University Assignment: Applied Corporate Strategy of Tesla Report

This report provides a comprehensive strategic analysis of Tesla, focusing on its corporate strategy within the automotive industry circa 2016. The analysis begins with an external assessment, utilizing PESTLE and Porter's Five Forces frameworks to identify opportunities, threats, and industry attracti...Read More

RUNNING HEAD: APPLIED CORPORATE STRATEGY
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Applied Corporate Strategy

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Table of Contents
Introduction................................................................................................................................2
External Analysis.......................................................................................................................3
Pestle Analysis........................................................................................................................3
Porter Five Forces Analysis....................................................................................................8
Internal Analysis......................................................................................................................10
Resources and Capabilities...................................................................................................11
VRIO Analysis.....................................................................................................................12
Value Chain Analysis...........................................................................................................13
Strategy Evaluation..................................................................................................................15
SAF Criteria..........................................................................................................................16
References................................................................................................................................18
Appendices...............................................................................................................................20

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Introduction
In this era of globalization and the digitalization automotive industry is changing at a faster
pace. The global automotive industry is in better shape and is expected to rise by 50 percent
in 2020 (Kagermann, 2015). But there were few challenges that organizations in this industry
faced that included complexity and cost pressure because of electrification, digital demand
that means customers want more connectivity and shifting industry landscape. Due to these
challenges the automotive industry shifts towards sustainable cars or electric cars at
affordable prices. According to Randall (2016), the above-mentioned factors are the reasons
for disruption in the automotive industry in 2016 and led to a shift of industry to the
production of electric cars.
In order to be successful in this changing environment, Tesla a well-renowned brand in the
automotive sector introduced a new concept that was focused on sustainable practices and
products (Dijk and Yarmine, 2010). With that new concept, Tesla's mission changed “to be a
leader in the market by bringing clean transport, renewable energy and by creating an entire
sustainable ecosystem”. The company is mainly known for its disruptive innovation
techniques and strategies and these strategies focus on creating and offering better products
than existing products at low prices with higher technologies.
The automotive industry influenced by many external factors that also included micro and
macro factors. Therefore, this report highlights Tesla a leading player in automotive industry
strategies for growth and success in the industry and factors that pushed Tesla to took the
decision to acquire SolarCity. Further, different tools are used to understand the corporate
environment in which the company operates. Some of the tools are Pestle analysis, Porter five
forces, VRIO analysis, and value chain analysis.

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External Analysis
The external analysis includes an analysis of the business environment of the industry in
which the company operates. In the below section, six factors that impacted the operations of
the company are analyzed in order to know threats and opportunities (Ibrahim and Harrison,
2019).
Pestle Analysis
Political Factors (Opportunity)
The political factors include political stability, government support, and political pressure. In
the automotive sector, the major changes that impacted the operations of Tesla were the
interest of the government on the green initiative, advance vehicle technology and reduction
in emission level (Jones, 2011). Due to initiatives of the government, Tesla received federal
grants, tax breaks, and loans in order to invest more in research and development. In the US,
a competitive synergy market leads to an environment that supported the acquisition of the
solar city by Tesla. Further, the distressing oil market boosted the need for electric cars due to
the government started to provide subsidies for the manufacturing of electric cars. It is seen in
the below figure that the electric vehicles market will be 35% of total vehicle sales by 2040
(Bloomberg,2016).

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Source: (Bloomberg,2016)
Economic Factors (threat)
The economic factors include economic growth, exchange rates, interest rates, and
purchasing power of individuals. Tesla operates in the automotive industry across the world
any changes in the above-mentioned factor directly influence the operations of Tesla. The
growth of the US economy since 2009, slowed down after that economy is growing but at a
decreasing rate that impacted on the operations and growth of Tesla as well. On the other
side, looking at the global perspective the economy will grow at a rate of 2.5 % on an annual
basis (Ravallion,2016). Hence, the economic condition in the domestic market is considered a
threat to the company but at the global platform, it is considered as an opportunity to increase
its market share and sales.
Source: (Worldbank,2013)
Social Factors (opportunity)
Social factors are related to habits, lifestyle, attitude and belief of the society or behavior of
the target audience that impact on company’s operations. Further, this directly impacts on the
supply and demand aspects. In the context of Tesla, consumer demand for environment-
friendly products drives the electric car market (Moons and DePelsmacker,2015). The

