Analytical Essay on Tesla Motors: External and Internal Environment

Introduction

The use of strategic management in an organization has always been considered as something of prime importance because it eventually prepares an organization for its future by making relevant decisions. The use of strategic management tools and techniques eventually allows an organization to help understand the opportunities they have and the strengths that can be utilized to make the most of it (Cegliński, 2016). This report would essentially focus on the external and internal analysis of the organization named Tesla Motors.

Company Background

Tesla Motors is one such company that has revolutionized the way of engineering and innovation in the technological aspect. The company was founded by a group of engineers in the year of 2003 whose mission was to ensure that the world was able to accelerate towards the use of sustainable energy (Tesla.com, 2019). Tesla ensures the use of lithium-ion batteries for powering up their hybrid electric cars. The company believes in having a future that includes zero emissions and zero reliance on fossil fuels. The company has its headquarters situated in Palo Alto, USA and as of 2018, the company has generated a revenue of about US$ 21.461 billion (Tesla.com, 2019). Their products comprise electric vehicles with popular models such as Model S, Model X and others.

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Industrial Background

In the year 2017, the global electric car market was valued at US$118,864.5 million and is expected to grow four times by the year 2025 (Hu et al., 2018). This particular industry is growing at a CAGR of 22.3% from the year of 2018 and is anticipated to maintain the same rate until 2025 (Hu et al., 2018). The demand for electric vehicles is continuing to increase because of the efficiency they provide. The electric vehicles are divided into three kinds and they are known as plug-in hybrid vehicles (PHEV), hybrid electric vehicles (HEV) and battery electric vehicles (BEV). Some of the best electric cars that are available right now belong to Tesla Motors and the models are Tesla Model 3, Tesla Model X and Tesla Model S.

1. External Analysis

1.1 Trends and Key Drivers

The understanding of the trends and key drivers for both present and future would be effective with the help of the PESTEL framework.

PESTEL Elements Trends and Key Drivers^

1. Political The political scenario of the USA can be considered as extremely complicated. The population is in favor of the use of electric cars but the government continuously mocks the use of low-emission vehicles. The government is inclined towards passing a law that is against the ‘Driving America Forward Act’ that eradicates all the chances of the Americans enjoying tax credits while using electric cars (Turrentine, 2019). In a situation as such, there is a chance that Tesla would be subjected to compound damage in terms of gaining and providing facilities associated with the use of electric cars.
2. Economic As per Bledsoe (2019), America is going back in the times and is ignoring the kind of improvements that can be instigated with the help of climate policy and EV cars. Due to the ignorance that has been presented by the economists and the political climate of the nation, the expected sales of the EV have been anticipated to remain stagnant for a substantial amount of time. The impact of the economic environment on the operations of Tesla is diverse. The government’s initiative to not provide a tax credit to people would affect their decision of buying an EV car. However, Tesla would continue to gain benefits from foreign countries and that might divert their attention towards focusing on the foreign market collectively.
3. Social The social stance always depends on the approach towards the kind of lifestyle that is appreciated by the people. The people in recent times are more appreciating the use of low carbon footprint cars and other major technological devices. The people have also been showing concern towards the use of renewable energy and Tesla has managed to do both. Thus, it can be implied that the company is favored among EV car users and non-EV car users as well.
4. Technological The foundation of Tesla is based on groundbreaking advancements and is considered for being one of the prominent ones to do so. The company has always been inclined towards the use of advanced technology, but mostly the ones that promote sustainability to abide by its mission and values. Meanwhile, they continue to grow with the help of lower carbon footprint embedded EV cars and the use of renewable energy for attracting consumers (Hardman et al., 2017).
5. Environmental In the recent light of events, there has been growing concern of people over environmental issues and the way it is degrading due to coping with the requirements of the world’s population. The recent trend that has been made mandatory for every organization to consider the concepts of the green economy, pollution, waste management, carbon footprint, and the emission of fossil fuel usage (Yang et al., 2017). Tesla Motors has always been inclined towards using sustainable means of work that allows innovation and its mission has always been the use of renewable energy as well. In this case, they are benefiting the environmental concerns of people.
6. Legal Complete compliance with the legal jargon of a country is extremely essential and Tesla Motors have been consistently doing that. They are popularly known for paying their employees right and make sure that have been able to assure compliance with the environmental laws of USA.

