Business Strategies of Tesla Assignment

Business strategies

INTRODUCTION
Business strategy is the decisions of company that aid the firm in accomplishing its goal
significantly. Strategic planning is helpful in securing competitive position of the firm.duration
(Abu Farha, 2016). Current assignment will be based on Tesla; it is the leading American firm
that offers electric cars to wide range of consumers across the world. In the year 2018, entity has
generated 21.46 Billion revenues. Current assignment will conduct environment analyses of
Tesla through Pestle, Swot analyses. It will apply porter’s five force model in order to analyses
competitive environment of Tesla. In addition, report will evaluate different strategic direction
available to organisation. Furthermore, it will produce plan that will include strategies, tactics of
organisation.
TASK 1
PESTLE, SWOT and organisational capabilities
Pestle analysis of tesla
Pestle analyses is the environmental analyses tool that helps in evaluating external
environment of business unit.
Political factors
There are so many political factors which are affecting the auto-mobile industrialist.
Specifically, it includes corruption and bureaucracy in market, freedom for press trade unions
activities (Wirtz and et.al., 2016). Trade policies of UK are free hence Tesla has opportunity to
enter into new market and expand its business across the world. Government of UK is supporting
electric cars. This helps Tesla in running business successfully. Political instability creates
threats for business because changing government policies impacts negative on Tesla as it has to
make modifications in its practices and process as per the new regulations.
Economic factors
The economic factors can diversely affect the Tesla. Changes in economic policy of UK
directly affects the Tesla. When there are changes in foreign currency exchange rate then it can
affect the Tesla (Nakatani, 2018). Due to change in FER in year of 2017 there is$26.2 million
more profit gain by the company in respect of year 2016 where the annual profits for both the
year was $52.3 and $26.1 respectively. Volatile exchange rates impact on the investment
strategies of Tesla and long term performance of business get affected. In the condition of
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inflation Tesla face the issue because it affects purchasing power of consumers. By this way firm
fails to generate profit in the market.
Social factor
Changes in preferences of buyer’s impact on the demand of products of Tesla., as now a
day’s people are demanding sporty cars and entity is offering them such kind of products. It
raises trust and loyalty of consumers and sales of business unit get increased significantly.
Electrical car idea of Tesla is loved by people this has created positive brand image in the mind
of consumers. This has affected production strategy of business and has helped in increasing
revenue of business unit. Preference of renewable energy cars are increasing, this impacts
positively on sales of business and help in gaining competitive advantage to the organisation.
Technological factors
Technology is expanding and growing with the exponential rates. This is why Tesla
accept to upgrade its technology and adopt new changes which are required to sustain in market
and compete with competitors (Rosemann and vom Brocke, 2015). Tesla implements artificial
intelligence system and automotion techniques which make it unique from its competitors. This
advancement impacts positively on tesla and help in minimising wastage and manufacturing cost
as well (Wirtz and et.al., 2016).
Legal factors
This factors include rule and regulation part which are governed by government. UK
government has made laws in favour of environment, these legal regulations impacts positive on
Tesla as by this way company can promote its electrical cars easily. Dealership sales regulations
restrict the firm hence it impacts on sales strategy of Tesla and impact on its profitability as well
(Smith and Wong, 2016).
Environment factors
Tesla have to take care about the environment. They have to ensure that proper dispose of
waste generated by production. Now a day everyone is going for low carbon and eco-friendly
environment. Dependence on old sources of energy is less because they are scare and not
renewable, so uses of new sources of energy are in bulk and renewable. So, that the Tesla's idea
of electric car is loved by the peoples and because these cars are fuel efficient and maintenance is
cheaper than traditional vehicles (Das and Rangarajan, 2017).
SWOT analyses
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Strength
 Strong brand image: One of the great strong point of Tesla which supports in attracting
potential buyers across the world.
 Financial condition: It is generating huge revenues and it has gained competitive
advantage in auto mobile industry.
