This study investigates the market information, competitive advantage, and strategic focus of Tesla Motors Inc. in the face of increasing competition in the motors market and the change in customer demands. It analyzes the company’s internal and external environment with a view of identifying the strengths, weaknesses, opportunities and threats that exist. It discusses Tesla’s competitive advantages in the lucrative electric car market and finally gives a strategy focus that the company should adopt in order to counter competition and improve its financial performance.
Tesla Motors Inc. (TSLA) is an electric vehicle manufacturer working in the Auto and Truck manufacturers industry in the consumer cyclical sector. Tesla designs, develops, manufactures and sells electric vehicle powertrain subparts and an advanced model of electric vehicles through its own network of service and sales centers and supercharger points stationed in North America, Asia and Europe. The company is able to maintain a strong competitive edge in the auto and truck manufacturers industry due to its design of high performance electric vehicles, operational infrastructure, and an excellent team of electric vehicle engineering experts. The company’s strategic focus is the design of cost effective vehicles that offer high performance without compromising on performance and flexibility. Its flagship models are known for their energy efficiency and form the basis for future model designs (Tesla Motors Inc., 2014).
Situational Analysis of the Current Customer Environments
Tesla current market is comprised of individual customers. It has also established strategic relationships and commercial partnerships with industry giants such as Daimler, Toyota, and Panasonic. Most of these individual customers are located in North America, Europe and Asia. They form the largest market for Tesla’s Model S electric cars. The strategic partnerships with Daimler, Toyota, and Panasonic are majorly on the provision of Tesla’s technologically advanced electric components. The company entered into a power train development agreement with Daimler AG in 2009 which involved the development of battery pack and charger for the company’s Smart 4 electric car. This has seen Tesla sell over 2000 battery packs to Daimler as at 2011.The company is also in the process of providing development services for a fully electric B- Class Mercedes-Benz vehicle.
Toyota Motor Corporation also forms a part of the external environment for Tesla. In this arrangement, the company sourced its Model S parts from Toyota in addition to engineering and production expertise in return for developing an electric powertrain for Toyota’s RAV4 model. Panasonic and Tesla formed a partnership which will see the development of electric vehicle cells thus seeing Panasonic become the sole supplier of Tesla’s battery cells. Most of the company’s sales and marketing activities are facilitated by company-owned stores and galleries, Tesla supercharger network and through deposits and reservations (Tesla Motors Inc., 2014).
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The company’s major strengths are technological innovation, high product performance, product quality and safety, a high quality designing and styling technique, service options, and good brand perception in the market, competitive pricing and sales and manufacturing efficiency that is a cut above the competitors. With regards to Tesla’s weaknesses, it results from the company’s lack of operational experience. It lacks the manufacturing experience of the likes of BMW, Audi and Toyota which are already established in the market. The major threat is the increasing competition in the highly lucrative premium car market posed by competitors that have huge financial, technical and manufacturing resources like Chevrolet, Renault, Toyota and Audi. There exist significant opportunities in the market given the developments in technology in the electric car industry which remains untapped. The focus on green energy by governments means that the development of zero emission vehicles will be a focus for the future (Bergen & Peteraf, 2002).
- Long range driving experience
- Fuel economy and zero emission technology
- Exclusive Design of High Performance electric vehicles
- Strong base for operational infrastructure
- Excellent team of engineering expertise
- Wide network of sales and service personnel and recharge stations scattered across North America, Asia and Europe
- Limited experience to sale and servicing its vehicles internationally
- Lack of operational experience due to the limited history of operations
- Limited financial resources and poor financial performance over the years which have affected the value of its stocks
- Inability to enforce its contractual and intellectual property rights in international states
- Difficulty in attracting customers in new jurisdictions
- Focus on a single strategy of production of electric cars may limit its potential
- Customers’ willingness to adopt electric vehicles
- Technological advancements in developing low cost and fuel efficient automobiles
- Development of green energy which drives the need for energy efficiency
- Government incentives such as tax breaks and sales tax reliefs
- Increasing cut throat competition from established manufacturers and new entrants
- Inability of the suppliers to continue to deliver services
- Fluctuations in foreign exchange rates
- Stringent regulatory requirements by the state laws and federal laws
- Changing customer demands and market dynamics
- Increased risk of unauthorized and uncompensated use of Tesla’s technology
Three Competitive Advantages
Long Range and Recharging Flexibility
Tesla’s vehicles provide long range flexibility for its customers which are more than double the range of electric vehicles that are commercially-available in the market. The competitiveness of Tesla’s vehicles is also enhanced given that it incorporates a proprietary on-board charging system which ensures that recharging can be made from any electronic outlet. The company’s Model S vehicles are an example of the company’s recharging flexibility given that they offer customer’s fast charging capability which is available from its supercharger network. This two competitive advantage factors are aimed at reducing customer anxiety over range, doing away with the need for an expensive and large scale infrastructure for recharging and differentiating the company’s electronic vehicles from the competitors’.
Energy Efficiency and Cost of Ownership
Tesla’s vehicles are a cut above other similar hybrid electric vehicles currently available in the market. This is enabled by the technology that the company uses in building mechanically simple, lighter and more energy consuming vehicles using the single electric powertrain technology. This means that the company’s vehicles fuel consumption is equivalent to 20% of similar internal combustion vehicles internationally and in the United States. The company also develops fewer moving parts of its vehicles eliminating major components such as oil, spark plugs, oil filters and engine valves thus greatly cutting down maintenance costs. Government incentives are also beneficial in further lowering these costs.
High-Performance while Maintaining Design and Functionality
Most early designs of electric vehicles encountered a challenge of balancing between design and performance. Tesla’s vehicles have been tested and proved able to provide customers with long range driving experience with instantaneous and sustained acceleration which no other competitor provides. Most importantly, its major Model S has a 5-seater capacity with unique features which perform better than other similar vehicles in the market.
The External Environment
The external environment can be defined as a force that exists in an organization to which the management has minimal control or no control at all.
Tesla inevitably faces a large degree of competition from existing automobile manufacturers that operate in a highly competitive premium sedan market. The major competitors in this market include Audi, BMW, Lexus and Mercedes. The evolution to electric vehicles has been orchestrated by the shifting customer needs and expectations in the market, a strict regulatory environment with regards to occupant safety and technological advancements in the electric-based motor industry. Additional competitors are expected to make an entry into the alternative fuel vehicles markets which will significantly change the dynamics of the industry. Most recently, established automobiles have entered the market. Toyota introduced the Nissan Leaf, Ford introduced Ford Focus vehicle, Renault came up with Renault Fluence, and Fiat offered the Fiat 500e. Other competitors such as BMW, Lexus, Volkswagen, Renault, Fiat and Audi are currently developing a new range of electric vehicles.
These current competitors such as BMW and the potential competitors such as Chevrolet have a greater financial muscle than Tesla in addition to more technical expertise, manufacturing capability and marketing resources. This means that the competitors will invest more in design, development and manufacture of electric vehicles and component parts. In addition to this, they have a greater capability in the marketing, sales and distribution of their products due to their large customer base. Big automobile firms such as Toyota and BMW have been in the market for a longer period of time than Tesla, thus having greater name recognition and established customer relationships, which means that they are making more sales than Tesla. The company’s focus on the design, development and manufacture of electric cars and their components is aimed at positioning the company in the highly lucrative automobiles market despite the limited operations history (Porter, 2008).
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Regulatory Credits Requirements
Tesla has introduced zero emission vehicles in the global market and this has seen it receive numerous regulatory credits. Current California state regulations and DOE regulations require that each automobile company makes sales in a particular state to ensure that such vehicles are zero emission vehicles. Conformance to these regulations leads to the companies earning ZEV credits and the surplus credits can then be sold to other firms with insufficient credits. Tesla manufactures and sells zero-emission vehicles and therefore can be said to be fully compliant to these regulations. It has also seen the company enter into an agreement with large volume manufacturers within California in terms of selling them the surplus credits so that they can fully comply with the state regulations.
Regulations as to emissions had also been set and this affected the company’s internal operations. These regulations set minimum standards for carbon II Oxide emissions for trucks and cars. Also, in this aspect manufacturers can earn as many credits as possible if they fully comply with these requirements as set by the Environmental Protection Agency’s (EPA) National Greenhouse Gas emission standards. There are also Corporate Average Fuel Economy (CAFE) standards set out with regards to fuel economy by the National Highway Traffic Safety Administration (NHTSA).These standards are set to ensure that manufacturers of cars and trucks adhere to the fuel economy standards in the design, development and manufacture of vehicles.
Vehicle Safety and Testing Regulations
The company’s vehicles are exempt from many of the requirements set by the National Highway Traffic Safety Administration (NHTSA). Its flagship Model S is fully compliant with the U.S federal motor vehicle safety standards (FMVSS). These standards are counter checked for compliance purposes before the company puts any model of its vehicles in the local market or for importation into the United States. Some of these requirements include exemption to advanced air bag and electronic stability control requirements. Model S is fully compliant with these requirements however, without the need of these exemptions. The other brand, Tesla Roadster is also compliant with the all applicable NHTSA standards. This is noted by the fact that the company affixes a NHTSA certification label to each car of Model S and Tesla Roadster that is sold.
Other Regulatory Requirements
Tesla is also required to comply with a number of federal laws which are set and periodically reviewed by the NHTSA. These include consumer information labeling requirements, Theft Prevention Act requirements, Corporate Average Fuel Economy standards, field reports, warranty claims and death & injury reports. They are also required to comply with owner’s manual requirements. Most importantly, the company is required to put much emphasis on the crash-worthiness requirements, crash avoidance requirements and electric vehicle requirements. In addition to these requirements, the Automobile Information and Disclosure Act mandates all automobile manufacturers to disclose important information on the retail prices of their vehicles, optional equipment and the mode of pricing.
The company may experience a decline in its competitive position if it fails to keep up with the technological advancements in the industry. This will require regular sourcing and integration of the latest technology in its development and manufacture of electric cars and the sub component parts.
Other External Environment Factors
Some of these factors include policies in foreign nations with regards to preference of locally manufactured products, foreign labor laws, regulations and restrictions, instabilities created as a result of political unrests, wars and terrorism, natural disasters and uncertainties in the international economies and due to global economy factors such as rising cost of international gasoline prices and global financial meltdown.
Strategic Focus for Tesla Motors Inc.
Based on Tesla’s competitive advantage, the strategic focus should be an exclusive development, manufacture, marketing, sales and distribution of electric vehicles and electric vehicle components. The exclusive focus on the design, development, manufacture, sales, distribution and servicing of high performance electric cars is necessary for Tesla in order to keep up with competition in the market. This strategic focus will enhance the company’s performance with regards to its competitive advantages of offering long range driving experience, recharge flexibility, energy efficiency and superior product performance while ensuring affordability and low cost of maintenance (Magretta, 2012).
In the face of increasing competition in the electric car market, the adoption of a new strategy focus is essential in turning around the fortunes of the company. The company will need to expand its customer base in the international market in terms of sales and service provision for its brand of cars. In addition to the changing dynamics in the market, Tesla success will be determined by how well it can counter the threat of competition in the market, managing future customer demands and expectations, and maintaining supplier relationships.