Strategic Management Report: Tesla

This strategic management report analyzes Tesla's external and internal factors, core competencies, and strategies for business growth.

Running Head: STRATEGIC MANAGEMENT REPORT: TESLA 1
Strategic management report: Tesla

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Introduction
Tesla designs, develops, manufactures and sells energy storage and generation systems,
solar electricity and high performing electric vehicles. The company is also involved in the
installation and maintenance of such systems. Being a vertically integrated company dealing
with sustainable energy and as such offers end- to-end clean energy solutions and products (SEC,
2019). Tesla provides innovative solutions that help in generating, storing and consuming
sustainable energy. At present the company sells three electric vehicles and these are Model 3
sedan, Model S sedan and Model X sports utility vehicle. Headquartered in California, Tesla has
several stakeholders including shareholders, employees, investors, customers, suppliers,
government, business partners etc (Atkins, 2019). As compared to the global trend of adopting
electric vehicles supported by favorable government policies, the story in Australia is somewhat
different. Australia has stood outside the global trend towards electric vehicle. However, recently
the debate around electric vehicle started again after the Bill Shorten of labour shared his plan of
making 50% of all vehicles sold by 2030 to be electric (Probyn, 2019). As such Australia can
serve as a big market for Tesla in future. However, Tesla is suffering from a number of woes at
present ranging from an eccentric, overworked CEO to financial woes and unstable top
leadership (Business Times, 2018)( Currie, 2018)( Gelles, Steward, Silver-Greenberg & Kelly,
2018). Thus, although the company has a lot of potential in future there are several things that
the company has to make amends to at present.
External Analysis
Macro environment Analysis
An analysis of the external environment of Australia is performed using PESTEL analysis
Political
Australian government follows parliamentary democracy that operates under a
constitutional monarchy. Queen Elizabeth 2 of England is considered as the queen of Australia.
It is currently ruled by the liberal party. The country is known for its safe and stable political
environment. However, it is criticized with respect to deportation laws, rights of indigenous
people and treatment of refugees (Cody & Nawaz, 2017).

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Economic
Australia follows an open market economy. Its GDP at PPP is 1.248 trillion which makes
it 19th largest in the world. It has number of free trade agreements with a lot of countries and is
member of WTO, OPEC and G20. However, the real wage growth of Australians has stagnated
in recent time and their discretionary spending has reduced.
Social
The population density in Australia is low and the population growth rate is also low.
Additionally like other developed countries, the population is aging and most of the population
belongs to the old group. Australia spends 5.3% of its GDP towards education and the life
expectancy of its citizens is also large (CIA, 2019).
Technological
Australia is one of the few countries in the world that is technologically very advanced.
There has been good growth of technology over the years and the local companies are investing
in technology to bring innovative products to the market. However, when it comes to adapting
Electric vehicles, the Australian government is behind many other countries. Even the ambitious
target of making 50% of all vehicles sold electric by the year 2030 is far behind other countries
like Netherlands to sell only electric vehicles by 2025 (Newton, 2019).
Environmental
In terms of land area Australia ranks 6 among the countries. Australia has a highly
diverse geography and is party to several climate agreements. There are several issues being
faced by the country. Thus, the country would have to adapt a more definite policy with respect
to electric vehicles. However, due to its geography many places in Australia are located at far off
places from the town where there are no charging points en route. Thus, owners of electric car
would be at a disadvantage if they wish to use to car for travelling to far off places rather than
staying within the city limits.
Legal

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The legal framework is robust in Australia and there are laws governing employment,
competition and fair trade. Each territory has a supreme court and the final appellate authority is
the high court.
Industry/ Market Analysis
The Electric vehicle industry would be analyzed in the following paragraphs using
Porter’s 5 forces
Competitive rivalry within the industry-
In Australia the market for electric vehicle is highly competitive. In the pure EV segment
Tesla is one of the companies trying to enter. Along with it Rivian which has received $700
million funding from Amazon has also aimed its sight on Australia (Newton, 2019). Hyundai
already has ioniq hatch and Kona Compact SUV in pure EV segment. In the electric SUV
segment, Jaguar and Tesla are already selling EVs and others like BMW, Audi, Volkswagen and
Mercedes Benz are trying to enter. There are other players too like ACE EV, Great Wall Motors
of China and SsangYong of Korea.
Threat from new entrants-
The threat of hybrid or a car powered by alternate fuel is high in the market. Toyota
might introduce a hybrid by 2025 for example.
Bargaining power of suppliers-
Owing to the high purchasing power of company like Tesla, the bargaining power of
suppliers would be low.
Bargaining power of customers-
Owing to the high battery costs, the costs of an electric vehicle is comparatively higher
than a petrol or diesel vehicle. However, for the customers who are willing to pay for it, there are
lots of cars to choose from and thus the bargaining power of customers is medium.
Threat of substitutes-

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The threat of substitute is high. The customer can obviously choose a gasoline powered
vehicle over an EV. In the green vehicle too, the customer can go for a hybrid or a hydrogen
powered vehicle instead of going in for EV. Thus, threat of substitutes is high.
Three significant external factors
Out of the external factors discussed, the factors that are of importance for Tesla are
Competitive rivalry which is extremely high in the industry along with a high threat of substitute
High threat of new entrants
Low disposable income and lacking of Australian government in terms of adaptation of EV
Internal Analysis
Core competencies
Tesla offers several core competencies including the fact that it is a vertically integrated
company. Thus in terms of car manufacturers Tesla has a unique position. Tesla builds electric
cars, batteries and also provides for high speed car charging through the supercharge network it
operates globally (Debord, 2015). As compared to Tesla no other car manufacturer operating
electric or gasoline powered power vehicle owns or operates the entire value chain. In another
competency for the company, the company along with Panasonic has sole access to a facility that
would offer it highest volume source of lithium-ion battery that also offers lowest cost. However
the biggest competitive advantage for the company is its innovative CEO Elon Musk
(Minimalist, 2018).
Resources
Being in the electric vehicle industry, one of the most important resources for Tesla is the
Lithium ion battery. Lithium forms the most important resource for Tesla as unavailability or
scarcity of Lithium would damage both the car and energy business of Tesla (Debord, 2015).
Tesla has therefore secured a deal with Vancouver based Pure Energy for obtaining Lithium. In
addition, Tesla has partnered with Panasonic to develop huge number of Lithium ion battery.

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Three significant internal factors
Thus the internal factors that are important for Tesla are –
Leadership of Elon Musk- Elon Musk is a visionary leader having the potential of guiding
Tesla to new and greater heights. His leadership is unique and cannot be copied by other
companies.
Integrated supply chain- Tesla controls the entire supply chain of electric cars and thus can be
in a more advantageous position when the future becomes all electric.
Access to lithium-ion battery- Tesla’s stake in Gigafactory would help it have access to low
cost and high volume of Lithium-ion batteries which would give it a key advantage over its
competitors.
Strategy development
Outline of company’s strategy
Tesla applies differentiation under generic strategy to achieve competitive advantage in
the market. Now the company uses intensive strategies to ensure business growth.
Critical analysis of thinking, crafting and analysis of strategies
In a market where majority of the vehicles run on internal combustion engines, Tesla
under generic differentiation strategy used innovative technologies to deliver environment
friendly beautifully designed cars. Thus the company differentiates itself from its competitors. In
its early days Tesla made use of this generic differentiation strategy to target affluent customers
(Rowland, 2018). However, as the company has continued to grow, its production costs have
reduced and the company has shifted to intensive strategies. Under intensive strategies, Tesla
makes use of market penetration as its primary strategy and product development as secondary
strategy. The market penetration helps Tesla to enable business growth by increasing revenue
from sales.
Strategy implementation
The company pursues market penetration by increasing marketing activities to be able to
sell more electric cars in US. The company pursues product development by creating new

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products with advanced technologies. For example the company offers energy storage solutions,
solar power and has also developed electric sports car. The company also uses market
development as a tertiary strategy to enter new untapped markets.
Recommendation
Porter recommends the following four strategic options
Figure 1Porter's strategic matrix (Rothaermel, 2015)
However, as Tesla has been operating in the affluent segment till now with the offering of
Model S and Model X, it was difficult for it to enter the mass market segment. However, since it
is now trying to enter the mass market with $35,000 model 3, it has to shift its focus on cost
leadership (Atkins, 2019). However, in this price range there are already other players like
Hyundai who are offering their own range of EVs. So, Tesla needs to differentiate its product
from the existing players by offering some superior benefits. There is also a need of having a
stable leadership in the company who can drive it towards its next destination (Sher, 2018)
( Guardian, 2018).

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References
Atkins, B. (2019). Tesla's leadership challenge. Retrieved from
https://www.forbes.com/sites/betsyatkins/2019/02/25/tesla-is-imploding-again/
#644e7b2168e1
Business Times (2018). Elon Musk's latest outburst raises doubts on Tesla leadership. Retrieved
from https://www.businesstimes.com.sg/transport/elon-musks-latest-outburst-raises-
doubts-on-tesla-leadership
CIA. (2019). The World fact book- Australia. Available at
https://www.cia.gov/library/publications/the-world-factbook/geos/as.html
Cody, A & Nawaz, M. (2017). UN slams Australia’s human rights record. Available at
https://theconversation.com/un-slams-australias-human-rights-record-87169
Currie, A. (2018). Wrong signal. Available at
https://www.breakingviews.com/considered-view/tesla-sends-wrong-message-to-right-
stakeholders/
Debord, M. (2015). Tesla is moving to secure the critical resource it needs for its future.
Available at https://www.businessinsider.in/Tesla-is-moving-to-secure-the-critical-
resource-it-needs-for-its-future/articleshow/49006179.cms
Gelles, D., Steward, J.B., Silver-Greenberg, J. & Kelly, K. (2018) Elon Musk Details
‘Excruciating’ Personal Toll of Tesla Turmoil. Available at
https://www.nytimes.com/2018/08/16/business/elon-musk-interview-tesla.html
Guardian. (2018). Tesla posts record $710m net loss as it struggles to produce Model 3 cars.
Retrieved from https://www.theguardian.com/technology/2018/may/02/tesla-loss-
model-3-elon-musk
Minimalist. (2018). Tesla Business Analysis. Available at https://medium.com/minimalist-
pharmacist/tesla-business-analysis-19b432a6fd0c

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Newton, B. (2019). Why Bill Shorten’s electric car target will become a reality. Available at
https://thenewdaily.com.au/life/auto/2019/04/09/lelectric-car-target-reality/
Probyn, A. (2019). Labor promises car cash splash to build electric and hydrogen-powered
vehicles in Australia. Available at https://www.abc.net.au/news/2019-04-10/labor-tens-
of-millions-to-resurrect-australian-car-industry/10985458
Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.
Rowland, C. (2018). Tesla, Inc.’s Generic Strategy & Intensive Growth Strategies (Analysis).
Available at http://panmore.com/tesla-motors-inc-generic-strategy-intensive-growth-
strategies-analysis
SEC. (2019) Tesla-10K. Available at https://ir.tesla.com/static-files/15df7636-8cd8-4b18-989b-
4badeeda806c
Sher, R. (2018) “Elon Musk Needs Help: Scale The Leadership Team At Tesla” Forbes,
Available at https://www.forbes.com/sites/robertsher/2018/08/21/elon-musk-needs-help-
scale-the-leadership-team-at-tesla/#213711892255