Strategic Analysis Report: Tesla's Business Environment and Strategy

This report provides a comprehensive strategic analysis of Tesla, examining its macro and micro environments. It begins with an introduction to Tesla, its products, and market position, followed by a strategic analysis using the PESTLE framework to assess political, economic, social, technological, environmental, and legal factors. A SWOT analysis is then conducted to evaluate Tesla's strengths, weaknesses, opportunities, and threats. The report further applies Porter's Five Forces model to assess the competitive dynamics within the electric vehicle industry. Recommendations based on the analysis are presented, along with an application of the Ansoff Matrix to explore growth strategies. The report concludes with a summary of key findings and recommendations, supported by a list of references and relevant figures.

Running Head: MANAGEMENT 0
BUSINESS ENVIRONMENT

MANAGEMENT 1
Table of Contents
Introduction................................................................................................................................2
Strategic Analysis.......................................................................................................................3
Macro environment analysis..................................................................................................3
PESTLE..............................................................................................................................3
Micro environment analysis...................................................................................................5
SWOT................................................................................................................................5
Porter Five Forces Model...........................................................................................................7
Recommendations......................................................................................................................9
Ansoff Matrix.........................................................................................................................9
Conclusion................................................................................................................................11
List of references......................................................................................................................12
Figure 1: Tesla Logo..................................................................................................................2
Figure 2 Pestle Framework........................................................................................................3
Figure 3 - SWOT Framework....................................................................................................5
Figure 4- Porter Five Forces Framework...................................................................................7
Figure 5- Ansoff Matrix.............................................................................................................9

MANAGEMENT 2
Introduction
The external environment for all enterprises is quickly changing driven by technological
advancement, increasing information processing power and change in consumer behaviour.
To be successful in dynamic business environment, organisation must work toward building
relevance and scan its business environment holistically to leverage various significant
opportunities and innovate (Geissdoerfer, Vladimirova and Evans, 2018). This report outlines
macro and micro level environment analysis of Tesla in correspondence to various
management framework and context. Lastly, necessary recommendations are also being
presented to help the company having a clear roadmap and vision.
Figure 1: Tesla Logo
Tesla is a leading automotive company incorporated in 2003, known for manufacturing and
developing advanced electric cars for the entry level luxury consumers. Some of its famous
vehicles include Model X, Model 3, Model S and Model Y manufactured and made at its
factory in Fremont, California, where the huge majority of the vehicle components are also
completed. Tesla market valuation outdone 100 billion U.S. dollars in 2020 (Feuer, 2020) and
the company is also a market leader in battery-electric car sales for the US. Globally, the
company has supplied nearly 367,000 vehicles in 2019 and by 2025, the world-wide market

MANAGEMENT 3
for the EV (electric vehicle) is expected to rise to over 567 billion U.S. dollars (statista.com,
2018). Some of the key competitors of the company include Ford Motors, General Motors,
Volkswagen and Toyota. In the next section of the report, strategic analysis of Tesla
Incorporation is being made starting from the macro level assessment signifying those factors
that are external to the organisation and directly influence the competitive position of the
company.
Strategic Analysis
Baumgartner and Rauter (2017) defined strategic analysis as the process of undertaking
research on a company and its operating environment to develop a viable strategy. The two
key frameworks that have been selected for the analysis of external and international
environment includes PESTLE and SWOT tools respectively. PESTLE framework help in
discovering macro environmental variable that has direct or indirect influence on the
company business functions and generally, organisation use this framework for the long term
strategic planning. On the other hand, SWOT tool is used for micro-level analysis of Tesla so
as to identify its key strengths, weakness, opportunities and threats. It will help Tesla to look
for its internal competiveness to gain various significant opportunities in the market.
Macro environment analysis
PESTLE
Figure 2 Pestle Framework
EconomicPolitical
Social Technological
LegalEnvironmental

MANAGEMENT 4
 Political Factors – This macro environment aspect contemplates the change in
policies by the various regulatory bodies in relation with new procedures and
regulations that influence directly or indirectly on business performance, growth and
practices. Considering Tesla, there are several significant initiatives undertaken by
both state and central government help the company to design and sale the EV in the
different markets. Taking an example, a loan of $465 was granted to Tesla in the US
and by the Division of Atomic Energy (Weiss, 2013). Though, if Tesla plans to move
its production unit in any other country, it is necessary for the company to fulfil all
compulsory regulations and guidelines associated to labour and environment.
 Economic Factors – If a country economy is stable, it offers an organisation greater
number of opportunities as well as potential to be competitive in the complex business
environment. Taking consideration of Tesla, this macro environmental factors offers
numerous opportunities to the company as the global economy is improving at a
progressive rate with rising in EV sales. In addition, the economy of US is also
anticipated to upsurge by 2.25 per cent (Mutikani, 2019) and so greater distribution of
wealth will stimulate population to adopt green technologies. Though, the stability in
the economy can be a challenge for Tesla in the markets of Asia and Europe.
 Social Factors – According to Galan Ladero et al, 2015, this aspect of business
environment helps the company to gain information and knowledge about consumer
demographics in association with income level and various cultural factors. The
company is targeting wider customer segments who are tech savvy and seeking for
environment friendly vehicles. An electric vehicle eliminates the need to use as much
fuel as a traditional vehicle and this makes the company products widely acceptable in
the community and the greater society. Tesla design sustainable products and this is
one of the major plus points for brand as the company business model is helping the
world to save billions that are expended annually on fossil fuels.
 Technological Factors – These factors are associated to use of strategic information,
policies and laws for the technological patents and research and development division
of the enterprise. Technology is incontestably the prime factor that defines how
competitive a brand is (Egbue, Long and Samaranayake, 2017). For instance, Tesla is
receiving tough competition with the new concept of driverless cars that may be likely
to bring together in future by any other big organisations like Uber, Google, BMW
and so forth. There is a change in technology every day and it is on Tesla on how to
embrace the cutting-edge technology early.

MANAGEMENT 5
 Environmental Factors – It relates with the context on the nation performance on
environment indicators and policies. In association with environmental influence,
Tesla has a positive repute as from its electrical cars and vehicles to the various
energy saving produces, the company emphasising greatly on sustainability and
saving of energy. The company is also working towards increase higher efficiency in
their products and supply chain as well.
 Legal Factors – It includes those factors that state what business firms can and
cannot do at a particular point of time and in what ways the government bodies of
different countries influence businesses to change its corporate practices as per the
market requirement. Tesla requires to give due significance to this macro-
environmental factor as legal law suits may diminish the brand image negatively and
could directly impact on the sales and profitability. Taking an example, this year the
company is facing new lawsuit over sudden acceleration causing injury or damage to
the people. The lawsuit emanates after the National Highway Traffic Safety
Administration (NHTSA) released its review of a petition, which cites complaints of
127 customers resulting in enquiry into 500,000 Tesla cars with possible unintended
acceleration matters (Hawkins, 2020).
Micro environment analysis
SWOT
Figure 3 - SWOT Framework
SW
OT
Streng
th
Weakne
ss
Oppor
tunitie
s
Threat
s

MANAGEMENT 6
Strengths – One of the major strength of Tesla is its product portfolio as the company is not
only manufacturing electric vehicles, however, also has developed power pack application
products in 2013 for the domestic household purposes and such products are meant to
develop for the load shifting and power backups. The nest strength of Tesla is their
development and research department which help the company to design and manufacture
innovative products and it is also the area where Tesla places high expenditure such as 1.5
billion U.S. dollars in 2018 (statista.com, 2019). Tesla strength can also be evaluated through
its integrated battery manufacturing at Gigafactory and the company is building up its new
facility at Nevada benefit the whole organisation to attain economy of scale with reducing the
operational cost by around 30 per cent.
Weakness – In relation with weakness of the company, Tesla does not have great experience
in development of other products other than EVs and the enterprise is looking for exploiting
the elasticity of its business model measured to be a narrative susceptibility. Tesla business
model is restricted to design and manufacture the EVs and sell them in different markets
while winding up of its mighty achievement. The next weakness of the company is its debt
and liability as it was identified that Tesla is facing a cash crunch with a $920 million debt
compensation tapping question on its achievement and profitability (Kolodny, 2019).
Furthermore, Tesla also depends on Panasonic since 2014 for the batteries they use in their
products and Panasonic is also the only supplier for the company and this decrease Tesla as
bargaining power of supplier.
Opportunities – The first opportunity open to Tesla is that the company can bring out more
affordable electric cars under their vision to boost the transition to sustainable energy. Tesla
also needs to check that EV likely to use 6,100 fewer gallons in surplus of its life time and in
relation of existing close gasoline cars. Tesla can also check for potential in the emerging
markets like Barhat (2019) also said that Tesla can do much better if Elon Musk embraces
over the forthcoming boom in the energy market of India. Tesla has an opportunity to
develop its own battery cells or contact with the other suppliers as it was found that the
company is facing issues of not receiving sufficient batteries from Panasonic since the
initiation of Gigafactory, the demand is continuously exceeding supply for the same.
Threats – One of the biggest risk for Tesla is its limited network of suppliers and this offers
its suppliers a high bargaining power that enables them to dominate Tesla for their policies
and decisions and therefore, increases the costs to the company. Considering an example in

MANAGEMENT 7
2018, Tesla has to contact its suppliers with asking for price cut on parts, though, also
retrospective recompenses. Competition and disruption in technology is another threat for
tesla as companies like BMW, Google, Toyota, GM and Ford are planning to launch
driverless cars soon (Jones, 2017). There is also a negative effect on electric automotive
sector as due to the UK exists from European Union and it can be seen with Tesla action to
increase price in the UK with 5 % in 2017, due to the variations in currency (telegraph.co.uk,
2016).
Porter Five Forces Model
Figure 4- Porter Five Forces Framework
Rivalry among existing
firms is highly intensive
Threat of New Entrants is Moderate
Threat of Substitute is high
Bargaining
Power of
Buyers is high
Bargaining
Power of
Suppliers is
high

