Applied corporate Strategey

Introduction

Sustainable and green energy has been an emerging issue in recent years. Many countries have put various efforts to ensure that they reduce their gas emissions in different leading categories. While all sectors should be alarmed and actively involved in these efforts, the automotive industry is one of the big emitters. Therefore, various companies are pioneering and succeeding in this fight to protect the environment. Tesla is one such American company.

Tesla Inc. is a company launched in 2008, based in California that is a leader in sustainable production. They deal with electric cars, renewable energy for home use, and also solar panels. It participates in green energy solutions from generation to storage, aiming to reduce emissions. This report seeks to analyze the company’s position in the automotive industry. The research will try to find out the forces that drive the company both externally and internally in an attempt to establish its place in the market. The merger of SolarCity will also be analyzed to determine the effect it has.

Automotive Industry

The Automotive Industry has come a long way to what it is. In the USA, it has been subjected to many factors. In the beginning, automobiles were only owned by wealthy individuals. The factors that affected the industry back then were different from what they are now. The availability of a road system is one of them. Then came the unionization caused by World War 2 and the great depression.  These saw the decline of many companies, which paved the way for the domination of the three companies. With time, the development of the interstate highway system opened the way for the need for cars. With the recession in the 2000s, another era in the automotive industry began. These also gave rise to new trends such as the need for mergers and partnerships, green energy production and global warming, and the digital phase. This is where Tesla plugged in in the green automotive and energy gap.

Tesla Motors is located in the United States, which is one of the biggest receptive markets in the world. The country is the second-largest market for automotive products. There have been significant players in this industry for a long time over the years, as it is just a new company. These include General Motors, Chrysler, and Ford. It is flooded by international players too. The industry itself generates a lot of revenue for the country and provides many employment opportunities, about 600,000, to the country. Their interest was to manufacture electric cars that were feasible and affordable while combining technology used in vehicles. The sector has caught the attention of many, and Tesla has caused quite a splash in the industry. Electric cars and hybrid cars are meant to be convenient, require less service and economical. While they still take a small fraction of the market, they have a lot of government support and subsidies. It has also widened its scope to eco-friendly energy production and storage. In general, Tesla has revolutionized the way the industry works and has shown the need for development and growth. Many factors affect Tesla’s ability to continue in this intimidating market. The report below shows a pestle analysis of the organization in an attempt to establish the company’s macro-environment what it is both positively and negatively.

Tesla’s Pestle analysis

A PESTLE analysis of the determinants of the industries, namely the automotive industry, energy storage, and energy generation (Gillespie, 2007). These are the definitions of the customers and market share. Strategically planning along these lines ensures maximum profitability and a strong brand (Whittington et al., 2017). To ensure continues sales and upward growth despite facing competition from the major companies, the following factors need to be addressed;

Political factors

As stated earlier, this industry has been profoundly impacted by political considerations. The same goes for Tesla’s macro-environment in recent times. Policies formulated by the government on trade if auto motives are very crucial to Tesla. For example, government incentives on electric vehicles can be seen as a great opportunity. Tesla can stand to improve its financial position by leveraging these incentives. Due to the government efforts to promote the minimization of carbon emissions from automotive.  Some states also offer tax credits that go of at least 5000 dollars from the purchase of the said car. In addition to that, the company stands to gain from any trade agreements on electric cars as they expand outside the country. Currently, its target market is within US borders. As discussed earlier, the political situation in the country has influenced the state of the industry. The same goes for Tesla. Stability provides an opportunity for the company to thrive while the opposite poses threats to potential growth. The above factors present opportunities for Tesla Inc.

Economic Factors

An increase in the global economy has consequently lead to more purchases. For example, the growth of the global economy by 3.5 percent in 2017, led to an increase in the sale of electric cars by 30 percent. The decrease in the price of raw materials such as batteries lowers the cost of production for the company. These are great opportunities for Tesla to enable them to create effective and affordable vehicles for the general public. Another factor is the goods of ostentation. The trend of people investing in luxury cars may work well for Tesla’s products as their vehicles are deemed to be modern in terms of function and technology. Very few vehicles give the luxury that they provide. They should also seek to expand their EVs to fit the middle-class bracket. Since they currently have little to no competition, it would be smart to accommodate this level of citizens.

