Strategic Analysis for Tesla Motors
Strategic Analysis for Tesla Motors
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Introduction
The current economic hardships continue to affect many industries with destructive force as operations costs soar and profits slump. The automotive industry faces many challenges in addition to these economic doldrums that continue to depress profitability while increasing operating costs. These issues, among others, eroded profitability to dangerous levels that some major global manufacturers had to receive government bailouts. In addition to these macro-problems, the industry also faces increasing pressure from the stakeholder’s community to introduce better products in terms of environmental conservation (Mun, 2002). The fluctuating prices of crude oil increased the amount of strain the industry has to endure necessitating newer, more innovative products.
Recently, some innovative entrepreneurs invested their resource into the design and development of alternative forms of automobiles. One example of these alternative forms of motoring that promise to extricate the society from the current quagmire is the electric vehicle. Powered by Lithium-ion batteries, these motor vehicles are cheaper to own and run. In addition, they do considerably less damage to the environment due to the absence of pollutants and emissions (Zanoni, 2012). Tesla is a good example of these firms, which have decided to provide alternative solutions as the conventional motoring industry faces an increasing number of challenges that threaten profitability. This paper will investigate the internal environment of Tesla using two of the best analysis tools available. These tools are a Resource Based View and Value Chain Analysis. In addition, we will look for the firm’s strategic positions.
Question two: Internal environment analysis.
Resource Based View of Tesla
The RBV (Resource Based View) of a firm is an analysis tool that investigates the ability of an organization’s tangible and non-tangible resources to transform short-terms competitive advantage into the sustained competitive advantage. Tesla’s RBV exposes some interesting points about the electric vehicle manufacturer (Williamson, 2004).
Tangible resources
Financial. The company failed to meet its targeted profit figures and lost some value per share. In addition, Tesla lost more than US $ 30 million but increased the sales figures comparable to the similar figured as of 2012. Tesla’s commitment to innovation and another capital expenditure such as development continues to form a significant part of the company’s capital expenditure. The firm invested more than US $ 75 million in a single quarter of the year 2012. However, operational costs and financing activities negated this cash investment resulting in an extra US $ 49 million.
Tesla had a relatively stable ratio of 0.97 as of 2012. The ratio pointed to the firm’s ability to cover current liabilities with current assets. However, the amount of debt to equity demonstrated the typical circumstances new technology companies have to face. The company leverages property, extensive intellectual property rights, investments, and research and development to financial services (Cadle et al, 2014).
In the end, we find that Tesla’s financial position is acceptable. Although the firm is struggling to remain profitable, their investment in ensuring this profitability is long term makes a very compelling case. In addition to the environmental investments, the firm’s business model and financial strategies should encourage more consumers to warm up to the products and shore up its profitability ((Saloner, Shepard and Podolny, 2001).
Physical and Technological. The value of Tesla’s plants, property and equipment as at 2012 was over half a Billion dollars. Many investments have gone into increasing these resources, and the commitment to ensuring that the company succeeds impressively (Williams, 2006). The 5.5 million square foot, 370-acre production plant houses the most up-to-date production equipment. Under these conditions, the firm hit a milestone in production in 2012 when it achieved a weekly average of 400 cars for almost a month. The same year saw the peak capital investment in terms of production equipment as the company invested heavily in anticipation of increased production of the Tesla models S, X, and an upcoming cheaper one.
As of 2012, the company had established more than 30 showrooms in various parts of the world. North America constituted the primary market, like Europe, and Australia joined later on. The subsequent development of supercharger facilities went further to prove the firm’s devotion to improving its plant and production capabilities as part of the growth strategy.
Intangible resources
Innovation and creativity. Tesla demonstrates a growing trend in the motoring industry aimed at offering alternative motoring solutions to the currently embattled global automotive industry. As a trendsetter in the electric vehicle sector, Tesla continues to invest a large portion of the resource pool for research and development into better power storage and propulsion technology (Walter and Rainbird, 2004). These efforts have culminated into some cutting-edge developments such as new approaches to power control, regenerative braking, and battery capacity optimization.
