External And Internal Environment Of Tesla

T T C M M TRUNNING HEAD: S RA EGI ANAGE EN
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Executive Summary
The report aims to analyze the external and internal environment of Tesla in order to identify
the attractiveness of the automotive industry and the distinctiveness of the firm. For external
analysis of the automotive industry two tools are used that are Pestle analysis and porter five
forces framework. For internal analysis resources and capabilities of Tesla are analyzed and
VRIO analysis is done in order to know core competencies and competitive advantage. The
results of the report suggest that the automotive industry is attractive and Tesla possesses
distinctiveness and has a strong competitive advantage that is sustainable in comparison to its
rivals.

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Introduction
Tesla Motors is an electric vehicle company that operates in the automobile industry in
America. The company manufactures electric vehicles and battery energy storage. The
company has various production and assembly plants in various locations (Teece, 2018). At
present, Tesla Model X and Model 3 cars are in trend as Tesla sales improved by 50% from
2018 (Chen et.al,2019). In 2018, the sales at the global platform were 245,240 units and in
2019 sales at the global platform were 367,849 units (Tesla, 2019). Tesla is a leading player
across the world in the automobile industry. Tesla covers 77% of the electric vehicle segment
in the US (Chen and Perez, 2018).
This report aims to understand the external and internal business environment in which the
company is operating. In order to assess the business environment different strategic
management tools are used such as for external analysis, porter five forces and pestle analysis
is done in order to know industry trends, key drivers and attractiveness of the industry. For
internal analysis core competencies are identified using VRIO analysis so that strengths and
competitive advantage of Tesla can be identified. At last, the conclusion is given considering
the internal and external environment of tesla and the industry in which the company is
operating.
Industry Analysis
Trends and key drivers in the automobile industry were identified using PESTEL analysis
(Appendix 1). The Pestle framework helps in to understand the external environment in
which the business operates.
External Analysis
Trends
Increasing usage of electric vehicles: The trend that can be seen in the automobile industry is
the shift of people towards electric cars (Musonera and Cagle, 2019). Electric vehicles are
trending because of global consideration for going emission-free. This idea leads to the trend
of an electrified and autonomous vehicle in the automobile industry. It is estimated that by
2030 half of vehicles could be electrified and following autonomous concept (Teece, 2018).

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Eco-Friendly Products: It is analyzed that in the automotive industry people are concerned
about the environment and due to that their habits and lifestyle shifts to using sustainable
resources. This becomes a trend in the automotive industry to shift to an electric car in order
to contribute to the betterment of the environment. Further, it is found that Tesla sales
increased because of government support for sustainable initiatives and people concern for a
sustainable environment (Thomas and Maine, 2019). Hence, sustainability is the factor in the
current business environment that is trending and adopt by businesses for long term success.
Key drivers
Disruptive innovation: Disruptive innovation includes the rapid evolution of business models.
In the automotive industry, the barriers for new entrants are higher due to that leading player,
like Tesla is able to get a competitive advantage of its innovation in the long run. As
identified from the external analysis of Tesla that innovation is the key driver that influences
tesla to operate and increase its sales. Electric cars introduced by Tesla are one of the
innovations that drive the company to produce more and to focus on product development
(Perkins and Murmann, 2018).
World economic growth: The world economy is growing at a faster pace as seen in figure 2,
and further expected to increase in the next couple of years. A growing economy at the global
platform and at the domestic platform will lead to various opportunities for the automotive
industry so as for Tesla to increase its market share. Due to economic growth, it will become
easy for Tesla to invest in new technologies and get a positive response from the market
(Thomas and Maine, 2019).
Power Attractiveness
The attractiveness, power of industry and nature of competition is analyzed through using
porter five forces framework (Appendix 1). In the context of Tesla, the bargaining power of
suppliers in this industry is higher due to that company's need to take care of its suppliers as
electric cars will be the future of the automotive industry (Musonera and Cagle, 2019).
Moreover, buyer power and rivalry in this industry are moderate which indicates that the
industry is more attractive for the existing players and not for new players as there are already
well-established brands that are struggling in the automotive industry. Because of moderate
competition and bargaining power of buyers this industry leads to more profits (Gamble
et.al,2016).

