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Tesla, Inc. and the world's transition to electric vehicles. Risks, strenghts, opportunities and strategic reccommendations

Akademische Arbeit 2019 35 Seiten

BWL - Unternehmensführung, Management, Organisation

Leseprobe

Table of Contents

1 Introduction
1.1 Tesla, Inc

2 Currently Executed Strategy

3 Identification of Opportunities and Threats
3.1 Macro-Environment - Pestle-Analysis
3.1.1 Political
3.1.2 Economic
3.1.3 Social
3.1.4 Technological
3.1.5 Legal
3.1.6 Environmental
3.2 Micro-Environment - Five-Forces-Analysis
3.2.1 The Threat from New Entrants
3.2.2 The Bargaining Power of Buyers
3.2.3 Threat of Substitution
3.2.4 The Bargaining Power of Suppliers
3.2.5 The Intensity of Rivalry in the Industry
3.3 Diagnosis of Opportunities and Threats

4 Industry Analysis
4.1 Resource and Capability Analysis
4.1.1 Financial
4.1.2 Technological
4.1.3 Physical
4.1.4 Research and Development
4.1.5 Marketing
4.1.6 Engineering
4.2 Diagnosis of Strengths and Weaknesses

5 Management Recommendations and TOWS-Matrix

6 Conclusion

References

Annex

Appendix A

Tesla's Resources / Capabilities Evaluated in regard to the Importance and Strength

TOWS-Matrix

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures

Figure 1: Lifecyle Greenhouse Gas Emissions Comparison

Figure 2: Porters Five-Forces-Analysis of Tesla, Inc

Figure 3: Tesla's Opportunities and Threats Related to the Rate of Impact in the Industry

Figure 4: Comparison between Tesla and Traditional Carmakers in regard to Innovation

Figure 5: Framework of Appraising Resources / Capabilities of Tesla, Inc

Figure 6: Tesla's Strengths and Weaknesses Related to the Rate of Impact in the Industry

List of Tables

Table 1: Tesla's Identified Opportunities and Threats

1 Introduction

The electric vehicle market has captured worldwide consumer interest (cf. Deloitte., 2019). This market segment was according to Kumar (2019) valued at $118.864.5million in 2017 and is expected to reach $567.299.8million by 2025, growing at a compound annual growth rate (CAGR) of 22.3%. Further (Kumar, 2019) claims that this rising interest rate is believed to be achieved because of an outperformance in regard to the conventional vehicle, since it provided higher fuel economy, low carbon emission and maintenance, convenience of charg­ing at home, smoother drive and reduced sound from engine. This market segment is still in its growing phase, since it must convince people that it will work and is practical (Pettinger, 2018). Therefore, the market for all-electric vehicles is globally small, at roughly 1% of total sales, but Tesla has been doing its part to double it (cf. DeBord, 2019). In late December 2018 (Business Insider, 2018) stated that Tesla, Inc has created a micro-monopoly. Nowadays, ac­cording to DeBord (2019), one of the biggest challenges of Tesla is to maintain the electric vehicle (EV) market they have created. In order to formulate the thesis for this paper and fully understand how engaged Tesla, Inc is in this market, a brief introduction of the company must be given in the following subchapter.

1.1 Tesla, Inc

Tesla, Inc, or formerly from 2003 - 2017 Tesla Motors, is an electric automotive manufac­turer and was founded by Martin Eberhard and Marc Tarpenning 2003 in San Carlos, Califor­nia (cf. Chan, 2017, p.1 and Schreiber, 2019). The ambition behind Tesla, Inc, (n.d.) was to prove people that there is no need to compromise to drive electric and that ev's can be better, quicker and more fun to drive than gasoline cars. Chan et al. (2017, p.1) states Tesla was ded­icated to produce each new generation of their vehicles with incredible power and zero emis­sion. Further, Chan et al. (2017, p.1) researched that nowadays tesla, not only creates all-elec­tric vehicles but is involved in clean energy generation and storage products as well. The company was named after Nikola Tesla who is known as a Serbian American inventor (cf. Schreiber, 2019). Nikola Tesla patented an alternating current (AV) induction motor back in 1888 that Tesla based the Tesla Roadster on in 2008 (cf. Chan et al., 2017, p.1). Chan et al. (2017) elaborates that a redefinition of the car industry happened when Tesla released the first four-door electric sedan called Model S. Furthermore, the company opened a Gigafactory in Nevada that produces their own lithium ion battery cells (cf. Chan et al., 2017, p.1).

The changing perception of the environment has paved the way for many well-established ve­hicle manufacturers such as Mercedes and BMW (cf. Manthey, 2019). Since demand of elec­tric vehicles is higher than ever Tesla has the opportunity to emphasize on many of its strengths (cf. Chan et al., 2017). According to the research of Chan et al. (2017, p.1), the brand Tesla is not solely about being in the automotive market, but it is also about being an innovator of energy.

Lastly, a brief look on mission and vision statement is provided in order to define the thesis , which will be verified or rejected in the course of this paper. Until 2016, before Elon Musks' s leadership, the mission statement was “to accelerate the world's transition to sustainable transport” and was changed “to accelerate the world's transition to sustainable energy” (Tesla, Inc, n.d.). Rowland (2018) argues that this indicated a shift in the company's business to mar­ket opportunities for renewable energy in addition to the ev market. Since this papers purpose is to focus on the electric vehicle market the following statement is of more importance.

Tesla's vision statement remains more vehicle oriented and quotes “to create the most com­pelling car company of the 21st century by driving the world's transition to electric vehicles (cf. Pratap, 2018). Therefore, this paper emphasizes on the vision statement and what strengths and opportunities Tesla can utilize to compensate threats and weaknesses, while fac­ing the electric vehicle market. With pressure to stay ahead in the industry, this paper will identify areas in which Tesla must lay emphasis on to dominate competitors in the future. Lastly strategic recommendations will be given to ensure Tesla stays one of the leaders in named segment and the following thesis will be answered: Tesla, Inc.'s ability to drive the world's transition to electric vehicles is at risk.

2 Currently Executed Strategy

According to Chan et al. (2017, p. 82), Tesla's strategy is based on a unique model to deliver electric vehicles, which are characterized by high quality, performance and design to drive the world towards a more sustainable future. Further its business model involves on a three­pronged approach to selling, servicing and charging its ev's (cf. Zucchi, 2019). Tesla choose to start with a price-insensitive performance-car to create a brand identity and therefore estab­lish premium pricing and earn significant unit gross margins because they targeted the rich people, who are willing to spend more money (Bhasin, 2019). CEO Elon Musk said that the long-term plan however, is to build a wide range of models, including affordably priced cars for families (cf. Musk, 2006).

Tesla has over 200 retail stores worldwide (Chan et al., 2017, p.87), mostly placed in metro­politan and densely populated areas (cf. Tesla, Inc, n.d.). Since, Tesla's business model relies on reducing high prices due to third-party dealerships, the purpose of the retail stores is to cre­ate an own distribution channel, creating brand awareness and eliminating marketing efforts (cf. Chan et al., 2017, p.87). The research conducted by Alvarez (2019), yielded that this com­pany is one of the most innovative companies of the world, which is proven by integration of technologies such as software and software updates, applications, remote repairs and partially autonomous driving (cf. Chan et al., 2017, p.87). This innovation-centric strategy allows Tesla to focus its resources and capital towards research & development (R&D) instead of fo­cusing it on marketing and promotions (Chan et al., 2017). Since they have built the Gigafac­tory, Tesla has started with their own battery cell production (cf. Tesla, Inc, 2017) to enable a longer range and higher performance for already mentioned lower priced model cars (cf. Tesla, Inc, n.d.). According to Chan et al. (2017, p.87) Tesla is achieving its own mass market of electric vehicles, due to creating economies of scale.

3 Identification of Opportunities and Threats

In the following chapter, the first part of the analysis in conducted in order to identify the op­portunities and threats Tesla is dealing with in the ev market. Therefore, the macro environ­ment is analyzed with the help of the PESTLE-Analysis. The PESTLE-Model takes key as­pects such as political, economic, social, technological, legal and environmental into account. Once considered one can form conclusions of the market potential and it helps to determine current market and industry performance, as well as to predict market or industry trends for future growth and success (cf. Perera, 2017, p. 2). Table 1 shows a possible collection of op­portunities and threats, but it does not claim completeness.

3.1 Macro-Environment - Pestle-Analysis

Table 1: Tesla's Identified Opportunities and Threats.

Abbildung in dieser Leseprobe nicht enthalten

Source: Own illustration

3.1.1 Political

Frue (2018) found out that one chance to support Tesla in its vision would be that the govern­ment has taken action to improve the development of electric and hybrid engines, which re­sulted in a loan of $465million from the department of energy (cf. Overly, 2017). The govern­ment is giving tesla the opportunity to strengthen its financial performance through incentives (Kissinger, 2019). This means that tax credits in the amount of $7.500 are offered for purchas­ing an ev. To entice customers to buy an electric vehicle, some states such as Colorado and Virginia offer state tax credits over $5.000 (weebly.com, n.d.).

Furthermore, Hanley (2018) states that Tesla is granted a free trade agreement in form of building a Gigafactory in china which results in lower costs, faster production and significant presence on the Chinese market. Lastly, Tesla's competitive and intensive growth strategy (cf. Rowland, 2018), which includes market penetration is favored by the political stability of ma­jor markets (Kissinger, 2019).

3.1.2 Economic

Since Tesla's performance benefits from lower battery costs (cf. Kissinger, 2019), they have managed to involve themselves in the development of their own batteries (cf. Evarts, 2019). Tesla's own product has managed to be more affordable and accessible at larger scales and is likely to become cheaper and more efficient (cf. Hayes, 2019). Furthermore, electric vehicles are getting more popular, which is connected to the global economy according to Farooq (2019). The United Nations committee (2019) determined that in 2019 and 2020 the global economic growth is expected to remain at 3.0% and the ev market is expected to reach $1.5trillion by 2025 from $39.8billion in 2018, which is a good opportunity for Tesla to capi­talize on (cf. Farooq, 2019). Another economic factor is declining material cost (cf. Frue, 2018) , which is happening because of the rising popularity regarding the electric vehicles (cf. Farooq, 2019). As a result, the more the customer is in favor of Tesla's electric vehicles, the lower will be the material cost, which in turn is more cost-effective for the public (cf. Farooq, 2019) . On the one hand, Tesla's stock price has increased by more than 600% (cf. Martin, n.d., p. 1). On the other hand, Tesla is once again in financial trouble and has hefty bills to pay (cf. Lopez, 2019). Further, Lopez (2019) states that according to analysts Tesla, Inc needs somewhere between $1billion and $1.5billion to run itself. Tesla's true financial situation can be argued as unhealthy and fragile (cf. Martin, n.d., p. 1).

3.1.3 Social

Especially for people who have eco-friendliness in mind, the idea of having an electric vehicle is fascinating (cf. Farooq, 2019). Not only, does an ev needs less fuel than a traditional car, it is also seen as being cheaper to use over time (cf. Frue, 2018). Therefore, Tesla has growth opportunities regarding the preference for renewable energy and the increasing popularity of low-carbon lifestyles. According to Farooq (2019), another factor is the social status of simply owning an electric car since people can be judged on what type of vehicle they drive. Owning an electric car is equal to increasing the social status (Farooq, 2019). This is comple­mented by the argument of Frue (2018) which states that people who think of an electric vehi­cle, think about Tesla.

3.1.4 Technological

The fact that technology has a high rate of change can be seen both as an opportunity and as a threat for Tesla (cf. Frue, 2018). On the one hand, the high rate creates opportunities to en­hance its products' technologies, but on the other hand because of the rapid obsolescence of the utilized technologies it threatens the company. The newest technology or gadgets might be useless thanks to the rapid development of people (cf. Frue, 2018 and Kissinger, 2019). Inno­vative technologies help the company to retain itself from having carbon footprints (cf. Swotandpestle.com, 2019) and being fuel efficient (cf. Frue, 2018). Also, according to Frue (2018), Tesla is paving the way in regard to artificial intelligence (AI) and automation and the implementation of these in their vehicles. Therefore, the increasing automation in their busi­ness operations is an opportunity regarding growth (cf. Kissinger, 2019). More advances are made by researchers and companies that contain the missing pieces for Tesla's vision of an automated car assembly line.

3.1.5 Legal

Frue (2018) argues that Tesla can promote their ev's as energy efficient and thereby can be sure it abides by international environmental regulations. Also, the energy loan program of the US increases the chances of Tesla to produce more environmentally friendly cars (cf. Jones, 2016). The dealership sales regulation can be an opportunity and a threat at the same time. On the one hand, Tesla might be able to grow through directs sales, which is allowed in many states in the US. On the other hand, in any state where direct sales are not allowed it is considered a threat, since these states require dealerships to transact with customers in the au­tomotive market (cf. Kissinger, 2019).

3.1.6 Environmental

Frue (2018) found out that Environmental factors are Tesla's biggest strengths. It was stated that climate change and the heating trend is occurring all over the planet and carbon dioxide is being the largest factor for global warming (Riduna, 2019) and why heat-trapping gases are in the atmosphere: (cf. Kaufman, 2018). Given this, Kissinger (2019) claims one of the greatest opportunities for Tesla is to promote its ev based on concerns on the climate change and be­cause ev's can run 100% on renewable energy: (cf. Correspondent, 2017). However, Tesla's cars do not run entirely on electricity, but they use electricity more than gas and therefore barely impact carbon emissions (cf. Frue, 2018). Since the reduction from driving an electric vehicle exceeds driving a fuel empowered car, Figure 1 will provide a better overview about all emissions involved.

These emissions include everything from raw material extraction, to vehicle manufacturing, through operation and finally to end of life (Berndt, 2017). The graph shows the lifecycle of greenhouse gas emissions and utilized data based on a 180.000 miles of lifetime driving a large ev. The batteries have been manufactured in china and the vehicles have been made in USA or Germany. Further it used intergovernmental panel on climate change (IPCC) median data of lifecycle emissions factors for electricity sources. For ev charging it used the 2016 electric source mix from Canada and the USA. Lastly it used data from the environmental protection agency (EPA) for a 26-mpg vehicle, so that a comparison between a gasoline vehi­cle, an electric vehicle from the US and Canada can be considered.

Abbildung in dieser Leseprobe nicht enthalten

Source: (Berndt, 2017)

Figure 1: Lifecyle Greenhouse Gas Emissions Comparison.

The manufacturing emissions represents which materials are used, the source of these materi­als, technologies incorporated into the manufacturing processes, material transportation needs and the type of energy used at each stage of manufacturing (cf. Berndt, 2017). As already dis­cussed, operating an ev is more environmentally friendly than a car that works with gasoline and the end of life of a vehicle aims at dismantling and the recycling in general of the car (cf. Comission, 2019). As seen in Figure 1, a great opportunity for Tesla is to emphasize on the overall reduction of more than 50% of greenhouse gas emissions from every process involved in manufacturing, the actual operation of the car itself, and even until it gets recycled.

3.2 Micro-Environment - Five-Forces-Analysis

The model of porters five forces as seen in Figure 2, is useful to identify the influences and the attractiveness of the business sector Tesla is involved in and therefore it helps with the as­sessment of the business sector (cf. Jones, 2016). The major points are summarized in Figure 2, but completeness is not claimed.

Abbildung in dieser Leseprobe nicht enthalten

Source: Own illustration, adapted from Mintz, J. (2014) and Study-aids.co.uk (n.d.)

Figure 2: Porters Five-Forces-Analysis of Tesla, Inc.

3.2.1 The Threat from New Entrants

The business sector where Tesla is present, is difficult to compete with, since it has a high cost of brand development (Kissinger, 2019) and in general the capital expenditure needed for the ev sector keeps new businesses away (cf. Jones, 2016). Therefore, it can be concluded that only existing car manufacturers that have large resources available can fully engage them­selves in this business sector. Lastly, Tesla benefits from increasing economies of scale, whereas new entrants can only profit upon exceeding a production threshold (cf. Kissinger, 2019). In conclusion, this aspect of the analysis is a weak force for Tesla.

3.2.2 The Bargaining Power of Buyers

This aspect of the analysis shows that bargaining power of a buyer is significant (cf. Dudov- skiy, 2018), since low switching costs reduce barriers for Tesla's customers to purchase other electric vehicles such as Audi's E-Tron Quattro or Jaguar's I-Pace (Kissinger, 2019). This re­sults in a strong force, however Kissinger (2019) elaborates that there is not a high number of substitutes to choose from, which limits the bargaining power of the buyer. Various estab­lished and new automotive companies are getting more engaged in this business sector, which customers might notice (Dudovskiy, 2018). Another aspect according to Kissinger (2019) is that most customer are only owning one or a few cars, which results in low volume purchases. The preceding information are reason enough to evaluate this aspect with moderate im­portance.

3.2.3 Threat of Substitution

The threats of substitution are identified as hybrid or diesel cars, as well as other electric and solar power cars. Also, there are substitutes arising from utilizing buses or trains and bicycles (cf. Jones, 2016). Therefore, low switching costs enables those named substitutes to easily at­tract customers, which results as a strong force against Tesla's industry environment (cf. Kis­singer, 2019). However, many of those substitutes only have moderate level of performance in satisfying the customer and therefore even though there are a respecting number of substi­tutes available, not all of them are suitable. Kissinger (2019) explains this with an example, where riding a bus is not as versatile as driving a private car. Given this, the availability of satisfying substitutes is only moderate (Kissinger, 2019).

3.2.4 The Bargaining Power of Suppliers

This aspect of the analysis is responsible to identify how suppliers shape the industry environ­ment by influencing the access of materials that Tesla needs. Of moderate to high importance is that suppliers have control in the distribution and sales of Tesla's products (cf. Kissinger, 2019). Therefore, suppliers have a high bargaining power since the disability of a supplier de­livering raw materials, lets Tesla suffer (cf. Jones, 2016). Lastly, suppliers are only moder­ately sized and provide a moderate level of supply, which results in limited influence on the electric automotive industry (cf. Kissinger, 2019). As a result, this aspect of the analysis is of moderate importance.

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Details

Seiten
35
Jahr
2019
ISBN (eBook)
9783346234742
ISBN (Buch)
9783346234759
Sprache
Englisch
Katalognummer
v918398
Institution / Hochschule
Technische Hochschule Mittelhessen
Note
2,2
Schlagworte
Tesla Pestle Swot Tows Five Forces

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Titel: Tesla, Inc. and the world's transition to electric vehicles. Risks, strenghts, opportunities and strategic reccommendations