Tesla Strategic Analysis Report - Essay Prowess

Tesla Strategic Analysis Report

$5.99

Kindly ADD to CART and Purchase Editable Word file at $5.99 Only

1.Introduction

1.1. Purpose

The primary purpose of this strategy analysis report is to carry out an internal and external analysis on Tesla’s industry in relation to its merger with SolarCity, as well as evaluation of the company strategy using the SAFe test by considering the recent strategies undertaken by the company. The Porter’s 5 Forces and the PESTLE are employed during the analysis of the external environment of the industry, following from which an internal analysis and strategy evaluation is presented for the company in question.

1.2. Tesla’s Background

Having been founded in 2003, Tesla has made considerable efforts for breaking novel barriers through the design and development of a range of high performing automobiles. Through the company’s mission towards spearheading the transition and acceleration of the world into a state of sustainable energy, the organization is one of the notable companies dealing in purely electric automobiles which are designed with long range and zero tailpipe emission. In addition, the company is known for developing highly rated and safe vehicles (TESLA, 2019). Apart from Tesla’s sedan Model X, which is a flagship car, and the utility vehicle Model x, a falcon winged automobile, the company also develops a range of simpler vehicles which are hoped to act as an effective propeller of its electric cars into the market.

While most industry players specialize in manufacturing electric automobiles, mergers such as that with SolarCity enable companies to develop and manufacture solar panels. The recent opening of what has been put forward as the Gigafactory together with SolarCity merger has enabled the industry to provide its customers with a full range of energy products including solar panels. Many of the energy based products offered by the industry incorporate grid services, storage, as well as solar (Ferris, 2016). With the companies in the industry recognized as energy firms integrated in a sustainable fashion, most of the strategies undertaken by industry players present them as leaders of the platform for sustainable energy.

Industry players such as Tesla and SolarCity agreed on a merger after shareholders drawn from the two companies voted in 2016 to approve the idea of the merger. In a press release, Tesla indicated that its shareholders had approved the acquisition of SolarCity in an overwhelming fashion. Shareholders from the subsidiary firm also agreed on the same. Despite considerable growth in the revenue of SolarCity and considerable financial struggles, it cost Tesla 2.6 million dollars to acquire and complete the merger deal (Ferris, 2016). The merger between SolarCity and Tesla effectively supports the goal of becoming a sustainable energy firm that has undergone a full incorporation of solar, grid services, as well as storage.

2. External Analysis

The industry is faced with the inevitable option of overcoming various challenges associated with key external elements that are identified in the upcoming PESTEL analysis. The aforementioned analysis acts as a tool for strategic management for the company in terms of helping with the determination of the impacts linked to the macro environment of the automobile manufacturing industry. For the case of Tesla, there is an involvement of the automobile, energy storage, as well as the energy generation industry and its macro environment. The external factors within the industry have an influence on other key aspects that determine business such as consumers (Kissinger, 2019).

2.1. PESTEL Analysis  

By including the results developed from the PESTEL analysis during the company’s strategic formulation, the industry has an increased capability for enhancing its long term success. This kind of success together with a strong company image and brand can work towards raising the profitability levels of the company. It is important to point out that the level of effectiveness of industry activities should be reflected in the manner in which the external industry factors are addressed. As the conditions of the macro-environment experience changes, the industry is required to adjust its current strategies accordingly.

Political Considerations

In this part of the PESTEL analysis, the macro-environment and the various governmental impacts on the business operations of the industry in relation to the company’s merger with SolarCity and their macro-environment are considered. Key societal forces are inherent in the government entities which impact industry and business. For instance, trade policies have the potential for placing a limitation on the revenues of the company through limiting the performance of industry (Kissinger, 2019). Political external considerations important to Tesla’s energy storage, energy generation, and automobile industries include the various incentives developed by government in relation to manufacturing electric cars. The growing level of political stability in the company’s major markets as well as the new agreements on global trade present the company with considerable opportunities.

The industry players have the chance for expanding financial performance based on the different incentives developed by the government. The foregoing external consideration has a direct bearing on cutting down the carbon emissions emanating from the products and operations of the company. Further, it has been determined that expansion of agreements on free trade will work in opening up the industry to potential opportunities provided by the international market (Gillespie, 2017).

