Tesla Inc Case Solution

1. Introduction

When it comes to electric vehicles there are a few renowned brands in the industry out of which Tesla is quite well-known. Tesla manufactures, sells, as well as leases full electric vehicles. Since Tesla deals with sustainable energy products, its scope goes beyond just manufacturing and selling electric vehicles. Therefore, it also deals in energy generation as well as energy storage systems. So, Tesla has two business segments: automotive and energy. Since electric vehicles are still new to the automotive market, it is important that Tesla’s strategy consists of partaking an innovative approach. Tesla does this through developing proprietary designs which help in developing a unique product portfolio for Tesla. Also, Tesla has a strategy to protect its innovations through copyrights, trademarks, NDAs, trade secrets, and patents. Human resources is one of the most valuable resources for the firm and Tesla works towards developing good relations with its employees while considering the principles of diversity, inclusion, and equity (Tesla Inc., 2020). 

In the past year, Tesla has experienced disruptions due to the pandemic which has resulted in launch delays (Bellon, 2020). Despite high demand, there had been manufacturing delays because of a suspension of operations in the factories (BBC News, 2020). While the external environment has begun to stabilize, Tesla can adjust its strategy as per its competitors, external environment, and internal resources and capabilities. This will not only enable Tesla to improve its competitive advantage but increase the market share of electric cars in the automotive sector. This report will assess the external environment in which Tesla operates. It will assess the growth of electric vehicles in the past few years and how Tesla can use this to increase its market share. This report also assesses the internal resources and capabilities of Tesla and develops strategy recommendations for the company. 

2. Market Environment Analysis

i. PESTLE Analysis

Political

Due to the environmental benefits of an electric car, governments are now offering incentives to buyers for purchasing these cars. Since electric vehicles are expected to be expensive, incentives offered by governments all over the world play a positive role in the market penetration of electric vehicles (Gong, et al., 2020). Furthermore, the new trade policies have dismantled the tariffs on electric vehicles which has had an impact on the global diffusion of the technology (ICTSD, 2018). 

Economic

The economy has been badly affected due to the COVID-19. This is because the COVID-19 crisis has resulted in an increase in unemployment and lowering gas prices worldwide which incline the audiences towards purchasing a low maintenance vehicle. However, there are views that the pandemic would not impact the acceleration of the growth of electric vehicles. While electric vehicles cost 50% to 70% more than conventional vehicles, the reduction in the price of sustainable energy due to the growth of the lithium-ion battery technology can help in boosting the affordability of electric vehicles (Frotcom, 2020). 

Social 

While there has been an environmental inclination towards the adoption of electric vehicles. It is not the concern for the environment that will lead to the adoption of electric vehicles by the masses, but the reduction in the costs of electric vehicles. Therefore, the technology should improve quickly to help in the expansion of the electric vehicle market and changing driving habits (Gapper, 2021). 

Technological

Lithium-ion battery technology is improving which is a positive factor for the electric vehicles market. There have been many new findings and research on the lithium-ion battery. While lithium-ion batteries take too long to charge, more research is allowing to improve the battery to offer quick charging as well as assure that it lasts long. These technologies can help in the expansion of the electric vehicle market and replace conventional vehicles quickly (Burrows, 2021). 

Legal

There are a lot of legislations that are now supporting renewable energy generation, trading, and consumption. This is an opportunity for Tesla because of the legal framework being supportive of the energy manufacturing, trading, and consumption (EIA, 2021). 

Environmental

A global study conducted by Vestas revealed that 49% of respondents were willing to pay more for products manufactured with renewable energy (Pek, 2021). Furthermore, countries with a higher GDP show inclination towards adopting green products and renewable energy. Furthermore, the policies of these countries also impact the social preference for renewable energy (Chaikumbung, 2021). This reflects that while governments and institutions are inclined towards the environmental benefits that electric vehicle offers, the social factor of inclination towards electric vehicles because of low cost in future shows the priority of the environmental concerns at a macro level. 

ii. Porter’s Five Forces Analysis

Bargaining Power of Buyers 

The number of electric vehicles purchased by customers still remains low because of the high price of the electric vehicles. A survey conducted by Ford in the UK found that only 10% of the population were considering purchasing an electric car for their next purchase. This is because of the customers being skeptical about the charging infrastructure, the high price levels, and a lack of information available about electric vehicles. Therefore, because of the substitute options available, the bargaining power of buyers is high. Also, those who purchase just purchase one, not multiple of these cars. Therefore, the low purchase volume is also a concern in this regard (Mahy, 2021). 

Bargaining Power of Suppliers

The bargaining power of suppliers is low because of Tesla’s strength in the electric vehicles industry. It has also developed many capabilities in-house which have helped in reducing the dependency of the suppliers. For green energy purchase, Tesla does so through multiple sources that offers solar energies to assure that the price remains competitive and there is adequate supply (Tesla Inc., 2020). 

Threat of New Entrants

Threat of new entrants in the industry is low because of the high costs associated with setting up manufacturing units, developing a brand, and high economies of scale. Furthermore, an example is that Tesla’s brand value has increased significantly and has been increasing by 158% on a yearly basis. This shows that for new entrants, it will not be easy competing with large brands like Tesla, or Volvo, and Volkswagen which have developed a brand name over the years (Klebnikov, 2020). 

Threat of Substitute Products

Substitutes like diesel-based and hybrid cars are substitute products which have a strong threat to electric vehicles. Also, public vehicles and electric and hybrid public buses are also substitute products. Hydrogen-based vehicles are also a threat to electric vehicles because it replaced diesel and fuel-based vehicles and can be pumped into vehicles through the existing petrol station network which is quite well-established. Furthermore, electric vehicles use large batteries which take too long to charge and do not give long running time. Therefore, the threat of substitute products is quite high (Kirch, 2020).  

Competitive Rivalry 

Many automobile manufacturers are now getting into electric vehicles. This includes many large brands like Audi, Volkswagen, The German group that owns Lamborghini, Porsche, SEAT, and Skoda, as well as Tesla. All of these manufacturers hold financial capabilities to manufacture electric vehicles as well as invest in R&D to improve the battery performance and charging times (Riley, 2019). This shows that the competitive rivalry in the industry is high. However, Tesla plays on the power of the brand which makes it unique showing how through an effective strategy, it counters this power of competitive rivalry.