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Tesla

Case study: How Tesla changed the


auto industry

1.0 Introduction

Tesla Motors, is successful automobile company. The company has carved a niche in the automobile
industry by manufacture of energy efficient vehicles. Tesla is headquartered in California and was founded
by like minded engineers who were experts in designing electric vehicles. Since its establishment in 2003,
Tesla has grown to be one of the biggest electric cars manufacturer and has contributed more than 55,00
cars in roads all over the world. Their goal is to create a transportation system which development through
sustainable techniques. Electric cars can be charged at home and do not require any fueling like gasoline
or petrol, thus these cars emit zero carbon but the designs were not accepted by the consumers as they
were obsolete. That is when Tesla decided to flip the equation and designed their trailblazer electric sports
car for the high-end market (Stringham et al, 2015). Tesla has collaborated with a lot of stores and service
centers in the United States and have also set up plant in Canada further planning to expand in other parts
of Europe and Asia (Chen and Perez, 2018). The world is battling with lot of issues related to energy
consumption and global warming. Considering the issues Tesla decided to innovate its product’s and
attain global recognition. Other factor which was considered by Tesla while designing e vehicles was the
high demand in emerging markets with population as India and China. The company also aims to
cooperate with other automobiles manufacturing organization’s so that they can also be influenced to
produce electric vehicles in the most cost-effective manner. The purpose of this report is to analyze and
discuss the internal and external business environment of Tesla and evaluate a recent strategy that the
company undertook for its development.

1.2 Objective – Tesla’s objective is to work with other car manufactures all over the world and bring more
and more electric cars on the road so that the environment is protected.

1.3 Vision - Tesla’s vision is to become the most compelling car company by transforming the cars to
electric cars.

1.4 Mission – The company’s mission is to “Move from a mine-and-burn hydrocarbon economy towards
a sustainable, solar electronic economy”.

2.0 External Analysis


2.1 Pestle

Political – This part of external analysis identifies the impact of government rules and regulations on
Tesla’s business operations. According to the case study Tesla has the opportunity to strengthen its
financial performance with the help of government incentives. The external factor is related to minimizing
carbon emission while producing a product. Also, the political stability of most of the markets are in favor
of Tesla’s generic competitive strategy.

Economic – Tesla’s business performance benefits because of the lower batter cost. Also, when the
company will consider decreasing the cost of renewable energy then their products will be more
attractive. But the economic stability is like a threat for the company’s financial performance.

Social – The company managers should make sure that their strategies are well aligned to maximize the
benefits for which they can increase the popularity of low carbon lifestyles. Factors like these will enhance
the market demand for electric vehicles and will also boost the financial performance of the company.

Technological - The high rate of technological changes is like a threat for a lot of companies but for Tesla
it’s an opportunity. The company is looking forward to increase automation in the business which is a
positive factor as the experts have forecasted the increasing popularity for digitalization which Tesla can
use to enhance its products.

Environmental – Tesla has opportunities to promote its products because of the increasing concern
related to climate change. Their products emit zero carbon and therefore they are not at all harmful for
the environment. Their electric battery’s and solar panels are suitable to the environment leading to
business sustainability.

Legal – The company safely plans to expand its business overseas considering the international patent
protection. Tesla has identified the benefit of promotion of electric vehicles based on energy consumption
regulations that every organization must follow. But some states do not allow direct sales and demand
dealership so this opportunity can also be a threat for Tesla.

2.2 Opportunity and Threat for Tesla

Opportunity Threat

Automotive companies these days are


competing aggressively against each
 Increasing awareness and support other which is a threat for Tesla.
for electronic vehicles as they are
eco friendly Due to high rate of technological change,
Tesla will have to be updated and this can
 Tesla should consider the cost the company a lot.
opportunity for global sales
expansion which is based on the The fluctuations in the price of raw material
economic growth of the countries used for electric vehicles can be a problem
where Tesla is operating from. for the company because of which the cost
of lithium goes up leading to threats of
 Expansion of business through dealership regulations.
international patent protection.
Currently Tesla sells their products to the
 If the company decides to decrease consumers directly without any dealership but
the cost of the battery used in their when the company expands to other states
like Virginia and Texas, they will have to go
vehicles then its advantageous and thorough dealership ( Bull , et al , 2016)
more vehicles will be sold because
of the popularity.

 Expansion of production and sales The market for electronic vehicles is small and is
operations in Asia and Europe. still developing so Tesla will have to work hard to
promote its vehicles.

 Tesla can enhance its


performance through
diversification. This means to The low gas prices for vehicles can also
be a threat as more consumers will be
acquire new ideas and reduce attracted to gas vehicles instead of
business risk exposure. expensive electric battery vehicles .

2.3 Porters five force analysis

Competitive Rivalry

Currently there are only small number of firs that are operating in the automotive market but these firs
are aggressively competitive when it comes to innovation and promoting the products. to meet the
requirements of the market Tesla will have to attain the competitive advantage by strengthening its
business against the competitors. the competitive rivalry is high in the automatic and energy solutions
industry.