Economic Factors

Some of the notable economic forces that have an impact on the macro-environment of Tesla’s industry include currencies, level of trade, market growth together with other considerations that influence business on the energy solutions and automotive industries. The rate of growth of the market for solar energy is a determinant of the extend of growth in terms the company’s opportunities in the business involving solar panels. Economic external factors that could be addressed by the company in this area include the decreasing cost for batteries, issues linked to economic stability, as well as reducing costs for renewable energy (Ramsey & Sweet, 2016). Performance of Tesla’s business derived a range of benefits from the reducing battery costs in which the aforementioned factor translates to increased affordability of the electric automobile products of the firm. The decreasing cost of renewable energy is also considered in this PESTEL analysis in which such a decrease has the consequence of making the products offered by Tesla to be more attractive. The gross domestic product is likely to increase with favourable economic conditions.

Sociocultural Considerations

Through investors, customers, and employees, the social trends and conditions affect the firm’s macro-environment. The social external conditions to be considered by the company include the opportunity presented by the trend where low-carbon lifestyles are becoming increasingly embraced, and the expanding preference for renewable energy among consumers. In addition, the improving state of wealth distribution in the various developing markets has the capability of increasing the number of potential buyers in relation to the industry’s products (Gause, 2014). The industry analysis reveals that an opportunity for growth is inherent in the raising preference for the renewable energy sources. The demand for the products offered by the industry players has the potential for increasing as a result of improved demand for electric vehicles. For example, less than 20% of the industry offers purely electric vehicles (Ferris, 2016).

Technological Considerations

The future advancement of the energy solutions and automotive industry is heavily reliant on the available technological aspects. The external factors presented by technology include the expanding online mobile systems, business automation, and increasing technological change. The increasing rate at which technology is changing presents the firm with the opportunity to achieve the required rate of enhancement for its products (Kissinger, 2019). In a different direction, the rapid change of technology could also act as a threat through high levels of obsolescence for the technologies employed in developing the company’s products.

Environmental Considerations

Notable external ecological factors include the development of new standards concerning disposal of waste, the issue of climate change, and the expansion of key environmental programs. All of the ecological considerations represent important forces on Tesla’s industry environment. For example, the industry might explore the current concerns on climate change as a means for promoting its products including the electric cars (Ramsey & Sweet, 2016). The rising waste disposal standards and a high number of environmental programs offer the chance for making the case as to why consumers across different markets should consider the option of buying electric vehicles.

Legal Considerations/Opportunities

The regulation on dealership sales in the United States, the growing international protection of patents, as well as the development of regulations for energy consumption offer the opportunity for the company to expand its operations to overseas markets. The aforementioned position is based on the expansion of patent protection on an international scale. The various energy consumption regulations provide an opportunity for the company to promote its energy solutions and electric vehicles (Gillespie, 2017). In addition, the industry has an opportunity to grow by means of direct sales, an aspect that has been allowed in numerous states within the U.S.

2.2. Porter’s 5 Forces

It is not uncommon for companies in the international automotive industry to experience different factors from the external environment including competitive based on technology. The high resilience of the industry is reflective of effectiveness in terms of its strategy. If the external factors are properly addressed, the company has a considerable growth potential regardless of the different competitive challenges. The Five Forces analysis is based on the competitive rivalry, consumer’s bargaining power, suppliers, substitution, as well as new entry.

Competitive Rivalry

The industry operates in an environment that is highly competitive. Competitive rivalry examines the influence posed by competition on the industry in which Tesla operates. Key factors which influence the strong competition in Tesla’s industry include the increasing level of aggressiveness among firms. Major competitors include Ford Motor Company, Toyota Motor Corporation and General Motors. In the electric car market share, Tesla has the highest share of 73% followed by General Motors and Toyota with 45% and 38% respectively (Karagiannopoulos, Georgopoulos, & Nikolopoulos, 2015). Even though the firms operating in the automotive market are small, existing firms depict a high level of aggressiveness in terms of innovation and product promotion (Kissinger, Tesla Inc. Five Forces Analysis (Porter’s Model) & Recommeondations, 2019). In addition, many of the large automotive firms have developed aggressive strategies for marketing. The marketing mix adopted by Tesla in part meets the need for being aggressive, an aspect that works in strengthening the impact posed by the company’s key competitors. The force of competition is further strengthened by the reduced impediment of consumers to buy vehicle from other firms in which a strong force has been determined.

Industry Buyers Bargaining Power

The customers of the industry constitute an important consideration that has a direct bearing on the revenues of the company. The reduced cost for switching is a moderate force while the low purchases volume represents a weak force. It has been determined that the low cost of switching offers a small limitation to customers in terms of purchasing cars from other firms. A strong force is developed against the company by the aforementioned external factor. The presence of substitutes turns out to be a moderate force, an aspect that limits the bargaining power of consumers against the company in question (Dobbs, 2014).

