Volvo and Tesla: Strategic Management Project

Executive Summary

This project focuses on two companies operating in the same industry, namely, Volvo and Tesla. Volvo mainly produces internal combustion engine vehicles and limited units of electric sedans. Tesla concentrates on the production of electric cars, although it has diversified in other product lines such as sun-powered panels and energy units. The automotive industry requires leaders who can plan, control, direct, and guide other people towards the attainment of common mutual goals.

Regarding Volvo and Tesla, the primary goal encompasses the production of competitive automobiles. Through its hierarchical leadership characterized by bureaucracy, Volvo only hires the best human resources with the objective of maintaining them for a long time. In relation to Tesla, Volvo risks having low levels of innovation, especially in the process of retaining its Scandinavian roots. Tesla’s leadership and corporate strategies are organized around openness to innovation. Both Tesla and Volvo use research and development (R&D) as important value chain activities. Surviving in a dynamic car manufacturing industry requires Volvo and Tesla to deploy their resources and capabilities in building a competitive advantage.

The manner in which these two organizations execute their value chain agendas determines the degree to which they outperform their competitors. Therefore, they do not release much of the information of such activities in the public domain. This strategy is critical, especially where an organization enjoys the internal ownership of its value chain as evidenced in the case of Volvo and Tesla. However, upon conducting a SWOT analysis, strengths and opportunities can be identified to give an insight into different activities and operations that the two companies can use to build their competitive advantage.

Company Analysis

Volvo’s Environmental Scanning: SWOT Analysis

Volvo enjoys a highly diversified product portfolio that includes Volvo C70, Volvo, S80, and Volvo XC90 brands. It operates in six business sections, which consist of heavy goods vehicles, construction paraphernalia, Volvo Penta, client sponsorship, vans, and sedans (Bhasin). Such a product diversification plan allows the corporation to balance its revenue streams. In particular, it provides end-to-end options and solutions, which can be a source of value to the company.

For several years, Volvo has maintained a strong bazaar position in the commercial truck segment in various developed markets. It is also a major player in construction paraphernalia, industrial engines, and the supply of vans or buses. Moreover, the company has a global expansion strategy that has enabled it to acquire markets in developing nations. It benefits from its strong R&D capabilities. For example, research and design have enabled the organization to acquire and maintain a competitive edge in the automobile sector.

Amid the above strategies that have enhanced the company’s global operations, Volvo has been associated with various issues, for instance, product recalls, which have affected its international brand image. For example, in 2015, it recalled its VNL model trucks produced in 2014 and 2015 following their malfunctioning panels. Secondly, the company has faced declining margins, which have substantially affected its revenue growth.

For example, it lost a huge margin in its 2012 models such as the Volvo S40 sedan and V50 wagon, which were taken out of the list of cars to be released then because they were below customers’ expectations in terms of efficiency. This situation affected shareholders’ confidence. Nonetheless, the company’s opportunities include the ever-expanding worldwide road freight sector, which is promising for its heavy commercial goods vehicle business segment. The outlook of the global bazaar for these trucks is promising. For example, according to Bhasin, the trucks segment anticipates growth at the rate of almost 10% until this year, 2018.

Competition from Hitachi, Audi, BMW, Cummins, and Caterpillar has weakened the company’s bargaining supremacy for its industrial engines and construction equipment (Hossain et al. 48). Stringent environmental regulations have increased compliance costs, especially for its diesel vehicles and built-up engines (Hossain et al. 60). The corporation’s universal operations nature implies that it is susceptible to global currency fluctuations, which affect the prevailing exchange rates. Indeed, Volvo’s accounting reports are based on the Swedish Kroner, which fluctuates with respect to other currencies, especially the U.S. dollar. Table 1 summarizes the above findings in a SWOT analysis.

Strengths
  • A diversified product portfolio
  • Market leadership in the trucks business segment
  • The major player in industrial engines, construction paraphernalia, and bus production
  • Strong R&D capabilities
Weakness
  • Product recalls affecting its global brand image
  • A declining margin for some of its product segments such as VolvoS40 sedans and V50 wagons
Opportunities
  • The expanding road freight service increases the demand for trucks
  • Promising worldwide outlook regarding the trucks market segment
  • The improving and growing worldwide construction industry, which is promising for Volvo’s building machinery
Threats
  • High competition from another automobile (BMW and Audi) and construction equipment manufacturers
  • Stringent environmental regulations that increase compliance costs
  • Currency fluctuations that affect Volvo’s global business

Table 1: SWOT analysis (Bhasin).