Human resources. Under the stewardship of a proven entrepreneur, Tesla has succeeded in attracting a pool of highly qualified and greatly experienced professionals to steer its innovation and production processes. Elon Musk is an astute investor with a large resource pool resulting from his successful earlier ventures such as PayPal. In addition to the great leader, there are many professionals from fields such as engineering and development, human resources, and marketing. In addition to the great leadership, a team of dedicated employees forms the firm’s human resources.
Reputation. Tesla objective and efforts in changing the face of the global automotive industry has gained it a lot of reputations. The vision to offer efficient and viable alternatives to the motoring industry in the face of increased hardships has won it the admiration and interest that pushes interest and the all-important buy decision. The firm’s model S won many accolades due to its superior merits and customer satisfaction. Taking the coveted Motor Trend Car of the Year award in 2003, this Tesla model demonstrated the fruits of a company willing to approach an immensely complicated problem and offer viable solutions. This reputation influenced many people to take a keen interest in the company’s upcoming products as other automotive manufacturers emulated this success by entering into partnerships with Tesla for parts and expertise.
Organizational capabilities. The organizational ability to turn ideas into viable products using an extensive pool of skills and resources relies on the organizational capabilities within it. Tesla enjoys this kind of environment where a significant concept changed into viable products using the skilled workers of its human resources and the vast pool of resources. The ability of these factors to come together in a harmonious manner results in the current story.
Value Chain Analysis
This analysis tool relies on the individual components of a firm’s value chain coming together in a way that optimizes its value addition abilities by providing more value for the customers.
Primary activities
Inbound logistics. Tesla handles all its manufacturing work in very few plants meaning the shipping costs are considerably higher. However, the entry of the firm into the automotive market with a single expensive model negated this issue. In addition, the firm’s highly robotic proprietary manufacturing processes, coupled with the on-demand manufacturing process, have boosted profitability (Kreowski, Scholz-Reiter and Thoben, 2013). The rigorous testing process also guarantees Tesla’s products are safe in addition to managing quality.
Operations. Tesla handles all the aspects of its motor vehicles in-house making sure both the process and final products are high quality. The firm also employs a strict discretion policy to protect the integrity of its manufacturing processes, as well as the intellectual property demonstrated by its high quality electric cars.
Outbound logistic. The company handles all the aspect of production in a few plants meaning transport costs remain minimal. In addition, the company’s on-demand production model coupled with batch shipping on an individual basis saves both time and costs associated with shipping many different units faced by other automotive companies (Cook, 2007).
Marketing and sales. The current top-down approach Tesla employs in promoting its cars relies on reducing the society’s dependence on fuel-based motor vehicles. The additional practice of relying on customer-based promotion also meets at the crossroads of environmental conservation and consumer-friendly solutions to motor vehicular transport. Interestingly, the firm initially chose to skip the dealership based business model as part of its objectives of optimizing the promotion activities by interacting directly with existing and potential customers.
Service. Tesla’s model of after-sales service is one of the best globally in the automotive industry. The combination of GSM technology that allows the car to communicate remotely with maintenance teams, and the renowned Tesla Rangers has continued to ensure the customers remain satisfied. No wonder the company received the highest score in terms of customer satisfaction.
Support activities
General administration. Led by an excellent team of leaders, Tesla benefits from the multi-pronged strategic management input of successful leaders like Elon Musk. The leaders run the company like any other Silicon Valley entity even giving keynote talks during meeting and launches for new products like Apple’s Steve Jobs. This combination of good leadership and a good management culture continues to favor Tesla.
Human Resource Management. The majority of employees attribute their desire to work with the relatively new firm to its innovative technology and approaches in a traditionally rigid industry. Since Tesla is upsetting the traditionally rigid automotive industry, its workers would like to align themselves with such an innovative company. Therefore, these employees are highly motivated and due to their excellent performance, receive proper remuneration.
Technology development. Tesla has placed itself at the interface of technological development to reduce the global reliance on fuel-based transport. As such, the firm demands the highest caliber of engineers and technicians to spearhead these efforts and continues providing the world with viable transportation alternatives. One of the revolutionary techniques scientists at Tesla tackle emerging problems is the formation of dynamic teams based on skills and perspective instead of experience and hierarchy. Such approaches have continued producing exemplary innovations within the company.
