Critical of the first part of this essay

Critical
Perspectives in Strategy BMAN 24141 essay

 

ID:
9970760

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Chosen
Company: Tesla

 

Introduction

 

In today’s world due to the fast-paced
technological advances, economies and industries are changing at a constantly
accelerating rhythm. Especially in the last decade huge shifts in the
automobile industry have been made. Due to finite unrenewable resources, the
increasing price of oil and increasing ecological awareness of the population,
a lot of automobile manufacturers have tried to access the electric car market
to meet the rising customer demand for sustainable technologies. The emerging
e-car industry faces several challenges such as limited driving range and too
high car prices. Firms operating in this industry need to create value and must
find a solution to overcome these problems. Tesla has proved to be the company
with the greatest impact on electric vehicle development, and it is responsible
for the huge raise in awareness about electric vehicles around the globe.

 

Part A

 

The
purpose of the first part of this essay is to analyse Tesla using one of the
main strategic tools that were taught in the course’s lectures. The strategic
tool that I have chosen to use for the first part of my analysis is the PESTEL
framework. A PESTEL analysis is a framework used to analyse and monitor the
macro-environmental factors that have an impact on an organisation (Professional
Academy, no date).
PESTEL stands for the Political, Economic, Social, Technological, Environmental
and Legal factors to which a company has to adapt the strategy that it plans to
follow.

 

Tesla PESTEL Analysis

 

The factors that Tesla has to plan its strategy
under, using the PESTEL framework, include:

 

 

Political

 

One of the biggest opportunities presented to Tesla
to expand is the government incentives that are offered in order to promote
environmental sustainability and reduce carbon dioxide emissions created by car
engines. These incentives include exemption from purchase tax, VAT and road
tolling amongst others (Kristin Ystmark Bjerkan, 2016). This has proved to
be immensely effective in countries where these incentives were widely
implemented, such as Norway and Germany, which are now global frontrunners in
automobile purchases. Another opportunity that Tesla has in order to expand
internationally and increase its market size, are the expanding free trade
agreements, which give it the opportunity for international expansion. Finally,
in all of Tesla’s major markets, which are mainly North America, Europe and
China, there is political stability and thus no danger of political
circumstances that could damage the company’s performance.

 

 

 

Economic

 

Tesla is expected to benefit tremendously from
decreasing battery costs for its electric vehicles which will give it the
opportunity to produce higher quantities of its products, and at a more
affordable price, hence it will be able to compete directly with ICE producers (Kissinger,
2017).
In addition, the plummeting renewable energy costs in wind and solar energy
will make Tesla’s products more attractive as renewable energy becomes more
popular. However, the economic instability in important regions for Tesla particularly
in Europe and Asia are expected to be a threat in the future.

 

 

Social

 

Tesla has huge growth opportunities based on the
popularity of low carbon lifestyles and increasing preference for renewable
energy. The global warming and the negative side effects of carbon emissions
have increased the social awareness for environmental sustainability, and thus
consumer demand is starting to shift towards electric vehicles. Moreover, the
improving wealth distribution in developing markets is set to increase Tesla’s
sales in regions that it is yet not so familiar with (Kissinger,
2017).

 

Technological

 

The high rate of technological change is a great
opportunity for the future of Tesla in its effort to produce higher quality
batteries and increase the driving range of its vehicles. The increasing
automation that technological advances will bring to manufacturing will
decrease production costs and will be beneficial to Tesla (McKinsey&
Company, 2017).
In addition, the increasing popularity if online mobile systems should prompt
the company to increasingly integrate these systems in its automobiles making
them even more consumer-friendly.

 

 

 

Environmental

 

The most important factors that have contributed to
Tesla’s rise as an automobile manufacturer are environmental factors. Tesla has
opportunities to promote its electric vehicles based on concerns on climate
change, expanding environmental programmes, and rising standards on waste
disposal and gas emissions (the spherepress, 2017). The
company’s electric vehicles in directly addressing these issues and are linked
to corporate sustainability and environmentally friendly products.

 

Legal

 

Tesla has opportunities to safely expand its
business overseas, considering expanding international patent protection. In
addition, the company has the opportunity to promote its electric vehicles
based on energy consumption regulations that client organizations must follow (Kissinger,
2017).
Also, Tesla has the opportunity to grow through direct sales, which is allowed
in many states in the US. However, other states do not allow direct sales and
instead require dealerships to transact with customers in the automotive market (the
spherepress, 2017).
These are legal factors that Tesla’s strategy must take under consideration.

