Introduction
Strategic management is necessary for a company to be more flexible, anticipate changes in market components in advance, win in the competition, and ensure development in the long term. It includes the business and corporate-level strategies necessary for a company’s long-term success. Therefore, this paper will analyze the processes applicable to the Tesla Corporation, which will help it achieve a competitive advantage in comparison with another manufacturer of electric vehicles, Rivian LLC.
Business-Level Strategies
For Tesla, the differentiation strategy may be the most profitable at the business level. It implies that the company’s products are significantly different from those of its competitors, which are more in line with the needs of consumers (Hitt, 2020). This strategy is a good option when a company cannot sell its goods and services at a lower price than its main competitor. For example, the cost of Tesla’s flagship car, the Model-S, is $69,900, which is quite a high value for the average consumer (Ahmad & Khan, 2019). Therefore, the company must offer consumer products with distinctive characteristics for which people will be willing to pay. Reducing the cost of electronic vehicles produced by Tesla is impossible due to rising costs for materials, production, and logistics. However, according to the report, the company managed to increase year-over-year revenue by 55% (Tesla Inc., 2022). One of the critical factors for this was the increase in car deliveries and the company’s customer focus, which is part of the differentiation strategy.
Tesla products can differ in many ways, which provides the opportunity to customize the differences depending on customers’ needs. It includes machine distinctiveness, rapid innovation, engineering design, and responsive customer service (Hitt, 2020). Furthermore, the company’s distinguishing feature is its status and reputation, which impact consumer behavior. Even though the differentiation strategy limits the possibility of lowering the price of products, it creates conditions in which buyers pay more attention to the product’s characteristics than its price.
As part of the differentiation strategy, Tesla must constantly introduce new developments and features of its vehicles to maintain buyers’ attitudes. The company can offer a portfolio of products that complement each other to meet customers’ needs better and, as a result, increase its competitive advantage and revenue (Hitt, 2020). Each of the products presented in the portfolio must meet buyers’ unique needs, allowing for the expansion of the product’s target audience. Among the company’s products that customers buy as add-ons for cars are energy storage products, vehicle software, and services (Tesla Inc., 2022). Therefore, using a differentiation strategy, a company should focus on investing in the development and new technologies. According to Tesla’s quarterly report (2022), the company’s operating expenses, including investment in development, have remained at the same level over the past year. Hence, it can be concluded that Tesla already adheres to the differentiation strategy. However, there is a need to improve it to obtain an absolute competitive advantage.
Another distinguishing feature of the company is its sales strategy. Tesla does not use dealers but sells its cars in its showrooms and online (Ahmad & Khan, 2019). It allows the company to interact directly with consumers and respond faster to emerging needs. As part of the differentiation strategy, this approach allows the company to more accurately predict buyers’ behavior in the face of the impossibility of price reduction. For example, according to a quarterly report, the company’s revenue for 2022 grew by 55% compared to 2021 (Tesla Inc, 2022). At the same time, customers prefer the company’s flagship products, like Model S/X. It follows that the customer service and innovations introduced by the company for existing products have the most significant impact on consumer preferences.
Corporate-Level Strategies
The corporate-level strategy ensures stable income and functioning of the company through the diversification of internal processes. The main issues at the corporate level are the definition of products and markets in which the company can effectively compete with other firms and the specifics of managing these businesses (Hitt, 2020). Furthermore, the correct use of diversification in the company helps to distribute resources and funding between different areas evenly. It avoids overspending in some areas and underinvestment in others.
Although Tesla’s activities are diverse, the level of diversification in the company can be characterized as moderate to high. It is typical for this model that more than 30% but less than 70% of revenue comes from the core business (Hitt, 2020). Tesla’s main products are electronic vehicles (EVs), specifically the Model S/X and Model 3/Y. Realizing that these products bring the company the most significant percentage of its income, in 2022, the company increased the production of these models by 123% and 51%, respectively (Tesla Inc). Consequently, the company, understanding the behavior of consumers, focuses on the flagship products that determine the company’s primary income.
Although Tesla has a dominant business, the company’s management is investing in developing other areas. Thus, corporate diversification is characterized as a related linked model in which only some businesses are linked to the dominant one (Hitt, 2020). For example, the production of solar systems is a separate area of activity of the company, which is not related to EV production. According to the report, in the third quarter of 2022, sales of solar systems grew by 13%, which was the highest indicator for Tesla in the industry (Tesla Inc, 2022). Moreover, energy storage deployments increased by 64% in 2022 (Tesla Inc, 2022). That indicates that the company is investing in developing new areas of activity and responding to emerging consumer needs.
