehicles (Randall 2016).
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6.2. Segmentation, Targeting and Positioning
The current market segments of Tesla can be categorized on basis of lifestyle as well as income and Tesla targets high income category of young age group having concern for environmental issues and sustainability. Tesla electric vehicles have been positioned as energy efficient, high quality excellently designed vehicles offering latest technology and enhanced functionality (Thompson and Martin 2005).
7. Strategic options and evaluation
7.1. Strategy fit and current global strategy
The current strategy of Tesla focuses on its core competencies and at the same time is responsive to external as well as internal environment. With model 3 appealing to the mass market is Tesla is looking to enter mainstream segment and rising environmental concerns, increasing government support for sustainable transport, rising oil prices are going to act in its favour (Lynch, 2015).
7.2. Ansoff matrix and Porter’s generic strategy
Ansoff’s matrix
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Market penetration: Tesla by engaging in aggressive marketing strategies, increasing the supercharging stations and increasing the network of distribution centres and number of stores for selling electric vehicles and power train technology in the existing European and US markets, has sought to pursue market penetration strategy (Randall, 2016).
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Market development: By looking to set up its manufacturing and sales operations in Shanghai in China, Tesla is looking to pursue market development strategy.
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Product development strategy: By launching model 3 and Powerall, targeting middle class segment in the existing European and US markets, Tesla has pursued product development strategy.
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Diversification strategy: Acquisition of Solar city corporation and development of Powerall are strategic diversification moves that support its sustainable credentials (Marshburn 2017).
Porter’s generic strategy
Tesla motors has pursued focused differentiation strategy as the vehicles designed and developed incorporate advanced technologies, focus on excellent designs , offers to the customers facility to customize and has adopted a premium pricing strategy. The electric vehicles designed by Tesla are perceived high in terms of design and safety standards by the high income target customers (David and Bruton 2010).
7.3. Green strategy and sustainability
Tesla has been a pioneer in sustainable innovations in the automobile industry with its development of electric vehicles. It is also engaged in Powerall which is a solar installation system that is likely to promote use of renewable energy powered by solar energy in homes. The massive Gigafactory has also been planned to be powered completely by renewable energy and would be surrounded by wind farms and a massive plant cover. The suppliers code of conduct ensures that suppliers of Tesla comply with sustainability principles taking care of issues such as safe working conditions, prohibiting discrimination and harassment at work place, use of child labour, offering clean healthy work place and maintaining environment norms related to carbon emissions. Tesla also abides by guidelines related to responsible mineral sourcing (Tesla 2018). By recycling the batteries Tesla has also been able to significantly reduce carbon footprint.
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8. Strategic challenges faced
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9. Strategic Recommendations •
Tesla by focusing on core competencies and at the same time considering operational effectiveness is able to exemplify responsiveness to external as well as internal environment. With model 3 appealing to the mass market, Tesla is looking to accelerate its shift in focus which is likely to yield better results.
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Tesla would need to base its strategy on competitive dynamics as well considering that other automotive players with strong financial resources are capable of shifting to electric vehicles in a short span of time.
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Rising environmental concerns, increasing government support for sustainable transport, rising oil prices and increasing shift to electric vehicles indicate that electric vehicles are going to be the future of automobile industry. Tesla needs to focus on markets like China and India and by planning its manufacturing location in China, Tesla motors has taken a step but it should focus on cost leadership strategy in such markets in order to appeal to the mass market.
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Tesla should focus strongly on production of model 3 which holds key to success and by appealing to the mass market it will help it target customers in the emerging countries helping it achieve economies of scale..
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The existing business model of selling directly to customers needs to be modified as it is an impediment in global expansion and has also involved several lawsuits filed against Tesla. Tesla would need to forge partnerships and joint venture in order to fuel its global expansion.
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Tesla has refrained from engaging in an aggressive marketing strategy which can be said to be one reason why consumers have apprehensions about electric vehicles. An integrated marketing communication strategy would enable Tesla motors achieve greater brand visibility and will lead to greater brand awareness.
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Tesla should continue to focus on research and development and continue to develop products like Powerall that reinforce its sustainability credentials.
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10. Conclusion The strategic analysis for Tesla motors reveals that the business despite suffering from financial losses has been able to act in accordance with its sustainability focus and has achieved a leadership position in the electric vehicles market. The business operates in a highly competitive , turbulent industry and faces strong competition from emerging electric vehicles manufacturers as well as other automobile giants like Ford and General Motors. The business has been able to diversify into other areas which not only offer synergistic advantage but also reinforce its sustainability credentials. Leadership of Musk has been critical for its success. The business currently faces significant challenges and is recommended to shift its focus to cost leadership status for emerging markets and should look to design and develop electric vehicles appealing to the masses in emerging markets. Tesla motors also needs to explore strategic alliances for fuelling future growth.
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References •
Tesla ( 2018). “ Tesla – About Us.” Accessed on 14th April, 2018. Accessed from https://www.tesla.com/about
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Zach (2015). “ Tesla’s competitive advantages — 5 big ones.” Accessed on 14th April, 2018. Accessed from https://evobsession.com/tesla-competitive-advantage5-big-ones/
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David, A. and Bruton, G. (2010). “International Management: Strategy and Culture in an emerging World.” Mason-Ohio: Cengage Learning.
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Baron, E. (2016). “Tesla taunted -- again -- by GM over new Bolt electric car.” Accessed
on
14th
April,
2018.
Accessed
from
http://www.siliconbeat.com/2016/12/14/117720/ •
Randall, T. (2016). “Elon Musk's Tesla Strategy: Win Big by Falling Short.” Accessed
on
14th
April,
2018.
Accessed
from
https://www.bloomberg.com/news/articles/2016-05-09/elon-musk-s-tesla-strategywin-big-by-falling-short •
Thompson, J., and Martin, F. (2005). “Strategic Management: Awareness and Change.” 5th edition. London: Thomson Learning.
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Lynch, R. (2015). “Strategic Management.” 7th edition. Harlow: Pearson Education
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Kotler, P., & Keller, K., (2009).“Marketing Management.”Harlow: Pearson Education.
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Johnson, G., Whittington, R., and Scholes, K. (2011). “Exploring Strategy: Texts and Cases.” 9th edition. Harlow: Prentice Hall.
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David, R. (2011). “Strategic Management: Concepts and Cases.” 13th Edition. New Jersey: Prentice Hall.
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Grant, B. (2008). “Contemporary Strategy Analysis.” 6th edition. Oxford : Oxford publication.
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Marshburn, D. (2017). Tesla’s diversification strategy. Accessed on 14th April, 2018. Accessed from https://marshburnblog.wordpress.com/2017/04/10/chapter-11-teslasdiversification-strategy/
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Debord, M. (2017). Tesla will face huge challenges in 2018 - and it could put the company under crushing pressure. Accessed on 14th April, 2018. Accessed from https://www.businessinsider.in/Tesla-will-face-huge-challenges-in-2018-and-it-couldput-the-company-under-crushing-pressure/Cash-cash-and-more-cash/slideshow/62308688.cms 17
Appendix US electric vehicles sales
(Source : https://evobsession.com/electric-car-sales/)
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