 

Limitations to the PESTEL analysis for Tesla

 

A problem that may arise should Tesla follow the
PESTEL framework to shape its strategy, is that the external factors considered
during the PESTEL analysis are dynamic and they change at a very fast pace.
Therefore, it is tricky to predict why and how these factors may affect the
future of organisations. In addition, it is possible that there will be
unexpected opportunities or threats that could have not been predicted that
will affect the company at a greater or lesser scale (Thakur, 2010). A threat that could
arise for example is Tesla falling behind competitors in the future or the
threat of new entrants in the electrified vehicle industry with greater capital
than Tesla, or with more innovative products.

 

The best way for Tesla, a company that is now in
its growth stage, to continue its international expansion and to keep
increasing its sales and to ensure the continuations of its growth and the
avoidance of unexpected threats it to establish a successful business model.

 

Part B

 

 

The business model has been in recent years the
focus of substantial attention from both academics and practitioners and it is
emerging as a new unit of analysis for organizations. Business models emphasize
on a system level, holistic approach to explain how firms do business (Christoph
Zott, 2011).
They seek to explain how value is created from business activities, not just how
it is captured. A definition of the business model is: a representation of a
firm’s underlying core logic and strategic choices for creating and capturing
value (Shafer& Smith, 2005).

 

As it was analysed more thoroughly in Part A, the
market for electric vehicles is growing exponentially, for reasons that include
new regulations for vehicle emissions, technological advances and shifting
customer wants and expectations. However, much of the mainstream acceptance of
electric cars and their increasing popularity can be traced to Tesla Motors, as
the first company to try to produce 100% electrified vehicles to a large scale.
In the second part of this essay I am going to review Tesla’s business model
and critically evaluate how it can affect the company’s strategy, taking into
account the analysis of Part A.

 

Tesla’s Business Model

 

Tesla’s business model is distinguished from other
automobile manufacturers as it follows a unique retail strategy. Instead of
using dealerships to sell its cars, as most major automobile manufacturers do,
Tesla has a direct sales strategy and sells its cars through company owned
stores (Dutta, 2017). By owning the sales
channel, Tesla aims to gain an advantage in the speed of product development
against its competitors, and also to provide a superior customer experience, as
all of the sales and service staff in these galleries are Tesla employed. The
direct sales strategy is a problem in a few states in the US where direct sales
are illegal. However, in these states Tesla operates galleries where
information and guidance is provided by staff to prospective buyers, however
all sales are performed online (Tesla, 2015). Tesla also focuses
heavily on providing excellent customer service. This is why it has opened many
Service Centres in many locations internationally. Typical service items
offered at service centres include resolving any problems that may arise
post-delivery, annual services, and switching between summer and winter tyre
sets (Tesla, 2015).

 

 

 

In order to tackle on of Tesla vehicles’ main
disadvantages against gasoline fuelled cars, which is the short driving range,
Tesla has created a supercharger network: a network of charger stations where Tesla
drivers can fully charge their vehicles in 30 minutes’ time for free (Zucchi, 2015). Tesla holds this
concept as crucial to speed up the rate of adoption of its cars by the mass
public, as it has been so far unable to offer its customers with a method of
charging their cars on the go, as opposed to getting gasoline from a gas
station while driving. This is why one of Tesla’s main goals is to open as many
charger stations as possible in the future.

 

Finally, in order to achieve the goal of increasing
the economies of scale Tesla is building its first ‘Giga-Factory’ in Nevada,
which will be a massive and completely supported by renewable sources of energy
factory which will increase Tesla’s production in units and decrease its
production costs. The ‘Giga-factory’ is expected to be the main catalyst in
giving Tesla what it always wanted: making electrified vehicles available to
the mass public, as production in units is expected to reach 500,000 in 2018,
and Tesla’s plans include the building of similar ‘Giga-factories’ in Europe
and Asia in the future (Boccardelli, 2015). The effect of the ‘Giga-factories’
in terms of battery prices can be shown by estimates that by 2030 the lithium
batteries used by Tesla vehicles will cost 100 dollars per kWh when in 2010 the
cost was $1000 per kWh and in 2016 $227 per kWh.

