Tesla Inc. as a New Car Company on the Market

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Introduction

Tesla Inc. is a relatively new car company on the market for electric vehicles. Even more so, in 2015, the company started selling solar energy solutions for businesses and families (Berzon & Sweet, 2015). Young companies may occasionally suffer from lack of experience and knowledge of the external and inadequate assessment of the internal factors, which may reduce the effectiveness of all their activities (Hitt, Ireland, & Hoskisson, 2012). Evaluation and strategy for success are crucial for operating such a diverse and developing company, which is why the present paper will focus on discussing the general environment, competition forces, strengths and weaknesses, value chain, plans for future, and other details that will help Tesla succeed as a company.

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General Environment

Many global and local events may affect the company’s stability, performance, and even existence, which proclaims the need for conducting proper research and having extensive knowledge of the environment. All that includes the company, the markets in which it operates and the conditions under which it all happens is divided into seven segments and united under the term “general environment.” According to Hitt et al. (2012), general environment consists of the following aspects: demographics, economics, law and politics, society and culture, technology, global events, and physical environment. All of these segments influence Tesla Inc. and the markets in which it operates. The degree of the impact may change dramatically depending on the sphere under analysis.

Tesla has two separate lines of products such as electric vehicles and energy solutions such as electricity storage units, solar roofs, panels and farms for private and commercial use. These products suggest that Tesla Inc. operates on two separate markets including electric vehicles and energy. The main sphere of activity of Tesla Inc. is cars because they generate the most of the company’s profit (“Tesla first quarter 2018 update,” 2018). Therefore, the industry of electricity-driven cars will be discussed in this research.

The two spheres that, arguably, produce the most significant influence on the electric car industry is technology and physical environment. These segments of the general environment seem to be intricately interconnected. According to Hitt et al. (2012), the physical environment includes efforts in the sphere of renewable energy and concern for minimizing damage to planet Earth. The interest in these activities draws funds into the sphere of renewable solutions and causes technological progress. Therefore, Tesla Inc. is heavily reliant on those two segments of the general environment.

The primary resource, on which the company dwells, seems to be the number of people who are interested in affordable and/or environmentally friendly cars. The “or” means the people who are more concerned about the financial prospects of having an electric car rather than being influenced by the idea of saving the planet’s atmosphere. The number of such people indirectly reforms the demand for energy consumption. In addition to that, efforts and practices to develop renewable sources of energy multiply, which expands the industry for electric cars as the main sources of usable and practical solutions. The main component of electric cars is the battery, the life of which determines the usability of electric vehicles. Thanks to increasing efforts and interest in renewables, electric battery technologies will likely to continue to develop. To satisfy the demand for environmentally friendly cars, Tesla Inc. has to develop its technologies and stay ahead of the main competitors to be successful on the market.

Five Forces of Competition

Speaking further of competition, there are five aspects of this concept of which companies need to be aware. According to Hitt et al. (2012), these forces are new competitors, suppliers’ bargaining, rivalry among competitors, substitute products, buyers’ bargaining. The most significant of them for Tesla Inc. seem to be new competitors and rivalry among old and new ones. New competitors may appear as the market for electric vehicles continues to grow. Producers of traditional gasoline cars such as Audi, Ford, BMW, Mercedes, and others start to develop their own electric cars, which forces Tesla to invest efforts and time into enhancing their products. In addition to that, rivalry from the old competitors such as Nissan, who successfully brought to market its Nissan Leaf in 2010 in Japan and a year later to EU countries and Canada could also negatively affect the company’s performance as more resources will be required to outmatch the competitors. Above that, Leaf became the best-selling electric car in the world (“Nissan delivers 300,000th Nissan LEAF,” 2018).