Tesla’s Suppliers Bargaining Power

The operations of the industry are reliant on the level of reliability expressed by suppliers. The level of forward integration among the suppliers of the company is relatively low, an aspect that is responsible for the limited control on the sales and distribution of products. In many cases, supplies use third parties during sales of their materials to the company and a few others make direct transactions with Tesla. In the framework provided by Porter’s 5 Force analysis, the foregoing external consideration present a moderate force on the firm (Grundy, 2016).

Substitution

As earlier pointed out, the low switching costs have the capability of enabling increased competition. In the case of the threat of substitution, substitutes to the industry’s products including public transport have been established, an aspect that would easily attract customers. A strong force on the external environment of the organization is experienced (Karagiannopoulos, Georgopoulos, & Nikolopoulos, 2015). In a different direction, the moderate availability of substitutes puts a limitation on supplier’s influence. For instance, there has been a limited number of options for substitutes in the market.

New Entry

A weak force concerning the threat of new entrants has been pointed out based on Porter’s 5 Force analysis in which there is a high cost for developing brands. (Porter, 2008) The business undertaken by industry players like Tesla is increasingly difficult to compete with as evident in the growing popularity of Elon Musk and high brand development cost. This external factor makes it challenging for the new industry entrants to match the strong brand of Tesla.

3. Internal Analysis

3.1. Organizational Resources

The resource based view of Tesla examines the capability inherent in the firm’s intangible and tangible resources in transforming the firm’s short-term competitive advantage into a sustainable state of competition. Key tangible resources at Tesla include the financial in which the firm failed in meeting the targeted profit figures on various occasions. For example, in 2012 alone, the company lost over 30 million dollars despite a considerable increase in the company sales value (Grundy, 2016). A large proportion of the firm’s capital expenditure is based in its commitment to innovation. In a single quarter, the company made investments of nearly 75 million dollars on innovation. Negation of Tesla’s investments has largely been due to financing activities and operational costs. While the company has struggled in the past to maintain its profitability, its financial resource base is acceptable.

Additional resources of Tesla include the technological and physical resources. The monetary value of the firm’s equipment, property and plants was close to 0.5 billion dollars in the past year. The production plant of the company sits on a 5.5 million square feet piece of land. A notable intangible resource at Tesla is creativity and innovation. An increasing innovation trend serves the goal of providing alternative energy and motoring solutions in the industry (Melkus, 2018).

3.2. Organizational Capabilities

The ability of a firm in terms of converting ideas to innovative products using a pool of resources and skills is hugely inherent in the capabilities of the company in question.  For Tesla, the aforementioned environment has been made possible by turning key concepts into viable products using a skilled human resource pool in combination of the set of physical resources possessed by the organization (Ferris, 2016).

3.3. Value Chain Analysis

The value chain for Tesla is reliant on the individual components within the firm that come together in a manner that supports attainment of an optimized ability in relation to giving more value to consumers. The primary activities associated with value chain at the company include the inbound logistics, operations, as well as the outbound logistics. Concerning the inbound logistics, the company has developed measures for handling most of its manufacturing activities within a reduced number of plants. This kind of reduction has cut down on the organization’s shipping cost considerably (Melkus, 2018). The manufacturing process of the firm that takes the form of a robotic propriety makes it possible for boosted profitability while maintaining customer value. The operations within Tesla are handled in an in-house fashion, an aspect that ensures increased product quality. Together with a strong discretion policy, the integrity of the firm’s processes is well maintained.

Figure 1: Tesla Value Chain Analysis (Gillespie, 2017)

3.4. VRIO Analysis

The strategic advantages and key competencies are determined used the resource-based review. Some of the greatest competencies of the company are provided by the presence of an innovative CEO, as well as a unique design of highly futuristic electric vehicles. Each of the company’s competencies help in achieving a high level of sustainable competitiveness. The growing level of efficiency of the vehicles developed by Tesla in combination with its pool of proprietary batteries offer a range of notable competitive parities (Melkus, 2018). Over the years, the company has been able to command a unique niche in terms of automobile manufacturing. This makes it harder for other firms to replicate Tesla’s brand successfully.

VRIO Analysis for Tesla

4. Strategy Evaluation

4.1. SWOT Analysis

Strengths

This aspect highlights the strengths that contribute to organizational improvement and growth. They include:

  • A strong brand.
  • Development of highly innovative processes.
  • Efficient control of the firm’s production processes.