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At last, the threat of substitution and the new entry is low that indicates that there is the high
level of barriers in this industry and there is no threat of entry of new players in the market
due to that existing players can enjoy a high level of profits and position in the market. Along
with that, there are fewer chances of getting the substitute for electric cars in the near future.
Hence, the automotive industry proves to be attractive for Tesla.
Internal Analysis
According to Rothaermel (2016) resources of the company represent capabilities, assets,
information and many more that help the businesses to implement current strategies with the
motive of bringing efficiency in the company’s operations. Tesla is trying to gain a larger
market share in order to be profitable by focusing on offering innovative products to its target
market.
Core competencies
From the analysis of capabilities and resources (Appendix 2) the core competencies that are
identified and make Tesla successful in the market are:
Easy access to funds: Tesla has goodwill in the market due to that the company get easy
access to funds. The loan from banks becomes an easy source for the company because of its
strong financial base. This leads to high expenditure by the company on infrastructure,
research and development and technology advancement gives a competitive edge to the
company over its competitors (Tesla,2019).
Innovation and Technology: The core competency that Tesla has is its technological
resources and physical resources, as the company has two manufacturing plants that are
highly technological (Thomas and Maine, 2019). Tesla has its own motor designs and a good
example is its model 3. This aspect gives the company a competitive advantage.
Vehicle Engineering: Engineers or human resources in Tesla are recruited and provided
training in the way so that they become assets for the organization. The capability of Tesla to
produce different models with advanced technology and designs makes the company
different from its customers (Tesla,2019).

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VRIO analysis
Valuable: The most valuable resource for Tesla is its innovations, this brings a successful
customer base for the company (Endsley,2017). The leader, human resources, charging
infrastructure networks, and brand image are the areas that are valuable and give a
sustainable competitive advantage to Tesla in the automotive industry and add on the value in
the operations of Tesla.
Rare: As compared to its competitor, Tesla created a combination of sustainability and high
performance that is a rare concept in the automotive industry. Tesla firstly introduced battery
cars that were also a rare thing done by the company. Tesla innovation and leadership are rare
things that lead to the success of the company (Teece, 2018).
Imitable: The mission of Tesla is to become a leader using sustainable practices and by going
green. With that motive, the company influenced people and aware them to use electric cars
and shift the focus of people towards the environment is considered a non-imitable factor
(Endsley, 2017).
Competitive advantage
Leadership: Tesla CEO, Elon Musk is amongst one of the transformational leaders that
promote and direct change in an organization. He promoted solar electricity in order to
reduce the impact of climate change. He has the ability and skills to lead and transform the
organization for the betterment of society and its employees. Tesla is successful because of
Elon Musk's transformational leadership style and is able to compete in the market
(Musonera and Cagle, 2019).
Supercharger network: Another competitive advantage that is identified from the analysis is
its charging network across the world. From figure 6 it can be seen that the company
provided a charging network in Asia, North America, and Western Europe in order to support
the use of electric cars. In the automotive industry, the initiative taken by Tesla was never
taken by anyone that gives an advantage to the company in the market (Valentin,2019).
Batteries: The batteries that Tesla used for its electric car is a competitive advantage because
its competitors like General Motors and Ford are not able to get these batteries at the lowest
cost. It can be seen from figure 4 that the cost of batteries for the company reduced in 2020
because of the huge investment by the company in Gigafactories. As investment is

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gigafactory cannot be imitated by other competitors (Perkins and Murmann,2018). Hence
taken as a temporary competitive advantage for Tesla.
Conclusion
This report included external and internal analysis of Tesla using different tools such as
Pestle analysis, VRIO analysis, and porter five forces framework. From the analysis, it is
concluded that the automotive industry is quite attractive for the existing players in the
market because of favorable social, economic and political factors. Further, it is identified
that supplier power in this industry is a dominating force and should be mitigated by using an
appropriate strategy by companies. From the internal analysis of Tesla, it is concluded that
the company got a competitive advantage because of innovation, leadership, charging
networks and batteries. At last, it can be said that Tesla can be successful in the market in the
near future by focusing on increasing its market share of electric cars.

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References
Chen, Y. and Perez, Y., 2018. Business model design: lessons learned from Tesla Motors.
In Towards a Sustainable Economy (pp. 53-69). Springer, Cham.
Chen, Y., Chowdhury, S.D. and Donada, C., 2019. Mirroring hypothesis and integrality:
Evidence from Tesla Motors. Journal of Engineering and Technology Management, 54,
pp.41-55.
Cooper, C., 2018. The Truth about Tesla: The Myth of the Lone Genius in the History of
Innovation. Race Point Publishing.
Endsley, M.R., 2017. Autonomous driving systems: A preliminary naturalistic study of the
Tesla Model S. Journal of Cognitive Engineering and Decision Making, 11(3), pp.225-238.
Gamble, Thompson, A.A. and Peteraf, M.A., 2016. Essentials of Strategic Management: The
Quest for Competitive Advantage. McGraw-Hill Education.
Kauerhof, A., 2017. Strategies for Autonomous, Connected and Smart Mobility in the
Automotive Industry. A Comparative Analysis of BMW Group and Tesla Motors Inc. GRIN
Publishing.
Langhelle, O., Meadowcroft, J. and Rosenbloom, D., 2019. Politics and technology:
deploying the state to accelerate socio-technical transitions for sustainability. In What Next
for Sustainable Development?. Edward Elgar Publishing.
Munson, R., 2018. Tesla: Inventor of the Modern. WW Norton & Company.
Musonera, E. and Cagle, C., 2019. Electric Car Brand Positioning in the Automotive
Industry: Recommendations for Sustainable and Innovative Marketing Strategies. Journal of
Strategic Innovation and Sustainability, 14(1).
Perkins, G. and Murmann, J.P., 2018. What does the success of Tesla mean for the future
dynamics in the global automobile sector?. Management and Organization Review, 14(3),
pp.471-480.
Rothaermel, F.T., 2016. Strategic management: concepts (Vol. 2). McGraw-Hill Education.

