Strategic Management Topic: Understanding the Strategic Decision Initiated in Tesla Inc

Strategic Management
Topic: Understanding the strategic decision initiated in Tesla Inc.
Word Count: 3106

Company Introduction
Tesla Motors is a car manufacturing company located in California in the United States of
America. Its area of focus is on the production of electricity-powered vehicles, solar
equipment, and lithium batteries. The company seeks to manufacture automobiles that
meet the price and quality demands of the common customer. Many car-manufacturing
companies such as the Audi A3, Lexus IS, Mercedes-Benz E-Class, and BMW 4 Series among
others have focused on high-end vehicles, a strategy that leaves out the average clients
unattended to, owing to their financial constraints and consequently the need for cheaper
maintenance costs. Tesla Motors’ boss, Elon Musk, identified this gap and decided to
produce automobiles that were reasonably priced to capture this class of customers.
The strategic decision.
In 2019, Tesla took a major leap in expansion when CEO Elon Musk announced a massive
electric car plant in the heart of European auto manufacturing, Germany. This fourth
‘Gigafactory’ in Berlin was Tesla’s first major factory in Europe, with operations already on,
in Nevada, New York and Shanghai. According to Thomas Hogg (Reference), in addition to
being a brand itself, Tesla’s competitive advantage is also due to its superfast charging
stations, economies of scale for batteries, and software expertise. Tesla states that their
Gigafactory is expected to be the world’s most advanced high-volume electric vehicle
manufacturing facility to develop new batteries, in addition to being an ideal work
environment; Hogg reinforced it as being a good move (Reference).
Tesla has some major expansion and production plans for this factory, however the “human
factor” seems to cause a lag in its plans, as Tesla is looking for highly skilled employees from
around the world to relocate. Hogg pointed out that Tesla is facing delays in its recruitment
program due to the difference in legislation between the U.S. and Germany, and problems
with the union. Further, despite being an incredible brand, the possible work environment,
and risk of “being hired and fired” adds to the cons for skilled potential employees
considering the job (Reference).
As per Hogg, the German electric car market performs well, and the German model is based
more on tradition, performance, and quality. Customer loyalty plays a significant role in the
German electric market as well, as studies show Germans prefer to buy local, and support
their home economy (Reference). Tesla’s decision of strategically placing a factory in
Germany adds to the decisions German customers get to make, as the product origin plays a
huge role for local consumers there.

Tesla Generic Strategy.
Tesla’s generic competitive strategy is broad differentiation. This generic strategy builds
competitive advantage based on the development of products that differentiate the company
from other firms in the industry. For example, Tesla Inc.’s products are competitive because
they integrate advanced environmentally friendly technology, considering that the vast
majority of automobiles today use internal combustion engines. In using this generic
competitive strategy, the company broadly attracts all potential customers, who are now
increasingly interested in environmentally friendly products. Initially, Tesla
used differentiation focus as its generic strategy for competitive advantage. In
applying the differentiation focus strategy, the company emphasized the uniqueness of its
products, but also focused mainly on early adopters in the high-end market for electric
vehicles. These early adopters are affluent customers who have a high tendency to purchase
newly introduced products. However, now that the company is already popular and
production costs are declining, Tesla’s generic competitive strategy has shifted to broad
differentiation. The declining production costs and increasing brand popularity enables the
company to broadly target customers in the automobile market.
Internal and External Analysis.
This report will critically analyse Tesla’s decision to expand to the German market from the
United States both internally and externally. To make an external macro-environment
analysis, PESTEL framework will be used. Furthermore, Porter's Five Forces Framework will
be used to analyse the external microenvironment. The internal analysis will be investigated
in terms of a financial ratio, capability, CSR claims, and marketing mix. Additionally, the
value chain analysis will be used. To explore overseas opportunities, CAGE framework and
Hofstede Model of Cultural Dimensions will be used. Opportunities and Potential Problems
and Suggestions is mentioned towards the end of this paper.
External Analysis (Macro Environment)
PESTLE
Political
The electric vehicle industry that Tesla competes in has a very political friendly climate
(Thomas and Maine, 2019). Renewable energy technologies have been boosted by numerous
government programs throughout the last few decades. In the United States purchasers of
electric vehicles can qualify for up to a $7,500 tax credit for buying an electric vehicle (Doll,
2021). However, in 2018, Tesla sold its 200,000 cars under the credit program and as a result
the tax credit will be phased out to zero in 2019 for Tesla car purchases. Additionally, the

European market offer incentives for people to purchase electric vehicles (Kavanagh, 2021).
As demand for renewables and climate change concerns continue to grow it is likely that
governments of these countries will continue their current incentive programs. Expanding
free trade agreements open opportunities for Tesla to grow its operations internationally.
Therefore, Tesla can increase their sales in environmentally friendly European countries as
these countries’ governments provide more incentives to encourage Tesla to sell more cars
there.
Economic
Öztürk and Suluk (2020) found that the United States growth rate was %4,1 in 2000 and
%2,9 in 2018. However, they also found that the growth rate decreased between 2008 and
2009 due to the economic crisis in the world in 2008, but the country was recovered after
2009. Therefore, they concluded that exiting from the economic crisis gave strategic
opportunities to grow gradually and consistently as a country. Baker, Farrokhnia, Meyer,
Pagel and Yannelis (2020) stated that COVID-19 virus has affected all economies all over the
world since the beginning year of 2020, and we have started realising the full impact of
household and national level. Interestingly, they also found that COVID-19 virus has
provoked in spending, and the demographic characteristics like and family structure affect it
but it is not an income level. ‘MarketLine Industry Profile: Hybrid & Electric Cars in United
States’ (2020) revealed that electric and hybrid vehicles market grew by 14% in 2019 and
reached $30,039 million value in the United States. It is also estimated that this market will
reach a value of $46,157.2 million in 2024. In other words, it is an increase of 53.7% since
2019. Despite these, the adoption of electric vehicles (EVs) is still low, but the market
remains concentrated, which means that the competition remains strong (‘MarketLine
Industry Profile: Hybrid & Electric Cars in United States,’ 2020). Moreover, Crain (2012)
stated that many states offer their incentives, and if those inducements do not apply, the
electric vehicles market would still small and not grow. Therefore, although COVID-19 virus
affects the countries of economies, the spending is increasing regardless of the income level
of people. Overall, all these show that there is a huge potential for Tesla in terms of growth.
Technological
Tesla is no stranger to technological advancements and development. Looking towards the
future the next big disruptor to the automotive industry is going be full self-driving cars.
Tesla is on the leading age of self-driving car technology and is continuing to develop its self-
driving car software (Cusumano, 2020). As of now Tesla’s autopilot system is just meant to
be an assistant to the driver. However, Tesla’s end goal is to have a self-driving car that is
safe for passengers to ride in. Other companies such as Uber, Google, and even Dyson have
invested money in self- driving cars as well but does not have the infrastructure to produce
on a mass scale as Tesla has. Additionally, the high rate of technological change presents
opportunity for Tesla to enhance its products’ technologies accordingly (Kissinger, 2016).
However, the increasing popularity of online B2B platforms and marketplaces have also
given increased opportunities to the car industry that, in turn, have increased efficiencies
and reduced costs.
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