Executive Summary: Tesla’s success as an innovative manufacturer of electric vehicles is based on its innovative technology to build a superior and environmentally friendly cars as well as ability to offer valuable product that satisfies customer needs. This would not be possible without proper analysis of external environment and internal factors in the industry/firm to identify business strategies that will provide competitive advantage to the company.
External Analysis (PEST):
Tesla must overcome challenges of the external environment as discussed with PEST analysis
Political Factors: Tesla is selling cars in U.S. as well as in the international markets so it has to take into consideration distinct political factors that influence their business. Tesla is affected by environmental laws for manufacturing more electric cars and meet the emission levels. Government is actively promoting EV to reduce pollution, smog and its effects on climate change. Benefit of tax subsidies was given on purchase of EV, and with change in political climate there is a potential for reduction for the subsidies.
Economic Factors: Tesla’s business performance will improve if the battery costs fall.Sales of Electric vehicles have increased due to improvement in global economy. From Exhibit 4,we can say that more than 7000 Electric vehicles were sold in 2014 as compared to 1500 cars in 2010-11.If Tesla wants to increase its sales in middle class segment and reach economies of scale, it will have to bring cheaper models like Model 3 in the market.
Social Factors:The sociocultural factors that are important for Tesla’s growth are demand for sustainable products and renewable energy.Tesla focuses on sustainable energy products and is trying to make a future cleaner. Through investment in Solarcity, Tesla has an opportunity to broaden their product line and contribute to financial performance through operating efficiencies.
Technological Factors: Technological changes take place every day and everybody is in race to adopt the newest technology. Tesla’s profitability and growth depends on the sustainable technology. By placing the headquarter and R&D unit in Silicon Valley, Elon Must ensured immediate access to cutting edge technologies and most recent developments in tech sector. On the other hand, Tesla might be interested in improving the availability and access to charging stations as it is one of the customer value propositions that Elon Musk brags, the ability to travel around continental US by charging solely at supercharger stations.
Industry Analysis (Porter’s Five Forces):(Exhibit 3)
Threat of Rivalry among existing competitors: Threat of rivalry among competitors is medium to high.The market is expanding as more companies such as Audi, Volkswagen, & BMW have recently entered with plug -in models. Tesla is building a sustainable differentiation and they are expanding their market size by making low cost models.
Bargaining power of Buyers: Overall bargaining power of buyers is medium. Tesla is handling this by building a large base of customers and continuously innovating new products which are environment friendly by spending heavily on research and development which results in low switching costs.
Bargaining power of Suppliers: Overall bargaining power of suppliers is modest. Tesla is highly dependent on its suppliers, which shows that suppliers have high bargaining power. Tesla is highly dependent on Panasonic for the supply of Lithium-Ion batteries, providing the Panasonic with bargaining power over Tesla.
Threat of New Entrant: Threat of new entrant is very low as auto industry has high entry barrier. To be successful in that industry, the capital expenditure needed for auto manufacturing sector is very high and also it demands high skill set and latest technologies, However, Tesla has established themselves as one of the leader in Electric Vehicles market and leader of innovation in cars. Tesla has already achieved economies of scale which is challenging for new entrants.
Threat of Substitutes: The threat of substitute for Tesla is medium. There are number of alternatives like hybrid cars, combustion engine as well as other electric cars that are being developed by their competitors.There is also a growing threat from urbanization and societal shift towards public transportation.
Opportunities:
Mass Production for economies-of-scale
Potential vertical integration to reduce dependence on Suppliers
Threats:
Lack of battery supply
Cheaper substitutes