Internal and External Factors of Tesla

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Introduction

Tesla, Inc. is an American corporation within the automobile industry with its headquarters in Palo Alto, California. Tesla Inc. is popular for its rapid advancement in the production of electric cars and the manufacture of solar panels within its SolarCity subsidiary (Cheong et al., 2016). The company has several assemblies and production plants and is known for producing quality electric car models, including Models S, 3, X, and Y (Ingram, 2018). In 2018, the corporation was ranked among the leading global best-selling plug-in car producers, (“The global drive for car-free cities,” 2020). Between 2017 and 2018, the organization reported a 280% growth in its U.S sales from 48000 to 182400 units, respectively (“The global drive for car-free cities,” 2020). Furthermore, the enterprise currently holds a market share of approximately 18% in the automobile industry (Lambert, 2020). The paper presents a PEST and SWOT analysis of Tesla Inc; it incorporates an analysis of its market pricing and distribution approaches.

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Strategy

Tesla Inc.’s vision is to become the leading global manufacturer of innovative automobile and renewable energy products. The corporation’s product development procedure is based on the technological-product life cycles attained through the differentiation strategy. Tesla Inc. focuses its operations on producing quality brands that offer value for money to its consumers through a generic differentiation strategy that underscores brand supremacy and unique customer experience (Perkins & Murmann, 2018). Unlike other car manufacturers who use a conventional dealer network, Tesla has fully-owned showrooms. Currently, the company is exploring the e-commerce business approach. Under this strategy, the enterprise provides a platform where its consumers can order for the product’s complete customization, according to their preferences.

Macro-Environment Analysis: PEST Analysis

Political Factors

Political factors underscore the governmental impacts on the macroenvironment of a business. For Tesla, the above-mentioned dimension has a significant effect on its survival and performance since conventional vehicles dominate the market. These aspects can help shape the automobile and energy industry by shifting the attention to government subsidies and incentives for alternative products to discourage the overconsumption of fossil fuels that harms the environment. Incentives and subsidies could help the organizations reduce the overall cost of production, increasing their brands’ affordability. Such measures require a policy to regulations that could be implemented through advocacy and persuasion which are crucial aspects of political factors.

Economic Factors

Economic factors are critical to the success of Tesla. Tesla’s economic factors are financially friendly to its performance to compete on the grounds of price and not just technology (Perkins & Murmann, 2018). Due to the relatively low cost of gas, economic incentives for buying, and cost-effectiveness associated with the maintenance of electric cars and solar panels, the company could gain significantly. Additionally, the current trend of post-pandemic and recession recovery is likely to increase the purchasing power of potential consumers, leading to expanding its market.

Social Factors

Another important macroenvironment factor is social factors, which concern environmental pollution, culture, and attitude towards electric cars and solar panels. The advocacy and environmental conservation awareness period have significantly changed people’s perceptions, views, and perspectives on alternative energy sources. This is an essential factor that could increase acceptance of Tesla products due to minimal destruction to the environment.

Technological Factors

The technological component is one of the aspects that influence innovation and disruption of the markets. The growth in technology and associated advancement are likely to encourage Tesla’s ability to cut down the cost of operations, reducing the overall cost of its products (Cheong et al., 2016). These advantages are likely to increase the competitiveness of the company in the market. New technology innovations could also disrupt the market by producing quality and cheaper products that could displace conventional consumers from the market. Therefore, technological advancement presents a significant opportunity for Tesla’s growth, profitability, and expansion of its market.

SWOT Analysis

Internal Strategic Factors

Tesla’s Strengths

The component aims to measure the company’s internal capabilities, which contribute to its growth and development. According to Palmatier et al. (2014), an organization’s strengths empower it to gain a competitive advantage over its rivals, thereby increasing profitability in the long term. Some of Tesla’s identified strengths include its highly innovative process, substantial control of production and distribution, and brand superiority (Teece, 2018). Tesla is also a top employer, and it leverages the benefits of diversification and cross-sells. The enterprise’s high innovation rate has built a strong brand associated with manufacturing unique electric automobile products. The company manufactures best-in-class electric vehicles; these cars cover longer distances than its rival companies’ products. Tesla’s automobile models currently occupy the top three rankings with regard to range. For instance, according to Lambert (2020), on a single battery charge, Tesla Model S covers a milage of up to 600 km. The brand with a range closer to the above-mentioned coverage is Opel Ampera at 520 km.

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Currently, the company dominates U.S electric automobile sales. For instance, in 2019, Tesla Model 3 and Tesla Model S ranked first and third in the listing of the most sold electric vehicles with a unit sales of approximately 300,000 and 134,392, respectively (“Best-selling plug-in electric vehicle,” 2020). During the same financial year, the business delivered 367000 and 368,000 cars (Wagner, 2020). Tesla is also listed among the ideal workplaces in the U.S; it attracts young, talented, and vibrant job-seekers in the labor market. This aforementioned aspect can be attributed to the firm’s innovation-encouraging culture and diversity. Furthermore, according to Lambert (2020), in collaboration with Liberty Mutual Insurance Company, Tesla launched an all-inclusive insurance program for its cars. The corporation also has a robust control of production and distribution practices that facilitates its capacity to maintain product quality and better customer experiences.

