Strategy and Analysis of Tesla, Inc.

This document provides an analysis of Tesla, Inc. including its strategy, external analysis, internal analysis, and financials. It discusses the opportunities and challenges faced by the company. The document also includes recommendations for the firm.

Running head: Mgmt 481
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Contents
1. Strategy................................................................................................................................................2
2. External Analysis....................................................................................................................................3
3. Internal Analysis......................................................................................................................................6
4. Financials................................................................................................................................................8
5. Recommendations...............................................................................................................................9
Works Cited...............................................................................................................................................12

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Name: ____________________________
Date_:____________________________
1. Strategy
a. What is the name of the firm in the case and what strategy is it demonstrating?
The name of the firm is Tesla, Inc. Its CEO and co-founder Elon Musk demonstrated the
following strategies :
The company aimed to create solar roofs for its cars with cohesive battery storages.
It also aimed to expand the electric vehicle product lines for addressing all the major
segments (Jiao and Evans 250).
It had set the goals for developing cars with self-drive capabilities which are 10 times
more safe as compared to manual driving.
Furthermore, it aimed to make such cars so that the consumers can make money when
they are not using them (Grant 10).
In order to leverage its first strategy, it acquired Solar City in 2016.By doing so, it
integrated the generation of electricity with its storage along with providing zero-emission
vehicles. The second strategy aimed at expansion of its electric vehicles segment for
addressing all the divisions including trucks, heavy-duty semis and buses. The third
strategy aimed at developing self-driving abilities of the vehicles. Its goal was to make its
self-driving vehicles 10 times safer as compared to manual driving so that it is capable of
offering fully automated vehicles.
The fourth strategy of the company was to transform the vehicle into an asset which
generates the income for its owner in its spare time. The automatic driving car can be used

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as a cab when its owner is not using it. It would decrease the ownership cost of the vehicle
(Teece, Peteraf and Leih 13).
b. What facts from the case support your choice of strategy for the firm?
The fact that the company did not invest in electric cars or in the luxury segment of
electric cars support my choice of strategy for the firm. It manufactured compelling
electric cars and introduced them into the market. It also built a network of charging
stations for resolving the problem of charging batteries on longer trips. So, its unique
business model managed to increase the sales of electric vehicles along with enhancing the
services. As a part of its business strategy, the mission of Tesla is “to increase the
production of cars with sustainable energy”( Fjeldstad and Snow 32).
So, it has collaborated with Panasonic, the world's largest electrical giant for
manufacturing batteries for its electric vehicles. Currently, it sells components and
powertrain systems to other manufacturers. It had also introduced its range of home
batteries known as Powerwall which can also serve as energy saving systems for
households or businesses. It also inserts Powerwall in its cars so that the solar energy can
be used by its consumers for their other usages apart from charging their cars. These
batteries are meant for connecting with solar energy and can be used as power backup
systems in case of interruption of power (Schaltegger, Lüdeke-Freund and Hansen 264).
Hence, Tesla is a perfect combination of innovation with sustainability as its co-founder
describes himself “as an engineer turned entrepreneur who manages and establishes
companies for resolving social, environmental and economic issues of the society
“(Robertson 90).

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2. External Analysis
a.Conduct a PESTLE analysis for the firm and present it in bullet form
i. Political factors: The governmental factors can affect the business along with their
macro environment. Adverse governmental policies on trade can restrict the performance
of industry along with the revenues earned by the company. On the contrary, incentives
given by the government for electric vehicles and political stability in the market can
prove to be an opportunity for the company.
ii. Economic factors: The growth rate of solar energy market can enable the development
of the solar energy business of Tesla. Some external economic factors such as low cost of
battery and non-conventional energy cost can prove to be a boon for Tesla (Haggège,
Gauthier and Rüling 6).
iii. Social factors: The company can be benefitted with the increase in the popularity of
low carbon emission lifestyle. Moreover, the increase in the preference of renewable
energy and improved distribution of wealth in developing markets can prove to be an
opportunity for the company.
iv. Technological factors: The material engineering technology can prove to be efficient
and cost-effective for the batteries of the company(Stringham, Miller and Clark 85).
Higher rates of technical changes can prove to be an opportunity and threat for the
company. The increasing popularity of robotics in business and online mobile mechanisms
can prove to be an opportunity for the business.
v. Legal factors: The company can benefit from increasing global protection of patents,
enhanced sales regulations of dealers in the U.S. along with stricter regulations on
consumption of energy.