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Taffel, S., 2018. Hopeful Extinctions? Tesla, Technological Solutionism and the
Anthropocene. Culture Unbound: Journal of Current Cultural Research, 10(2), pp.163-184.
Teece, D.J., 2018. Tesla and the Reshaping of the Auto Industry. Management and
Organization Review, 14(3), pp.501-512.
Thomas, V.J. and Maine, E., 2019. Market entry strategies for electric vehicle start-ups in the
automotive industry–Lessons from Tesla Motors. Journal of Cleaner Production, 235,
pp.653-663.
Valentin, M., 2019. The Tesla Way: The disruptive strategies and models of Teslism. Kogan
Page Publishers.

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Appendices
Appendix 1: External Analysis
 PESTLE Analysis
Political
The political factors highlight the political stability in the country and its impact on
businesses. Tesla operates in the US in the automotive industry. In the US, major political
changes happened in the automotive industry. Such as at the global platform most of the
countries support the initiative taken by Tesla that is a sustainable environment or green
environment for that the company boost sales of its electric cars across the globe. But in the
US Trump decided to not support sustainable initiatives started by Tesla and framed policies
in order to interrupt the operation of Tesla (Langhelle et.al,2019).
On the other side, European countries support the initiative taken by Tesla by providing
charging stations and infrastructure to increase the use of electric cars so that emission issues
can be controlled. Further, governments are boosting the use of electric cars that provide an
opportunity for Tesla to make people use their electric cars and boost their sales at the global
platform (Munson,2018).
The table below showed the support that government across the world provide to Tesla:
Source:
Figure 1: (Langhelle et.al,2019).

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Economic
The economic factors include the economic growth of the country, purchasing power, the
standard of living and the exchange rate of the currency. These factors impact directly the
growth and prosperity of businesses across the world. Tesla‘s profits increased from the last
couple of years because of an improvement in the world's GDP As GDP in 2007 was $60
trillion and in 2017 GDP was $ 80.5 trillion that indicates the global economy is increasing at
the rate of 2.5% each year. Tesla's market growth also increases because of this factor as
people nowadays like to buy innovative technology at the premium price.
The below figure highlights the growth rate of developed countries and accordingly the world
growth rate. It can be analyzed that in the US, the growth rate expected to slow because of
China and the US trade war due to that Tesla growth in the domestic market will slow down.
Hence, Tesla faces issues in order to operate in the domestic market but has ample of
opportunities at the global platform.
Source: (Kauerhof,2017)
Figure 2:

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Social
Social factors include the lifestyle of people, their attitude, belief, and perspective. There are
many factors in the social environment that impact on Tesla operations and automotive
industry in the US. It is identified that US people are shifting and concern about the
sustainable environment and renewable energy and using innovative technology. Due to these
factors, the US people started to change their lifestyles and habits and become eco-friendlier.
Tesla sales of electric cars in the US might increase because of changing lifestyles and
switching of people to eco-friendly products whether its cars or any other product. At present,
the company is producing and launching high tech models such as model 3 and trucks and
vehicles that are eco-friendly. Due to that, the social factors are considered as the opportunity
for the company in the US market or at the global platform.
Technological
Technology is the key strength for Tesla in the automotive industry as the company is a
leading player in launching innovative models under the leadership of Elon Musk. Tesla
offers a perfect mix of technology, innovation, and sustainability. Engineers of Tesla
constantly focus on innovation and modification in order to deliver better products to its
customers.
In the below figure Tesla batteries cost are given that indicate that the company reduced its
cost of production because of technological advancement. This leads to an improvement in its
profit margin. Further, Tesla in the near future focusing on adopting automation in cars
through the use of artificial intelligence in order to bring a level to the automotive industry in
the US and in the world.
Source: (Teece,2018)
Figure 3:

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Source: (Teece,2018)
Figure 4:
Environmental
According to Taffel (2018), environmental factors include the focus of companies on global
consideration such as issues like climate change, pollution, greenhouse gases, and waste
management. Tesla is more focused on environmental factors and contributes to a greater
extent and to protect the environment and ensure sustainability. The green trend that is
happening in the automotive industry will change the way the automotive industry works or
operates.
 Porter Five Forces
There are five forces in the external environment that can impact on the Tesla operations and
working in the US market. These factors are explained in detail below:
Competitive Rivalry: At present, there are not many competitors for Tesla in the
automotive market because of high investment in technology in order to produce electric cars
but quickly competitors like General Motors and Ford will compete with Tesla in the electric
cars segment. Because both companies have financial and human resources in order to invest
and produce electric vehicles. Hence, the competitive rivalry force is moderate.
The threat of new entry: This industry requires high investment, due to the threat of new
entry is low. In order to produce electric cars, the automotive industry requires skilled

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workers and big investments in order to compete with an established player like Tesla. This
industry requires a considerable amount of money and sources in order to compete and grow
for the long term. Already established companies are struggling hence chances of the new
entry in this industry is low.
Buying power: Buying power of customers in this industry is medium. As tesla has a strong
loyal customer base and target high-class income group this leads to less influence of
customers on operations of Tesla. On the other side, the company produces products that are
highly innovative so the chance of buyer influence on the company is moderate.
Power of Suppliers: The suppliers in the automotive industry have high influence because
companies in this industry depend highly on raw material procured from suppliers. The
quality and price are two important considerations for Tesla and that is fulfilled by its
suppliers. Any change in suppliers will directly impact on the operations of Tesla and create a
monopolistic situation. The importance of suppliers in the automotive industry can be seen in
the below chart.
Source: (Thomas and Maine, 2019)
Figure 5:
The threat of substitution: The substitute in this industry is not available for electric cars.
However, electric cars produced by Tesla substitute traditional cars. On the other hand,
substitutes for transportation are buses, bicycles, and trains. But these substitutes are not that
comparable to the comfort level that the car gives. Hence, the threat of substitutes in this
industry is low.

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Appendix 2: Internal Analysis
 Resources and Capabilities
Resources
1. Physical: The physical resources include assets and manufacturing plants of Tesla.
The company has two manufacturing plants located in Nevada and California. Both
plants have the capacity to produce 800,000 cars on an annual basis (Cooper,2018).
Other resources of Tesla are its stores to provide customer experience of innovative
technology and a huge network of charging stations are some of the physical
resources of Tesla.
Source: (Cooper,2018)
Figure 6:
2. Human: Tesla has a strong workforce that includes workers, engineers, and top-level
managers. The company employed 15,000 employees in all its locations. The key
strength or competitive advantage of Tesla is its human resources as they are
passionate, innovative and knowledgeable. The workforce of Tesla is helping the
company to build a positive image in the market.
3. Financial: Financial resources are considered as the strength of any organization if
increasing. In 2018, the revenues of Tesla increased by 10 billion as compared to
2017. As in 2018, the revenue of the company was US$21.5 billion. It is identified

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that the company was running in losses from the past five years but regains its
position in 2018 and now has opportunities to further increase its market share.
Source: Tesla revenue growth
Figure 7: (Tesla,2019)
Capabilities
Capabilities are the ability of an organization to use its resources or manage its resources in
order to produce products or work as per the organizational direction. Tesla has the capability
to organize and manage its resources because of its skilled human resources and reputation or
goodwill in the market.
Source: (Musonera and Cagle,2019)
Figure 8:
Competitive Advantage
 Goodwill
 Innovation
 Elon Musk
Leadership
Distinctive
Competencies
 Electric Cars
 Focus on eco-
friendly and
sustainable product
Core Competencies
 Accessibility to
funds
 Technology
advancement
 Vehicle engineering

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 VRIO Analysis
VRIO analysis is considered as the tool that helps to identify resources that are valuable, rare,
difficult to imitate and exploited by the organization. Tesla VRIO analysis is given below that
helps the company to gain a competitive advantage.
Competencie
s
Valuable Rare Imitable Exploited by
organization
Implication
Brand Image Yes Yes Yes Yes Sustainable
competitive
advantage
Infrastructure Yes Yes Yes Yes Temporary
competitive
advantage
Gigafactories Yes Yes Yes Yes Sustainable
competitive
advantage
Leadership or
Leader
Yes Yes Yes Yes Sustainable
competitive
advantage
Self-Learning
cars or
Innovation
Yes Yes Yes Yes Temporary
competitive
advantage