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Business Strategy for Evaluation of TESLA

University: Regent college

  • Unit No: 32
  • Level: Undergraduate/College
  • Pages: 20 / Words 4927
  • Paper Type: Assignment
  • Course Code: BO1BSRE301
  • Downloads: 360
Question :

Some of the main questions in this assessment are like :

  1. Explain the impact of the macro environmental factor on Tesla with the help of PESTLE.
  2. What are the appropriate internal or the micro environmental factors of Tesla.
  3. Elaborate Porter’s five forces model demonstrated in Tesla.
  4. Give all the theories, models and the concepts through which the strategic rules and the directions are being made for Tesla.
Answer :

INTRODUCTION

Business strategy is set of competitive moves followed by the company to achieve their target. It includes actions that uses to enhance performance, attract more customers, complete successfully, So it clearly defines that it gives outlines how business should be carried out to reach at their desired result. Tesla is well known for its creative and innovative ideas. It is a large producer of Electric cars in the industry worldwide. They work for customer satisfaction, saving environment by using green technology. Their innovations in automotive industry is very valuable. They launched their electric cars in market as they get success, they are leading name in EV industry. The S model of electric car is successful in market, and they are inspired to do more. This report is carried the company's different business strategies, evaluation of company, like its Strength and weaknesses, their approaches towards markets like it gives brief about their marketing strategies, their innovations, also it will analyse the competition of Tesla company in market.

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LO1

P 1 Impact of external environment in Tesla

There may be many external or macro environment factors which effects the company directly or indirectly. There are many Strategic tools to analyse the effects of external environment factors on the company. These are those factors which company usually does not have control but are affected by (Moore and et.al., 2015). For the same Tesla as a world leading auto-mobile company has many factors affecting its working. Some of these factors can be assessed with the help of various strategic tools.

PESTEL Analysis of Tesla

PESTEL analysis includes analysis of political, economical, social, technological, environmental and legal factors of the business that impacts the Tesla. PESTEL provides overall idea about the challenges that company is going to face in nearby future. Thus, a brief discussion of the macro economic factors is as under

Political factors impacting Tesla

Political decisions and factors is important for the Tesla, because as one of the major auto manufacturer in the economy company is operating in multiple countries with their diversified political environment. Tesla have to analyse the following factors before entering the certain market.

Tesla can stabilize its financial stability by the help of incentives which are offered by the government. Additionally it can have advantages of political stability in some of automotive markets .many additional benefits has been initiated by the government for the development of electric and hybrid auto-mobile market which will also be favourable for the company.

Economic factors impacting Tesla

Factors such as inflation rate, Rate of interest, economic cycle and foreign exchange rate are economic factors which directly or indirectly impacts the working of Tesla. Economic factors Tesla have to consider in their analysis. Tesla has contributed in the development of world GDP by 3% in electric auto-mobile segment. Another economic factor is that declining battery and material cost which will greatly impact the overall costing of the vehicle.

Social factors impacting Tesla

Social factors such as culture, language, and way of working also have a great impact on the working of the Tesla. Beliefs, attitudes, perceptions of the population of the country had effect on working of the Tesla. In case of Tesla social status is the main thing and people rely on enhancing their social status by the way of owing Tesla electric car (Pestle and et.al., 2015). Another favourable thing is that people who are Eco-friendly would have to own this car. And additionally this cost less in terms of maintenance and servicing as compared to others.

Technological factors impacting Tesla

The speed of the technological innovation in the economy also impacts the Tesla. The timely innovation and up-gradation of the technology may effects the Tesla as well as its competitors.

The benefits Tesla enjoys on behalf of the technology is that it goes on the updation of its technology by time to time (Pankova and Borst, 2016). And technology upgradation is the only reason of long term survive in the market. 

Environmental factors impacting Tesla

Before getting into the market Tesla have to keenly examine the overall environmental factors which can impact on overall functioning of Tesla. In case of Tesla environmental analysis is the key benefit which company enjoys against others that the company uses car with electricity, and they are environment friendly too. Focusing on to the environment factor company is success in building its brand image in the market.

Legal factors impacting Tesla

Tesla had to consider the overall legal framework of the market. Tesla is facing a drawbacks due to legal and regulatory framework that many of the states has temporarily blocked sales from manufacturer to consumer. The framework says to include dealer in it but it means more expense and less profitability. Another challenge it has to face is issue related to patent. Tesla has to comply with law and order for its proper functioning. 

