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Strategic Advantage - Tesla Cars

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Table of Contents

Executive Summary.........................................................................................................................3

Analysis of External Situation of TESLA.......................................................................................4

Competitive rivalry or competition with Tesla Inc......................................................................4

Bargaining power of Tesla’s buyers or customers......................................................................5

Bargaining power of Tesla’s suppliers........................................................................................5

The threat of substitutes or substitution.......................................................................................6

The threat of new entrants or new entry......................................................................................6

Analysis of the Internal Situation of TESLA..................................................................................7

Product Features..........................................................................................................................7

Customer Service.........................................................................................................................8

Complements...............................................................................................................................8

Quality differentiation.................................................................................................................9

Analysis of future threats of Tesla...................................................................................................9

Willingness to Pay & Cost Reduction Activities.........................................................................9

Cost of Input Factors.................................................................................................................10

Economies of Scale....................................................................................................................10

Recommendation...........................................................................................................................10

Reference list.................................................................................................................................12
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Executive Summary
The strategic analysis of Tesla shows the factors concerning the internal and external
environment of Tesla Motors Inc. The factors affecting both the external and external
environment are analyzed using Porter's five forces and the differentiation strategy respectively.
The transformational leadership causes a diversification in the Tesla from manufacturing a
proper car to energy storage and to the solar cells and then manufacturing electric vehicles. This
made Tesla develop its products and increased its brand value in the global world. The cost
leadership strategy indicated the drawbacks of the company and the ways to mitigate those
problems with a timeline.
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Analysis of External Situation of TESLA

Tesla Inc. maintains its profitability level through the adoption of different strategic measures
that act as competitive advantage of the company. One of the best methods to measure the
impact of the external factors is the five-porter forces analysis. Michael Porter develops this
method. Porter’s five forces of Tesla considers at the external factors of the company and the
impact of these factors (Brodsky, et al., 2017). Therefore, Tesla can find the external factors
using the five forces method to gain long-term competence and to maintain its position in the
automobile industry. Using Porter's five forces, Tesla addresses the external factors that affect
the company. The five forces are:
1. Competitive rivalry or competition: Strong
2. Bargaining power of buyers or customers: Moderate
3. Bargaining power of suppliers: Moderate
4. The threat of substitutes or substitution: Moderate
5. The threat of new entrants or new entry: Weak
Competitive rivalry or competition with Tesla Inc.
One of the main external aspects of Tesla Inc. is that the company operates in a highly
competitive market. Therefore, the five forces analysis shows the influence of competition on the
automotive and the energy parts of the industry. In Tesla, the external factors that are responsible
for bringing competition among the rival firms are:
a. Presence of a small number of firms.
b. The aggressiveness of the firms.
c. Lower availability of switching costs.
Therefore, if there is a small number of firms in the market, the competition among the firms in
the industry will increase. In Porter's five forces analysis, this type of external factor reduces the
competition in the companies such as Tesla Inc. Even firms in this industry are aggressive in
terms of manufacturing and promoting its products in the market (Kissinger, 2018). For instance,
companies that manufacture automobile always have a tendency of conducting aggressive
marketing campaigns in the market. The use of the Tesla’s marketing mix in the industry acts a
competitiveness to the other firms in the market and this acts as a strength of the company
against the competitors. Tesla’s marketing mix or the 4Ps are the product, place, promotion and
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price of the company (Kissinger, 2018). Tesla uses these factors to increase its strength among
the competitors. Presence of the lower availability of switching cost in the industry prevents the
customers to purchase cars from other manufacturers. Therefore, low switching cost also acts as
the strength of the company to compete with other manufacturers.
Bargaining power of Tesla’s buyers or customers
The response of the customers acts as a direct factor to determine the revenues of the company.
The factors that affect the bargaining power of Tesla Inc. are as follows:
a. Low switching costs
b. Moderate availability of substitute in the market.
c. Low volume of purchases in the industry.
The existence of low switching cost in the industry reduces the barrier of the customers of Tesla
to purchase different cars from other manufacturers. This external factor in Porter's five forces
analysis shows a strong force against the company and the companies present in the industry.
Even, availability of substitute of the products of Tesla in the market limits the bargaining power
of the buyers in the market (Kissinger, 2018). Lastly, lower volume of purchases in the industry
reduces the bargaining power of the customers in the market. Thus, these external factors of
Porter's five forces analysis reflect the bargaining power of the customers in the company.

Bargaining power of Tesla’s suppliers

The business of Tesla Inc. depends on the reliability of the suppliers. Therefore, Porter's five
forces analysis helps to analyse the ways suppliers influence the availability of the materials
required by the company in the market. Some factors that influence the bargaining power of
Tesla’s suppliers are as follows:
a. Moderate forward integration
b. The moderate size of the suppliers
c. Moderate level of supply
It has been found that Tesla Inc. has a lower level of forward integration in the industry. This
reflects the limitation on the control of distribution and sales of the products of the company. In
Porter's five forces, these external factors are termed as the moderate forces of the company. The
present size of suppliers limits the influence on the environment of the automotive industry.
Lastly, the moderate level of supply limits the availability of the products that influence the
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bargaining power of the suppliers of Tesla Inc. (Kissinger, 2018). These external factors are
analyzed using Porter’s five forces to indicate the bargaining power of the suppliers of the
company.