Procurement. This innovative company handles almost all the manufacturing aspects of its products within the facilities. However, the batteries come from Panasonic through a carefully controlled procurement process that seeks to balance the financial aspects of production. One of the reasons this process if highly regulated has to do with the high costs of these battery modules. Each costs almost US $ 20000 making the process of sourcing them highly sensitive to the firm’s overall financial position in terms of unit processing. In addition, the company utilizes other modern procurement practices to ensure it remains efficient in all aspects of production.
Question Four: Strategic analysis of Tesla Motors
Business level strategies
Tesla uses the differentiation strategy in its production by concentrating on a highly focused niche market. The differentiation strategy, also called focused differentiation, means the company focuses on creating electric vehicles for potential clients who enjoy few other options from gasoline-powered vehicles. Such an approach works well for Tesla since it has already garnered the support of a large number of loyal supporters who use its cars.
In addition, the electric cars Tesla manufacturers cost the buyers a large sum of money to buy. However, the company reduces the costs of maintenance after the purchase by providing after-sale services and supercharger stations strategically located in the target market (Szulanski, Doz and Porac, 2005). This level of differentiation is unique to Tesla, as no other manufacturer has successfully reduced operating cost of their customer’s car as Tesla has.
Corporate level strategies
The company has employed the growth strategy as part of its corporate growth strategy by initiating efforts aimed at penetrating new markets (Furrer, 2011). Tesla has recently made efforts to tap into the vast Chinese and Asian markets as a growth strategy. With the increased market share, the company could increase sales and stand better chances at funding more research, development, and expansion projects.
In addition to the expansion strategies, the company has invested many resources into the development of new products that will continue its expansion by attracting more customers. The upcoming Tesla Model X and Generation three Models exemplify this strategy and place the company in a very competitive position at a time when other mainstream manufacturers enter the electric vehicle segment.
Product diversification also offers Tesla an opportunity to advance its corporate level strategy. Growth in the range of products available helps the company to attract more customers and to benefit from the increased profitability while offering reliable products that satisfy the customer.
Future strategies
Tesla has a variety of strategic moves that seek to establish a profitable future presence in the electric vehicle sector. Elon Musk has hinted at the expansion projects that seek to expand the current production figures by ten-fold over the next five years. In addition to the increased sales, the company has plans of venturing into the automotive sectors traditionally ruled by the ‘big three’ (Ciravegna, 2012). Tesla has plans to introduce pick-ups with outlet plugs for the lucrative construction and engineering industries. The company plans to expand the establishment of its famous supercharger stations in Asia and Europe to align the supply of its products with the availability of these essential facilities.
The automotive industry is a highly symbiotic one where different carmakers share resources and expertise for mutual benefit. Tesla has plans to institute more cooperation with established automotive manufacturers willing to penetrate the electric vehicle market in exchange for engineering support (Wimmer and Muni, 2012). Such partnerships will assist the company in the realization of its ambitious expansion plans.
SAF evaluation of Tesla’s business level and corporate level strategies
The suitability, acceptability, and feasibility of Tesla’s business and corporate level strategies reveals careful strategic intention fueled by ambition and good management practice. Both strategies are suitable for the new company as there is a need to establish and sustain organizational capacity for growth and innovation. Again, these strategies are acceptable to Tesla because they represent the best position in terms of the current and future dimensions of the company’s interests. Finally, these strategies are feasible as demonstrated by the company’s fast-paced growth, the industry’s increasing demand for alternative solutions, and the company’s own managerial and financial abilities.
Implementation of the strategies
Tesla has huge ambitions for a company that is comparatively young in the automotive industry. In order to achieve the objectives the strategies aim to fulfill, the company should be careful with their implementation. The primary method of managing strategy implementation is selecting a suitable team charged with the task of directing the company’s strategy implementation (Parment, 2014). In addition to the team, the company could consider liaising with other players to combine infrastructure in order to facilitate these strategies without divulging them. Due to the high amounts of financial investment needed to sustain the growth strategies of Tesla, it might need to merge with a more established player in the automotive industry. The move would benefit the company through access to existing infrastructure and finances.However, Tesla chooses to handle this issue, the fact is that success and sustainability remain the core objectives.
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