SWOT Analysis of the Tesla

SWOT analysis is basically done to get idea regarding strategic planning for the business. It is helpful in getting to know internal strength, weakness as well external opportunities and threats for the business operations of the Tesla. (Gürel and Tat, 2017)It is necessary to analyse the strength, weakness, opportunities, threats, of the Tesla for  its better functioning. so let's discuss its points one by one with their significance.

Strengths of Tesla

These are the positive points of the company which are the reason for this high position of Tesla in the auto manufacturing sector.

Strength of the Tesla are as follows:-

  1. Top employer company .
  2. The leading automotive company.
  3. Best company in electric car segment.
  4. It dominates the electric sales of the US. Economy.
  5. 5.    Tesla is considered as one of the best innovative company amongst others.

Weakness of Tesla

Weakness is the negative points about the company that are present internally within the company.  In the context of Tesla these are as follows:-

  1. Complications in manufacturing.
  2. Inability to meet demand.
  3. Not able to produce at high volume.
  4. Battery shortages for smooth production.

Opportunities to Tesla

These are external benefits that company enjoys present outside the company. This shows the emerging chances of company's growth. Tesla's opportunities are as follows:-

  1. Opportunities in untapped market, which is still untapped to the automotive market and renewable energy sources.
  2. In house battery production.

Threats to Tesla

It is phenomenon which may stop the company from making benefits from the strengths of the company. (Meurice and Meunier, 2020) Some threats company face from outside environmental factors are as follows:-

  1. Unbalanced supply due ton material shortage.
  2. Customer adaptation to change.
  3. Product defects is still a big threat.
  4. Extensive market competition in automotive market.

LO2

P 2 Internal environmental analysis of Tesla

Internal environmental factors includes all the factors which are present within the organization  and can effect the organizational performance individually. These factors include company's in house capabilities and skills to organize the resources in efficient manner  to attain competitive advantages amongst the others. Likewise, the internal analysis of the Tesla can be done with the help of McKinsey model and VRIO analysis. The detailed application of these model is discussed under.

McKinsey 7's model for Tesla

Tesla's McKinsey model states the way to allot seven elements of business to get the effectiveness in the results. Strategy, structure and systems are hard elements in this model whereas Staff, shared values, skills and style represents the soft values of the model. Accordingly, all elements are interrelated and change in one will surely affect the other.

The application of McKinsey model on Tesla will be as follows:-

  • Strategies:- Tesla business strategies focus on to the sustainable energy by the innovation of electric cars, next is company owns it owns distribution outlets and another strategy followed by the company is alternative for the fuel vehicle.
  • Structure:- Then organizational structure of the Tesla is not specified Due to its uniqueness. It follows divisional organizational structure. The divisions are divided as engineering, software, production, HR, energy, finance and these divisions are handled by vice presidents, and they are liable to direct to the CEO of the company.
  • Systems:- These are the systems which are necessary for the long term profitability of the company and it includes various system but manufacturing system is considered as most important for the Tesla. The system Tesla follows are recruitment system, team development system, customer relationship system, management system.
  • Staff:- It includes the staff and their capabilities. Tesla has good amount of staff appointed in each of its division possessing a relevant capability to perform their respective duties.
  • Shared values:-Tesla follows some values to make the organizational climate work friendly.
  • Skills:-Each of the employees of the company are possessed with the respective divisions and department which they have to individually manage or as a team.
  • Style:- The style the organization usually follows is Democratic style of working. Each individual is able to communicate his ideas to the higher authorities foe achieving greater advantages.

VRIO Analysis of Tesla

VRIO stands for Value, Rareness, Imitability and Organization. It is technique for the analysis, evaluation of the competitive advantages and company's resources. It is useful for analysing internal resources of the company. (Meurice and Meunier, 2020) It analyses human resources, financial resources, material and non-material resources which includes information and knowledge.

