A Strategic Case Study of Tesla: Market Positioning and Advantage

This case study delves into Tesla's business strategy, exploring its innovative approach and impact on the automotive industry. It examines the connection between entrepreneurship and innovation within Tesla, highlighting factors contributing to its success in the global market. The analysis covers Tesla's current strategy, strategic advantages, and position in the premium high-end EV market, supported by external and value chain analyses. The report concludes with a recommendation for Tesla to focus on the premium segment, emphasizing brand building through R&D investments, strategic partnerships, and enhanced charging infrastructure. Industry and company analyses are conducted using frameworks like SWOT, and the report diagnoses the benefits Tesla can derive from both mass-market and premium EV segments, ultimately advocating for a premium-focused strategy.

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Table of Contents
Cover Page................................................................................................................................1
Table of Contents.......................................................................................................................2
Abstract.....................................................................................................................................
1. Background.........................................................................................................................4
2. Tesla’s Current Strategy......................................................................................................7
3. Tesla’s Strategic Advantage................................................................................................8
4. Tesla in the Premium High-End EV Market.......................................................................9
5. External Analysis..............................................................................................................11
6. Value Chain Analysis........................................................................................................15
7. Recommendation..............................................................................................................16
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REFERENCES........................................................................................................................18
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Abstract
One of the classic instances of associating innovation with the skills of entrepreneurship is
depicted in the report of the company Tesla. Tesla as a company has always involved itself in
reinventing new products through innovation, which changed the pattern of the automobile
industry. The report aims to understand the business and the factors like the emerging
leadership theories affecting the process will be discussed explored by analyzing the case study
of Elon Musk and Tesla. The report also highlighted the connection of entrepreneurship and
innovation in Tesla, which makes it one among the most innovative companies in the world.
The reasons behind the success of the company Tesla will be examined by understanding the
elements of the schemes, which Tesla incorporated in foreign market. The summary of the
important administrative implications will be presented in the report.
Industry Analysis: The industry analysis of the automobile sector and the Electric Vehicle (EV)
industry is conducted to understand the industry attractiveness and stability.
Company Analysis: Company analysis is conducted to examine the strategies and approach of
the company through the framework of SWOT analysis.
Diagnosis: The report reflects the diagnosis of the benefits, which the company will experience
in the mass-market and the premium segment of the EV sector.
Recommendation: Analysis will be followed by the recommendations, which will depict that
Tesla should be operating in the premium segment of EV sector. Tesla should focus on building
its brand image through investments in the Research and Development department, creating
partnership with conglomerate companies as well as enhancing the charging station availability.
I. Background of the company
Tesla Motors Inc. started its operation in the year 2003as an automotive company. A group of
engineers from Silicon Valley aimed at introducing electric cars. Elon Musk, the creator of
PayPal, along with Martin Eberhard and Marc Tarpenning launched the company Tesla. Few of
its financial specialists include the author of Google, Larry Page and Sergey Brin (Musk, 2006).
The current CEO Elon Musk expressed a crucial information in regards with their system by
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stating "The beginning stage is an elite performance sports car, however, the long haul vision is
to make cars of numerous types, including minimal costly family vehicles" (Hamilton, 2006).
The 14th edition of Kotler and Keller indicated the formation of the company Tesla by Marc
Tarpenningand and Martin Eberhard in the year 2003. Tesla as an organization experienced
huge development. One of the beliefs of the company about the market was the inclination as
well as formation of trend among the customers for the category of eco-friendly transportation.
Under the name of the brand Tesla Motors, the company is selling premium models. Some of
the most popular models offered by Tesla are Mode S which and in alternate Model X and
Roadster. Tesla wants to capture the Australian market by introducing Model 3 by the mid-year
in 2019 (Kotler and Keller, 2012).
A. Introduction
The business of the California-based organization Tesla Motors specializes in the designing,
manufacturing and selling of eco-friendly vehicle option through Electric Vehicles and it sells
the power generating components. The statement of Mangram (2012) revealed that the
pioneer of the cars in the Electric Vehicles segment is undoubtedly Tesla, which design and
manufactures electric cars. The former CEO and one of the founding members of PayPal,
SpaceX and Zip2, ElonMusk,was declared as the chief of the product design category and the
CEO of Tesla in the year 2004. In today’s context the face of the brand, Tesla Motors is Elon
Musk (Mangram, 2012).
B. Vehicle Industry Analysis
Overall, it can be depicted that the stability and attractiveness of the automotive industry is
dependent on the outcomes of the industrial analysis with low bargaining powers of suppliers as
well as high barriers of entry.
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C. Industry Analysis of Electric-Vehicle (EV)
The California-based company Tesla Inc., earlier known as Tesla Motors, operates in the
category of electric vehicles, manufacturing of solar panel as well as in energy storage. Tesla
aims at speeding up the conversion of the energy consumption to sustainable energy usage.
The reason behind this step is directed towards the attempt of the company to shift the
dependence of the world from fossil fuels to zero-emission state (Straus. 2017).
A statement by Elon Musk ,“When we created Tesla a decade ago was the same as it is today: to
accelerate the advent of sustainable transport by bringing compelling mass market electric cars to
market as soon as possible.”- Elon Musk (Musk 2013).
The conveyances of Tesla vehicle should not rely on the quarterly marker of monetary
outcomes as it depicts only a single section for the execution of organization’s budget. There
mote trade growth, the mixture of vehicles, which are rented straightforwardly and the expense
for offers are the various elements on which the marker of monetary outcome is dependent
(PALO and Calif 2018). The rate achieved by the Tesla group for the Model 3 generation was
about 5,000 units in the year 2018. The clients are allowed to experience the vehicle by a test
drive form their local store. They have the expectation of acquiring Model 3 at a faster rate.
By the end of Q2, Model 3 Vehicles of 11,166units and 3,892 units of Model S and X were in
travel and the same would be conveyed in the early Q3. The huge growth underway at the end
of the quarter resulted to the higher number of Model 3 vehicles client travels. There were a
total of 40,740 vehicles in Q2, out of which Model 3 amounted to 18,440 and Model S
amounted to 10, 930 and the rest 11, 370 were Model X. It was demonstrated that Model X and
S was in accordance with the notice as per 3rd May. Tesla is changing the generation examples
of these vehicles quarterly for the various districts in order to guarantee a better stream of
conveyances all over the year. The general focus of Tesla for about 100,000 conveyances of
Model S and X has not changed. If all the goals including adjusted profits and revenue targets
are being achieved by Tesla, a stock value worth $55.8 billion will be received by Musk. Every
time Tesla will hit a milestone, Musk will receive a chunk of stock for the same.
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In accordance to Nicholson, D. (2014).Three pathways are utilized by the company in the
aim of improvement in the number and accessibility of the mixture of EVs to their consumers.
The availability of Tesla’s EVs are in showrooms as well through online channels. Secondly,
EVs can also be offered by other manufactures or assemblers of automobile to their consumers
by paying for the licensed parts of electric powertrain to Tesla. Tesla as an organization aims at
encouraging the makers of automobiles by depicting the low interests of buyers in regards with
the vehicles, which are socially dependable. The familiarizing of the Roadster in the market and
then building the basis for Electric Vehicles constitutes the steps of Tesla’s system. Tesla has
practiced this goal (Nicholson, 2014).
Moreover, it has been expressed that “mechanical community systems and R&D collisions
are more powerful procedures than mergers and acquisitions. Tesla Motors moves towards
that bearing by setting up collisions with significant organizations without thinking about
converging with them (Davies, 2018)”.
In accordance with Meyer, P. (2018).organizations are ready for incorporating innovative
ways in their product portfolio by corporate enterprise, when businesses are attempting to
grow. Collaborating with the brand Tesla, companies like Daimler and Toyota acquires the skills
of development. Both Daimler and Toyota are efficient in the operation of ICE system of vehicle
but they realized the need for growth in the sustainable category of Electric Vehicle. Both the
companies achieved their goals of incorporating innovation factor and the attempt of
introduction of vehicles in a new segment by collaborating with a company like Tesla Inc., which
resulted in the improvement of the expertise of Tesla by the help of the collaboration (Meyer,
2018).
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II. Tesla’s Current Strategy
Business Strategy:
There is a concentration of differentiation strategy on the extravagant portion of the market.
Client base of Tesla mostly constitutes of middle and upper class in terms of income levels for
which the strategy of the company is to present a classy feel with its electric autos.
Corporate Strategy:
The corporate strategy is to change from just a top class maker of EVs to tapping the mass
market for serving a larger population. Tesla is associated with Panasonic in Research and
Development, for making battery that is more effective. Tesla also synchronize their operation
with car manufacturers like Daimler, Toyota Motors as well as Chrysler. Tesla along with
Toyota have started several programs and participated together for the modernization of EVs in
regards with designing help and the production framework. Tesla currently provides powertrain
for Toyota RAV4 Model.
International Strategy:
Tesla is strategizing in expanding to international market like China along eith the focus on US
market. As per Stephen Ellison (2018), the first mover advantage is enjoyed by Tesla in the
electric vehicles market whereas the other automobile manufacturers concentrated on production
and designing of hybrid cars. A very efficient and quality performance is being provided by
Tesla’s powertrain technology. Furthermore, Tesla has planned for the delivery of a long run
auto (one full charge battery can run 265 miles) whereas its competitors are focusing on
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transportation between cities that has a scope of 85 miles. Tesla reflects an advantage over its
competitors by being the main organization in assembling the system of charging stations, 90-
second battery changing stations as well as superchargers nationwide and offering products to
the purchaser directly without using any intermediaries. The differentiation strategy by Tesla is
supported by these factors and hence increasing demand in the luxury segment, which increases
profitability. However, Tesla aims at increasing its profitability by expanding its operations in
various other segments in which it can reduce the value chain costs (Stephen, 2018).
III. Tesla’s Strategic Advantage
For Tesla’s Value Chain Analysis.
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IV. Tesla in the Premium High-End EV Market
Tesla successfully established itself as a premium electric vehicles manufacturer in the past
few years. This is the most important time to understand whether Tesla can win through the
“Better-Off” test by examining the economies and challenges faced by Tesla in the high-end EV
market to arrive at a decision of exiting this market and penetrating the newer mass market (Fiori,
Ahn and Rakha2016).
Advantages
Primarily, there is higher consumer willingness to buy/pay (WTP) for Tesla because it has
goodwill in brand differentiation in the EV market along with the unique driving experience. The
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five major features of Tesla’s products are: it is safe, it is fast, modern and smart, can be parked
easily, and longevity.
Secondly, a higher chance of success and profitability can be expected by Tesla if it decides
to continue in the high-end market. As per to DeBord, M. (2017). move toward extravagance
vehicles can be implied by the financial status change. Government’s decision to administer
natural approach through the green innovation technique in the car industry marks a great
opportunity for the company Tesla. The Government of US invested 1.3 billion dollars for
speculating in hydrogen vehicles and Federal assessment credit of $7,500 is presented to the
purchasers. The increase in the temperature fluctuations, emissions and contaminations, most of
the people are accepting feasible nature friendly autos (The Mission of Tesla, 2018).
Tesla in the Mass EV Market
Tesla made its primary attempt to enter into the mass market by offering EVs at an affordable
rate for the larger population during the announcement of its plan for the Model 3 production.
Beforehand, Elon Musk used to be a pioneer in offering luxurious electric cars thereafter making
25% annual profit margin (Kessler, 2015). However, the success of Tesla in this segment is
being questioned because the EVs produced for the mass portrays a capacity to drive 200 miles
with a single charge, while it costs only $35,000. The upcoming pages will help in the better
understanding of the advantages and the challenges that will be encountered by Tesla while
penetrating the market.
Advantages
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As per La Monica, (2018) the advantage in penetrating a mass market reflects the ability of
expanding the reach of a company to a wider range of consumers. The current report states that
Elon Musk aims for increasing U.S. sales volume domestically to 40,740 vehicles and 500,000
worldwide (La Monica, 2018).Tesla can directly compete with big companies like Nissan and
General Motors by expanding its target audience 10 times. Tesla has the potential to achieve
greater success if it maintains a relatively balanced growth and its high volume expansion
(Välikangas2018).
The second advantage as per Tom Turula (2018), in penetrating the mass market is the
ability to earn remarkably from the carbon credit sales. At the start of the second quarter of the
year 2018, Tesla received Zero Emission Vehicle (ZEV) credits at the rate of seven for each car
produced (Turula, Tom, 2018). Each car is generating an amount of $35,000 with each credit
being valued at $5,000, and thereafter earning more than $100 million in total.
The final positive as per Fishbein (2017), in penetrating a mass market is thatTesla enjoys
economies of scale by creating a Gigafactory. This year beginning, Tesla announced that it
would build a gigafactory in Reno, Nevada. Substantial support has been received by the project
because of Panasonic’s plan to invest around $1 billion along with tax rebates of over $1.5
billion offered by the state government. With the increase in Tesla’s investment to $2 billion
with the remarkable production rise, fixed costs can be spread out by Tesla and hence Tesla will
be finally ready to achieve the economies of scale. At present, the production cost is
approximately $400 per kilowatt-hour of battery (Sharma 2016). However, Tesla have plans to
reduce the production cost to $200 with economy of scale. Tesla incorporated flexibility with
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