Social factors

With green initiatives booming in this era, the company’s products seek to fulfill this mission. The realization that everyone has a responsibility to reduce their carbon footprint in every little way weighs heavily on the shoulders of every car owner. The eco-friendly movement seeks to perform tasks most effectively and efficiently possible while producing minimum pollution to the environment. The same is the case for Tesla. This is the target group for their products. Since they have expanded to energy production and storage, they have gone further to implement their sustainable initiative. This is an opportunity to tap into people’s preferences for renewable and clean energy. A Tesla car uses less fuel and is easy to maintain in the long run. They have also done an excellent job of keeping their brand as the electric car provider. That is an opportunity to ensure they maintain the blue ocean market and prevent ease of penetration. Tesla’s ability to align itself with this kind, the popular socio-cultural trend, makes it relevant (Tesla.com, 2019).

Technological factors

The incorporation of modern technology in their cars gives them a competitive advantage over other analog companies. It aids in the eco-friendly, ease, fuel-efficient, and practical use of their cars. On the other hand, technology keeps evolving and changing. This poses both an opportunity and a threat to the company. The ability to advance gives unlimited opportunities for growth. They could stand to incorporate artificial intelligence and virtual reality in manufacturing, ultimately setting them apart from other companies.

On the other hand, the process is speedy. Therefore, if their cars are solely reliant on a certain kind of technology and it goes obsolete, they run a risk of becoming irrelevant. Tesla has to keep researching and upgrading as time passes (Tesla.com, 2019).

Legal factors

Tesla is limited by the regulation of sales directly to customers versus the use of a dealership in some states. This is both an opportunity and a threat depending on the respective country. The company has to be up to date with legal regulations, to speed up their growth process. Limitations may come in their way if they progress blindly. Therefore, identifying the most current international patents and responding to them may prove valuable to their penetration into foreign markets. Lastly, with eco-friendly regulations becoming popular in recent times, Tesla should seek to abide by the energy-efficient percentages allowed, thus furthering its purpose and goals.

Environmental factors

The mission Tesla is to promote sustainable, environmentally-friendly vehicles. This is their strength and opportunity. Climate change mitigation strategies are being preached and advertised everywhere. The fact that they are unique and can abide by these initiatives and hopefully improve is impressive. They are bound to remain relevant for a long time. Most traditional companies are struggling to transform and reduce their carbon footprint. Tesla is already at the forefront of this fight, and the only way is up for them (Tesla.com, 2019).

Porter’s five forces

This analysis looks into the external forces in its market and how Tesla must address them to ensure resilience in the automotive market (Porter, 2008). These factors include technology, availability of raw materials, and competition. While Tesla as managed to remain relevant amid cut-throat competition, here are the analysis regarding TOWS analysis.

Bargaining power of suppliers

The reliability of suppliers is essential to the company. How the organization transacts with its suppliers is different, varying from first to third parties. This has an average effect on the company’s operations. They also deal with medium-sized suppliers, thus have limited influence on the industry. This is a moderate force for Tesla. It places the bargaining power of suppliers as a secondary priority during strategic maximization for the company.

Threat of substitutes

With respect to low switching costs, there is an ability to enable competition such as public transport or rail. This is a high possibility of it becoming a substitute. However, the availability of an alternative is moderate, thus limits competitors for personal vehicles. Lastly, the level of performance for the substitute is moderate. The versatility and convenience of a private car cannot be compared to public service. Therefore the threat of substitutes is a moderate force that does not require primary management to obtain maximum profit.

The threat of new entrants

It is tough for any company to match the brand that Tesla has created with respect to electric cars. Therefore it would be costly to supersede them, thus a low threat. The operations of the automotive business are expensive; thus, new companies are discouraged from entering the scene easily. The factor, therefore, presents itself as a low threat in the industry.

Bargaining power of customers.

The fact that the industry has moderate substitute options has an average effect on Tesla’s ability to lose its customers. The chances of them opting to use the alternatives is low, due to the added advantages a personal car provides. Nevertheless, the low cost of switching poses a high threat. Lastly, the small purchase quantity level reduces the risk the ease of change poses to Tesla. It is a moderate threat.

