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Introduction
In the environmental vehicle (EV) industry, Tesla, Inc. is currently a global leader with high brand recognition and customer loyalty. Tesla, Inc. products are not limited to EV manufacturing and sales but also include the expansion of charging stations, next-generation batteries, and intangible assets, namely the development of EV management software, including the autopilot feature. Tesla, Inc.s primary market is the U.S. and Canada, with a share of over 2.5% of the industrys total size, with Tesla, Inc. also well represented in Europe (1.8%) and China (1.6%) (Kane, 2022). Notably, this figure has shown steady growth over the past six years, so Tesla, Inc. is projected to increase its presence in domestic and foreign markets. The companys mission is to accelerate the transition of global markets to sustainable energy consumption, with the corporate vision being to create the most attractive car company of the 21st century by driving the transition to EVs (Tesla, 2022d). For this reason, the brands core values are conscious risk-taking and experimentation, continuous learning, and respect, caring for the environment, and maximizing effort. This strategic report aims to provide business recommendations on future development for the Tesla, Inc.s board
External Analysis
Examining the external environment of Tesla, Inc. allows identifying the key factors that affect the corporate development of the organization and assess growth opportunities. The following subsections include specific factors regarding Tesla, Inc., which are discussed using the PESTEL, Five Forces, and partial SWOT models.
Political Factors
Under the Obama and Trump presidencies, Tesla, Inc. received government benefits and enjoyed a lucrative offer stimulated by government support. However, with the arrival of Bidens administration, the situation at Tesla, Inc. has changed almost diametrically. Although Biden, in the summer of 2021, triumphantly announced ambitious plans for the U.S. to increase the share of EV in the country to 50 percent by 2030, in reality, it proved to be a failure for Tesla, Inc. (Grandoni and Dennis, 2021). One clear example of Bidens anti-Tesla, Inc. policy is a $4,500 subsidy to citizens as long as they buy EV from American-made companies created by the union1 (Siddiqui, 2021). Meanwhile, Tesla, Inc. offers more environmentally friendly vehicles than gasoline or gas-powered passenger cars: as a consequence, U.S. resident users of Tesla, Inc. products are eligible to receive a tax deduction for promoting environmental safety, up to $7,500 (EPA, 2022a).
Economic Factors
The increasing share of EV manufacturers, Tesla, Inc.s main product, in the national and global markets hurts the companys economic well-being. Tesla, Inc. is still at the top of the EV brand rankings, but the agenda is rapidly shifting as competitors in the industry strengthen their position (Table 1.1). Nationally, economic growth and unemployment are expected to decline, which means, eventually, Tesla, Inc. will have to pay more to employees to maintain a favorable work environment (US BLS, 2022). The effect is amplified by growing competition because, as Figure 1.1 shows, the EV market will undergo substantial growth in the coming six years.
Social Factors
There is a steady trend toward a greening society and a culture of adequate consumption, and the Tesla, Inc. product fits well in this sense of eco-friendly vehicles (Söderholm, 2020). Global demand for EV batteries is projected to continue to grow by 2050 (Figure 1.2), creating a positive demand agenda for Tesla, Inc. (SRD, 2022). The trend toward digitalization of life is also noticeable, and Tesla, Inc. innovations, be they smart autopilot, regular software updates, and additional competitive features, are contributing to more robust demand.
Technological Factors
The number of charging stations for EV is constantly increasing, which creates a comfortable environment for Tesla, Inc. to purchase the product as increased opportunities for EV arise each year (Figure 1.3). Fast charging technology is also developing, as well as solar-powered stations, potentially increasing demand and creating growth opportunities for Tesla, Inc.
Legal Factors
The original U.S. company is expanding into foreign markets over time, so Tesla, Inc. must comply with regulations and laws in other countries. Even within the U.S., not all states are legally allowed to fully utilize the companys product, as autopilots are still not permitted (AutoInsurance, 2022). The company also often faces class action lawsuits based on racial and gender discrimination in corporate practices (Wiessner and Hals, 2022).
Environmental Factors
Although the Tesla, Inc. product is considered more environmentally friendly than classic passenger cars, there is a common belief that this is not the case (Widota, 2019). Incorrectly recyclable batteries threaten the environment, and if the manufacturer fails to ensure this, it is subject to fines in some states (EPA, 2022b). Tesla, Inc. has switched to clean solar energy panels (Figure 1.4) and openly states its commitment to environmental safety.