Volvo’s Value Chain Analysis

Volvo’s operations, including marketing, design, and actual production are important value chain activities. However, it is important to realize that these activities help to differentiate the company from its rivals with the view of establishing a unique brand image. Therefore, information about strategic initiatives related to its key activities is handled with caution to reduce the chances of data leakage to competitors.

Amid the company’s declining market, it has strong marketing capabilities as evidenced by its focus on more promising bazaars. For example, when the company experienced low sales in its luxury cars in Europe, it increased its presence in Asia, especially China and India (Schreuder). Indeed, Volvo has used its strong research and design capabilities to establish new models such as the XC90 to help in bringing its Scandinavian experience in the automobile luxury to a context that meets its Chinese consumers.

The fact that Volvo has six product lines implies a well-established logistics network, which forms an important aspect of its value chain. At Volvo, workers’ contribution is highly acknowledged in all supply chains because of the role they play in delivering value to customers through the provision of quality products and services. This recognition is perhaps outstanding in the operations strategy of the Volvo.

The company frames its key issues at its showrooms, for instance, the unrelenting need for employee and customer satisfaction or the recruitment, training, and motivation of its pool of workers to enhance quality service at the sales areas. Volvo is aware that employees are the people who are in close contact with customers to whom value should be delivered. This understanding reveals why the company’s value chain revolves around its esteemed clients.

Tesla’s Environmental Scanning: SWOT Analysis

Tesla has three key strengths that differentiate it from all other automobile manufacturers. For instance, it occupies a unique and central position in the car manufacturing market. Tesla is currently growing into a strong direct competitor regarding internal combustion cars. The company started in-house production of various components, including powertrains, injection-molded dashboards, and other plastic components (Van den Steen 17).

This strategy has been effective in reducing suppliers’ high bargaining potential. Tesla makes huge sales, thanks to its outstanding global image. In 2014, its sales increased by almost 60 percent compared to the previous year while those of 2015 had gone up by roughly 30 percent (Van den Steen 19). The strong international brand of the Model S boosted the company’s sales potential. In 2016, the order for model X increased by five times (Dallas). On the introduction of model 3, the company anticipates increasing its sales potential.

Tesla’s weakness includes its large debt load and the increasing operations expenses. For instance, by 2016, Tesla Motors reported arrears amounting to 2.5 billion U.S. dollars (Dallas). However, it only had liquid cash of close to 1.5 billion American dollars. Such outstanding amounts attracted interest charges that only weakened the financial position of the company. Its balance sheet also reflected capital leases (Dallas).

The organization’s current inability to meet its debt commitment akin to the prevailing low cash flows implies a decreased rate of investment and low capital expenditures. This situation hampers its projected growth. In addition, the company’s capacity to not only reduce overheads but also build economies of scale around the production of its Model 3 can boost its efficiency and, consequently, profitability levels, in the coming quarters.

Model 3 presents an immense opportunity that Tesla can use to transform itself. Priced at 35000 U.S. dollars, the car can pave the way for Tesla to enter the automobile market successfully with a mass-produced car (Van den Steen 15). All businesses experience threats in their operations. Tesla’s threat revolves around production funding and competition. Table 2 shows a SWOT analysis of Tesla Motors

Strengths
  1. A strong brand built around utilities such as high performance, reliability, and luxury
  2. Well established operation capabilities
  3. The Model S demonstrates the way technology facilitates the development of alternative automobile products with high performance and safety features
  4. Highly capable design, sales, and marketing human resources
  5. Uncompromising attitudes towards its future success regarding creativity and innovation
  6. Customer recognition as the best makers of EVs
Weaknesses
  1. Its dependence on external suppliers and the dynamic new technology for its operations
  2. An undeveloped international market (it only sells in Europe, Asia, and the U.S.)
  3. The brand is unfamiliar to many potential customers
  4. Dealers selling competing IC cars
  5. The EV technology poses uncertainties associated with negative preconceptions about the performance of the electric vehicle in comparison with oil or gas engine sedans
  6. Negative operating margins
  7. Specializing in the EV market, which only accounts for 1% of the total cars sold in the U.S. (Coren)
Opportunities
  1. An increasing number of people becoming cautious regarding the natural environment degradation associated with ZEV
  2. A brand developed with superior features
  3. Unstoppable growth of the Model S and Model X following the market burst of electric cars
  4. Sealing the performance gap in hybrid varieties coupled with various eco-friendly vehicles currently in the market
Threats
  1. IC carmakers sell brands with similar luxury, comfort, and speed attributes
  2. IC automobile suppliers have already well established and protected brands
  3. Audi, Nissan, Volkswagen, Lexus, Fiat, and BMW among others are developing EVs (Coren)
  4. The twin problem of introducing a new company and a fresh product in the market

Table 2: SWOT analysis for Tesla Motors (Van den Steen 15).