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company takes advantage of this change and habit by offering environment-friendly cars to
women and men in both the segment. As because of the changing mindset and lifestyle of
people it is estimated that electric car users by 2030 will be 120 million (Papadopoulos et.al,
2011). In a nutshell, Tesla takes advantage of this opportunity with its present strategy of
offering sustainable and environmentally friendly products in order to improve its
profitability and sales across the world. Further, launch of Tesla Model S and X in 2010
changed the way people experience transport services. This led to shift of people for clean
energy (Randall,2016).
Source: (Randall,2016).
Technological Factors (opportunity)
Technology advancement in the automotive sector is not a new thing and is not considered as
a threat as innovation in this industry is a frequent thing that changes the whole trend in the
industry. Technology is an aspect in which Tesla excels and has a competitive advantage. The
company has no such impact of technological changes in its operation because innovation

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and technology is a driving force for Tesla. However, technology such as the use of batteries
in the electric car has some drawbacks such as huge expenditure on purchasing batteries,
setting up of infrastructure and for customers finding charging stations in remote areas. This
impact on the profit margins of the company and can shift the automotive industry to another
trend. Further, President Obama offered $4.5 billion in subsidies for EV charging stations
development that indicates the support of the government in building technological
infrastructure for people (Bloomberg,2016). Hence, technology can prove to be a threat to
Tesla in the near future but at present, it is the key strength of the company.
Source: (Blomberg,2016)
Environmental Factors (Opportunity)
The electric market was created because of increasing awareness of people about
environmental factors such as climate change, emission level, and global warming. These
impacts are observed by the government and customers; due to that customer mindset
changed and shifts to the use of electric cars (Li and Ho,2016). The advantage of this
opportunity is already taken by Tesla and the company formed a strategy that best suitable for

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the changing environmental factors. The company introduced the concept of using electricity
derived from coal plants in its driving cars to overcome environmental challenges
(Guardian,2016). For instance, Tesla's innovation is to develop batteries to be used in
conjunction with solar panels. As a result, Tesla will benefit from this green trend in the
future.
Source: (Li and Ho,2016)
Porter Five Forces Analysis
Porter's five forces framework is used to assess the attractiveness and power of industry.
Analyzing these forces help to understand the forces that impact on the operations of the
company. This framework helps in developing future strategies to gain competitive advantage
and to promote long term survival.
Competitive rivalry (High): In the automotive industry, there is a high level of the
competition environment as players, like Ford, Nissan, and General Motors, Mercedes have

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the capability and resources to compete in the market with Tesla by launching electric cars in
the market. Hence, due to the competitor’s strategy, the company operations get affected.
This indicates that competitive rivalry is a major force that has a greater impact on Tesla.
Source: (Dobbs, 2016)
The threat of substitutes (Moderate): The substitutes of electric cars in the market are not
so available but the substitute for transportation is available that are buses, trains, and
bicycles. It can impact the demand for electric cars as customers can switch to use these
alternatives in order to reduce environmental impact (Wolf et.al,2015). This indicates that
the threat of substitutes is not completely present for Tesla but can be possible and depend on
the lifestyle and preference of customers. Hence, the threat of substitutes is moderate.
The threat of new entry (Low): The threat of new entrants in this industry is low because of
high investment in technology and infrastructure. It is difficult for companies to invest a huge
amount in this highly competitive industry. Further, nowadays the industry needs a highly
skilled workforce, expertise, quality material and components, and a considerable amount of
working capital to meet the daily challenges in the automotive industry. Hence, in order to