Five Forces
Based on the analysis of the Five Forces, this industry is attractive to Tesla, Inc.
Partial SWOT/Conclusion
Internal Analysis
Value Chain Model (VCM)
Based on VCM, the main reasons customers continue to buy from Tesla, Inc. are effective marketing, sustainability, and personalization of operations. Table 2.2 summarizes distinctive and conventional operations: it is the distinctive features that create high brand value and lead to higher profits over the past fourteen years (Figure 2.1).
VRIO
Value
Tesla, Inc. is a valuable company because it has become one of the few companies that have surpassed a $1 billion capitalization and is also the leader in brand recognition in the EV industry (Thomas, 2021; Garsten, 2019). Musks impulsive management coupled with high customer loyalty to management and a developed customer community support high brand value.
Rare
Tesla, Inc. is not the only player in the EV industry (Figure 1.6) but combined with a mature community and aligned marketing that supports custom sales, Tesla, Inc. should be considered a rare brand in the industry.
Inimitability
Tesla, Inc. products, not so much the cars as the service and technology, are inimitable at the moment because the synthesis of personalization, innovation, and a largely positive customer experience for luxury EVs has not yet been surpassed. While the cars themselves can be replicated, Tesla, Inc.s strong advantage lies in the accompanying service the company gives the customer.
Organization
Tesla, Inc. has a well-established supply chain (Figure 2.2) and is also actively investing in creating gigafactories in the United States. The company has established a well-developed supplier system (Table 2.1) and demonstrates efficient work on customer demand. Therefore, Tesla, Inc. should be viewed as a highly organized brand.
Conclusion of the Internal Analysis
Tesla, Inc. has a central competitive advantage through valuable service and market positioning as a predominantly technology company rather than an automotive company, which qualitatively sets Tesla, Inc. apart from its competitors. However, despite the current advantages, it is not unlikely that major competitors will be able to mimic the companys successful model and reach more consumer segments, causing Tesla, Inc. to instantly lose key advantages. Below is a partial SWOT analysis to identify the key strengths and weaknesses of the company in the context of internal analysis. It follows from the SWOT that although the Tesla, Inc. has substantial competitive advantages, it cannot remain an absolute industry leader without effectively addressing its limitations.
Business Strategy and Model
Porters Generic Strategy
The current key profit strategy at Tesla, Inc. is broad differentiation, in which the company actively invests in R&D and quality customer service to achieve a competitive advantage in the EV industry. Differentiation also creates secondary products charging stations, unique technology, next-generation batteries that encourage users to purchase the core products (Saxena and Vibhandik, 2021).
Bowmans Strategy Clock
Bowmans Strategy Clock (Figure 3.1) shows that Tesla, Inc.s strategy is to create a moderately priced product with a quality competitive edge. Tesla, Inc. is focusing on wealthy customers for whom the cars prestige is necessary because Tesla, Inc.s EVs are not well suited for long out-of-town trips (Cristovao, 2021). Although Tesla, Inc. is trying to expand its potential customer base by lowering costs and increasing offerings, at the moment, its audience is focused and limited by technical and financial barriers. It is not profitable for the company to pursue low-price strategies because it may not justify the operating costs of creating a unique product with excellent service, which is the main competitive advantage of Tesla, Inc.
Business Model
The uniqueness of the Tesla, Inc. business model lies in creating a high-value end product and the perception of its uniqueness. Customers cannot buy the companys EVs from dealerships or resellers, with the cars near-high price range deliberately limiting supply (Zucchi, 2022). Investing in secondary product development drives sales and popularity of Tesla, Inc. vehicles (Saxena and Vibhandik, 2021). For this reason, the companys business model is based on broad differentiation, in which Tesla, Inc. has complete control over pricing and supply chain, as well as directly collected data on machine usage, which systematically maintains customer loyalty through developing tools.
Issues & Challenges and Strategic Options for Growth
Current Issues & Challenges
Based on the earlier analysis of the external and internal environment, several critical problems faced by Tesla, Inc. at the moment can be identified. First, there is the problem of rush demand: since Tesla, Inc. supplies orders only when actually placed by the user, it cannot cover excess demand, which leads to a forced restriction of the customer base and, as a result, a shift of unprepared consumers to industry competitors. The problem of insufficient production capacity also creates constraints on orders already placed, as Tesla, Inc. may cause operational logistics to slow down in an effort to increase its reach among customers. As a result, the wait for a new EV from Tesla, Inc. can be several months, and announced new products can be continually postponed indefinitely (Kane, 2022).
