Strategic Analysis of Tesla Inc.: Internal and External Environment

This report provides a comprehensive analysis of Tesla Inc.'s business strategy. It begins with an introduction to business strategy and its application to Tesla, an American electric vehicle and energy company. The report then delves into a macro-environmental analysis, examining political, economic, socio-cultural, technological, legal, and environmental factors impacting Tesla, particularly in the UK market. Following this, an internal environment analysis is conducted using SWOT and VRIO analyses to assess Tesla's strengths, weaknesses, opportunities, and threats, and to determine its competitive advantages. Finally, the report applies Porter's Five Forces model to evaluate the competitive landscape, including threats of new entrants, supplier power, buyer power, threats of substitutes, and competitive rivalry. The report concludes with recommendations for Tesla's growth strategies, considering both internal capabilities and external market dynamics.

Business Strategy

INTRODUCTION
Business strategy is a firm's working plan under which decisions are taken and actions
are performed in such a way which attract customers and helps the firm in competing
successfully in the marketplace so as to accomplish it's visions and missions (Amran and et. al.,
2016). A business strategy helps the firm in achieving its vision and mission statements. It is a
long-term business plan which includes two types of strategies i.e. generic or general strategies
and competitive strategies. These strategies help the companies in identifying product strengths,
adjusting prices, acquiring new businesses, differentiate products etc. To understand in detail
about the concept of business strategy, Tesla Inc. is taken in this report. It is an American
company that deals in auto-mobiles and energy. It is based in Palo Alto, California. It has an
expertise in electric car manufacturing and it also manufactures solar panels through its
subsidiary SolarCity. This report covers an internal and external analysis of the company which
will provide the basis for strategic planning. Also recommendations are given in to formulate
appropriate growth strategies.
TASK 1
P1
A macro environment involves external factors which are uncontrollable and influence an
organisation's decision-making under various circumstances affecting its performance and
strategies. These factors if left unchecked can destroy a business (Chiang, Chen and Ho, 2016).
The organisations are bound to change according to the changing external environment so that
the adverse effects can be neutralized by formulating strategies. Following are the external
environmental factors that can impact and influence Tesla and its strategies : Political factors : Political factors such as the governmental policies, taxation system,
trade restrictions, fiscal and monetary policies etc. of a country tend to have influence on
the business strategies. UK is politically stable which makes business for Tesla in the UK
favourable. However, Brexit may cause instability and uncertainty in UK so Tesla needs
to formulate its strategies in a way that this does not effect its operations in UK. Although
the UK government is providing incentives on electric auto mobiles which can be an
opportunity for Tesla. Also initiatives are being taken by the government to reduce usage
of oil and adapt to more eco-friendly energy resources to reduce global warming. Also,

UK is a prosperous nation in terms of application of order, controlling corruption,
government effectiveness and regulation of quality. Economic Factors : Economic factors such as GDP trend, interest rates, inflation rate,
unemployment level etc. determines the performance of an economy and affects the
strategies of a business (Guillén and Capron, 2016). In the UK cheaper technologies and
batteries are available which can be used by Tesla to manufacture electric auto-motives
thus reduces its operating costs and the products can be made affordable to the customers
by reducing prices. Use of electric energy instead of oil makes the product more
attractive and more customers are ready to purchase the products. However, due to Brexit
there can be a depreciation of the value of pound which might force Tesla to increase its
prices. Brexit might also result in fast trade deals between US and UK which will affect
the strategies of company so that prices can be controlled. Socio-cultural Factors : These factors reflect the lifestyle, tastes. Preferences, trends,
culture, demographic etc. factors of the population of a country. UK has a large consumer
market belonging to various cultures, races and religions with variety of needs and wants.
Increased concern about global warming and more preference towards eco-friendly
products gives a vast opportunity to Tesla for its electric auto-mobiles. However, there is
a high income inequality in UK as compared to other developed countries which might
influence company strategies in pricing strategies of its products. Technological Factors : These factors are related to technological advancements,
innovations, automation, new ideas etc. that prevail in the country (Irtaimeh, Al-Azzam
and Al-Qura'an, 2016). UK come under those countries that are technologically advanced
which helps in providing opportunities to companies to bring changes in their products so
as to achieve a competitive advantage. Tesla has a huge opportunity to expand its
business in UK as technologies for advances in renewable energy is available in UK.
However, frequently changing technology can also lead to fast obsolescence of products
of the company and increases costs of innovation to the company. This in turn increase
the prices for customers making it unaffordable for the customers. Legal Factors : These are the law of order that prevails in a country which are mandatory
to abide by for all the businesses to operate successfully. These laws are to protect
interest of customers, protect investors, ensure ethical and CSR practices in a business