Evaluation

Tesla Inc. has so far managed to stay competitive due to its vast network of partnerships and cutting-edge battery technology. Tesla Inc. has a patented battery technology that allows producing power containers for cars that hold more power and are cheaper to make. In addition, Tesla now has a fully automated factory that assembles the batteries, which is expected to decrease the costs of production by 30% (Berzon & Sweet, 2015). By using this technological advantage, Tesla arranged deals with firms like Toyota, Mercedes Benz, and used to craft electric components for and battery parts for their vehicles, thereby making an additional profit and staying ahead (“Strategic partnership,” 2010). In addition, Tesla sold cars for the high-end public, for several years staying practically the exclusive producer in this market segment (Muoio, 2017). However, as of 2018, all of the former partners became rivals, as Toyota and Mercedes Benz have their own electric departments (Harding, 2017). Now Tesla Inc. has fewer advantages than before, as big companies with developed infrastructure entered the market.

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Future Improvements

In order to address the arising problems, Tesla might consider investing in infrastructure. As many auto giants such as Mitsubishi, Mercedes Benz, Ford, and General Motors now actively enter the market for electric vehicles, Tesla needs to compete with massive volumes and vast distribution networks that these enterprises have. A possible solution for Tesla Inc. would be to use the time until the rivals start shipping their first electric cars for the mass market to strengthen their manufacturing volumes, and distribution. Tesla has already taken the steps in this direction by automating one of its factories. However, according to the last data from the company’s documents around 15,000 cars still await shipping (“Tesla Q2 2018 vehicle production and deliveries,” 2018). Therefore, the company might need to improve the management of delivery and increase the speed of production by automating its second factory that assembles the cars.

External Threats

External environment bears both threats and opportunities for Tesla Inc. In the economic domain, Tesla Inc. is vulnerable due to the fact that a significant part of the company’s value is created by publicly traded shares (Muoio, 2017). From the demographic standpoint, Tesla could gain either advantages or disadvantages. On the one hand, the rapidly increasing population of the earth demands sustainable solutions, as fossil fuel resources dwindle rapidly in addition to their damage to the atmosphere. Tesla Inc. could capitalize on that as it specializes in sustainable solutions.

On the other hand, population increase and subsequent urbanization will require a radical approach to reforming transportation modes in cities. In many urban centers of Europe, public transportation has been made a priority forcing the people to opt for busses and trams instead of private vehicles. That threatens to decrease the audience for Tesla’s cars. However, it may also allow for a new development field – electric buses. Political and legal segments of external environment do not seem to threaten the company as many politicians support sustainable energy solutions and, therefore, electric cars. In many European cities, there are also laws that decrease taxes for electric cars. All that increases the demand for such vehicles and Tesla Inc. should not suffer from a lack of customers.

Threats and Opportunities

One of the most significant threats for Tesla Inc. is the dependency on stock value. A huge amount of investors, both public and private create a large pool of money to put into development. However, if the sales do not meet the expectations or certain failures occur, the company’s losses may be massive. Therefore, the company needs to store its value in tangible assets such as equipment, factories, outlets, or other infrastructure that will generate sufficient profit that can be used in times of need. One of the greatest opportunities is the manufacture of new products. As the demand for electric cars increases, Tesla Inc. should produce more different models to satisfy every customer. It has already created Model 3 that is significantly cheaper than S and X, yet still not available to most people in comparison to a cheap Nissan Leaf (“Nissan delivers 300,000th Nissan LEAF,” 2018). In addition, the production range could be increased by developing electric solutions for public transportation, which will most likely become a new trend in the future.

Strengths and Weaknesses

The company as many others has its strengths and weaknesses. One of the greatest weaknesses is the failure of management to organize the process of manufacture and shipment. According to the recent news, the company has failed to deliver on its promises regarding the shipment of the newly-created Model 3 (Thompson, 2018). The new production line apparently did not function as planned due to either miscalculation or planning mistake, which seems to make it a staffing issue. Another weakness is an overreliance on its public image. Tesla has formed a positive image of the company due to the successful leadership of Elon Musk. However, each leader’s failure can affect the company’s stock market price, which is an organizational weakness.

On the other hand, Tesla Inc. is a great company with a number of strengths. One of the most significant ones is the charismatic leadership of Elon Musk. Apart from his public image as an innovator, he attracts new employees by advocating for technology and building a sustainable future. Many people believe in it and want to take part in creating something positive in a global sense. This “passive hiring” technique seems to be a good advantage for Tesla Inc. as it always has a sufficient pool of motivated workers. This ideology of the future, being also the part of the corporate culture, also boosts the morale of current employees and management making them stay and contribute to the organization.