Second is the excessive eccentricity of Elon Musks leadership, which has created an agenda in which rash decisions can lead to spikes in volatility. For example, in May 2019, Musk wrote on his Twitter profile that Tesla, Inc. stock was severely overvalued (Figure 4.1), causing herd investors to sell the securities actively the share price dropped nearly 10 percent (Musk, 2020; Yahoo! Finance, 2022). The inability to control the virtual behavior of the CEO, or rather the high loyalty of private investors to his statements, has an ambiguous effect on the market value of Tesla, Inc. and can expectedly lead to failure, which creates problems for effective strategic planning.
Third, the company faces the organizational costs of disrupted logistical communication in both the COVID-19 pandemic and geopolitical crises around the world, including the economic response to Russias invasion of Ukraine (Xinyi, Chen, and Bai, 2022). Any such crisis leads to an increase in the cost of EV production or secondary products, which in turn predictably affects the cost to the consumer as well. Tesla, Inc. has dozens of suppliers in Asian and European countries, so disruption of supply chains is an operational problem for the company.
Strategic Options
Based on the identified challenges that Tesla, Inc. is currently facing, several options for managing them should be proposed. Below is a demonstrated TOWS analysis based on preliminary statements gathered through SWOT presented eight specific strategies that can be used by Tesla, Inc. to improve its competitive advantage and eliminate any threats. Among the most accessible is increasing the proportion of capital spent on R&D. To date, Tesla, Inc. is spending only 4.3% of total profits on R&D-related expenses (Table 1.2). Although this is the maximum among industry competitors, Tesla, Inc. should be viewed as a technology company to determine its place among the industrys competitors. Table 4.1 compares R&D operating expenses as a total share of earnings for technology industry competitors over the past twelve months. As one can see, Tesla, Inc. is not a leader in this industry, so it has avenues for growth.
Table 4.1: R&D spending rates for large technology companies compared to Tesla, Inc. (obtained from Capital IQ).
Another development strategy is moving core production and storage to gigafactories in the U.S., which will significantly reduce the operational risks associated with global crises. Full-format assembly in the U.S., where most of Tesla, Inc.s customers are represented, will allow the company to manage better supplies and control pricing, which will have a positive impact on the customer experience and create a competitive advantage for Tesla, Inc. (AMR, 2022). Another critical strategy for commercial development is to take control of Musks impulsive leadership. It is recognized that his behavior directly affects the market value and reputational appeal of Tesla, Inc., but at the same time, it is also recognized that abandoning such behavior can have disruptive long-term consequences. For this reason, Musks controlled conduct with respect to Tesla, Inc. is effective, dictated by the decisions of the companys board of directors and lawyers, to avoid adverse effects on the brand but to maintain audience interest in Tesla, Inc.
Strategic Options
Increasing the share of investment in R&D
The first strategy chosen in the last step is to increase the share of spending as part of the total capital spent on innovation and research. Since the current level at Tesla, Inc. is higher than competitors in the EV industry but significantly lower than competitors in the technology industry, it is implied that the company can demonstrate growth in this parameter. From an Appropriateness perspective, this strategy seems highly acceptable, as it aims not only to grow the brands competitive advantage but also to increase the loyalty of innovation-prone customers. Tesla, Inc. is already strongly associated in consumer perception with technology, so this bar cannot be lowered but has positive opportunities to increase further (DeBord, 2020). For comparison, Table 5.1 shows historical data on the share of operating expenses spent on R&D it is clearly visible that the company this value shows a generally downward trend for the last ten years, which means Tesla, Inc. is gradually moving away from a commitment to innovation, which has negative consequences for customer loyalty. It is for this reason that this strategy is Acceptable, as a gradual increase in this indicator, expressed in the development of modern technologies and tools for EV management, will be beneficial to both Tesla, Inc. and its customers. By investing in innovation, among other things, Tesla, Inc. will become more integrated into the technology industry, in which it will have to compete with new players (Apple, Google, Amazon), which means it will have access to an expanded customer base. However, if this strategy fails, when investments have been increased, but revolutionary innovations have not been provided, Tesla, Inc. risks losing its reputation and customers, which will affect profits, among other things. Finally, the strategy is entirely feasible because it affects the financial,
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