TESLA Case Study: Business Model, Strategy, and Analysis

This case study provides a comprehensive analysis of Tesla's business model, exploring its competitive environment using Porter's Five Forces, PESTLE, and TOWS matrices. It examines Tesla's value chain, international strategy, and strategic choices, including its transnational approach. The analysis delves into the company's strengths, weaknesses, opportunities, and threats, offering insights into its market position and challenges. The study also discusses the company's approach to cost reduction, its product offerings, and its market strategies. The document also includes an analysis of Tesla's value chain, inbound logistics, operations, and service, and explores the political, economic, social, technological, legal, and environmental factors affecting the company. This analysis is contributed by a student and is available on Desklib.

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Tesla
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Introduction
Tesla's business model entails venturing the high-end market featured by customers
willing to pay a premium, after that, Tesla will push down the market rapidly to attain higher
sales volume and reduce prices for every successive Model developed (Müller-Stewens, 2018).
Also, Tesla seeks to offer power-supply options that are embedded in the principle of zero
emissions. Hence, since Tesla's inception, it has adopted groundbreaking decisions that shift
away from the conventional business models. However, even with such a shift, the profits are
marginal. With such a path by Tesla and many underlying decisions in the future, it is apparent
that Tesla's business model will be a revolution in the auto industry.
Porter's five forces of Tesla
Competition-strongest
Based on the fact that Tesla runs in an environment characterized where rivalry with
other competitors is intense, competition is a threat and the primary force that lowers prices and
profitability of a company. Tesla has few rivals, such as General Motors, Honda, Ford Motor.
However, despite Tesla's competitors being few, which has minimal impact on competition, their
degree of aggression with regards to innovation and endorsing their products is a major threat to
Tesla (Dobbs, 2014). The price cuts for EVs and falling prices for the batteries has led to an
increase in the growth of EVs as competition by automakers intensify. BMW stated that it would
price its i3 for $41 350, whereas Ford will price its Focus for $ 4000. Moreover, the low
barricades for customers to buy vehicles from various producers further increase the power of
competitors.
Bargaining power by customers-strong force

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The consumers' purchasing power with regards to the market for electric vehicles is
enormous. Buyers can demand lower cost or high-quality products from manufacturers when
their ability to bargain is robust. The low exchanging costs lessen obstacles for Tesla customers
to purchase cars from different suppliers. For example, there is barely any expense for a
customer to switch from Tesla's Model 3 to Jaguar I-Pace, an electric vehicle. This compels a
solid power against the company and various players in the automobile industry.
Suppliers' bargaining power-moderate force
Musk, on many occasions, reiterated the vitality of the battery supply as the bottleneck of
Tesla. Specifically, the supply of lithium and cobalt considered to be the most vital raw materials
possess a significant risk for Tesla's operations. A considerable part of the global supply of
cobalt hails from the unstable Democratic Republic of Congo (Müller-Stewens, 2018). Though
disruptions in supply could translate to price increments, producers can substitute cobalt with
manganese. However, this is different for lithium, which is considered an indispensable
component of the battery technology by Tesla raising grave challenges to the supply chains by
Tesla. Though there is an oversupply of lithium today, this may change in the future due to the
increased share of supply channels into the growing demand for smartphones, tablets, and
computing electronics. Therefore, strong negotiating power will allow suppliers to price higher
valued or low-quality raw materials to their buyers.
The threat of substitution-moderate power
Tesla's threat of substitutes is minimal. Substitution is specifically low where buyers can
undoubtedly identify substitute products with better prices or improved quality, and when buyers
can change beginning with one product onto the next with minimal costs. Using Tesla's case, a

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customer has fewer cars to switch to, such as Porsche considered more costly and thus making
this force less risky to Tesla.
The threat of new entrants-weak force
The risk of new players into selective fuel cars fabricating the market is frail. The new
players are a force that decides how easy or how hard it is to penetrate a particular industry.
Tesla's business is a force to reckon with due to the staggering cost of brand improvement and
also the ubiquity of Elon Musk. Also, car fabricating has mind-boggling costs, which create
boundaries for new entrants.
Value chain analysis
The value chain analysis of Tesla is the analytical framework that will help in pointing
out business activities that can generate value and establish a competitive edge for Tesla over its
rivals.
Inbound logistics
Tesla's inbound logistics entail receiving and storing raw materials for manufacturing
electric cars, energy storage devices, and solar panels. Tesla utilizes a range of rare materials
such as aluminum, steel, lithium, and nickel, among others. Tesla leases three warehouses that
store the company's raw materials. Tesla does not engage with complex inbound logistics
practices as the primary source of value creation. The automaker operates on a build-to-order,
and this translates to bottlenecks in components supply could be an obstacle. Thus, Tesla must
develop long-term strategic connections with its suppliers.
Operations

