Sustaining Competition in the Automotive Industry: A Strategic Analysis of Tesla

In this report, it is argued that Tesla needs to implement effective strategies and business planning to sustain in the highly competitive automotive industry. With Nissan and Ford entering the market with high-scale features, expertise, and GDP, Tesla's potential customers may be taken away. Additionally, latest innovations such as hydrogen-based vehicles could lead to losing its current market position. To achieve differentiation strategy, Tesla is suggested to produce small premium vehicles that compete with others and focus on other affordable and accessible market segments.

University
A management analysis of Tesla Motors
By
Date
Name
Institution

Tesla Motors
Table of Contents
Introduction......................................................................................................................................3
Company background......................................................................................................................4
PEST Analysis.................................................................................................................................4
Porter’s five force Theory Analysis.................................................................................................6
Value Chain Analysis......................................................................................................................8
SWOT Analysis.............................................................................................................................10
Recommendation...........................................................................................................................12
Conclusion.....................................................................................................................................13
References......................................................................................................................................14
Page 2 of 16

Tesla Motors
Introduction
The current market of the automobile industry has become very competitive due to alternative
fuel vehicles rise with environmental concerns. Besides that, this report is based on the Tesla
Motors which is an electric vehicle manufacturing company of Australia and its sustainability-
related strategies will be explained with proper arguments. Along with that, the strategic position
of the company will be analyzed through PEST analysis and Porter’s five force theory, as well as
a value chain and SWOT analysis will be conducted for internal business environment analysis.
Moreover, at the last stage of this report, recommendation and conclusion will be provided based
on the findings from these models and theories(Laux, 2007).
Page 3 of 16

Tesla Motors
Company background
Martin Tarpenning and Martin Eberhand found the Tesla Motors in the year 2003 and 2006 with
the help of Silicon Valley engineers this company launched the ‘Roadster' the first electric sports
car. According to latest reports, Tesla provides powertrain elements to famous car manufacturer
companies such as Toyota and Daimler. On the other side, Tesla's zero-emission sedan had
become third bestselling electronic car in the USA and the UK. Moreover, Mr. Elon Musk, CEO
and product architect of Tesla holds an
essential role of the true leader who has
a strong vision of the future(Laux,
2007).
PEST Analysis
Different types of variables are included
in the PEST analysis in order to identify
general opportunities and risks of
specific strategy implementation.
Moreover, political, economic, social
and technological factors are included in the PEST analysis which is discussed below.
Political factor: this is one of the critical factors of the PEST analysis because distinctive
political patterns influencing the business operations of Tesla in all over the world. In order to
meet strict emission levels, this political factor is affecting the environmental protection law to
persuade production of more eco-friendly cars (Kirsch, 2000). Besides that, the loan programs of
Page 4 of 16

Tesla Motors
the Australian government for development and research of innovative technology-based cars.
As a result, many automobile companies will be interested in the Australian market.
Economic factor: the growth of the economy is included in this economic factor in the substitute
power and energy based industry with increasing fuel price in the short period. Apart from that,
more energy efficient cars have increased, and rapid demand which did not appear early and the
impact of the exchange rate affect the GDP of each specific country where Tesla expands its
business. In addition, recent reports indicated that the customer purchase power is mainly
influenced by the high GDP value and an inflation rate of the most developed countries from
2008 to 2010(Nieuwenhuis and Wells, 2010).
Social factor: this social factor is direct concerns with the environment through attitudes and
emphasis on the products. On the other side, in order to help the environment, the customers are
losing faith in gasoline fuel and associated with the cost deduction. Besides that, at present time
the society judges people through their property including the car they own. In addition, the
social standards of the individual are improved by the idea of electric vehicles. Thus, most of the
people like to spend money to purchase premium electrical cars.
Technological factor: the automobile industry is rapidly influenced by the latest and innovative
technology, as well as the internet has a deep effect on this technological changes(Durisek and
Granat, 2008). Since many years, the technological advancement has taken place this automobile
industry, and in order to prevent accidents, the technological factors help many organizations to
introduce fully computerize electrical cars. In addition, with the help of this technological factor,
the automobile industry has a chance to increase efficiency and reduce the cost of the premium
electrical cars.
Page 5 of 16