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compete in this industry, there is a high level of barriers to entry and exit due to the threat of
new entrants in this industry is low.
Bargaining power of Suppliers (Moderate or High): The suppliers are the most important
force in the automotive industry because of quality standards that are expected by the firms
from their suppliers. Tesla electric vehicles are future of the industry and in order to maintain
this legacy it is important for the company to have a good relationship with its suppliers as
any changes or raising prices by suppliers directly impact on the finished goods price as the
cost of production will increase and the company has no other alternative to switch. Tesla
mainly relies on a small number of suppliers as this helps the company to create a
monopolistic situation in the industry.
Source: (Li and Ho,2016)
Bargaining power of Buyers (Moderate): The power of buyers in this industry is moderate.
In the automotive industry, most customers are loyal and focus on the same brand until and
unless an attractive option is not available. Tesla has a strong customer base that is loyal
toward the brand and concerned about environment-friendly products. The target customers

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of Tesla are high and medium class income people that strive for quality and efficiency and
can pay extra amounts for premium products (Wolf et.al,2015).
Internal Analysis
The internal analysis includes analyzing the resources, capabilities and then identifying
strengths and weaknesses of the company in order to understand the core competencies and
competitive advantage. Resources of any organization are considered (Hamel and
Prahalad,2017). In the below section Tesla’s resources and capabilities are highlighted and
with the core competencies that can help the company to gain a competitive advantage in the
automotive industry.
Resources and Capabilities
Resources of Tesla are:
Physical Resources (Strength): The assets of tesla amounted to $22 billion in 2016 that
showed a 15 % increase year over year basis (Tesla, 2016). The company has two main
manufacturing plants that are in Nevada and California The investment by the company in
Gigafactory can give a competitive advantage to the company as compared to other
competitors (Tesla,2016). As seen in figure 2, the factory has the capacity of producing
500,000 cars in a year. Further, Tesla provided its customers with a strong infrastructure of
charging stations that is also the asset of the company and helps in to gain benefits in this
competitive environment. For instance, the company decided to invest US$ 4.5 billion for
installing 48 charging stations in 35 states in 50 miles spanning 25,000 miles (Tesla,2016).
Human Resources (Strength): Tesla employed 48,817 employees in 2016 and this is the
strength for the company at the global platform (Tesla,2016). Tesla MODEL S is the world's

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bestselling model in the category of the plug-in electric vehicle. The reason behind this is the
leadership of Elon Musk, the innovative mindset of engineers and skilled and knowledgeable
workers. Hence, the human resource of tesla is another strength that helps the company to
gain a competitive advantage.
Financial Resources (Weakness): The financial position of the company is not that good in
terms of increasing shareholder value and earnings per share. Because Tesla is operating in
losses from the past five years. However, with the sales of Model S, the position of the
company improved. In 2015, Tesla showed losses of $888 million but in 2016, the position of
the company improved and losses reduced to $773 million (Tesla,2016).
Technological Resources (Strength): The innovation and technology for Tesla go hand in
hand as the company has the ability to innovate in a timely manner with the use of
technology. Tesla got hundreds of patents that included an intangible resource for the
company. For instance, Tesla Model S and its electronic cars are the future of the
automotive industry and the best example of technology.
Capabilities
VRIO Analysis
VRIO framework is helpful in analyzing the internal resources in order to know the strengths
and weaknesses that the company has to gain a competitive advantage. This framework is
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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applied to Tesla in order to know resources that are valuable, rare, non-imitable, and
organization.
Valuable: The resources that are valuable for Tesla are its gigafactories, charging networks
and technology. Tesla's main competitive advantage is its innovation and technology in order
to attract more customers. The mission of Tesla to focus on sustainability is another valuable
thing that is helping the company to gain a competitive advantage.
Rare: The rare concept that Tesla created was combining sustainability with high
performance. The rare resources that Tesla has the leadership style of Elon Musk and its
vision that drive the automotive industry (Easto,2017).
Imitable: The resources that are non-imitable or cannot be copied by Tesla competitors are a
huge investment by the company on its gigafactory, innovations, and technology
advancement. Further, the brand image of Tesla is non-imitable by competitors. All these
resources help the company to compete with competitors.
Organization: Some of the resources of the organization can be exploited by its competitors
which are charging networks, innovation, and technology. These strategies of Tesla can be
exploited by others and after some time the company needs to develop another competitive
advantage.
Competencies Valuable Rare Imitability Organization
Leadership style
of Elon Musk    
Supercharger
Network    
Financial
stability    
Batteries    
Product
development
and innovation
   