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Tesla manages the manufacturing of vehicles and assembling activities in its facilities, for
instance, in California. The operations by Tesla can be grouped into two segments. One is
automotive, and this niche entails the design, manufacturing, and sales of EVs.As of 2017, it was
reported that the company produced 101,420 Model S and Model X automobiles and 1764
Model 3. The second is energy generation and storage, and this sector entails the design,
manufacturing, and installation of energy storage components and solar energy systems.
Tesla service
Tesla has had issues in the past regarding high-profile clients' service complaints. Such
complains entailed failure to return call and answer emails regarding servicing Tesla car. Also,
customers complained of having to wait for a couple of weeks to have their model X repaired
following its launch in 2016. In efforts to deal with clients' complaints matters, Tesla allowed its
clients to escalate such issued directly to the executive. Tesla offers post-sales service at Tesla-
owned service hubs.
PESTLE analysis
Political factors
Tesla has many opportunities that it can use to strengthen its financial performance
primarily through government incentives. For instance, It is following the unveiling of the Model
S that the Federal government gifted Tesla with an alternative automobile loan amounting to
$465 million as a boost to market the Model S, and this brought Tesla even closer to the mass
production. However, the loan was restricted to the condition that enough production capacities
had to be available. Also, the political stability of many primary markets for the automobile

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industry leads to the environment becoming favorable for Tesla's competitive edge and even for
the development of intensive growth strategy.
Economic
PEVs are especially popular in dense urban regions characterized by above-average
affluence, small commuting distances, established charging infrastructure, and high fleet
penetration (Müller-Stewens, 2018). The market for PEVs has been reported to be concentrated
in five cities that purchase more than half of all the sold PEVs in the US: Atlanta, San Francisco
Angeles, Seattle, and New York City. The availability of well-developed charging infrastructure,
cuts in taxes, and exclusive parking and access to traffic lanes provides the incentive for such
cities to go electric.
Decreasing battery costs is a factor that has increased the popularity of electric vehicles.
The battery is a vital cost factor in the gross cost of any EV. With increasing affordability and
accessibility of such materials. Tesla will be better positioned to manufacture more affordable
EV in the future.
Social factors
The concept of an electric vehicle is fascinating for most individuals, and this is evident
for those who are eco-friendly. It is through the use of EV that will translate to the elimination of
fossil fuel, which is noble for the environment. In one of the studies, it was found that the
purchasers of electric vehicles are twice affluent than most Americans. The customers interested
in purchasing EVs are younger, fewer opinions on environmental matters, and possess high
anticipations regarding the performance of EVs (Müller-Stewens, 2018). Nonetheless, electric

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vehicles are cheaper compared to conventional cars concerning maintenance and running costs.
The EVs developed by Tesla are environmentally friendly.
Technological factors
The diffusion of Plug-in electric vehicles (PEV) relies heavily on the accessibility of
charging infrastructure in places of work, at home, and also in public places. Currently, there is
insufficiently established charging infrastructure, and this impedes propulsion technologies that
are battery-only, which is BEVs from competing favorably with ICE automobiles.
Environmental
In the past decade, the world has recorded a substantial increase in automobile
electrification. This has been propelled by a fluctuating price of oil, a massive decrease in quality
and quantity of urban air, and public efforts to decarbonize transportation. Thus, the sales of
Battery electric vehicles (BEV) are anticipated to reach 6 million units towards the end of 2020
and surpass 10 million units by 2025 (Müller-Stewens, 2018).
Legal factors
Tesla was reported to have had one of its Electric vehicles catching fire, an incident that
stirred debates on the safety of its cars. This led to several agencies being tasked with
investigating such cases. Due to such an event, several states barred Tesla from selling directly
from the firm to the consumer (Müller-Stewens, 2018). Based on the States, a manufacturer such
as Tesla is obliged to involve a third-party dealership. Such a legal requirement will impact car
delivery by Tesla. Moreover, the dealership translates to more expenses and fewer profits.