MANAGEMENT 8
Threat of New Entrants
The threat of new entrant into EVs industry is moderate. Nearly, all leading automakers
including Toyota, General Motors, BMW and Ford have developed electric vehicles that are
not highly expensive, however, performance of these cars are conceded. Particularly, electric
cars were recognised for being slower in relation to traditional vehicles and their batteries did
not last for stretched. In addition, the three models of Tesla i.e. Model S, Model X and Model
3, are entirely electric and clears with innovative technical attributes like long mileage and
high speed in a particular charge, though, they also to be precise expensive and challenging to
produce. Any possible new market entrant is going to face the similar cluster of difficulties as
Toyota, Ford and GM and therefore, it can be said that if they discover the innovative
elucidations, the new market players are going to be overcome by the similar set of
challenges as well.
Bargaining Power of Buyers
In the electric vehicle sector, buyers enjoy a great bargaining power and there is not any
significant cost for them to shift from Tesla Model 3 to a new electric vehicle like Audi E-
Tron Quattro or Jaguar I-Pace (Ahmad, 2019). Considering price sensitivity, it also impacts
on bargaining power of the buyers and customer may find that price of Tesla are actually very
expensive considering the progressing range of electric cars from other automobile brands.
Other than this, Tesla customers also have choice to move to substitute products and range of
product differentiation between many electric vehicle manufacturers.
Bargaining Power of Suppliers
In case of Tesla, the bargaining power of supplier is high and Panasonic is one of the main
suppliers for the company selling Lithium battery to Tesla. As Tesla has no other choice to
develop battery cells on their own, it is necessary for the company to keep long term
relationship with Panasonic. It can also be said that Tesla suppliers have low level of
forwarding integration and this indicates for the Tesla the bargaining power of suppliers as a
secondary management significance.
Rivalry among existing firms
In the electrical automotive market, competition among prevailing businesses in the industry
is very intensive. In the EVs segment, Tesla is presently the most recognisable brand,

MANAGEMENT 9
however, all leading automobile brands have proclaimed their plans to raise their
concentration on this segment. Taking example of this year, GM to invest $2.2 B in first all-
electric vehicle plant and it will be proficient of using an exceedingly flexible vehicle
“architecture” (Eisenstein, 2020). On the other hand, Tesla also competes in solar energy
segment with Sunrun, Vivint, Trinity Solar and SunPower Corporation.
Threats of Substitutes
There is a moderate threat of substitute considering electric automotive industry and the
biggest threat is the presently largely used gas vehicles. The substitute ascends as the cost of
producing a green and along electric vehicles is pretty costly. Other substitutes comprise of
other modes of transportation such as taking a bus or riding a bicycle in terms of
sustainability. The mission of Tesla from the beginning has been to develop entirely electric
cars that is reasonable to the average customer and the usage of gas powered and possibly
hybrid car producers will be decreased if those average customer can pay for a fully electric
vehicle in ‘X’ amount of years.
Recommendations
Ansoff Matrix
Product Development
Tesla can focus on alternative fuel vehicle
manufacturer to design pick-up and semi-
truck together with the range of energy
storage products.
Market Penetration
Tesla can focus more on selling of its
Model X, Model S and Model 3 EVs in the
US and other 29 nations.
Market Extension
The company can shortlist India as a new
market due to its boom in the energy
segment and its potential to become third
largest auto market globally by 2020.
Diversification
Considering diversification, Tesla Motors
must diversify its product portfolio to
overcome its existing severe financial
concerns.
Products
Existing New
INCREASING RISK
INCREASING RISK
Existing
Market
New

MANAGEMENT 10
Figure 5- Ansoff Matrix
In addition, it is also recommended to Tesla to invent in batteries so as to sustenance the
manufacturing of electric cars and mainly the third generation’s cars. It can be a valuable
investment for Tesla as in future, a number of manufacturers will be considering to purchase
these batteries and this will lead to place mounting force on the prices. The company should
also collaborate with new suppliers for the battery such as LG Chem and CATL. To
overcome the scarcity of charging stations, the company should emphasis on building
charging station set-up. Other than this, the company can also concentred on further
substitutions such as plug-ins in parking garages and commercial infrastructures.

MANAGEMENT 11
Conclusion
In the limelight of above discussion, Tesla is known to be as “Apple of Automakers” due to
its unique and high-tech innovations and with increasing demand of electric vehicle, there is a
huge potential market out there. However, the business environment of Tesla is highly
competitive due to increasing pressure from suppliers, government and competitors. The
company requires to proactively scan its business environment and infrastructure and resolve
issues associated to charging stations, shortage of batteries and suppliers tie-up. Tesla should
also focus on the other segment of the market that also comprises of price-conscious buyers
and therefore, gain competitive edge in the electrical automotive market.