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Value Chain Analysis
Value chain analysis is another framework that is used in order to analyze the value that the
company adds to its customers. The aim of using this analysis is to know the activities that
Tesla performs in order to gain a competitive advantage. The activities are divided into two
that are primary activities and supporting activities (Grant,2016).
Primary activities
Inbound Logistics: This includes the flow of raw material into business which includes
delivery, storage, and transportation. Tesla has many warehouses across the US and in
China. The main plant of the company is located in the US and used for manufacturing and
warehousing. The size of this unit is 5.5 million square feet (Dobbs,2016).
Operations: The company manufactures electric vehicles and expanded are operations such as
supply chain network and sales at the global platform. The company launched its two models
that were Roadster and Model S. Tesla also has units at Tilburg for quality check and
assembly testing. In a giga factory, Tesla stores its battery packs and energy storage
products. The company has administrative offices across the corners such as Europe, North
America, and Asia .
Outbound Logistics: The main unit or manufacturing plant of Tesla is in Nevada, the
company assemble finished products and perform end of line testing before dispatching its
finished products. The warehouses of the company are presented across the world where
Tesla stores finished products and ship parts. The company has gigafactory in China and in
the US that makes its logistics easy (Dobbs,2016).

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Marketing and Sales: Tesla competes in the highly competitive industry and in order to
survive the company uses both marketing channels such as digital marketing platforms and
traditional marketing strategies. Elon Musk takes advantage of Twitter in order to attract
more customers. On the other side, the investment by the company on marketing and sales is
less as compare to its competitors.
Products and Services: Tesla offers different services and products to its customers. The
company launched Roadster, Model S, Model 3, Cyber truck and Model X & Y (Tesla,2016).
The company provided stores for after-sales services of its products. The company offers a
large range of power products that include solar tiles and storage products. Further, after-sales
services are provided to customers by its large network of retail stores and service stations.
Secondary activities
Technology: Electric mobility and autonomous driving cars are currently the latest
technology used by companies in the automotive industry. Tesla invested $1.46 billion in
R&D and with that, the company gains a competitive advantage that helps to maximize its
share at the global market (Dobbs,2016).
Human Resource: Another supporting factor in the operations of the company is human
resources. Tesla has a workforce of 48,000 employees that are highly talented and run the
organization efficiently. Human resources are considered as the assets of Tesla and help the
company to increase its competitive strength (Tesla,2016).
Procurement: Tesla procures thousands of parts from different suppliers across the world.
The company has a strong relationship with its suppliers. Battery cells by the company are
mainly procured from Panasonic.

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Source: (Rothaermel,2016)
Strategy Evaluation
Strategies are made by companies in order to compete and to be successful. Tesla's strategy
to acquire and merge with the solar city proves to be beneficial or not can be analyzed with
the help of SAF criteria. The motive of Tesla behind this move was to align solar power
with battery storage in order to reduce the impact of its operation son the environment.
SAF Criteria:
Suitability: This merger is a long term strategy of Tesla and a move towards the achievement
of its goals of sustainable practices. The CEO of Tesla, Elon Musk's idea was to promote and
change the benefits of a solar electric economy. This leads to a long term impact on society
ad will reduce climate change and protect natural resources. The strategy that is used by the
company proves to be beneficial for Tesla as it leads to an increase in market share in the
automotive industry. Solar city production of solar pane helps Tesla to be a leader by
focusing on the idea of a sustainable environment (Bellekom et.al,2012).