Competition

This factor poses the highest threat to the company. While the industry does not have many firms, there exists fierce competition amongst the few. Marketing in this area is high. The ability to change from one manufacturer to the next also provides a high threat to Tesla’s external environment. High mitigation strategies should be placed against this factor.

Conclusion

The industry presents itself as an attractive one with the ability to grow and nourish the growth of a company. There are many opportunities to venture into while facing a lot of competition, where only the strongest survive.

Internal analysis

Now that we have established the external forces that shape this industry, it is crucial to determine the internal ones too. These are what an organization can control, to gain a competitive advantage against its competitors. This is done by establishing resources, competitive advantage, and competencies (Grant, 2010).

Resources

It refers to all financial, intangible, physical, or human assets. The organization’s strategy is to align these assets with the primary goal of the company. A careful look into the resources enables one to know whether it is a weakness or an advantage, what to remove, or invest in for future benefits (Appendix 5).

Intangible resources

Innovation opportunities are very significant to the software. The software technology that it integrates with the car proves to be a valuable resource. They have incorporated a device that stores numerous amounts of data. They have also gone as far as to make driverless cars. Technology opportunities are endless (Investopedia, 2019). While high prices may be able to place the commodity as a luxury good and attract a certain kind of market, it may cause problems for the affordability of the cars. This asset is a weakness for the company.

Financial resources

The financial advantage it has is the government incentive. Since the government is encouraging more sustainable, innovative solutions, they support such company startups. This could help the company achieve its goals.

Physical resources

One of the tangible assets is electric vehicle production. They have managed to manufacture cars that are not dependent on fuel while incorporating technology in them. They have also improved their initial product and abilities with every new model. With these factors, they have developed a reliable customer base. The above assets go hand in hand with the solar panels, roofs, and battery storage through power walls. Their products are both functionally and aesthetically appealing (Tesla.com, 2019).

Human assets

CEO Elon Musk leads the workforce Tesla has. He participates in innovation and marketing campaigns, just by being the face of the company. He participates in talks and conferences, talking about the company’s products and his dream for sustainability. In addition to that, the workers have gained invaluable experience in the manufacturing of electric cars since its inception.

Competencies

The most exceptional competencies of the company that are irreplaceable include (Appendix 5);

• The CEO Elon Musk who drives the innovative mission of Tesla
• Futuristic products, which are green energy production, electric car, and storage
• Hybrid –gasoline powered vehicles
• Batteries
• Supercharger Network
• Tesla’s company and headquarters

Success factors

The industry is characterized by the following factors to ensure relevance;

• Vehicle quality
• Efficiency and effectiveness
• Incentives
• Expansion into markets
• Energy

The primary cause for success if the CEO. His innovation and implementation after identifying a niche were crucial for the company. He then established a productive location to base the company, which allowed the acquisition of excellent personnel. Above and beyond, the product itself was unique and problem-solving. It has performed outstandingly against its predecessors. Lastly is the recharging or refill method that is free. The company has given a name for its self that has become impossible to replicate.

The value chain for Tesla

It is a framework that identifies activities that help add value (Grant, 2010). The following is Tesla’s.

Primary activities

Inbound logistics

Inbound logistics involve acquiring and storing materials required to build electric vehicles and energy generations. They also utilize steel copper, nickel, cobalt, and aluminum in many of their operations. They have a 1.3million square foot of warehouse space in California for this purpose. This is not the primary source of value for this company. It should, however, maintain good relations with its suppliers (Investopedia, 2019).

Operations

Its operations are in two categories, automotive and energy generation, and storage. The car assembly takes place in California, Lathrop and Fremont, and the Netherlands. This is the primary source of value addition for the company. They use robots in their production to perform the tasks.

Outbound logistics

Tesla deals directly with buyers, eliminating the need for intermediaries. This ensures that the cost of cars does not go up and also has faster delivery. Other logistics involve the warehousing of vehicles and installation of panels and energy storage systems.

Marketing and sales

The CEO, Elon Musk, is the sole marketer for the company. He participates in interviews, talks, and conferences to advertise the company and its products. He manages to spread a lot of information by word of mouth through the media. This is a significant value source.

Service

The company allows complainants to talk to an executive director. They have online customer service and also mobile service vehicles. It also has 150 service centers. It intends to build 100 more.

VRIO Analysis of Tesla

The analysis is meant to establish a competitive advantage it has in the automotive industry and how to utilize them fully. As stated earlier, the company has leveraged its unique features to fill in a gap, and also remain relevant in the market (Walters & Rainbird, 2004).

Table representing the Value chain for Tesla Inc.

Table representing the VRIO analysis for Tesla Inc.

Conclusion

The primary competence is the generation of automotive and constantly advancing them in technology. Tesla should seek to grow and progress in this arena as it is the primary source of income. This is how they entered the market, thus should find to protect this position and prevent flooding in this electric car’s market.

Evaluation

Tesla sought to diversify its market by merging with SolarCity in 2016. The review aims to examine the business position that the merger puts the company and the direction it could take the company. It is essential to establish the niche into which the company would be plugging into, based on a SWOT analysis of the company (Whittington et al., 2017).

SWOT analysis of the company

After the above analysis, it can be seen that the company needs to branch out into other endeavors, both geographically and product-wise. The results need to be analyzed in relation to the external environment the SolarCity Company presents. To determine the suitability, feasibility, and acceptability of the strategy, we are first going to analyze it under the TOWS matrix based on Appendix 5. This helps us relate the internal and external factors.

TOWS matrix for the merger with SolarCity

Suitability

The need for the merger is pretty straightforward. It helps fulfill the dream of the company’s CEO of providing a holistic clean energy environment. It taps into solar, a source of renewable energy for a broad scope of people. The decision to acquire the company was met with a lot of opposition. Merging the two, it can be seen that the management of the supply chain is already suffering, thus will also be an issue in the event of expansion.

Acceptability

To determine acceptability, the analysis will be made using a power-interest matrix (Appendix 4). To begin with, the major stakeholders will be established with what they stand to gain from the merger (Fiegerman, 2019).

Shareholders interest gain for Tesla’s merger with SolarCity

High

Low                                                                                           high

Level of interest

The definition of a well acceptable strategy is one that fulfills the expected impact of all stakeholders at hand. From the metric above, it can be seen that the merger will, for the most part, cause positive results to all stakeholders. There is a consensus that the merger will propel the company forward and provide more investment opportunities.

Feasibility

The workability of the merger is the other aspect in question (Whittington et al., 2017). Issues were raised concerning this move. These include it being a distraction for the company and the ability to handle the two. Seeing as it was the company’s vision from the beginning, it is feasible as it involves bring similar goals under the same roof. The management is identical; thus the new venture is not entirely new. The personnel is already informed about the details of green energy; therefore, they will source them internally.

Conclusion

It is essential to state that this is a necessary move for the company to acquire SolarCity. Such actions are required to encourage growth, especially for products and services that are already conversant to them. It provides a smooth transition and helps propel the company’s mission.

References

Fiegerman, S. (2019). Tesla shareholders approve a controversial merger with SolarCity. [online] CNNMoney. Available at: https://money.cnn.com/2016/11/17/technology/tesla-solarcity-merger/index.html [Accessed 29 Nov. 2019].

Gillespie, A. (2007). PESTEL analysis of the macro-environment. Foundations of Economics, Oxford University Press, USA.

Grant, R. (2010). Contemporary strategy analysis.

Investopedia. (2019). What Makes Tesla’s Business Model Different?. [online] Available at: https://www.investopedia.com/articles/active-trading/072115/what-makes-teslas-business-model-different.asp [Accessed 29 Nov. 2019].

Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 25-40.

Tesla.com. (2019). Electric Cars, Solar Panels & Clean Energy Storage | Tesla. [online] Available at: https://www.tesla.com/ [Accessed 29 Nov. 2019].

Walder, J. (2013). A critical evaluation of Michael Porter’s five forces framework. Munich: GRIN Verlag GmbH.

Walters, D., and Rainbird, M. (2004). The value chain. Bradford, England: Emerald Group Pub.

 Porter, M. (1996) ”What is Strategy?”. Harvard Business Review. (Vol.74, 6) pp. 61-78. 

Whittington, R., Johnson, G., Scholes, K., Angwin, D., and Regnér, P. (2017). Exploring strategy. Harlow [etc.]: Pearson.