Weakness
 Costly products: It sales its products at high cost, hence middle income class people do
not buy such cars hence entity can target only limited number of buyers
(Soundarapandiyan and Ganesh, 2015).
 High research and development cost: It invests huge amount in research and development
which affects its profitability in negative manner.
Opportunities
 Technological advancement: Tesla can use advance technologies such as artificial
intelligence system, online mobile applications etc., it would help in developing its
products and offering wide range of goods and services to its buyers.
Threats
 Regulations: Government makes changes in laws and regulation which create problem
for the company and it has to make changes in its entire practices as per the new norms
which create pressure on business unit (Smith and Wong, 2016).
Capabilities of Tesla
VRIO model
Values Product portfolio (range of products)
Financial background and strong supply chain
management are core capabilities of Tesla.
Innovative culture
Rare Its manufacturing techniques are amazing that
is why investors like to invest in Tesla so that
they can get high return over their investments
Imitation Retail and distribution strategy
Supercharger network
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Organisation Futuristic designing
TESLA -PORTERS FIVE FORCES
Rivalry Among Existing Competitors: -
Tesla is competing in market, so it is having high rivalry among existing competitors.
Many companies are operating in US market and giving tough competition to TESLA an
automotive industry (Smith and Wong, 2016). As TESLA is adopting electric vehicles there are
no such rivals in the market as it is the only electric luxury brand. But in next few year high end
car makers will be expanding their segment which may result in tough competition. There are
various brands in market which are taking help of research and development to enhance their
technology and can compete market. Company have to focus on their research and development
so that in near future no company can became rivalry for their brand.
Threat of New Entrants:-
Threat of new entrants are low as companies are not having such huge amount of capital
or resource to invest and for entering in new market, new technology is required. For having
good technology high cost in research and development is in need, then only one can compete in
market (Splitter, Seidl and Whittington, 2018). Tesla is a brand with innovation and have created
great image in eyes of customers because of which it is setting a trend mark and reputation of the
brand is increasing. Because of this reputation in market one can not compete to Tesla as
customers are loyal towards their brand.
Threat of Substitutes:-
Presently threats of substitute are low but it may increase in near future. There are only
few substitutes for the model 3 but it is more expensive than its competitors because of which
various substitutes are available at low prices. These substitutes can become competition to the
company in production part. Nowadays hydrogen-fuelled cars are attacking markets which
attract different customers and companies’ loyal customers can also switch the brand (Dyllick
and Muff, 2016). So these substitutes can become threat for the growth of organisation.
Bargaining Power of suppliers:-
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Bargaining power of suppliers are low as suppliers available in market are in huge
number and company is having various alternatives for the same. Company need different raw
materials whose price change frequently due to change in market condition and demand.
In such condition suppliers have control over price of materials and can add value to
these resources to make their material more costly (Luo, 2018). Tesla also have bargaining
power due to good reputation in market and they easily influence their suppliers. Because of
which it can extract different resources easily at low cost.
Bargaining powers of Buyers:-
Due to price sensitivity bargaining power of buyers is quite high. As Research and
development of luxury brand are increasing so in future it may be possible that company can face
competition and demand of product may go down. So, company should work on this part so that
it may not lose its potential customers in near future (hen and et.al., 2018).
TASK 2
Strategic directions for organisation
Strategic direction is an action taken to reach organisation objective. It is a process of
making plans, strategy and tactics to achieve organisation goals. It provides guidance to the
organisation (Splitter, Seidl and Whittington, 2018). Different type of strategic direction
available to Tesla is:
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Illustration 1: Ansoff matrix
(Source: Ansoff matric of company, 2018)
 Market penetration: It is a process of selling products and services in specific market. It
is the activity to increase the market share of existing product by using low price to create
demand of product. Selling existing product in same market by developing new strategies
is called market penetration. Tesla can use this strategy to extensively. Tesla can focus on
selling it products like model S, X, 3 electric vehicles, inverters, power-pack 2 energy
storage products, solar panel, racking and electrical hardware devices in US and many
other countries. Tesla want to increase the market share of its product. High market share
is important to keep competitors away. Tesla can use aggressive marketing strategy
which can be beneficial for promotional campaigns, expand distribution channel and new
pricing strategies. It is beneficial as well as has some disadvantages like if production is
expensive then company would not be able to sell its products in lower price to attract
new customers (Dyllick and Muff, 2016).