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vi.Environmental factors: The changes in climate which have led to an increase in the
environmental programs along with a rise in standards of disposal of waste can prove to be
an opportunity for Tesla (Wieland, Hartmann and Vargo 925).
b.Conduct an industry analysis for the firm and present it in bullet form
Competitive Rivalry(strong force): It is a strong force affecting Tesla. There are fewer
firms operating in the automotive industry. But these firms adopt innovations in promoting
their products. The marketing strategies of Tesla strengthens the impact of competitors
against the company. Furthermore, the low switching costs of buyers strengthen the
competitive forces ( Bohnsack, Pinkse and Kolk 284).
Bargaining power of buyers(moderate force): The low switching costs lessen the barriers
for consumers to procure cars from its competitors in the automotive industry. But there is
moderation in the availability of substitutes.
Bargaining power of suppliers(moderate force): The suppliers of Tesla have a lower level
of forwarding integration which restricts their control over the sale and distribution of
vehicles. Moreover, most of the suppliers are moderate in number thus creating limited
influence over the automotive industry.
Threats of substitute(moderate force): The low switching costs enable the substitutes like
public transport to attract the consumers. But it is a weak force against the industrial
environment of Tesla. The average availability of substitutes restricts the impact of
suppliers.
Threats of new entrants (weak force): The business environment of Tesla is hard to
compete with because of the higher cost of development of a brand. Furthermore, the

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manufacturing of automobiles cost high thereby imposing a barrier to the new firms
( Denning 14).
c.What conclusions do you draw from your analysis in regard to the opportunities and
challenges that may face the focal firm today or in the future?
i. Opportunities: Tesla can expand itself in the international market for supporting
business development in the future. It can further diversify its business and supply chains
at the international level.
ii. Threats: The competitive forces of the company restrict its probable revenues from
arising from the global market for its electronic vehicles, solar panels and batteries. There
is a threat of aggressive competition amongst the companies operating in the automotive
sectors. Furthermore, the fluctuations in the prices of materials also pose a threat to the
company (Halal 31).
3. Internal Analysis
a. Conduct the VRIO test and present the results here. Does the firm have an SCA based
on this test?
VRIO denotes a value of resources, the rareness of resources, imitation risk and
organizational competence. So, the VRIO analysis of Tesla is as follows. Consumers are a
valuable resource as they help in co-creating the products of the company. They are rare as
the company is able to build a special relationship with them. Furthermore, it is difficult to
imitate their culture and community dedication. They also provide a strong sustainable
competitive advantage. Another resource of the company is its capability to attract talent
in various international and local markets.

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It is highly valued as the strategy of Tesla is built on innovation and localization of goods.
Its talent is rare and it is crucial for the success of the firm. Furthermore, it is difficult to
imitate and provides a competitive advantage to the firm( Lawton and Rajwani 10).
b.Which of the value chain components represent clear strengths for the firm?
The high level of assimilation of robotic technology into the manufacturing processes of
Tesla are the main sources of creation of its value. Furthermore, it is sales and marketing
practices are non-conventional. These clearly represent their strengths. It has the capability
to attract the media at the international level which can serve as a major source of its value
by enhancing brand awareness across the globe. It also gives the opportunity to finance the
solar roof of its vehicles through a home mortgage.
c. Which of the value chain components represent clear weaknesses for the firm?
In the present scenario, inbound logistics are not the sources of value creation for the firm.
It operates on the basis of build to order which is the major bottleneck in the supply of its
parts. It's another major weakness is the increasing number of complaints in recent years.
The poor customer services of Tesla cars have led to an increase in the number of
frustrated consumers.
d.Based on answers D-J above, what are the strengths and weaknesses of the firm in the
case?
The strengths are the high level of assimilation of robotics in the production processes
which help in creating value for Tesla. The company also directly delivers its products to
consumers. It does not deal with re-sellers and dealers thereby making the cars affordable
for the consumers. On the other hand, due to higher demand, direct sales lessen the time of
delivery of the vehicle to the customers. The marketing and sales strategy for Tesla is

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unconventional.It has the capability to attract the media coverage thereby serving as the
main source of value for increasing the awareness of the brand at the global level.
Its weaknesses are the inability of the company to expertise in inbound logistics. It
operates on the basis of build to order which implies that the problems in the supply of
parts can prove to be a big difficulty for the company. Lastly, it has a poor record of
resolving the issues faced by its consumers.
4. Financials
a. Are there any liquidity issues?
The convertible notes of Tesla amounting to $920 million are set to be expired at a
convertible price of $359.87 per share. The shares of Tesla have not been traded for more
than $359 for many weeks, so the company has to pay all the debt in cash. This debt
payment can put the company into a cash crunch until the sales of its Model 3 does not
rise in the next month (Kolodny).
b. Revenue issues to note?
In the first quarter of 2019, Tesla incurred a loss of $702 Million due to its inability to
deliver Model 3. It also faced the challenges of decreasing federal tax credits and reduced
demand for its electric cars. There was a decrease of 41% in its revenue as compared to
the fourth quarter of last year. The generated revenue of $4.5 Billion was through the sale
of its energy-saving products ( Siddiqui).
c.Cost issues to note?
The company continues to have cost issues with its Model 3 cars. Their cost of production
is $38000 but they are being sold at $35000. Even some of the orders have been refunded
as there was a delay in its production. It was claimed by its co-founder that the company

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has accomplished its goals of producing 1,000 models of Model 3 but maintaining its price
would remain a challenge for Tesla. So, it seems to be a major cost issue for the company
as it is not able to manufacture at a cost which is less than its selling price (Torbet).
d.What else in the case is important regarding the financials?
It is important to note here that Tesla made a huge profit of $139 Million in the last
quarter of 2018. It was the first time it had incurred continuous profits in all the four
quarters of the year in its 15 years of the operating period. It even generated $7.2 billion in
revenue in the last quarter which was a record for the company. But in 2019, it has
incurred a loss of $702 Million in the first quarter due to its untimely delivery of Model 3
cars (Lasan).
e. Complete the financial analysis for this case on McGraw Hill Connect.
In the first quarter of 2019, Tesla incurred a loss of $2.90 per share on an adjusted basis.
The expected loss was 69 cents.Its revenue reached $4.54 Billion against the expected
$5.19 Billion. The valuation of its shares also came down by 2% in the first quarter of
2019. Its sale was also decreased by 41 % from the fourth quarter of last year when the
revenue generated was $6.32 Billion (Richter).
5. Recommendations
What do you recommend the firm should do in the next 6-24 months?
Here is a list of action statements and SMART goals for Tesla :
i. Specific: It pertains to setting a specified goal. The company is thereby
recommended to produce Model 3 cars at a price of $35000 by introducing

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improvements in its production processes so that it can profitably sell its cars at a price
higher than its cost of production. It aims to do so within 6 months (Lopez ).
ii. Measurable: It means that the company should gauge the process by developing a
criterion. It cannot manage what it is not able to evaluate. So, it is recommended that
the company should have clarity in its graph of progress. It should set measurable goals
so that it can stay on track for reaching its targets. It should also evaluate its working
which would help it in giving realistic information for reaching its goals.
iii. Attainable: It pertains to assessment of realistic outcomes of the progress of Tesla.
It is thereby recommended that the company should not make a mistake of lowering its
goals so that they become easy to attain. However, if the goals are too lofty, then it
would become difficult for the company to accomplish them. So Tesla should attempt
to achieve against the demands of its consumers and according to its experience level in
the automobile industry.
iv. Realistic: The goals should be realistic to achieve. However, realistic is not a
synonym for EASY. Therefore the company is recommended to achieve the necessary
skills required for operation. They should be aligned with the objectives and strategy of
the firm. Tesla should devise realistic plans for manufacturing its products at a cost
lower than their selling price. It should set high goals in order to maintain its standard
amongst its competitors and consumers.
v. Timely: It pertains to assigning timelines for accomplishing its goals. So the
company is recommended to set clear and timely deadlines for achieving its goals of
producing profitable and viable products for itself and its consumers. As it is seen that
there has been a degradation in the goodwill of the company due to its poor consumer

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services, so it should set time deadlines for improving the quality of its products and
services (Brandt, Wagner and Neumann 488).

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Jiao, Na, and Steve Evans. "Business models for sustainability: the case of second-life electric
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Kolodny, Lora.” Tesla faces a cash crunch with a $920 million debt payment due Friday.” CNBC
27 February. 2019. Web.21 June. 2019.< https://www.cnbc.com/2019/02/27/tesla-faces-
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Siddiqui, Faiz.” Tesla lost $700 million in the first quarter with Model 3 problems.” The
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