Table 1: Use of PESTEL Framework to determine the business environment and trends/

From the table above, it can be said that the key trends comprise of using advanced technology, keeping up with the lifestyle choices of the people, and at the same time make sure that eco-friendly measures are being used for the betterment of the organizational performance. The driving nature of the industry is completely dependent upon the political and economic scenario. Tesla has been successfully incorporating the use of sustainable measures since the beginning.

1.2 Power

According to Woo and Lee (2018), for the understanding status of the competitive environment, the use of Porter’s 5 forces would provide a decent idea. As mentioned by Hoelzlhammer (2018), the following is the five forces analysis of Tesla Motors:

The Five Forces Analysis

1. Bargaining Power of the Suppliers The bargaining power of the suppliers is extremely high in the case of Tesla because the technical parts required for the manufacturing process have high demand. The rise in demand has a tendency to provide the suppliers with all the power.
2. Bargaining Power of the Buyers The bargaining power of the buyers is medium in the case of Tesla Motors because of the balance of both high and low factors. However, due to the minimum existence of substitutes for electric cars, the bargaining power of buyers is medium. On the other hand, there are sufficient amount of brands that exist as another option.
3. Competitive Rivalry The competitive rivalry in this scenario has been considered to be medium because despite having an adequate amount of other companies trying to replicate the nature of Tesla cars, none of them have succeeded properly except a few. However, Competitive rivalry would increase in the upcoming years because of the changing preferences of majority of the automobile companies towards manufacturing EV cars.
4. The threat of the New Entrants The threat of the new entrants in this industry has been identified as low because of the barriers to entry that exist. Not every company has enough resources, ambition, engineering capability and environmental concern to use sustainable methods. Also, there are enough political barriers in USA which makes it even more difficult for other companies.
5. The threat of the Substitutes In the recent context, the threat of substitutes has been identified as medium, however, it is likely to grow in the upcoming years. The already existing automobile companies are the ones that are integrated towards making the use of electric cars popular. Some of the popular names include Mitsubishi, Ford, Chevrolet, and others

Table 2: Porter’s 5 Forces (Source: Created by the learner)

1.3 Attractiveness

From a thorough analysis that has been conducted, some of the key opportunities and threats are identifiable. The opportunities identified are:

• The use of technological advancement and keeping a track of the lifestyle changes that occur among the majority of the population
• The use of renewable energy continues to be a beneficial aspect for the company
• Have a professional and long term relationship with the suppliers to have a smooth operational flow in their business procedures

The following threats have been identified from the external analysis:

• The existing political barriers and the reduction of tax credits is a major threat to the company
• The foreign market has been identified to be more desirable than that of the USA because of the lack of consideration presented by the government

2. Internal Analysis

2.1 Core Competencies

The understanding of the strategic stance of the firm would be highly effective when its tactics and a significant range of core competencies have been identified. They have been detailed as under:

1. Resources- The key resources of Tesla Motors comprise of its human capital and the intellectual property they have. The company has always been successful in fostering substantial creativity among its employees and that is one of the reasons why their intellectual property is such an important resource. One of the biggest considerations here is their understanding of the recruitment policy and their knowledge of requirements from the suppliers. The company also has a stable relationship with its investors and that has enhanced its financial capability. One of the biggest intellectual properties they have is their electric powertrain that consists of battery pack, control software, gearbox, motor and other essential components (Monsellato, 2016).
2. Competencies- The key competences of Tesla Motors generate from their intellectual property. The ever-improving motor that consists of the inverter and battery is considered to be the core competences of the company (Moritz et al., 2015). They also gain their competences from their use of powertrain technology and their advanced vehicle design and manufacturing aspects.
3. Skills- The ability of Tesla Motors to focus on the needs of the stakeholders and replacing with substitutes that can enhance the possibilities of them being an advanced yet a sustainable company (Moritz et al., 2015). They have also maintained a long term growth strategy that would enhance the possibility of an effective relationship with proper inventory management as well.
4. Value Chain- The value chain of Tesla Motors can be considered highly efficient because as per inbound logistics as they include the use of renewable energy and scarce raw materials. The operations management of the company is highly efficient and has included automotive aspects to their cars along with energy generation ability or storage. The reliance on both physical stores shows their outbound logistics capability and at the same time providing accessories that facilitate the use of renewable energy using methods. In terms of their services and offering the company has incurred wide range of complaints about the product but at the same time has been able to help eradicate the issue as well.

Despite all of the advancements occurring for the organization, it can be said that the company is still lacking in terms of appropriate marketing and sales strategy. Meanwhile, there is also a requirement of improved customer service as well for the company to improve the nature of their services.

2.2 VRIN Analysis

The use of VRIN analysis would provide a sufficient overview of the internal capabilities of ASDA and make sure that all of that has been utilized effectively.

Resources Valuable Rare Imitable Non-Substitutable

Human Resources

Financial Resources

Supplier Management

Intellectual Property

Table 3: VRIN Analysis

From the analysis conducted above, it is evident that the company is equipped with a substantial amount of valuable resources that allow them to proliferate in their respective fields. Intellectual property, financial capability, and supplier management have always been the strongest aspects of the company. However, in terms of customer service and assuring the complete potential and maintenance of the product is something that the company is struggling with.

2.3 Competitive Advantages

As mentioned by Kraja and Osmani (2015), having a competitive advantage is considered to be extremely beneficial for an organization because it eventually provides a sense of superiority in terms of business situations over other companies operating in the same industry. Having a competitive advantage for an organization allows them to outperform many of its competitors. In the case of Tesla Motors, having a competitive advantage is extremely essential because of the growing demand and competition in the industry. In the words of Teece (2018), the competitive advantage of Tesla Motors lies in the following elements:

Intellectual Property

The intellectual property of the company is their biggest strength and has been allowing them to rise to prominence for years now. Some of their proprietary technology comprises cooling systems, electronic management systems, the proper use of software, customized motor design and adequate amount of environmental durability from their products (Teece, 2018).

Unique Design and Manufacturing

The company has managed to position as a high-end dealer of prominent EV cars that have authenticated design and extreme features that can put the other non EV cars to shame. The creativity that pertains to the chief designer of the company clearly elaborates on the potential of the product. The manufacturing process of majority of their factories, especially that of Fremont Factory is exponential (Praem, 2015).

Sustainability

ASDA has always been known for being the cheapest and friendliest supermarket chain. The essence here is to prioritize the kind of behavior that is portrayed from the side of the employees to the consumers is of primal importance. Here, the essence and prominence of the human resources of the organization are depicted with complete enticement.

2.4 Distinctiveness

The distinctiveness of an organization is based on their strengths and weaknesses and their internal capabilities. The strengths of Tesla Motors are as follows:

• The company has a well-equipped human resources, intellectual proper,ty and financial resources ability
• The company has a unique design structure and a flexible manufacturing process
• The use of an effective supply chain management strengthened the position of the company

At the same time, from the internal analysis above, the following weaknesses were identified:

• The company does not have a successful measure in terms of providing adequate customer service post-purchase of the products
• There is a much lesser consideration of the use of marketing methods that would draw more population

Conclusion

The report generated an adequate amount of information about the electric car industry of the USA and the company Tesla Motors operating in it. It was found that the electronic car industry has extreme amount of potential and is a tough competitor to the non EV car manufacturers. There is extensive amount of political barriers from the side of USA government and thus, the economic environment is not enough stability for the company to operate. However, the industry is constantly growing and would tend to do so. Tesla Motors would continue to gain popularity because of its use of sustainable measures.