The dimension of the VRIO for the Tesla are as follows:-

  • Value:- Tesla offer a unique value to its customer through its product and services. The value delivered by the company is unique as it delivers with unique customer experience of electric driving experience and Eco-friendly benefits. Along with it also gives a economic value to the customer as Tesla is lesser expensive in the terms of maintenance and servicing as compared to others.
  • Rarity:- Tesla has patented its unique technology of production and wants to be unique in the terms of electric vehicle segment. Being rare is the most important factor behind the long term competitive advantage in the market.
  • Imitability:-Tesla as a very big concern is it is very difficult to find a substitute to it. Tesla enjoys as a monopoly in the electric car segment. (Belgrad, and et.al., 2018) Another benefit it enjoys in this global arena is that it manufactures Eco-friendly cars which are not easy to manufacture by other concerns.
  • Organization:-Tesla has organized management systems. Processes, culture and structure to earn benefits efficiently and enjoys competitive advantages over the others. It has organized software updates from time to improve the vehicle capabilities.

Thus, the above VRIO analysis concludes the overall internal capabilities of the Tesla which makes the company capable to take competitive advantage and manage and organize the company's tangible and intangible resources in the efficient manner.

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LO3

P3: Applying Porter’s Five Forces model evaluate the competitive forces of a given market sector for an organisation.

Electronic vehicles are in demand today because customers are very attracted towards it. As their demands are increasing in the market there are lot of producers who are coming to find their competitive advantage in this industry(Johnson,2016). Tesla is one them, it found the future of cars in electronic way. It produces lots of models in cars and continuously innovating something new.

So the Study of Tesla Motors with respect to Porter's Five Forces are as follows

Porter's five forces is a business analysis model which helps in understanding why the various companies along with different industries are able to sustain their profitability in the market and stays with their position. It is used to find the different strategies followed in corporates. It helps in finding the competition, rivalry, profitability among many industries in the world. It included Competition in the industry, Potential of new entrants in the industry, Power of suppliers, Power of customers, Threat of substitutes(Mathooko, and Ogutu, 2015). These factors are explained as

Competition in the industry

The first of the five forces is the number of competitors in the industry. According to this, higher the competitors in industry, lesser the company's power. So buyers and suppliers seek the competition of the company they will have more bargaining power, and they will go with the best deal they have provided by the company. Opposite to this situation if the company have less rivalry in market they have advantage like they can raise the prices and gives the offers and ,deals according to their strategy and achieve profitability. The automotive industry is very competitive, but it is slightly different form the electric cars industry and it faces less competition. But it has great impact on the customers, they are attracted towards it and that is why many investors are investing in the industry of electric cars as they see the future in it. According to the study there is no else model is available in the market except Tesla's Model S which is very luxurious. For now the Tesla in inventing their Electronic vehicles more and more affordable and comfortable. But competition is becoming exclusively high and many players are trying to expand the EV market, and evolving new criteria to make it larger and profitable for all. Chinese market will be the largest market in automotive industry by 2019 with local vendors and suppliers mutual understanding (Zhao, and et.al., 2016). In order to overcome this force Tesla should further keep on improving its models and marketing strategies to face the competition and should keep on innovating. : Tesla operates in a highly competitive market and competitive rivalry outlines the influence of competition on the automotive industry environment. The emerging new companies are highly innovative in production levels and marketing techniques which strengthen the marketing affects in comparison to other companies.

Potential of the New Entrant

Company's power is also affected by the new entrant in the market, which possess many impacts on the established company in the industry, it can harm the position of the company if they provided best quality and products at good prices. But there are many barriers in any industry to be crossed as the new entrant can strongly fight with the present scenarios, if it's invested amount is better than existing companies, they have strong market strategies, so they can stay in the industry otherwise they will have losses in it. As the new entrant in the automotive industry will need high amount to be invested and specific set of skills and technologies. These entry barriers are very high in EV industry. Tesla is strong competition for new entrant because it already patents their products. But Chinese government pressurize the EV producers to share their technology in order to access the Chinese market. This will make easier for new entrants to manufacture and make profitability. Tesla follows the Green technology because of its concern about the environment. If new entrants have to face barriers, and they also can tie up with other brands to launch their products and collaborate with local vendors (Safa, and et.al., 2015). In order to face this forces company should try to gain more and more loyal customers in the market for this Tesla needs to deliver what customer wants. Tesla's business is difficult to compete with as there is high cost of brand development involved, along the high inventory costs and high economies of scale. Automotive manufacturing has high costs, which impose a barrier to new firms. And players like tesla s benefit from high economies of scale which new entrants can only achicve upon exceeding a production threshold.

This models is highly effective for the company to formulate the impactful strategies for expanding its market share as it gives full analysis how external factors effect it and what steps company can work on to improve its performance level.