Weaknesses

  • Growing product prices.
  • Limitations in the supply chain.
  • Low market presence.

Opportunities

  • Diversification of business activities.
  • Expansion of the global sales.
  • An expanding supply chain globally.

Threats

  • Aggressive competitive environment.
  • Increased dealership regulations.
  • Frequent fluctuations in material prices.

4.2. Sustainability

Shifting to mass-market from a niche market should leverage on technology, cash flow and the economies of scale. Tesla’s initial product was the Roadster which was highly priced and with a low volume. This was followed by the design and manufacture of Model X and S which had a medium pricing and an increasingly high volume. The company’s Model 3 automotive is mid-priced and has a higher volume. With the recent expansion of the market to overseas, there is a high potential for mid-priced vehicles (Gause, 2014). In view of the external environment and capabilities of Tesla, increasing the scope of the market and moving down the segment of the market can help to achieve economies of scale. 

Figure 2: Tows Matrix (Melkus, 2018)

4.3. Acceptability

Over the past few years, shareholder wealth for Tesla has grown. The overall profitability of the firm faces apprehension from shareholders due to the stagnated share price. Introduction of a mass market electric automobiles points to a moderate failure risk. The foregoing consideration emanates from the growing awareness among consumers regarding environmental concerns. Considerable support has been provided by the external environment including the technological aspect for a mass-market for electric automobiles (Gillespie, 2017).

4.4. Feasibility

By selling new equity to raise money, Tesla has an increased capability for raising a new debt. The debt can be raised even when vital financial parameters fail to be at par with the industry segment. The effort to enter the mass-market can be leveraged upon through the organization’s competitive advantage, resources, as well as experience. The primary competitive advantage is provided by Tesla’s revolutionary energy solutions and battery technology (Melkus, 2018). Utilization of the human resource pool in developing and designing innovate models can be leveraged by the company to enable entry into a mass market.

5. Conclusion

The merger strategy between Tesla and SolarCity is central to attaining the required changes in the firm’s business environment. The pool of resources and competencies possessed by the company can be used to steer Tesla to a greater competitive advantage. Profitability of the firm is set to improve over time in which there is a growing potential for the company to improve on its operations in the global market for the automotive, energy solutions, and energy generation industries. However, Tesla needs to embrace continuous change as a way of accounting for the trends shown in its internal and external analysis as well as the company strategy.

6. References

Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: A set of industry analysis templates. Competitiveness Review, 24(1), 32-45.

Ferris, R. (2016, Nov 17). Tesla and SolarCity merger gets approval from shareolders. Retrieved from CNBC: https://www.cnbc.com/2016/11/17/solarcity-shareholders-vote-on-tesla-merger.html

Gause, M. (2014). UCF Research Guides. Industry Analysis, PESTEL Analysis. Business Horizon, 27-38.

Gillespie, A. (2017). PESTEL analysis of macro-environment: Foundations of Economics. Oxford University Press.

Grundy, T. (2016). Rethinking and reinventing Michael Porter’s five forces model. Strategic Change, 213-229.

Karagiannopoulos, G., Georgopoulos, N., & Nikolopoulos, K. (2015). Fathoming Porter’s five forces model in the internet era. Info, 66-76.

Kissinger, D. (2019). Tesla Inc. Five Forces Analysis (Porter’s Model) & Recommeondations. Retrieved from Panmore Institute: https://www.panmore.com/tesla-motors-inc-five-forces-analysis-recommendations-porters-model

Kissinger, D. (2019). Tesla Inc. PESTEL/PESTLE Analysis & Recommendations. Retrieved from Panmore Institute: https://www.panmore.com/tesla-motors-inc-pestel-pestle-analysis-recommendations

Melkus, J. (2018). Tesla Business Analsysis: A comprehensive look at the leader of electric vehicles. Retrieved from M/P: https://www.medium.com/minimalist-pharmacist/tesla-business-analysis-19b432a6fd0c

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

Ramsey, M., & Sweet, C. (2016, Aug 1). Tesla and SolarCity Agree to $2.6 Billion Deal. Retrieved from WSJ: https://www.wsj.com/articles/tesla-and-solarcity-agree-to-2-6-billion-merger-deal-1470050724

TESLA. (2019). Company Description. Retrieved from TESLA: https://www.ir.tesla.com

7. Appendices

Appendix A: Revenue for Tesla from 2008 to 2018 FY

Appendix B: Graphical Representation of Tesla’s Revenue (Million U.S. dollars)

Appendix C: Tesla’s Shanghai Factory

error: Content is protected !!