Tesla’s Value Chain Analysis

Ana’s analysis of the company’s value chain requires one to view an organization as an entity that constitutes a set of activities such as marketing, sales, research and design operations, and logistics among others. For Tesla, promotion, sales, and technological innovation entail strategies that help in the realization of the company’s value chain. Tesla’s design teams portray the way a business can build a competitive advantage around innovation. For example, they developed a battery pack rated at 60kWh going for between $250 and $300, which was “less than half the estimated cost per kWh for the Nissan Leaf” (Van den Steen 7). The decision to bring almost all its manufacturing operations in-house created cost-saving advantages. It also set a way for the development of new business lines.

Technology forms an important resource capability that helps Tesla Motors to drive its competitive advantage. For example, when the Model S developed windscreen wipers and handle problems, technology permitted immediate wireless software updates (Van den Steen 8). This accomplishment was possible since Tesla deploys electronics in the control of its vehicle. Regarding the critical activity of its sales and marketing personnel, the organization successfully introduced the Model S to the market. In terms of promotion, the company emphasizes swiftness, relief, usage, and minimal GHG emissions (Van den Steen 8). This strategy indicates Tesla’s marketing capability of supplying products with attributes that are most significant to buyers.

Volvo and Tesla’s Leadership and Corporate Governance Strategies

Leadership Strategies

The automotive industry encompasses one of the contexts that operate by influencing, inspiring, and motivating other people to facilitate the achievement of a given goal. For Volvo and Tesla, leadership occurs through the interaction of three main components, namely, leaders, followers, and a situation that prompts the need for headship. It is crucial to realize that leadership forms the basis of the success of any organization (Kopel et al. 396). However, as revealed in the case of Volvo and Tesla, different companies have diverse leadership approaches.

Volvo has a hierarchical bureaucratic leadership structure. The company believes that leaders are coaches who help to set the desired direction. It embraces the idea that people come before any business or corporate-level strategy. The organization acquires its human resources mainly from Sweden. It regards them as critical ingredients of ensuring that it remains faithful to its Scandinavian roots. Nevertheless, Volvo maintains a pool of highly talented youthful employees (Schreuder). Here, the secret entails selecting proficient people who can be retained for a long time. Hiring is a critical component of Volvo’s leadership (Schreuder).

The company only recruits the best available talent to hold critical positions such as R&D. This hiring culture has led to the development of a loyal workforce enthusiastic to take challenges in the company’s competitive operational environment. It shuns the idea of having people who report to work to make money. Incompetence is intolerable to the extent that it leads to immediate firing.

The fact that Volvo only hires the best workers who it seeks to retain for a long time is problematic. Such employees are likely to remain stuck in old ways of thinking to the extent that coming up with innovative technologies or car improvements is limited. Indeed, great companies re-invent themselves as time progresses to ensure their products remain competitive in the marketplace (Kuksov et al. 411). While the existence of highly experienced employees does not constitute a threat to Volvo, having a leadership unit that fails to inspire workers to be innovative by abandoning old ways of doing things, including the need for changing products or brand values and attributes to meet emerging challenges is a threat to the success and long-term sustainability of the company.

On the other hand, Tesla embraces the democratic leadership style characterized by the delegation of responsibilities to its knowledgeable and innovative workforce. Nevertheless, the company’s CEO, Elon Musk, remains the vision carrier. However, while Volvo’s leadership targets the demonstration of the faithful following of corporate rules, Elon Musk seeks to ensure that Tesla maintains a transparent and inclusive leadership system. This company, Tesla, makes its patents readily available to competitors. Musk believes that this strategy can help to strengthen its operations, as opposed to diminishing the company’s competitive position (Kuksov et al. 403).

Musk leads the company from two perspectives. Firstly, they view it as a car-manufacturing base that seeks to gain a competitive advantage in a highly competitive market. He also regards it as a technology-sharing platform, which ensures that all people drive electric cars in the future. Indeed, this vision has increased the organization’s demand for electricity. Nonetheless, Tesla can deploy its innovativeness to re-invent an electric grid through its capable design and production team, which developed famous efficient solar panel systems and high-capacity energy units.