 

Tesla is following a business model that has proved
nothing but successful so far. It has taken advantage of external market factors,
especially the increased demand for electrified vehicles, the government
incentives for the use of electrified vehicles and the decline in renewable
energy costs to expand its production and sales and strengthen its brand as an
innovator in the electric car industry. It has basically created the supply for
the increasing consumer demand for sustainable electrified vehicles. Tesla has
made the first steps and has established itself as a pioneer in the electric
car industry, and is now ready to further exploit the opportunities presented
to it, such as the decreasing production costs due to technological advances
and increased production capability, in order to continue its expansion. Tesla’s
business model has achieved to address the biggest threats in the electric car
industry, which are the high costs and the low driving range, and has answered
the question of whether electric cars will be able to compete with ICE cars, as
apart from offering an environmentally sustainable product that satisfies
consumer demand, it has a more effective supply chain than many other car
manufacturers and offers a better customer experience. Through its business
model, Tesla has managed to dominate and gain a huge market share in an
industry that has immense growth potential, which is the e-car industry, and
the company’s future is expected to be bright.

Conclusion

 

Tesla did not invent the electric car or even the
luxury electric car. What it did manage to invent was a successful business
model to make electric cars accessible to a larger share of the population than
ever before. It was able to do that as it adapted its strategy to the main
political, economic, social, technological, environmental and legal factors
that had the possibility to affect its performance. Its business model focused
on producing high quality electrified vehicles, with the long-term goal of
being able to compete head to head with gasoline fuelled vehicles and making
electric cars available to the mass public. Tesla’s business model has taken
advantage of the opportunities that external market factors have provided, and
has tried to tackle with the threats and weaknesses that exist or may be
presented, and that is why it has been successful.

References

Boccardelli, P. (2015). Tesla Motors: A business
model innovation in the automotive industry. Italy.
Carrington, D. (2017, 6 June). Spectacular drop
in renewable energy costs leads to record global boosts. Retrieved from
the Guardian:
https://www.theguardian.com/environment/2017/jun/06/spectacular-drop-in-renewable-energy-costs-leads-to-record-global-boost
Christoph Zott, R. A. (2011, May 2). the Business
Model: Recent Developments and Future Research. Retrieved from Sage
Journals: http://journals.sagepub.com/doi/pdf/10.1177/0149206311406265
crunchbase. (2017). Tesla Funding rounds.
Retrieved from crunchbase:
https://www.crunchbase.com/organization/tesla-motors/funding_rounds/funding_rounds_list
Debye, Y. (2014). E car industry analysis from the
perspective of business model dynamics. Twente, Netherlands.
Dutta, A. (2017, July 26). A deep dive into tesla
business strategy. Retrieved from feedough:
https://www.feedough.com/tesla-business-strategy-and-business-model/
Kissinger, D. (2017, February 21). Tesla Motors
Inc Pestel Analysis and Recommendations. Retrieved from Panmore
Institute:

Tesla, Inc. PESTEL/PESTLE Analysis & Recommendations


Kristin Ystmark Bjerkan, T. E. (2016, March). Incentives
for promoting Battery Electric Vehicle adoption in Norway. Retrieved from
Science Direct:
https://www.sciencedirect.com/science/article/pii/S1361920915002126
McKinsey& Company. (2017, January). Electrifying
insights: How automakers can drive electrified vehicle sales and
profitability.
Professional Academy. (no date). Marketing
Theories- Pestel Analysis. Retrieved from Professional Academy:
https://www.professionalacademy.com/blogs-and-advice/marketing-theories—pestel-analysis
Tesla. (2015, March 15). How Tesla Stores and
Service Centres work. Retrieved from Teslapedia:
http://teslapedia.org/tesla/how-tesla-stores-and-service-centres-work/
Thakur, S. (2010, December 26). Limitations of a
PEST analysis. Retrieved from Bright Hub Project Management: http://www.brighthubpm.com/project-planning/100700-limitations-of-a-pest-analysis/
the spherepress. (2017, July 4). tesla motors
external analysis. Retrieved from the spherepress:

TESLA Motors – External Analysis Using PESTLE – The SpherePress


Thomson, C. (2017, May 4). Tesla launching retail
expansion. Retrieved from business insider:
http://www.businessinsider.com/tesla-launching-retail-expansion-2017-5
Zucchi, K. (2015, July 21). What makes Tesla’s
business model different? Retrieved from Investopedia: https://www.investopedia.com/articles/active-trading/072115/what-makes-teslas-business-model-different.asp
 

 

 

 

 

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