The threat of substitutes or substitution

The impact of substitutes on the automotive and energy solution of Tesla acts as a threat to the
company. The external factors that affect the substitution of the company are:
a. Low cost of switching
b. Moderate availability of substitute
c. Moderate performance of substitutes
It has been seen that the presence of low switching cost in the industry increases the competition
among other companies in the industry. In Porter's five forces analysis, it has been found that in
case of Tesla Inc. low switching cost enables the availability of substitution in the market. In this
case, the availability of substitute is in the form of public transportation in the industry. Public
transportation attracts the public quickly due to lower price and easily accessible (Kissinger,
2018). Therefore, this factor acts a strong force against the company. Moderate performance of
substitutes implies that the customers are moderately satisfied with a product. In other words, the
substitute products moderately satisfy the practical needs of the consumers. These factors of
Porter's five forces analysis act as the threats of substitution of Tesla Inc.

The threat of new entrants or new entry

The entry of new firms in the industry affects the industry and the performance of Tesla Inc. The
Porter's five forces analysis shows the external factors of the company that act as the threats to
the company. The external factors are:
a. The high cost of brand development
b. The high cost of doing business
c. Higher economies of scale
Presence of high cost of brand development prevents the other companies to grow in the
industry. If the brand value of Tesla Inc. is very high, it becomes difficult for the new entrants to
compete with the company in the same industry. The cost of manufacturing automobile is very
high and that acts as a barrier for the new firms to enter the industry. The presence of large
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economies of scale of Tesla Inc. in the industry acts a barrier to the new firms to enter the
market, as the new firms need to exceed the threshold level of the company to compete
(Kissinger, 2018). Therefore, these external factors pose a threat to the entry of new firms in the
industry.

Analysis of the Internal Situation of TESLA

The internal situation of the company (Tesla Inc.) is analyzed using differentiation strategies.
The differentiation strategy is known as the general strategy of the company. The differentiation
strategy builds the competitive advantage of the company based on the development of products
that are different from the products produced by the other companies in the industry. The value
of the drivers is analyzed in this strategy i.e. the drivers such as Product features, Customer
services, Complements, and Quality differentiation (Lambert, 2018). Tesla Inc. uses
differentiation strategy for obtaining competitive advantage in the industry. Tesla Inc. increases
investments in different departments of the company such as the Research and Development
(R&D), HR, Sales and Marketing to obtain the goals of the company (Rowland, 2018).
For instance, Tesla increased investment in the R&D department to develop new products that
are unique in nature and different from that of other companies in the industry (Ingle & Phute,
2016). This increased the market demand for the product and created competitive advantage for
the company. Tesla also uses differentiation strategy to strengthen the competitiveness by
expanding the size of the market that will increase the sale amount and will increase the
popularity of the brand in the industry.
Some of the internal factors of Tesla Inc. that affects the internal situation of the company using
the differentiation strategy are as follows:
1. Product Features
2. Customer Service
3. Complements
4. Quality differentiation
Product Features
The main drawback of purchasing electric cars is the lack of resources required for charging the
vehicles and the high cost of installing a charging station in the owner's house. This causes a
problem for the owners to afford the additional cost after purchasing the electric vehicles. If the
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individuals ride their electric vehicles for a long time, they need to find a charging station to
recharge their vehicles. This creates a problem for individuals. However, Tesla developed a new
feature that will reduce the cost and effort of the owners of electric vehicles (Jaberwock, 2018).
It has developed supercharging station that will charge the vehicles within 20 minutes and these
stations can be easily accessed to without any hazard. Tesla cars are regularly updating new
locations of the supercharging station that will allow the individuals to ride their electric vehicles
for a long time and the battery can be recharged in the supercharging station (Lambert, 2018).
This feature made them distinct from other companies manufacturing electric vehicles.
Therefore, differentiation strategy made Tesla invest in the research and development (R&D)
department to develop a unique feature for its product.

Customer Service
Tesla Inc. is inclined more towards the customers by providing good services and good products
with honesty than towards earning profits from its products. This has increased its reputation for
morality and integrity in the automobile industry. There was a lack of reputation in the
automobile industry. Most of the manufacturers are interested in gaining more and more profits
earned from their product. They tend to lack looking after the customers and their demand
(Lyyra & Koskinen, 2017). The services provided by the Tesla to its customers makes it different
from other companies in the market. Therefore, if Tesla continues to maintain its reputation in
the upcoming years, it can earn more profits and brand loyalty. The Human Resource (HR)
department looks after the services to be provided to the buyers and to fulfil their request. It can
modify the approaches of its business to compete with the ‘human’ side of the economy (Perkins
& Murmann, 2018). This would make it different from the other companies in the automobile
industry.

Complements
Tesla Inc. has developed many new and superb products that changed the reaction of the
customers. Tesla developed the Tesla Roadster car that changes the image of the electric
vehicles. Previously, individuals used to think that electric cars are generally small and they run
for a shorter distance due to draining of the battery. However, Tesla changed everything, i.e. they
developed Roadster as the new sports car that can compete with sports cars such as Porsche in
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the track (Pratap, 2017). By introducing, the expensive gas-mobile electric car, it has
distinguished itself from other companies in the industry. Moreover, it introduced a cheaper
model S sedan car for the average income-group people that created an award-winning record of
the quickest production sedan car in the history. The ‘sales and marketing’ department of Tesla
looks after the revenue generated from introducing new products in the market. The car can
accelerate from 0 to 60 mph in few minutes (Zach, 2018). This, as well, makes it different from
other companies in the industry.

Quality differentiation
The battery of the Electric Vehicles is made for travelling shorter distances. Nevertheless, Tesla
is improving the battery packs of the Electric Vehicles. The battery of Tesla is cheaper than other
batteries of Electric vehicles. The battery of Tesla consists of the quality of Panasonic's cell and
the other part consists of Tesla's production (Stringham, Miller, & Clark, 2015). This made Tesla
produce better quality batteries for Electric vehicles. Tesla intends to produce better quality
batteries. Research and development (R&D) department are looking for the better-quality
batteries at a cheaper cost for the public. This makes them different from the other Electric
Vehicles companies in terms of quality and cost. Therefore, using the differentiation strategy,
Tesla improved the quality of battery and cost reduction.

Analysis of future threats of Tesla

To analyse the future threats of Tesla, the cost-leadership strategy must be used. The cost-
leadership strategy includes three different factors that help to obtain the future threats of the
company. The three factors that analyze the cost-leadership strategy of the company are:
1. Willingness to Pay & Cost Reduction Activities
2. Cost of Input Factors
3. Economies of Scale
Willingness to Pay & Cost Reduction Activities
There was a survey conducted on 145 U.S Tesla owners and it was found that not all the owners
are necessarily wealthy to adopt all kinds of thigh technology cars in the market. Almost 70 per
cent of the owners moved to Tesla from other cars that cost less than $60,000 (Zhang, 2018).
However, all the owners were willing to pay more than the current price of Tesla. It was found
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that the customers were willing to pay 60 per cent more than the prevailing price rate (Zhang,
2018). This made Tesla different from other cars. Production of Tesla’s model 3 car made a cost
reduction activity. Due to the high demand of the cars, it aims to increase its production rate to
10,000 units per week. To maintain the profit margin, Tesla laid off 9 per cent of its workforce to
cut down the cost of production. This indicates the cost-leadership strategy of the company.

Cost of Input Factors

Tesla thought to gain 25 per cent more than the current profit margin (Jaberwock, 2018).
However, the increase in the cost of raw materials, delays and the capital spending on the
production led to an increase in the price of the car. Therefore, if the price of model 3 cars is not
increased, the profit margin will fall below the promised margin (Rowland, 2018). This is a
threat to the company as new firms can enter into the market thereby increasing competition.
Economies of Scale
Since the rate of production of Tesla is increasing day by day. There is an expansion of
economies of scale in the market. The company improved the rate of delivering products from a
hundred cars per quarter to 30,000 cars per quarter (Lambert, 2018). The average cost of
producing the cars decreases and this shows an influence of cost reduction activities.

Recommendation
Tesla must improve its presence in the multinational companies in different developing
countries. The company must continue its investment in the research and development
department to produce more technologically advanced products that are different from other
companies in the industry. The cost-leadership strategy used by Tesla showed that the company
laid off workers to cut down the cost of the product. This will create a serious problem, as the
demand for Tesla cars is very high and can generate lower profits for the company. Therefore,
the strategy execution of Tesla recommends increasing the cost of products of Tesla in order to
earn higher profits. It is also recommended to increase investments for innovating new products.
Figure 1: Recommendation with Timeline
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Activities Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Budget analysis
Determination of investment for R&D
Resource allocation to R&D
Training for developing creativity skill of the R&D staff
Adoption of latest technology for R&D innovation
Developing new products using advanced technology
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Reference list
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Ingle, S. and Phute, M., 2016. Tesla autopilot: semi-autonomous driving, an uptick for future
autonomy. International Research Journal of Engineering and Technology, 3(9).
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dynamics in the global automobile sector? Management and Organization Review, 14(3),
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Zhang, B., 2018. Analyst: Tesla owners are willing to pay way more for the Model S than a
traditional car. [online] BUSINESS INSIDER. Available at:
<https://www.businessinsider.in/Analyst-Tesla-owners-are-willing-to-pay-way-more-for-the-
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