Tesla Business Strategy
May 7, 2020
This report reviews the competitive internal and external strategies of a leading automotive company in the industry. This analysis will examine the electric vehicle manufacturing company Tesla Motors and how Tesla manages the external environments within the competitive automotive world.
We start with a discussion of the electric vehicle manufacturer Tesla Motors' background. Next will be a discussion on Tesla’s strategy models, which includes PESTEL and Porter’s Five Forces frameworks. Then based on these research findings, this research provides a conclusion discussing the strategy models of Tesla Motors.
Tesla’s Background
Tesla Motors, based in Palo Alto, California, founded in 2003 by CEO Elon Musk and a group of engineers that believed electric vehicles are more efficient than (ICE) internal combustion engine vehicles (Tesla, 2020). In 2012, Elon Musk’s vision was to provide the world with a full range electric vehicle that was affordable to consumers. Tesla Motors shortened its name to Tesla in February 2017. At that time, Tesla launched the world’s first electric rosters sports car to consumers worldwide (Tesla motors annual shareholder meeting, 2012). By 2018, Tesla’s had expanded its product line to include the Model S, Model 3, and Model Y. Tesla’s new range of vehicles holds 5-star safety ratings across every category from the National Highway Traffic Safety Administration (Tesla, 2020).
The automotive industry is very competitive and protects its market interest. Elon musk’s blueprint as an electric vehicle-maker was to provide the consumer with a way to purchase a vehicle without having to go to a car dealer (Chappell, 2015). Elon’s consumer purchasing plan was a disruption to the car dealers worldwide (Chappell, 2015). Tesla provided a business strategy that would allow the consumer to purchase a vehicle directly from Tesla without an intermediary. This move by Tesla was the first of its kind in the car industry that caused concern to car dealers worldwide (Chappell, 2015). Tesla doesn’t have any franchise dealerships to undercut or compete against their marketing strategy. Tesla continues with success in the making of products that are accessible and affordable for the consumer. However, Tesla still would need to be concerned with internal and external factors and constraints that can disrupt the company’s success.
PESTEL Framework
Competitive intelligence is a factor that can assist organizations in evaluating industry and identify rivals’ strengths and weaknesses (Dess, McNamara, & Eisner, 2018). A framework used to assist organizations in managing the development of strategies and plans is an instrument like PESTEL (Fernandes, 2019). PESTEL highlights Political, Economic, Social, Technological, Environmental, and Legal group factors of an organization.
Political: Tesla Motors has to deal with unique political issues influencing its business operations. One political factor that affects business is the environmental regulations and protection laws to induce the production of more ecological cars. The U.S. Environmental Protection Agency (EPA) has programs for electric vehicle manufactures. This program provides preferential treatment for electric vehicles by providing grant funding for up to 45 percent of the cost of new electric cars and trucks produced by manufacturers (Clean energy issues, 2020).
Economic: The economic rationale is critical in the ability of an organization to deal with challenges and strategic developments (Fernandes, 2019). An example would be the growing demand for fuel-efficient cars by consumers that can affect a company’s decision making. Tesla faces economic factors, including economic growth in the alternative energy industries with its (EV) electric vehicles due to the rise in fuel prices (Tesla, 2020).
Social: The social constraints of an organization starts from within the internal issues like business habits, values, and cultural, behavioral (Tesla, 2020). An example of social restrictions is the demographic shifts, buyer’s perceptions, unemployment, or aging population that can affect what products and services consumers may purchase (Saren & Stewart, 2014).
Technology: Buyer’s behavior patterns change due to technological innovations (Saren & Stewart, 2014). An example from Tesla’s technology has expanded the line of vehicles with new and improved battery life and a more extended driving range. These are features by the organization that can influence buyer spending.
Environmental: As consumers are becoming more aware of the environmental impact of gas vehicles and carbon footprints, automotive manufactures like Tesla are producing more eco-friendly and fuel-efficient cars (Tesla, 2020). The environmental factors are a part of and organization’s risk assessment and are essential in the understanding of the organization’s consumer marketplace.