 Product development: firm can use product development strategy in order to grow well
in the market. Company can implement strategy as product development is a process
modifying existing product or create new product as per the need of the customers. Tesla
is currently working on the semi-truck, pick-up truck and energy storage products. Tesla
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can design new products for the new consumers. Product development can be risky
because when new product is introduced to customers may or may not want it. It is safe
to stick with old product which company and customer know (Luo, 2018).
 Market development strategy: This strategy emphasis on selling new product in
existing market. Tesla is assessing to undertake new markets in which India has been
shortlisted. Deepak ahuja, chief financial officer of the company wants Tesla to enter in
India. India will become third-largest auto market by 2020 it Tesla enters. It will be
strategically the appropriate decision to increase its market share. Tesla's product S
focuses on luxury market area. It can be difficult to introduce new product in existing
market because customers may or may not take risk to purchase that product or they do
not have need of that product thus this decreases the market share of the product.
 Product diversification strategy: This strategy focuses on creating new market for new
product. Tesla has diversified through past years. (hen and et.al., 2018). Tesla first started
with manufacturing of electric vehicles and after purchasing Solarcity to enter in energy
storage sector it name changed to Tesla motors Inc. It has good network and potential
hence company can implement diversification strategy. For attracting new customers in
new market Tesla will have do advertising according to culture which can focus on
building brand awareness and create a competitive advantage towards similar prices
products. Product diversification can be costly because it will incur cost of 2 sales team.
Recommending the most appropriate growth strategy
Company can implement product development strategy to sustain in the market because it
can be beneficial for Tesla to bring innovation in market. It is a process of upgrading existing
product to motivate existing market or to produce new product that market wants. Product
development is important for society betterment, it provides value to the customer and helps
company to grow (Wieland, Hartmann and Vargo, 2017). As Tesla does not engage in the
product development frequently because it incurs huge cost. Tesla should do research and
development properly and identify the needs of customers, new technology available for product
enhancement, identify the market segment, test the concept used in the product and before
launching it in market, first it should be checked in the market, whether it is liked by the
customer or not. If a company develops new product it has to make sure that it has sufficient
funds to market its product so that customers know about your product. This strategy can be used
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as a benchmark to help in measuring the progress of the product. Tesla should invest in new
technology to differentiate its products. There is a threat to enter in the industry because it incurs
huge cost, resources and technology. Tesla is the innovator of electric car, this makes it difficult
for competitors to enter in the industry (Abu Farha, 2016).
Strategic management plan
It is a planning process which defines organisational goals, objectives, set priorities,
making strategies, mission, vision to achieve organisational objective. It ensures that all the
employees and stakeholders are working towards common goals. It is a process of continuous
planning and monitoring which is necessary for organisation to achieve its goals. This is
beneficial for Tesla company leaders to check company's present situation, what strategies is
being used and if they are not proper or does help in achieving company's mission then those
strategies should be deployed and new strategies should be implemented. Strategic management
helps company to analyse its strengths and weakness, formulate and execute the plan and
evaluating the success of plan (Wirtz and et.al., 2016).
Vision: To develop wide range of products and gain global brand presence.
Mission: To become a leading brand in the industry
Strategic goal: To increase the sales of electric vehicles by 20 % till the end of 2019.