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Acceptability: This aspect includes acceptance of strategy in terms of return, risk and
stakeholders expectation. With this strategy, the financial performance of the company
improved that indicates the return is good as compare to the risk taken by the company. It is
analyzed from shareholder mapping that Tesla is getting a positive response from its
shareholder but on the other side its suppliers and employees are resisting. Tesla's business
strategic decision mainly impact by stakeholders (Kudachimath and Ragashetti,2015).
Figure: Mendelow Matrix
Source: (Johnson, 2016)
Feasibility: The main aim of any strategy is its feasibility and this includes the requirement
of cash flow, economic benefit, and long term gains. The merger of solar city and Tesla
benefits Tesla as because of Model S the company's financial position improved (Rawlinson
and Wells,2016). Tesla car is like a channel bag, rooftop solar is electricity, a complete
commodity competing on price. Tesla showed that its solar deployments rose by almost 50%
in 2017. Hence, the strategies formed by Tesla to gain competitive advantage are sustainable
and helps the company to retain its competitive advantage in the future.

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References
Bellekom, S., Benders, R., Pelgröm, S. and Moll, H., 2012. Electric cars and wind energy:
Two problems, one solution? A study to combine wind energy and electric cars in 2020 in
The Netherlands. Energy, 45(1), pp.859-866.
Bloomberg,2016. Here how electric cars will cause the next oil crisis. Accessed From:
https://www.bloomberg.com/features/2016-ev-oil-crisis/
Dijk, M. and Yarime, M., 2010. The emergence of hybrid-electric cars: Innovation path
creation through co-evolution of supply and demand. Technological Forecasting and Social
Change, 77(8), pp.1371-1390.
Dobbs, M.E., 2016. Tesla, SpaceX, and the Quest for a Fantastic Future. Journal of Applied
Management and Entrepreneurship, 21(1), p.83.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley &
Sons.
Hamel, G. and Prahalad, C.K., 2017. Do you really have a global strategy?. In International
Business (pp. 285-294). Routledge.
Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education.
Jones, N., 2011. The pull of stronger magnets: super-powerful magnets would boost the
performance of electric cars and other green technology. Why is it so hard to make
them?. Nature, 472(7341), pp.22-24.
Kagermann, H., 2015. Change through digitization—Value creation in the age of Industry
4.0. In Management of permanent change (pp. 23-45). Springer Gabler, Wiesbaden.

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Kudachimath, B.S. and Ragashetti, N.S., 2015. Disruptive Innovation: How Tesla Motors,
SpaceX and Solar City are disrupting industries. International Journal of Management, IT
and Engineering, 5(8), pp.109-117.
Lin, L.H. and Ho, Y.L., 2016. Institutional pressures and environmental performance in the
global automotive industry: the mediating role of organizational ambidexterity. Long Range
Planning, 49(6), pp.764-775.
Papadopoulos, P., Akizu, O., Cipcigan, L.M., Jenkins, N. and Zabala, E., 2011. Electricity
demand with electric cars in 2030: comparing Great Britain and Spain. Proceedings of the
Institution of Mechanical Engineers, Part A: Journal of Power and Energy, 225(5), pp.551-
566.
Randall, T., 2016. Here’s how electric cars will cause the next oil crisis. Bloomberg, New
York, accessed Mar, 25, p.2016.
Ravallion, M., 2016. Are the world’s poorest being left behind?. Journal of Economic
Growth, 21(2), pp.139-164.
Rawlinson, M. and Wells, P., 2016. The new European automobile industry. Springer.
Rothaermel, F.T., 2016. Strategic management: concepts (Vol. 2). McGraw-Hill Education.
Tesla,2016. Annual Report Tesla 2016. Accessed From:
http://www.annualreports.com/HostedData/AnnualReportArchive/t/NASDAQ_TSLA_2016.
pdf
Wolf, I., Schröder, T., Neumann, J. and de Haan, G., 2015. Changing minds about electric
cars: An empirically grounded agent-based modeling approach. Technological forecasting
and social change, 94, pp.269-285.

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Appendices
Figure 1: Increasing use of electronic cars and digital cars
Source:
Figure 2: Tesla competitive advantages (Gigafactory)

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Source:
Figure 3: Financial resources of Tesla
Source: