External And Internal Environment Of Tesla

RUNNING HEAD: STRATEGIC MANAGEMENT
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Strategic Management

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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).