The company has sufficient potential to develop other areas of activity and increase diversification. A linked diversification strategy implies that a company shares resources, knowledge, and core competencies among several businesses (Hitt, 2020). However, the development of the company’s other businesses, apart from EV, is complicated by external circumstances. The report notes that Tesla has encountered some semiconductor challenges that are slowing down the development of energy storage deployments (Tesla Inc, 2022). Thus, a related diversification strategy with a dominant business represented by the sale of electronic vehicles is currently optimal for the company. This corporate-level strategy is a good choice because it promotes meeting consumers’ needs without concentrating 90% of the company’s income on one business. Demand for EVs is growing steadily, forcing Tesla to increase production. However, at the same time, the company is developing other businesses, strengthening its status as a technology leader.
Competitive Environment
Due to the growing demand among buyers, the electronic vehicles sector is quite competitive. A distinctive feature of this area is that companies cannot significantly reduce their products’ prices due to the production cost. Therefore, a differentiation business-level strategy is the most commonly used in this area. For example, one of Tesla’s biggest competitors in the EV space is Rivian, which specializes in outdoor electronic vehicles (Sudian et al., 2021). The company’s flagship product is the skateboard chassis innovation, which has distinctive features that attract buyers.
Rivian machines are often compared to Tesla’s flagship products due to the use of similar business- and corporate-level strategies. In pricing policy, both companies are on the same level, so in this situation, buyers should focus on the distinctive features of the products when choosing one. While Tesla is developing other lines and related products for its electric vehicles, Rivian is investing in improving and developing new technologies for existing models (Sudian et al., 2021). Generally speaking, both companies use a differentiation strategy but with a different approach.
Corporate-level strategies in Tesla and Rivian have significant differences. While Tesla has a moderate to high level of diversification, Rivian’s operations are characterized by a low level of diversification with a dominant business. In addition to EVs, the company manufactures charging stations for electronic vehicles (Sudian et al., 2021). However, the dominant business for the company, which provides up to 90% of its revenue, is the development of ‘skateboard’ chassis innovation. In the long term, Tesla’s management strategies are more successful because they focus on strengthening the company’s status as a leader in the field.
Even though the management strategies of Tesla and Rivian have quite a few similarities, in particular at the business level, creating a competitive environment is a must for the firm’s development. The competitive environment is the cause of competitive rivalry, in which companies take various actions to gain a competitive advantage and attract more customers (Hitt, 2020). In manufacturing, EV competitive rivalry can often be limited by financial issues, as companies cannot lower the price of their products due to the high cost of production. Therefore, the main actions that Tesla and Rivian take are to develop new technologies and improve their products depending on the consumer’s needs.
Market Cycles
Based on the business- and corporate-level strategies of Tesla and Rivian, it can be assumed that Tesla will have a significant competitive advantage in the slow-cycle market. In addition to selling goods and services directly, Tesla’s activities primarily focus on establishing solid consumer relationships (Ahmad & Khan, 2019). By strengthening its reputation, the company can have more competitive advantages over customers in the long run. Moreover, Tesla invests a significant part of its income in developing other areas, particularly in developing additional products and services for electronic vehicles (Tesla Inc, 2022). These actions are aimed at the success and profitability of the company in the long term and ensure its stable development and increase in income in the future.
On the other hand, Rivian may have a competitive advantage in fast-cycle markets. Under these conditions, companies mainly secure their competitive advantage through innovation (Hitt, 2020). Since Rivian devotes most of its resources and investments to ‘skateboard’ innovation while having no other significant businesses, in the short term, it may have an advantage over Tesla. Moreover, Sudian et al. (2021) note that although Rivian is the second largest manufacturer of electronic vehicles, in the long term, the gap between it and Tesla is too large. Therefore, it is optimal for Rivian to pursue a fast-cycle market strategy to meet customer needs and ensure the company’s stability.
Conclusion
Thus, Tesla and Rivian’s distinct approach to creating competitive advantage is justified by contrasts in the strategic management of companies and is aimed at meeting the different needs of firms. The selected management strategies allow Tesla to remain a leader in the industry through long-term planning. The company provides customers with unique products and services that meet the needs of a broad target audience. The choice of these business- and corporate-level strategies and adherence to the slow-cycle market are critical factors for the stability and growth of the company.
Sources
Dian A. Sudian, Wahyudi Sutopo, and Muhammad Hisjam. 2021. Pp. 366-373. Global Business Strategy in Electric Car Vehicle Industry: A Comparative Study between Tesla Inc. vs Rivian LLC. IEOM Society International. Web.
Michael A. Hitt. 2020. Strategic Management: Concepts and Cases: Competitiveness and Globalization 13th ed. Cengage Learning.
Salma Ahmad and Mohd. Azmi Khan. 2019. Pp. 12-24. Tesla: Disruptor or sustaining innovator. Journal of Case Research, vol. 10, no. 1. Web.
Tesla Inc. 2022. Quarterly 3 Update. Web.