Tesla Motors
Porter’s five force Theory Analysis
In order to analyze and access the external business environment of any industry, the model of
Porter’s five force has been utilized. In addition, there are five different forces included such as
the threats of new entrants, the bargaining power of buyers, threats of a substitute, the bargaining
power of suppliers and the threats of existing rivals. These factors are discussed below;
The threats of new entrants
The threats of new entrants are one of the constant risks for each industry. While entering in the
automobile industry, Tesla itself faced many challenges as new entrants such as numerous
financial problems, high capital as startup investment for building distribution and brand
channels. Moreover, due to lack of capability, established companies with strong economic
power could not stop Tesla and many government programs also supports the electrical vehicles
development plans(Garnet, 2011).
The bargaining power of buyers
According to the annual report of Tesla, the overall bargain power of the buyers is modest, and
Tesla is depended on the relationship with Daimler and Toyota. The partnership is very crucial
for Tesla because it concludes high share and profit, so thus, they cannot lose them for making a
considerable power supply. Thus, they manufacture various types of electrical cars and sell them
to individual customers. In addition, many government initiatives provide potential customer tax
credit deduction for improved financial status. With the help of this programs, the demand for
electric cars is stimulated, and it makes bargaining power low (Bodie, Kane and Marcus, 2011).
Threats of substitutes
Page 6 of 16

Tesla Motors
Threats of substitutes are considerably low in the automobile industry in Australia. In other
words, few companies manufacture electrical cars and other substitutes are walking and bike
riding which is not any more convenience for long distance traveling. Though, mass
transportation like buses, trains and cabs are preferable and suitable for local and distant
traveling. Moreover, most of the people in Australia prefer to have their cars which are the most
convenient.
The bargaining power of the suppliers
The power of supplier's bargaining is always high in this premium electrical car industry, and
any problems delivered through suppliers can result in production disruption which damages the
reputation of the organization. Apart from that, Tesla concludes around 200 suppliers from
across the world, and this would lead them to maintain a close relationship with their suppliers
such as Panasonic, Goodyear, Bosse and so on. Thus, many suppliers stay single of various
components which mainly used in the interior part of the cars that can be customized for
presence(Rogers, 2010).
Threats of existing rivals
The rivalry in the automobile industry is very conservative and competitive but in the case of
electrical vehicles market Tesla position itself perfectly. On the other hand, there is a small
number of competitors in the face of 18 different models and out of them main are Nissan Leaf,
Ford Focus BEV, and Chevrolet Volt. Besides that, this market is rapidly increasing because it is
fast and attractive, so many famous automobile companies like Audi, BMW and Volkswagen
entered the market through their plug-in models. Moreover, each and every company is trying to
create their campaign by producing environment-friendly cars including small performance
Page 7 of 16

Tesla Motors
turbodiesel and hybrid cars. However, shortly, the rivalry would become more intensive because
companies keep improving, innovate and making their better products.
The five forces of Porter is playing an essential role in order to analyze the growth of the
organization. Thus, the industry of electrical cars is a hugely attractive and competitive market
for big players, so, Tesla should have their eyes on their rival companies.
Value Chain Analysis
According to David, with the help of the value chain analysis, a company can determine its
strength and weakness for individual functions and activities. In addition, these components add
value in the marketing and developing service or products. Though two segments of value chain
analysis are observed such as primary activity which directly concerned with the production
process, and support activity influences the effectiveness of the primary activities (Slywotzky
and Weber, 2011).
Primary activities: the primary activity is divided into five significant elements such as inbound
logistics, operations, outbound logistics, marketing and sales, service. Each and every segment
is very critical for instance; Tesla manufactures in their house and other components delivered
and produced by many suppliers promptly. Besides that, in the operation stage, the
manufacturing process is highly automated and innovated with multi-functioned robots which
able to produce up to 80 cars per day(Sarkis, 2011). In addition, in the outbound logistics, the
distribution channels consist of their stores across 18 countries and aware the customers about
the advantages of electric cars. Besides that, the online customers also have a scope to select
preferred address for delivery the cars. On the other hand, Tesla has spent lots of money on
traditional marketing and not interested in an ad agency. Apart from that, they developed the
Page 8 of 16