Legal: Many laws and regulations that can constrain the production of an organization. However, these rules and legal frameworks are essential to society and our culture (Fernandes, 2019). When Tesla came into the automotive market place, the company challenged car dealerships by not allow franchise car dealerships to sell Teslas. This radical change by Tesla in the auto marketplace and began radically to disrupt the status quo. The effect ushered in new laws regarding franchise dealerships (Fernandes, 2019).
Porter’s Five Forces Framework
Porter’s Five Forces framework provides an industry analysis that justifies and provides recommended sustainable strategies that are consistent with an organization’s mission and goals (Fernandes, 2019).
The Threat from New Entrants: Mercedes, Audi, and Porsche are some of the growing new entrants into the electric vehicle marketplace (Fernandes, 2019). New manufactures in the market bring new technology that can assist in EV innovation. However, since Tesla has created and funded serval of the latest technical EV inventions, like battery range research, the threat of competition is low (Fernandes, 2019). Also, Tesla has collaborated with other manufactures to share in the development of future technology for the industry.
The Bargaining Power of Buyers: Tesla’s bargaining power of buyers is modest, according to (Fernandes, 2019). Tesla has collaborated with most of its competitors in producing more products for the consumer, and the government in tax incentives makes the company attractive to buyers.
The Threat of Substitution: This factor is low for Tesla because there are few substitutions for cars. An individual could take the subway if it is available in their city as a substitution to vehicles like the Tesla. However, subway travel is not in rural areas where a car is better suited.
The Bargaining Power of Suppliers: Tesla depends on its suppliers to produce its vehicles (Fernandes, 2019). However, with over 200 suppliers that Tesla needs in its production, no one supplier has control influence over the company (Fernandes, 2019).
The Intensity of Rivalry in the Industry: The rivalry in the EV industry is very competitive for Tesla (Fernandes, 2019). For example, Tesla will produce an EV truck to compete with semi-trucks currently on the market. However, companies may not purchase a semi-truck that has only a range of 600 miles between charges. Thus, the rivalry will bring more innovations to the marketplace for consumers.
Conclusion
The research in developing this report reviewed Tesla Inc. using PESTEL and Porter’s Five Forces frameworks to evaluate the company’s strategic business performance in a competitive automotive industry. Tesla is thriving, led by the vision of Elon Musk in providing innovative electric vehicles to the consumer. Tesla also understands the importance of environmental efficiency and renewable energy that would assist in the reduction of fossil fuel consumption. Thus, the future for the electric vehicle industry will look bright with innovations and alternatives to gas engines.
About the author
Mack Jackson Jr is a cybersecurity consultant, speaker, TV host, and professor of business management. He has work in cybersecurity for over 15 years and has over 25 years in the information technology industry. For further information, please email mjackson@mjcc.com.
References
Chappell, L. (2015). A dozen disruptors: Elon musk. Automotive News, 89(6704), 18.
Clean energy issues public comment on environmental protection agency proposed rule. (2020, ). Targeted News Service
Dess, G. G., McNamara, G., & Eisner, A. B. (2018). Strategic management. NY: McGraw-Hill Higher Education. Retrieved from https://ebookcentral.proquest.com/lib/[SITE_ID]/detail.action?docID=5834224
Fernandes, J. P. (2019). Developing viable, adjustable strategies for planning and management — A methodological approach. Land use Policy, 82, 563–572. doi:10.1016/j.landusepol.2018.12.044
PRESS RELEASE: Tesla motors announces 2012 annual shareholder meeting. (2012, ). Dow Jones Institutional News
Saren, M. M., & Stewart, D. W. (2014). The marketing pathfinder : Key concepts and cases for marketing strategy and decision making. New York: John Wiley & Sons, Incorporated.
Tesla. (2020). About tesla | tesla. Retrieved from https://www.tesla.com/about/press/releases/tesla-motors-receives-research-and-development-grant-california-air-resources-b