etc. UK has highly favourable legal structure for Tesla to operate in the country. The UK
government provides plug-in car grant up to £5,000 for electric and hybrid vehicles. Also
many laws are being formed against polluting cars which is favourable opportunity for
Tesla. However, Tesla needs to follow UK legislations so as to ensure working within the
legal framework of the country.
 Environmental Factors : These are the environmental factors of a country like climate,
weather conditions, availability of water, terrain, environmental regulations etc.
Environmental policies in the UK are based on certain principles of command and
control, which may give organisations that cause pollution certain standards which cannot
be exceeded (Jaber and et. al., 2015). Raising awareness against global warming gives an
opportunity to Tesla to operate successfully in UK. Tesla provides eco-friendly products
which can easily be promoted in UK as they manufacture solar energy operated batteries
and electricity instead of fuel based cars which reduces global warming and pollution.
M1
Macro environmental factors are those external factors that cannot be changed or
controlled instead businesses have to take strategic management decisions so as to deal with the
changing external environmental factors (Kolios, Read and Ioannou, 2016). Business strategies
are to be made so that the impact of factors of macro environment can be minimized and the
goals and objectives can be achieved successfully. Tesla has to change its business strategies so
as to deal with in-stable political and economic conditions in UK due to Brexit. Although
technological advancements in UK provide opportunities to Tesla, it can also be a threat as the
changing technologies can lead to quick obsolescence of products as the taste and preferences of
customers keeps on changing.
TASK 2
P2
Internal environment are the components that are present in an organisation which affects
the strategies and decisions that are required to achieve its goals and objectives. The internal
environmental factors can be changed and controlled so as to remain competitive in the market
and for successful operation of the business. These factors include organisational structure,
corporal culture, value system, employees, physical resources, technology, vision, mission and

objectives of an organisation. Internal environment and capabilities of Tesla can be analysed by
through following ways :
SWOT Analysis : SWOT analysis provides a detailed analysis of internal factors of Tesla. The
strengths so analysed can be enhanced whereas the weaknesses are to be dealt with so that the
company can remain successful in the dynamic and ever-changing environment (Mathooko and
Ogutu, 2015). Also, it helps in realising opportunities for the company which can be captured
and also potential threats in the markets can be analysed so that a proactive approach can be
formulated to deal with the threats.
Strengths
 High product differentiation-electric
power train technology.
 Excellent position of brand which
provides extraordinary good quality of
products.
 Integrated battery manufacturing at
Gigafactory.
Weaknesses
 Limited market presence as the market
share is low.
 Needs huge amount of capital for rapid
R&D in developing highly efficient
electric cars.
 Single source of supply of cells for
battery power-packs.
Opportunities
 Increased awareness of global warming
which is making electric cars more
preferable over fuel based cars.
 They can expand their markets globally
and can also diversify its products so as
to attract customers in an international
market.
Threats
 There is a huge competition in auto-
mobile market and customers prefer
products that are cheap irrespective of
the emissions generated from them.
 After Brexit the value of pound can
depreciate which will lead to increase
in prices of Tesla products.
Another tool for analysing the internal environment of a business is VRIO analysis
which is used to determine the competitive advantage a company has over other companies in
the same industry (McDonald, 2016). Tesla has implemented many unique features that has
enhanced its position in the competitive marketplace. This helps Tesla in uplifting its position
over its competitors. VRIO analysis of Tesla is as follows :

 Value : This factor analyses whether the products and services provided by an
organisation adds any value to the customers. Tesla provides highly efficient electric
vehicles which provides comfort to customers and produces high value for the customers
who are aggressive towards environment conservation. This provides Tesla a sustainable
competitive advantage. Rare : This factor analyses whether the organisation is able to provide unique and
extraordinary products or services to the customers which are hard to replicate
(Muhammad Siddique, 2015). Tesla provides electric motors with two moving parts and
single-speed transmissions with no gears. Also its drivetrain has 17 moving parts
compared with 200 in conventional internal combustion drivetrain. This gives Tesla the
advantage of not being imitated by other companies. Imitable : This factor analyses whether the products or services of an organisation can be
imitated. Tesla provides unique/futuristic design which can though be imitated but it will
take a lot of time and investment for the competitors to imitate. By the time Tesla
products will be imitated it would have captured a huge market share building a brand
image.
 Organisation : This factor analyses managerial systems, policies, culture and structure of
an organisation that helps in fully realising the potential of an organisation's
extraordinary and costly resources and capabilities (Ng, Ibrahim and Mirakhor, 2016).
Tesla has strong management systems, processes and policies which can help it in
achieving sustainable competitive advantage.
M2
The analysis of internal environment helps in assessing the strengths and weaknesses of
Tesla's internal capabilities, structure and skill sets which can be changed and controlled with the
changing environment so that its goals and objectives can be achieved. To gain a competitive
advantage in the market the opportunities present in the market needs to be captured and
proactive actions and decisions are to be made so that potential threats can be dealt with. Also
VRIO will help Tesla in producing unique products which creates value for customers and is
hard to imitate through its efficient policies and processes which helps the company in gaining
sustainable competitive advantage.