Tesla Motors
networks in their stores to increase the brand awareness. Many Hollywood celebrities like
Morgan Freeman is the
owner of Model S and
create an impact on the
fashionable and
popular image of
Tesla. For improved
result, Tesla now uses
web-based short film
and ad campaign on
YouTube. In the last
stage of primary activity is service which distributed across North America, Europe, and Asia as
service centers of Tesla Motors. In addition, they able to make super-fast charging station
networks for enhancing the value of products and customer satisfaction(Muir, 2008).
Support activity: similar like primary activity, support activity also includes infrastructure,
partnership, R&D and H&D factors which are discussed here. First of all, infrastructure is one of
the critical stages which adopted as a horizontal organizational structure by Tesla Motors. In
addition, this kind of organizational behavior is stretched from the high authority like CEO to the
lower level of managers and workers. According to many significant studies, this types of the
organizational flat structure includes developed communication skills and faster decision-making
system. On the other hand, the perfect execution of the organizational mission, vision, and
objectives is notified by the effective leadership style of Elon Musk. In addition, a good
relationship is created between the suppliers and the management of Tesla Motors which
Page 9 of 16

Tesla Motors
enhance the strengths through sharing of the information (Hermalin, 2011). Apart from that,
R&D is a beneficial part of the current market which includes no big competitor. In addition, no
other competitors can beat them due to lack of demand and supply chain management. All free
money on R&D is cleverly plowed back by Tesla which makes them consist innovative and
maintains brand value. The superior value and quality are also influenced by R&D through
luxury design. Main ideas and business plan are maintained carefully to prevent the risk
assessment of being copied or hacked(McGuire, 2013). H&R is one of the main features of Tesla
Motors which influenced by high profile business partners and professional and skilled
empowerment. In other words, Tesla appointed efficient managers who provide special training
and motivation to the employees by adopting strategies for incensement of the organizational
share price.
SWOT Analysis
The SWOT analysis includes external, and internal environment and strategic capabilities of an
organization, and it also influences strategy development(Manning, 2014). Therefore, the
internal components are strength and weakness, as well as the external components opportunities
and threats which are discussed below:
Strengths
In order to become top of the list, several strengths contributes Tesla in the automobile industry.
Firstly, outsourcing provides help to keep low investment and maximize profit through focusing
on the technological advancement. In other words, this can be considered under the R&D
department by generating high power from extremely advanced battery systems and electric
powertrain. In addition, with the help of this facility, they are overwhelming other giant
Page 10 of 16

Tesla Motors
competitors in the automobile industry (Hermalin, 2011). On the other hand, Tesla includes a
proper and lean management system which allows creating a simple decision-making process by
approving chain of command of the employees which retains the employee-manager
relationship. Along with that, Tesla has its remarkable shareholders and investors who help to
build effective business planning and strategic development. In addition, strong relation with
valuable partners like Panasonic, Toyota, and Daimler help them to gain customer's trust and
faith and also enhance the reputation of the company. Finally, effective customer service and
interaction increase the probability of potential customers, as well as digital marketing and e-
commerce also develop the level of marketing policies. By having own placed stores, Tesla is
saving 10% dealership commission which is a strong part of sales(Goodstein, 2013).
Weakness
Lack of liquidity is the biggest problem of Tesla, and limited manufacturing capacity is another
issue which causes customer dissatisfaction. Along with this part, Tesla has business in Europe
and Asia, and it struggled with lithium battery cell shortage. Moreover, this company includes
limited service history in automotive industry rather than Ford or General Motors. In other
words, due to lack of brand recognition and expertise, the gross profit of Tesla is coming little
low which affects the business.
Opportunities
One of the critical opportunity is the customer awareness about benefits of having a premium
electrical car, especially while the cost of petroleum increasing which also cause environment
pollution and global warming. So, it is an exquisite opportunity to generate demand for
environment-friendly cars (Tollington, 2014). As an additional financial resource, governmental
Page 11 of 16