Strategy

The strategy to capitalize on the strengths may include extending employee participation options. Apart from their routine tasks, management could encourage the workforce to develop their own projects connected to sustainable future or simply provide their feedback on the company’s development options. Each person’s opinion in the company should be valued, especially in such a creative and technology driven organization like Tesla Inc. In addition, the corporation might consider participating more actively in social projects connected to renewable energy and the promotion of environmentally friendly solutions. Such activities may help further increase the company’s impact on society and increase its stock value. As for addressing weaknesses, the company could adjust its staffing policy to ensure they hire only the experienced personnel to avoid production issues like one mentioned above. Elon Musk as the iconic person in the company should not let the scandals touch the image of the company, and do not engage in any political debates.

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Resources, Capabilities, and Core Competencies

The company’s resources include human capital, financial assets, information, facilities, and brand equity. Human capital obviously relates to all the skilled workers employed by Tesla Inc. Financial assets include shareholder’s money and profits that allow for stable operation and development. Information in the manufacturing company often constitutes knowledge of a unique production technique or a blueprint that competitors do not have. Patents for innovational batteries are the key resource that Tesla Inc. possesses presently. Fully automated gigafactory that assembles those batteries is also one of the major assets. The brand is a significant intangible asset that helps the company position itself on the market and is a significant part of marketing strategy.

Among the Tesla’s capabilities are its culture and higher management’s leadership. By motivating people through positive ideas, Elon Musk tackles both retention and recruitment. The core competencies include technology, leadership, and marketing. Technological competency is manifested in the ability to develop cutting-edge solutions and effectively implement them in practice. Leadership competency is in the ability of a corporate CEO to form a positive external and internal appearance. Marketing strength of Tesla Inc. is in the ability to sell existing technology better than competitors. For instance, solar panels for private use were developed before Tesla, yet the company enhanced the product and resold it to publicity using the company’s image and trends for sustainability (Agrawal, 2016).

Value Chain

A value chain is the actions and strategies that a company exercises in order to create a valuable product for their customers (Hitt et al., 2012). Value is added at each stage of production and marketing until the product reaches its buyer. The company’s value chain starts from eco-friendly propellant such as electricity. The trends for renewable energy and zero-emission cars adds value to the product by itself. The quality of machine-manufactured battery also ensures its quality, which may also be used as a marketing strategy. A vast infrastructure of charging stations and superchargers also adds value as only Tesla cars can use it. The company may add additional value by perfecting their outbound logistics as in that regard the company seems to lack (“Tesla first quarter 2018 update,” 2018). All in all, great leadership and superb marketing are resources and capabilities that can enhance the value of Tesla’s productions and bring the company to success.

References

Agrawal, A. J. (2016). 3 ways Elon Musk conquers marketing. Forbes. Web.

Berzon, A., & Sweet, C. (2015). Tesla CEO Elon Musk unveils line of home and industrial battery packs. Wall Street Journal. Web.

Harding, R. (2017). Toyota sells stake in Tesla as partnership dies. Financial Times. Web.

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2012). Strategic management cases: Competitiveness and globalization (10th ed.). New York, NY: Cengage Learning.

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Muoio, D. (2017). Mercedes is quietly ramping up its efforts to become Tesla’s biggest battery rival. Business Insider. Web.

Nissan delivers 300,000th Nissan LEAF. (2018). Web.

Strategic partnership: Daimler acquires stake in Tesla. (2010). Web.

Tesla first quarter 2018 update. (2018). Web.

Tesla Q2 2018 vehicle production and deliveries. (2018). Web.

Thompson, C. (2018). Elon Musk: Model 3 production problems stem from Tesla getting “overconfident” and “too comfortable.” Business Insider. Web.

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BusinessEssay. 2021. "Tesla Inc. as a New Car Company on the Market." December 23, 2021. https://business-essay.com/tesla-inc-as-a-new-car-company-on-the-market/.

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