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Tesla’s international strategy
Tesla adopts the transnational strategy in operating in global markets. The global
standardization by Tesla allows the company to respond to the mounting pressures for cost
reduction. Tesla has three primary transnational customer niches that it aims to serve via a
standardized commodity. One is the ultimate market for sports automobiles, a segment targeted
Global
strategy
Transnational
strategy
International
strategy
Multidomestic
strategy
High
Pressures for cost
Reduction
Low
Low pressure for domestic responsiveness High

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via the Tesla Roadster. The market for luxury car sedan and SUV is a highly competitive niche
providing more significant sales projections. The company aims to win big with its Model S and
Model X. Lastly is the mainstream automobile customer niche that facilitates mass car
production recognized as Model 3. Currently,Tesla encounters various pressures for cost
reduction. One is that Tesla manufactures vehicles to meet the global demand for private
transportation. Moreover, Tesla conducts its activities in an industry with intense competition
where price serves as a fundamental determinant of demand. Thus, companies such as Toyota
and Volkswagen have lifted barriers to entry. Moreover, potential customers encounter low
switching costs with regards to automobiles fueled by internal combustion engines (ICEs),
though higher switching costs when buying Electronic Vehicles (EVs) due to increased
endeavors to cope with their limited variety. Lastly, Tesla is faced with technological constraints
arising from the expansion of the company, precisely a high minimum efficient scale stemming
from top R&D running fixed costs.
TOWS Matrix for Tesla
External factors
Internal factors
Strengths
S1: Robust R&D function
S2: Competent management group
S3: Superb designs
S4: Strategic location, close
proximity to strategic
neighborhoods
S5: Huge capacity for mass
production
Weaknesses
W1: Exorbitantly priced in
comparison to fuel
automobiles.
W2: Less number of charging
hubs
W3: Low battery span
W4: Charging is time
consuming.
Opportunities
O1: Depletion of oil reserves
whereas electricity is a
renewable energy.
O2: Consumers are more
concerned about environmental
protection
O3: The battery technology can
be used in other sectors for
instance power storage from
SO strategies
-Concentrate on developing new
products with emerging
technologies to stay ahead in both
the market and industry (S1, S3,
S5+O1,2)
-Venture and expand in emerging
markets (S1, S3, S5+O5)
- Development of products in
different industry than Tesla’s core
WO Strategies
-Outsource several
operational functions to a
low-cost venture (O5, W1)
-Increase the awareness of
environmentally friendly
vehicles (O1, O4, W1)

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solar panels.
O4: Government support across
the world to use cars that are
environmentally friendly.
O5: Huge global market
opportunities in Europe, Asia
and North America.
operation
(S1, S5+O3)
Threats
T1: Stiff competition
characterized by less operating
expenses
T2: Slow economic growth
T3: Supply of raw materials is
limited.
T4: Competition for
experienced resource base
T5: The concept of EV has not
been well embraced
ST Strategies
-Manufacture products that attract
diversified niches(S1+S5+T5)
-Adopt technologies that will
decrease the company’s operating
costs(S1+S5+T5)
WT Strategies
-Adopt a cost reduction
technique to decrease costs
(T1+W3)
-Sell the enterprise with a
great
bargain(T1+T2+W3+W1+W1)
In conclusion, generally, Tesla encounters enormous competition from other rivals in the
industry, such as GM, and this is one of the most influential forces that impact profitability
directly. Tesla's bargaining power is strong, mainly due to low switching costs and small
purchases on Tesla vehicles. Suppliers' bargaining power is moderate, while the threat of new
entrants is feeble due to the strong brand associated with Tesla.

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References
Dobbs, M., 2014. Dobbs, M., 2014. Guidelines for applying Porter’s five forces framework: a set of
industry analysis templates.. Competitiveness Review, 24(1), pp. 32-45.
Müller-Stewens, G., 2018. Tesla Motors' business model configuration. [Online]
Available at: https://www.researchgate.net/publication/328556345
[Accessed 24 December 2019].