Bargaining Power of Tesla’s

The availability of substitutes in the automotive industry is moderate which limits the
bargaining power of consumers. For instance, there are many consumers who have
limited access to transportation and for them its more practical to drive their own car.
Thus, the bargaining power of Tesla is moderate.

Bargaining Power of Tesla’s Suppliers

The automotive industry is mostly dependent on its suppliers which means that they also have a limited
control in sales and distribution of their product’s. For instance, there are some suppliers who use third
parties to sell their product’s to Tesla but others can contact and deal with the company directly. The
moderate level of supply can impact Tesla but only to a certain extent. Research indicates that bargaining
power of suppliers is a secondary management issue.

Threat of Substitutes

One of the main reasons for competition is low switching cost. In the case of Tesla, the switching cost
refers to the cost of public transportation which many attract the consumers. This external factor
imposes a strong force against the automotive industry even Tesla. But the moderate availability of
substitute’s limits the influence of suppliers. For instance, public transport is not as versatile as the
experience of a private car. This scenario limits the substitutes force against Tesla.

Threat of New Entrants

The automotive industry requires high cost of brand development. For instance, new
brands cannot match the quality and goodwill of existing brands which is a strength for
Tesla. Tesla is an established player so it benefits from increasing economics of scale
which cannot be attained by a new entrant easily. This the threat of new entrants is low.

. 3.0 Internal Environment


Key resources and capabilities

 The production process is innovative


 The company has the ability to raise capital
 Tesla’s management team is experienced
 The company has high consumer loyalty and also has brand value.
 Consumer service is outstanding
 The revenue growth against the competitor is high
 The company is becoming profitable every year
 The stock price of the company has outperformed its competitors
 Currently Tesla is targeting the luxury vehicle market segment (Voigt et al , 2017)
 Their vehicle batteries quickly charge to 80% in just 20 minutes which enables the consumer to
drive their vehicles for long distances
 But Tesla faces certain issues like low oil and gasoline prices, and reduced demand for electric
vehicles.
Strengths and weakness

Strengths Weakness

The internal factors limit the performance of the


company which decreases the business growth
and competitiveness.

Tesla’s vehicle sales are growing globally. The company suffers from limited market presence
Research indicates that their revenue as it generates most of the revenue from U. S and
increased from $2.39 billion in 2015 to $5.6 has small presence in other states.
billion in 2017
Tesla has limited supply chain which prevents the
company from rapidly expanding in other markets.

Vehicles designed at Tesla are comparatively


Tesla is known for its innovative products and
expensive than other competing cars especially
especially for electronic sports car.
the ones with combustion engines.
The renewable solutions developed by the
The high price of cars prevents the company from
company leads to a positive impact on the
growing its consumer base as well as market
company’s goodwill.
share.
The brand has the ability to attract and retain new
consumers by providing ecofriendly vehicles.
Competition s increasing day by day brands like
brands like Nissan and Ford are also making
Tesla engineering has experts who specialize in environment friendly electric vehicles.
designing light weight material which are important
for electric vehicles. ( Bull , et al , 2016)

Issues like involvement of third parties in the


manufacturing of vehicles is minimized because of
which the company has a strong control on the
production process leading to centralization.

The company has continued to build a fast network


throughout Europe, America, and Asia.

VRIO Analysis
The VRIO analysis is used to determine the competencies within Tesla can attain competitive advantage
or not. The VRIO table shown below highlights the competencies and strategic advantages of Tesla. The
best competency of Tesla includes its experienced and innovative CEO, the unique futuristic design of its
sport’s electric cars with the competency of attaining sustainable competitive advantage and these
competencies cannot be replicated easily. Other competencies are temporary which is the company’s
headquarters in Silicon Valley and its huge network. Apart from that the high efficiency of its batteries.

References
https://www.supplychaindive.com/news/case-study-how-tesla-changed-the-auto-industry/517251/

Stringham, E.P., Miller, J.K. and Clark, J.R., 2015. Overcoming barriers to entry in an established
industry: Tesla Motors. California Management Review, 57(4), pp.85-103.

Chen, Y. and Perez, Y., 2018. Business model design: lessons learned from Tesla Motors. In Towards a
Sustainable Economy (pp. 53-69). Springer, Cham.
Voigt, K.I., Buliga, O. and Michl, K., 2017. Driving Against the Tide: The Case of Tesla Motors.
In Business Model Pioneers(pp. 187-198). Springer, Cham.

Hettich, E. and Müller-Stewens, G., 2017. Tesla Motors. Business Model Configuration.

Boasson, E.L. and Wettestad, J., 2016. EU climate policy: Industry, policy interaction and external
environment. Routledge.

Carraher, S.M., 2018. An examination of an instrument to measure Porter’s Five Forces Model.
In International Journal of Arts & Sciences Conference at Harvard University.

Bull, J.W., Jobstvogt, N., Böhnke-Henrichs, A., Mascarenhas, A., Sitas, N., Baulcomb, C., Lambini, C.K.,
Rawlins, M., Baral, H., Zähringer, J. and Carter-Silk, E., 2016. Strengths, Weaknesses, Opportunities and
Threats: A SWOT analysis of the ecosystem services framework. Ecosystem services, 17, pp.99-111.