TASK 3
P3
Porter's five force model is one of the effective tool utilised in businesses. It is used in
analysing the degree of competitiveness in the market place with help of the five forces. This
model was discovered by M. Porter in the year 1979 (Sarsby, 2016). It is useful in planning and
implementing the strategies to increase the potential of the business concern. The five forces are
threat of fresh entry, power of supplier, buying power of the customers, terror of substitutes,
competition with the existing competitors in the market. Following is the evaluation of Porter's
five force model in the firm Tesla-
Threat of new entrant- The new entrants in marketplace are manufacturers of auto. They
used the strategy of lower pricing and supplying new value to the customers. It lead to pressure
of implementing innovation in the current product, new techniques for modifying change on
Tesla. Therefore, a need to overcome this challenges and construct effective barriers came before
the company. Tesla can handle the threats of this entrants by innovating new goods and services.
It will will retain the existing customers and attract the new clients. Secondly, it can construct
new economies of scale to control the fixed costs on per unit. More research is needed to
compete with the new entries and discourage them to participate in the market.
Supplier power- There are many Auto manufacturing companies in the market. Almost
every firm purchase raw materials from the suppliers. The suppliers became more powerful.
They pulled out higher prices from the manufacturing companies (Scholes, 2015). Therefore, the
margins of Tesla decreased due to dominance of the suppliers in the market area. Tesla can
overcome the above threats by improving the supply chain and increasing the supply of raw
materials from multiple suppliers. It can focus on those suppliers who fully depend on the
company and thus, the bargaining power of distributors will be managed.
Buyer's power- The motive of the buyers is to purchase the offerings in the best quality
and lower prices. The demands of the buyers are becoming rigorous and hard to please. This
factor exerts pressure on the profitability of the company Tesla. The powerful customers of the
company has increased their bargaining power and demand for offers and special discounts. It is
possible to tackle the demanding customer by constructing their large base. It will assists Tesla in
dealing with the bargaining power of customers as well as to increase the production process and

sales. Continuous development and innovation in the products will help in maintaining the
interest of the current customers base.
Threat of substitutes- The entry of new substitute for the products of the company in the
market impacts the sales and profitability. For example, the products like smart Fortwo electric
drive and Ford focus electric are substitutes for the auto manufacturing firm. The power of
threat increases if it provides products with high value in the market (Sia, Soh and Weill, 2016).
It is possible for Tesla to deal with the threat of substitutes by focusing on services rather than on
the products. The company should direct its production towards the needs of the customer
instead of their buying factor and by accelerating switching barriers for the existing customers.
Competitive rivalry- The presence of strong competition in the market area creates rivalry
among the market players and it also affects the sales margin and profits of the company. Tesla
runs its operations between the strong Auto manufacturers competitors. It has resulted in
downfall in the overall productivity of the company. Tesla company can handle the rivalry in the
market by enabling sustainable product differentiation and establishing scale to compete
strategically with the competitors. It can also collaborate with small competitors to extent the
size of market.
It is concluded from the above analysis that through this model the strategists of Tesla
firm can figure out the factors that affect growth and profitability of the company in Auto
manufacturing industry. It is beneficial in assessing the changing trends in the industry and
utilise the opportunities favourable for the company. Management can make plans to use these
five forces in favour of the company.
M3
Strategies provide a roadmap which needs to be followed by taking appropriate decisions
and actions so as to achieve organisational objectives. Porter's five forces model help in
determining the five external forces that effect the strategies of an organisation. It helps to
identify the organisation's strengths which can be enhanced and the weaknesses so identified
should be dealt with the use appropriate strategies. Possible threats can be overcome by proactive
actions and decisions by managers. Opportunities should be grabbed on time so as to achieve
competitive advantage.

TASK 4
P4
Strategic planning is an organisational management activity of defining it's strategy or
direction and make decisions on allocating its resources in a way that organisational goals and
objectives are achieved efficiently (Thompson, Strickland and Gamble, 2015). Strategic planning
distinctly defines the purpose of an organisation and helps in establishing realistic goals which
are in accordance with its mission which is to be achieved within a time-frame. It also helps
using resources effectively by focusing them on key areas. It also provides a base from which
progress can be measured and necessary changes can be made. There are various theories,
concept and models that can be used for making a strategic plan. The way a strategic plan is
formulated is based on the kind of organisation's leadership, organisational culture, its
complexity, size and environment.
Ansoff Matrix is a strategic planning tool which was developed by Igor Ansoff and
provides a framework to help management of an organisation to devise strategies for future
growth. This matrix can be used to devise strategic planning for Tesla which can help company
to grow in the market. According to Ansoff Matrix there are four strategy options that can be
used by a business are discussed below :
Illustration 1: Tesla Ansoff Matrix. 2018
Source : Tesla Ansoff Matrix, 2018

 Market penetration : This strategy involves selling existing products in existing markets.
This is the least risky strategy as the product and market are already known and the
customers are well aware about the products (Wang and Li, 2016). Market penetration
can be done by increasing advertisements and attracting more customers to the products
by giving discounts, offers etc. on its products. Tesla uses this strategy to sell its Model S,
Model M and Model 3 electric vehicles, energy storage products, solar panels etc.
 Product development : This strategy implies the development of new products to be sold
in the existing markets. This strategy can be used by firms that have a large share in
marketplace and can introduce new products for expansion. Tesla engages in product
development less frequently as high cost is involved in development of electric vehicles.
However, Tesla is developing semi truck and pick-up trucks along with various energy
storage products.
 Market development : This strategy involves selling existing products in new markets.
This is a strategy of expansion and is used to capture large markets that has yet not been
tapped by the company. Tesla has a large untapped market where it can promote its
existing products i.e. electric cars which is relatively a new concept in most of the
countries. This will help Tesla in expanding its market and increasing it's market share
thereby increasing its profits.
 Diversification : This strategy involves selling new products in new marketplaces. This
strategy can be used by firms who has the belief of capturing a huge market through its
innovative products and services (Zahari and Romli, 2019). Tesla started as a electric
vehicle manufacturer in 2003 but later diversified in energy storage sector by purchasing
a solar company, SolarCity in 2016. This strategy is expensive as intense R&D is
required to develop new products and heavy costs of advertisements are involved to sell
the products in new markets.
Tesla can thus use market development strategy for growing in the market as there is a
huge untapped market where its products can be solved. Under this strategy Tesla will sell its
existing products in new markets which will save costs of R&D that will be involved in
manufacturing new products. The cost of developing electric vehicles and power storage sectors
is high. Electric vehicle is relatively a new concept in auto-mobile sector in various countries

which provides Tesla an opportunity to expand its business in these countries. Also the growing
awareness against global warming is increasing the need for sustainable energy and Tesla
provides the use of renewable energy over fuel energy.
M4
Strategic management plan helps in developing a vision and mission for the organisation
by analysing the external and external environmental factors that can effect the functions of an
organisation. It helps in establishing long-term goals and measure and evaluate performance.
Strategic plan for Tesla is given :
Vision : To become the most powerful electric car manufacturer and bring a drastic change in the
society.
Mission : To change the world by directing it towards the use of sustainable transport.
Strategies : Market development is the strategy that cab be used by Tesla to increase its market
base by introducing its products in new markets.
Objectives : To increase its market share by 15% in 6 months by expanding in new market.
Tactics : Tesla offers its products by direct marketing through its stores rather than through any
other agencies.
D1
For every business organisation it is important to analyse in detail the impact of various
external and internal environmental factors that effects its growth and development (Zhao and et.
al., 2016). This analysis helps an organisation in forming strategies that can help it in achieving
its vision and mission through cost effective approaches that reduces costs and increases value
for its customers. PESTLE and SWOT analysis gives a detailed information about the impacts of
environment on Tesla whereas VRIO helps in assessing the capabilities and competitive potential
of Tesla. Ansoff Matrix can help Tesla in devising appropriate marketing strategy so that its
profitability and sustainability can be increased.

CONCLUSION
From the above report certain conclusions can be made that an organisation needs to
continuously evaluate its environmental factors whether internal or external that affects its
operations and sustainability so that business strategies can be formed that helps it in dealing
with a situation so that goals and objectives can be achieved within time-frame. Various tools
and techniques can be used to produce a strategic management plan that can help the
organisation in prioritizing key components and directing its resources and efforts so as to
achieve the objectives of those key components that can ultimately achieve its goals.

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Online
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