Threat of Substitutes

As there are lot of similar items are present in the market, customer always buy their likely product if they don't get it in their budget or according to their quality they will choose the alternatives. So in the EV industry there are numerous alternatives to buy fully electric cars. The hybrid cars and combustion engine cars are highly competitive to the electric cars n the Chinese market as they are environmental friendly. They provide similar utility as electric car can do, automakers like Hyundai and Toyota are about to release their first commercial fuel cell cars. They are also eco-friendly by needs more infrastructure and technology to be successful in market. So there is high threat of substitutes in market to Tesla. In order to overcome this threat company need to go for differentiation strategy in order to make its care more unique and different from its competitors in terms of technology and performance. There is low switching costs, moderate substitute availability along with their moderate performance which gives the customers their satisfaction regarding the products. Customers have only a moderate and limited number of substitute options in market. Many substitute companies have only a moderate level of performance in satisfying the customers practical needs.

Bargaining Power of Suppliers

Suppliers in any industry plays an important role as they supply the raw material to any manufacturing unit. They can increase their prices if there are fewer suppliers are available in the market(Aithal, Shailashree, and Kumar, 2016). Tesla is highly secretive and it is not easy to find information on their suppliers. As Tesla is highly dependent on the Mercedes Benz, they have mutual agreement, like Mercedes will give the interiors to the Tesla's electric cars and Tesla is providing Mercedes with batteries for the B class Electric drive. There are lots of suppliers in the EV industries are present but they have quality issues. So in this industry they mutual working is profitable and it would lessen the bargaining power of the supplier like in case of Tesla and Mercedes. Tesla should further look further for various supplier options as this industry is expanding and should look for the best suppliers in the international markets. The business depends on the reliability of suppliers and Tesla's suppliers have moderate forward integration which refers to the limited control of suppliers in the distribution levels. There is moderate supply of suppliers and level of suppliers in goods and products is also moderate. 

Bargaining Power of the Customers

As increment in competitors, consumers bargaining power relatively high. But customers are more conscious about quality, as they don't get good quality products they will deny choosing it. Tesla and BMW are building charger networks in order to expand the uses of electric cars in the market and consumer will not give second thought to choose it. They are completely eco-friendly. But consumer finds some issues in electric cars, so they go for hybrid cars and many other luxurious cars, so the bargaining power of consumer is high. Tesla needs to work on customers satisfaction as they are satisfied with their products, they will get more inspiration to do something new (Rothaermel, 2017). Also, company needs to overcome these issues in nearest future and try to develop electric cars as peer the needs and desire of customers and also should keep addressing the issues of the customers. Tesla's customers are a direct factor that determines the company's sales and revenues. There is low switching costs and moderate substitute availability and the intensities of these external factors reflect the bargaining power of customers as a moderate force.

LO4

P4: Applying a range of theories, concepts and models, interpret and devise strategic planning for a given organisation.

As Tesla is leading company in the EV industry. Here is the study of some theories and models which interpret and devise strategic planning for Tesla to understand it better and it will help to evaluate which would be perfect to apply on it. Porter's Generic Competitive Strategy tells about the company's profitability is either above or below the industry average. Firm is able to sustain profitability in the long run of competitive advantage. The competitive advantage  are Low cost and Differentiation. Basically to achieve success firm combines the competitive advantage with the scope of activities which leads to three generic strategies like low cost leadership, differentiation, focus. The focus strategy has two variants, cost focus and differentiation focus. Cost leadership is explained as company is set to become low cost producer in its industry(Wicker, and et.al., 2015). According to it the company will seek the profitability in the low cost productivity as they produce or manufacture at low costs it will be beneficial for them. They can find the low cost advantages as they get raw materials at low prices, low labour cost etc. It will lead to high profitability. As the company is successful in achieving the low cost advantage it will be considered as the above average in industry. Differentiation this competitive advantage is about the uniqueness of product, how product is different from other company's products. Some other dimensions are considers that are widely valued by buyers. Consumer likes the unique products and with affordable prices. It will be awarded for its different idea and innovation in the present industry. Focus in strategic planning has main role because it will give an eye to the company to focus on the costa and differentiation. Cost focus is considered by company for cost advantages in its target segment. Differentiation focus is explained in terms of company's target segment differences, it will see the differentiation in its target segment. How they are different from each other and how company can produce according to them. Target segment always have differentiation in its needs, production, delivery system which serves better to them from others(Ouma, and Oloko, 2017). So company will need to provide consumer according to their demands. If they loose the focus it will lead to many losses which is uneasy to bear.