SWOT analysis:
STRENGTHS
 Strong brand image
 Strong financial condition
WEAKNESS
 Costly products
 High research and development cost
OPPORTUNITIES
 Globalisation
 Technological advancement
THREATS
 Regulations
Key strategies/ tactics:
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Tesla can use these following tactics:
 Product development: Tesla can innovate or introduce new products or make changes in
existing products. It is an important strategy to improve the quality of the products by
product development campaigns to increase sale. It helps company to improve its own
quality standards. Company can use new design or new production process to meet
quality specifications. By improving quality of product market share of product will
increase, productivity also increases which helps in reducing cost of product and
compete in the market. Company can offer lower price products when production cost is
low which increases profit margin (Nakatani, 2018). A product development strategy can
fail because it is unable to meet the needs of the customers. Proper research should be
done in the market to identify the needs of customers, new technologies that can be used
in production process or in the product. Company must ensure that ideas can turn into
finished products with all the available resources.
 Marketing: Marketing plays an important role in creating brand positioning in mind of
customers. Tesla's competitive advantage is to product and place, it produces electric
cars with attractive designs and position it in different segments. Company uses market
diversification strategy for culture based advertising for creating brand awareness and
gain competitive advantage. Tesla should also use social media marketing by creating its
business profile various social media platforms (Rosemann and vom Brocke, 2015).
Through social media marketing company can find out insights that shows how much
your product is liked by customers, company can market their new products through
social media and find out the reaction of customers whether it is positive or negative by
their comments, how much your product is shared by the customers and can also find the
needs of customer that company can satisfy.
Segmentation, target and positioning:
 Segmentation: It can be done through demographics by segmenting people on the basis of
gender, age and income. It is beneficial for company because company can provide
products according to the need of age group such as age group of 25-30 like sporty cars,
30-35 prefer safer cars (Das and Rangarajan, 2017). Company can also provide car on the
basis on income such as model 3 cars for middle class and luxury cars like BMW, Audi
for high class. Tesla has entered into new markets i.e. Solarcity.
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 Targeting: Tesla will target middle income class people and old age people because
electrical vehicles are easy to drive and available at reasonable prices. Company will take
assistance of differentiated targeting strategy. This strategy is beneficial for business unit
as it would be beneficial in order to attract mass audience and targeting range of people.
 Positioning: Tesla will take assistance of cost positioning strategy as it will emphases
more on cost reduction so that it can offer cost effective products to consumers. This
would help business unit in gaining attention of mass audience and targeting range of
consumers as well (Soundarapandiyan and Ganesh, 2015).
Financial projection
Months Jan Feb March April May June
Cash inflow
Revenues 20000 22000 24200 26620 29282 32210.2
total cash inflow 20000 22000 24200 26620 29282 32210.2
Cash outflow
Rent 5000 5000 5000 5000 5000 5000
Salaries 4000 4100 4100 4100 4100 4100
marketing cost 1000 1000 1000 1000 1000 1000
administration cost 500 600 700 500 600 600
Total expenses 10500 10700 10800 10600 10700 10700
Net cash flow 9500 11300 13400 16020 18582 21510.2
Monitoring and controlling
Monitoring will be done through benchmarking system, this will help in analysing
whether strategies of business are giving expected result or there is need to make modifications.
Furthermore, it will use sales report in order to control over entire strategic plan, if cash inflow is
less than cash outflow then Tesla is require to make changes in its strategies but if it is positive
that shows strategies are giving desired results.
Evaluation
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If Tesla implement the cost positioning strategy and spend amount in marketing then it
would be able to gain profit, as it will gain attention of buyers and they will spend money in
buying such cars.
CONCLUSION
From the above study it can be concluded that companies are required to analyses their
internal and external business environment and has to make strategies accordingly so that it can
sustain in the market for longer duration. It his essential design products as per the needs of
buyers so that people take interest and buy its products frequently. It would be beneficial in order
to raises sales of the company to great extent. Ansoff matrix helps in analysing strategic direction
of business and implementing right strategy for the growth of organisation. Tesla should apply
products development strategy as it would help the firm in gaining attention of mass audience
and enhancing their satisfaction level as well.
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