Tesla’s Weaknesses

The other internal strategic factor is a company’s weaknesses, in this case, Tesla Inc. According to Pettinger (2015), these drawbacks typically affect organizational performance. Some of the shortcomings of Tesla’s business operations include the limited market presence, battery shortage, manufacturing complications, high prices, and a limited supply chain. Regarding its constrained market presence, Tesla generates the highest proportion of its revenue from the US market and a smaller market in China (Ingram, 2018). Additionally, the corporation’s distribution strategy, which typically involves the use of fully-owned supply showrooms rather than dealers, limits its market penetration due to the limited supply chain.

Tesla products are also highly-priced as compared to other competing brands. The high prices limit its penetration, particularly in emerging markets (Perkins & Murmann, 2018). Due to the highly complicated procedures adopted by the business, the organization might be unable to the requirements of production as a result of the unbalanced demand and supply. The enterprise recorded a 31% decline in the number of units initially delivered in the 2018 last quarter during the 2019 first quarter (Lambert, 2020). However, continued innovation could generate disruptive innovations that can help in cutting down the overall cost of production, thus reducing the cost of its brands.

External Strategic Factors

Tesla Opportunities

This component captures the potential for further development and growth of the corporation. These external factors can help in improving management effectiveness, business performance, and strategic growth (Rosenbloom, 2011). For instance, gaps in the market could be exploited to increase their market share. One prospective opportunity for Tesla is the expansion of its sales into the untapped market. According to Cheong et al. (2016), the Asian market represents a significant opportunity for the company. This particular market segment is still unsaturated with regard to the renewable and automotive energy market. The expansion will enhance the enterprise’s capacity to increase its market presence and financial stability.

Tesla’s products are costly due to its unconventional dependence on innovation; this, in turn, triggers an increasing demand for funds to adopt new technologies (Perkins & Murmann, 2018). Its recent brand, Model 3, which is an affordable Model S version ranked first among the most sold cars in 2019. Therefore, the production of low-cost vehicles presents an opportunity for the company to expand its consumer base. The organization also intends to manufacture its battery cells. The above-mentioned move can aid in enhancing Tesla’s production rate while minimizing its production costs. Another opportunity arising for Tesla is diversification which could help the company in the production of different brands that meet the level of innovation to attract a competitive advantage in the market.

Threats Facing Tesla, Inc.

Despite the current opportunities for Tesla, the corporation is experiencing significant threats to its long-term performance and market penetration. First, irrespective of its high manufacturing standards and quality assurance, Tesla may encounter many liability claims (“Tesla business model,” 2020). The organization has faced allegations and lawsuits linked to technological failures in its products. The advancements in these legal suits could trigger significant financial setbacks. Second, the business experiences competition from self-driving technology and alternative fuel cars. Several brands are planning or launching self-driving or eco-friendly automobiles and offering them at significantly lower prices than Tesla; this poses a significant threat to the organization.

Third, due to the complex engineering procedures incorporated in the manufacturing of innovative cars, Tesla’s products exhibit significant shortcomings in most instances. These defective vehicles typically demonstrate weaknesses in production, design, and other elements that can considerably harm the firm’s image. Third, the lithium price fluctuation for energy storage products’ manufacturing for both solar panels and automobile poses a crucial threat (Teece, 2018). Material prices substantially impact the production cost which could trigger an escalation in manufacturing costs, resulting in a decline in profitability and an increase in product prices.

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References

Best-selling plug-in electric vehicle models worldwide in 2019 (n.d.).

Cheong, T., Song, S. H., & Hu, C. (2016). Strategic alliance with competitors in the electric vehicle market: Tesla Motor’s case. Mathematical Problems in Engineering, 2016(7210767), 1–10.

Ingram, N. (2018). Tesla Motors: A potentially disruptive force in a mature industry. International Journal of Management and Applied Research, 5(1), 8-22.

Lambert, F. (2020,). Tesla (TSLA). Electrek.

Palmatier, R., Stern, L., El-Ansary, A., & Anderson, E. (2014). Marketing channel strategy (8th ed.). Prentice Hall.

Perkins, G. & Murmann, J. P. (2018). What does the success of Tesla mean for the future: Dynamics in the global automobile sector? Management and Organization Review, 14(3), 471–480.Web.

Pettinger, L. (2015). Work, consumption and capitalism (1st ed.). Red Globe Press.

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Rosenbloom, B. (2011). Marketing channels: A management view (8th ed.). Cengage Learning.

Tesla business model (2020).

Teece, D. J. (2018). Tesla and the reshaping of the auto industry. Management and Organization Review, 14(3), 501–512.

The global drive for car-free cities (2020). Harbour Arch.

Wagner, I., (2020). Tesla: Statistics and facts. Statista.

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BusinessEssay. 2022. "Internal and External Factors of Tesla." July 5, 2022. https://business-essay.com/internal-and-external-factors-of-tesla/.

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