While Volvo focuses on ensuring that those in leadership positions spend their full time looking for approaches to ensuring the sustainability of its business, Tesla’s leadership prefers having executives with entrepreneurship backgrounds. For example, Tesla’s CTO and co-founder, JB Straubel, and its head of special projects, Andrew Stevenson, jointly own Redwood Materials, a substance recycling business. Tesla’s current boss is also the initiator, the CTO, and the first in command of SpaceX, Boring Company, and OpenAI among other different business ventures (Vermeulen).

The idea entails ensuring that Tesla does not have managers who control and coordinate business activities using hierarchical authority and power reserves as witnessed in the case of Volvo. In addition, the company does not rely on short-term returns. Rather, its leadership aims at creating self-sufficient ecosystems with stakeholders who interact to share distinct identities, proficiency, and information repositories. Tesla encourages its employees, executives, and all stakeholders to remain transparent, comprehensive, and industrious.

Corporate Governance Strategies

Corporate strategies aim at examining not only what an organization does but also its command decisions, including determining whether it deserves to expand to new regions, develop alliances with other rival companies, or abandon particular product lines to focus on the most profitable ones. Volvo and Tesla have demonstrated their interest in increasing product performance outcomes in existing and new markets with the objective of boosting their profitability. Since they should accomplish this mission in an environment of competition, they pursue different corporate strategies.

Volvo, a Swedish car manufacturing company, has now been in business for almost a century now. After being owned for a long time by Ford, an American automaker, Volvo was purchased by Zhejiang Geely Holding Group, a Chinese corporation. The business has been consistently embracing Scandinavian principles and values like safety and classic design. Nevertheless, it has also been trying to appeal to affluent Chinese consumers who are conscious about performance and luxury (Schreuder).

Considering its expanding market in China, one of the company’s corporate strategies entails developing products with utilities that suit Chinese and other Asian consumers, including those in India. In particular, in 2014, Volvo developed a stylish SUV branded XC90 with the objective of bridging the gap between the Scandinavian world and the Chinese bazaar (Vasilash 30).

Volvo has enjoyed significant car sales in the U.S. sumptuous bazaar. The company’s corporate strategies aim at continuing to exploit this market to ensure that it remains competitive in the automobile business. For example, in 2015, Volvo released a sedan version branded as S90 to the American and Chinese luxury bazaars. Nevertheless, the company still appreciates the need for considering changes in its marketing approaches as one of the important corporate strategies that will guarantee success in the future. Indeed, even though Volvo is a market leader in Sweden, it experienced stagnant sales in the U.S. and European commercial zones in 2014, 2015, and through 2016 (Schreuder).

Through the strategy termed as, “Volvo way to market”, the company seeks to redefine methods in which vehicles are marketed and sold. Consequently, the company decided to cut down drastically its corporate sponsorships as one of its conventional marketing strategies.

On the other hand, innovation in electric vehicles constitutes Tesla Motors’ main corporate strategy. Its pioneering approach dates back to engineers located in Silicon Valley who developed the brand. The company made its first model, the Roadster, with the objective of setting the way for the development of an electric car as an alternative to gasoline-propelled sedans.

After proving that the electrical technology innovation could propel vehicles, Tesla Motors released the Model S to the market in 2012 (Van den Steen 12). This unit targeted the lucrative sedan bazaar segment. Later, it introduced the Model X. Model 3, a reasonably priced EV, was specifically suited for the middle class. Through this car, Tesla aims at joining the electric vehicle world with a mass-produced sedan. Having established extensive supercharging networks in America and Europe than any other EV manufacturer in addition to being recognized as a supplier of innovative and reliable EVs, Tesla Motors’ corporate strategy is to tap the EV bazaar fully.

Tesla’s corporate strategy of innovation is indisputable. According to Van den Steen, when Nissan Leaf developed a Li-ion energy unit with 192 cells, Tesla was forced to improve its Roadster battery by incorporating 7000 cells (13). This move ensured that the Model S would have a power base with higher energy density. This improvement led to a reduction in the total weight of the sedan and the number of materials used. Tesla’s plan to improve the technology regarding Model S increased the car’s ability to pick up speed.