Ansoff's Matrix is marketing planning model which explains the company's products and their market growth strategies. It suggests the business attempt growth which depends on markets new or existing products in new or existing market. The result from Ansoff's matrix is series of suggested growth strategies which set directions for business strategy. These are Market Penetration, Market Development, Product Development, Diversification (Gurcaylilar-Yenidogan, and Aksoy, 2018). Market penetration is about selling existing products in existing market in which they cover four objectives like they can maintain the market position or market share of current products, next is secure dominance of growth markets, third one is find out the competitors in market and restructure the market strategy to be in lead, and lastly give new offers to enhance the customers and increment in existing customers. So the business is focusing on the market and products, and have good information about the products and need of the customers, knowing the competition. So this strategy will need much more capital investment in new market researches. Market Development justifies the meaning of it as the growth strategy where the business seeks the new market to sell its existing products. It can be achieved by following approaches like new geographical markets, new product packaging or changes in their dimensions, scheming offers, changes in prices, offer discounts which attracts the new market segment, new distribution channels. Hence, market development is more risky strategy than market penetration. Product Development is another growth strategy according to which new products is introduced in existing market. This strategy is helpful for the business where products need to be differentiated in order to maintain its position in market. It involves research and development, being first in market, details insight into customer needs. Diversification is growth strategy where new products is launched in new market. Its highly risky strategy in which the company has low or no experiences (Irtaimeh, Al-Azzam, and Al-Qura'an, 2016). So it needs strong planning, strategies because there is very less difference in reward and risk. It's rewarding when the idea is successful and product line is like by customers.

Tesla needs to apply the different strategies and approaches in accordance to be leading electric automotive company, it follows Porter's generic competitive strategy in which it can use the low cost leadership, focus and differentiation approaches, which helps in attracting the consumers. Tesla needs to find the proper target segment, and they provide their product according to the consumers need. Company launched new unique product in automotive industry and focuses on the consumers demand. They also studied the market, so they apply the low cost production which generates high revenues. As they are growing fast in EV industry so company follows the Ansoff's Matrix's Product development and Diversification growth strategy because they want to enter with new product line and approaching new market to be established. They are innovative and leading to being rewarding because they have created successful product which is likely by people (Chen, Chowdhury, and Donada, 2019). They entered into new markets with new products and working more to innovate in their products. Company changes their marketing strategies by seeking their competitors, so they can take competitive advantages among them first. Tesla is known for its innovative, creative ideas. Customers are supporting their products and ideas, and lots of praises. So it should get rewards. From the Porter’s Generic strategy Tesla should adopt differentiation strategy as with the help of this strategy Tesla will come up with unique products and services which will make it unique in the industry. This strategy will help the company to gain a competitive advantage in the industry.

Based on the Bowman’s strategy clock Tesla can position its product and services in two dimensions one is perceived value to the consumers and another is price. So, company in order to position its products in the market should choose the dimension which is differentiation in which company have to make efforts to develop the cars with high realms of quality at comparable low price. Tesla should offer its cars to customer at high level of perceived quality which makes its product distinctive from other but at the same time at affordable price.

The strategic plan for Tesla's improvement in the performance levels of production targets in the car engines and reaching the customer satisfied levels can be summarized as

  1.  Tesco needs to upgrade the technology in the engines of cars to improve the complications in manufacturing and work towards developing the technical skills of workforce to improve their performance levels.
  2. There is unbalanced supply due to material shortage and customer adaption needs to new technology with competitive force in industry which needs to be addressed by strategically planning the production functions.
  3. There is extensive market competition in automotive industry along the changing preferences which needs to cope up, Tesco needs to improve the production and enhance its marketing strategies.

 CONCLUSION

According to the study of the business strategies which are followed by Tesla to be in lead. Company is using different marketing strategy to make their identity and stays in market. They invent the Electric cars and evolving it better day by day, as they apply their researches on the products. As the electric cars does not need fuel, so they are very effective and efficient for the consumer because it just needs charging and maintenance charges. So customers are attracted towards it. They like to buy products which are affordable and comfortable for them. Company is working in the directions of saving environment from pollution, raising demands of more products like this. It influences economy of the country. It affects Chinese market. Tesla follows different marketing strategies to be in competition and gives competition to their rivalry. They establish new market trend at affordable prices.

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