Tesla Motors
subsidy programs and loan for eco-friendly or green energy companies influence the growth of
Tesla. Moreover, with the help of government initiatives which supports ‘green' car adoption can
motivate customers to buy this kind of vehicles in future. Regarding demand, Tesla holds a good
position in large and untouched ‘Green' car market. So, due to reasons as mentioned earlier and
opportunities they can grab the whole market(Goodale et al., 2011).
Threats
One of the major threat of Tesla is that well-established companies like Nissan, Ford are entering
the market with high scale features, expertise, and GDP which help to manufacture cars in low
cost. As a result, the potential customers of Tesla would be taken away. Besides that, latest
innovation and breakthrough like hydrogen-based vehicle can lead to losing the position of Tesla
from its current market (Tollington, 2014).
Page 12 of 16

Tesla Motors
Recommendation
According to Bowman's Strategy Clock, Tesla needs to provide different benefits of every rival
to the customers at the same price; as a result, the market will be increased with long-term
profitability. To achieve differentiation strategy, Tesla is suggested to produce the small
premium vehicle that would compete with others. Apart from premium cars, Tesla also needs to
focus on other affordable and accessible market segments for a more effective outcome.
Page 13 of 16

Tesla Motors
Conclusion
In this report, the current managerial and situational analysis of Tesla has been argued with
proper theories and models. In order to sustain in this highly competitive automotive industry,
Tesla needs to implement effective strategies and business planning(Ford, Perry and McNair,
2006). On the other hand, the environment pollution and global warming can be prohibited by
the development of electrical vehicles and Tesla successfully realized it. In addition, with the
help well-established investors and high customer support, Tesla can bring revolution in the
automobile industry by introducing gasoline vehicles in the state of petroleum vehicles and this
industry hold a solid economic scale, strong management team, excellent suppliers, financial
support of government plans and potential customers.
Page 14 of 16

Tesla Motors
References
Bodie, Z., Kane, A. and Marcus, A. (2011). Investments. 1st ed. New York: McGraw-Hill/Irwin.
Durisek, N. and Granat, K. (2008). Industry Implementation of Automotive Electronic Stability
Control (ESC) Systems. SAE International Journal of Passenger Cars - Electronic and
Electrical Systems, 1(1), pp.220-244.
Garnet, K. (2011). Internationalization of chinese automobile companies. 1st ed. Aachen:
RWTH Aachen University.
Hermalin, B. (2011). Organizational Fixed Costs and Organizational Structure. SSRN Electronic
Journal.
Kirsch, D. (2000). The electric vehicle and the burden of history. 1st ed. New Brunswick, N.J.:
Rutgers University Press.
Laux, J. (2007). The European automobile industry. 1st ed. New York: Twayne.
Nieuwenhuis, P. and Wells, P. (2010). The automotive industry and the environment. 1st ed.
Boca Raton, Fla.: CRC Press.
Rogers, S. (2010). The supply-based advantage. 1st ed. New York: AMACOM.
Sarkis, J. (2011). Green supply chain management. 1st ed.
Slywotzky, A. and Weber, K. (2011). The upside. 1st ed.
Tollington, T. (2014). Brand assets. 1st ed. Chichester, West Sussex: John Wiley & Sons.
Page 15 of 16

Tesla Motors
Ford, L., Perry, B. and McNair, D. (2006). Exceptional customer service. 1st ed. Avon, Mass.:
Adams.
Goodale, J., Kuratko, D., Hornsby, J. and Covin, J. (2011). Operations management and
corporate entrepreneurship: The moderating effect of operations control on the antecedents of
corporate entrepreneurial activity in relation to innovation performance. Journal of Operations
Management, 29(1-2), pp.116-127.
Goodstein, L. (2013). Managers, Values, and Organization Development. Group & Organization
Management, 8(2), pp.203-220.
Manning, P. (2014). Organizational communication. 1st ed. New York: A. de Gruyter.
McGuire, F. (2013). Exploring line manager relationships with trade unions and the HR
function. Strategic HR Review, 12(6).
Muir, C. (2008). Smiling With Customers. Business Communication Quarterly, 71(2), pp.241-
246.
Page 16 of 16