The goal was to release electric vehicles to the market to build a strong brand image and recognition before venturing into a highly competitive market segment featuring low-priced models. Indeed, this corporate strategy can be evidenced via the design and production of the Model S, followed by Model X, and now Model 3, whose production started in July 2017. Indeed, Tesla resolved to continue with its generic competitive strategy, which involved using high-end technologies in the design and marketing of its reliable EVs. However, Tesla also focuses on investing in sustainable energy production through its design and production of efficient sun-powered panels and batteries as part of its diversification strategies.

What Volvo and Tesla Can Do Differently

Despite its establishment in Sweden, Volvo entails an automobile manufacturing agency that has recognizable global standing. The company has also ventured into providing financial solutions to its clients. Its marketing activities are mainly focused on Europe, the United States of America, Australia, Asia, and African nations. Amid such extensive operation and focus on diverse global markets, Volvo has experienced growth in revenue over the years. Nonetheless, it has failed to record growth in its margins.

This situation is worrying for an international business that seeks to acquire a competitive advantage in a market segment dominated by many competitors. Volvo enjoys market leadership in the trucks business segment. Considering the expanding land freight demand, it should focus on advancing its production capability for heavy goods vehicles if its wishes to build its economies of scale around this market division. Indeed, instead of struggling in some markets because of its less attractive product lines such as cars, Volvo should abandon them and focus on profitable ones.

For instance, apart from trucks, it can consider increasing the production and marketing of construction equipment because of the expanding demand in the construction industry whose outlook continues to indicate growth. Failure to adopt this way forward only creates room for competitors such as Cummins, BMW, Audi, Hitachi, and Caterpillar to exert more competition and pressure on the company. Hence, if Volvo needs to continue with its now about 100 years of success in the automobile market, it should consider changes in its strategic choices.

Tesla Motor’s business outlook is interesting. The fully electric manufacturing company has reported losses year-in-year-out since its initial public offer (IPO). The introduction of low-priced products such as Model 3 has attracted enthusiasm from potential clients. The company anticipates the low-priced sedan to increase the product’s output by several folds. Making an investment choice in Tesla encompasses one of its intriguing decisions. Indeed, its sales have been exploding over the years. Nevertheless, the company has not been making profits. One explanation for this outcome is that the company has been committing much of its resources to research and development coupled with marketing. This option raises the issue of examining the most appropriate way forward for the company.

Consequently, investing more in technology can help in the development of parts that may then be sold to other EV manufacturers. This strategy entails an important way forward that can enhance the company’s revenue potential in the future. Indeed, Tesla has begun testing this possibility because it is now producing powertrains for other EV automakers. This plan is expected to give it a competitive advantage in electric vehicle powertrain production. As the organization opens a Gigafactory facility that is projected to be operational by 2020 when Model 3 will have peaked in the market, the company’s unique position in the car market may be incontestable.

Cost reduction and Model 3 present important opportunities for Tesla Motors. Looking forward, the organization should put in place cost-cutting strategies to realize remarkable profits. Indeed, it is already moving towards this end. By establishing the Gigafactory, it plans to ensure that the production of Model 3 units takes place in-house, a move that can guarantee a substantial reduction of logistic costs associated with car parts from various outsourced manufacturers. For example, the plant permits the production of batteries at an amount that is 30% lower in relation to what it used to pay (Dallas).

Tesla’s success story indicates that it is likely to join the competitive market with a mass-produced sedan, Model 3. However, success in this car bazaar will depend on how it selects its strategic options. This understanding is imperative upon noting that automakers such as Mercedes Benz and Volvo, which have conventionally competed in the IC engine vehicle market, are now designing and manufacturing electric vehicles.

Therefore, looking into the future, Tesla can choose to continue focusing on deploying high-end technologies in its production of reliable EVs as a way of competing with BMW, Volkswagen, Nissan, and Volvo in this market segment. This strategy is in line with its mission of coming up with a sporting sedan using funds generated from building a reasonably priced vehicle before further re-investing such financial resources to develop an even more accessible van (Van den Steen 15).

Conclusion

Nevertheless, product diversification entails an important strategy for Tesla. Indeed, having successfully introduced a low-priced vehicle, Model 3, the organization can alternatively focus on implementing intensive growth strategies such as market penetration, development, and diversification. Diversification entangles an important strategic option for Tesla that is in tandem with the company’s mission of accelerating the world into embracing sustainable energy. Tesla’s engagement in manufacturing highly efficient roof solar panels and energy units for its non-automobile applications supports diversification as an important strategic option that can enhance its success in the future.

Works Cited

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