Strategic Analysis and Recommendations for Tesla, Inc.

1 INTRODUCTION

 

1.1 Organisation

Tesla, Inc. is one of the market leaders in the electric vehicle (EV) and renewable energy industries. Tesla was established in 2003 by Elon Musk and its vision is “to help solve the world’s most intense problems, particularly those related to energy” (Tesla, 2024). The objective of this report is to make strategic suggestions to resolve the existing issues of Tesla and improve its standing in the market.

1.2 Current Challenges

Tesla is a market leader in the EV market since it is one of the earliest players in the market. The firm’s portfolio comprises electric automobiles, battery systems ranging from home to utility-scale, and solar solutions. The current financial results of Tesla demonstrate the company’s healthy growth with impressive year-over-year growth in revenues and market share (Tesla, 2023). Nevertheless, the following are some of the issues that Tesla is likely to encounter in the future and thus affect its growth and sustainability.

• Supply Chain Disruptions: Tesla has been severely vulnerable due to its dependence on the international supply chain for factors of production, especially batteries. Conflict, trade barriers, and natural disasters have an impact on the production and delivery schedules as experienced by Smith in 2023 due to the COVID-19 pandemic.
• Competition in the EV Market: The competition in the EV market is rising steadily with both traditional auto manufacturers and new players working for EV technology. General Motors, Ford, and many new entrants like Rivian and Lucid Motors are already competing for market share, which makes the competition more intense (Pereira, 2024).

Source (GreentechLead, 2022)

• Regulatory and Environmental Compliance Issues: Since governments around the globe are setting higher standards of environmental compliance, Tesla has to adapt by finding ways of meeting these standards. Adherence to different regional laws can be time-consuming and expensive, which impacts the business’s productivity and profitability (Khan, 2021).

1.3  Purpose Statements

Tesla’s mission statement: is “to accelerate the world’s transition to sustainable energy” and its vision statement is “to become the best car company of the 21st century by continuing to drive the world’s shift toward electric vehicles” (Tesla, 2024). These statements demonstrate a strategic vision of Tesla as a company that is paving the way towards a sustainable future and electric vehicles.

1.4 Critical Analysis

In its endeavour to revolutionise the energy transformation, Tesla is in line with the world’s climate change objectives but the constructive problems related to rapid expansion in the market cannot be undermined. Challenges such as the setting of high production targets to meet the growing consumer demand lead to logistical problems, which include delayed deliveries and quality issues that may harm the trust of customers and negatively impact the company’s image (Sypko, 2022). This focus on growth also requires a considerable amount of R&D expenditures that although vital for securing technological supremacy, put a lot of pressure on the company’s finances (Bagna, Cotta, and Denicolai, 2021). However, Tesla has the strength of a strong brand and technological innovation to support its market leadership in the U.S. EV market. However, the firm’s performance depends on its effective handling of these internal issues while at the same responding to dynamic market conditions and operating within a highly regulated environment. How Tesla chooses to manoeuvre through these operational and financial challenges stands to be crucial in the ability of the firm to fulfil its mission objectives while at the same time maintaining fiscal and competitive health.

2 ENVIRONMENTAL ANALYSIS

 

2.1  Macro Trend Analysis (PESTEL)

2.1.1  Political Factors

The EV market in the U.S is regulated by federal and state policies which are different in each state and have an impact on the strategic decisions of the organisation. Federal EV tax credit plays a central role in the decrease of the cost factor thereby influencing the adoption of electric cars such as Tesla cars as more economical (Liu et al., 2022). Nevertheless, the differential approaches to policy implementation among the states, for example, California offers more incentives than other states such as those that have minimal or no incentives at all (Ryan, 2020). This can be a challenge to the marketing and distribution techniques of Tesla especially since the rules for each of these regions may differ.

2.1.2  Economic Factors

The economic environment in the U.S. affects the EV market directly and affects consumers’ behaviours and the total market for the EV manufacturer Tesla. The cost of acquiring EVs is still high, and this is the biggest barrier even though it has been argued that the ownership costs of EVs are lower than that of ICEVs (Slowik et al., 2023). However, there are some economic challenges such as the high cost of batteries that limit the use of smart assistants; however, these challenges are expected to be reduced in future due to the advancements in battery technology (Patil, 2020). Nevertheless, there are factors which affect the economy and the buying power of consumers and these are subject to change depending on the general performance of the economy including employment levels and economic growth rates.

2.1.3 Technological Factors Analysis

Tesla has the competitive edge in the U.S. EV market mainly through technological superiority for instance in battery technology and self-driving technology (Lyyra et al., 2023). Improvements in the battery energy density and a decrease in the cost of production of batteries are critical to extend the range of the vehicle and decrease its cost thus improving its market appeal and sales (Bindra, 2020). But technological advancement especially in the EV sector is a two-sided sword. In one way, it helps Tesla to be a market leader; on the other hand, it calls for constant and huge capital investment in the research and development department to meet the ever-evolving technologies and possible disruptive technologies by competitors (Kliestik et al., 2020).

2.2  Scenario Analysis of Highly Uncertain Key Drivers

2.2.1 Key Driver 1: New and Improved Battery Technology

 

Opportunity Scenario

Technological advancements in solid-state batteries are beneficial for Tesla because they can increase the range and safety of the vehicle while possibly decreasing the cost of production (Bindra, 2020). If Tesla can get the solid-state batteries to be commercially feasible, then the energy density and safety of the battery can be greatly enhanced paving the way for new standards in the market and providing Tesla cars with another notch ahead of other cars in the market. On the other hand, if there are any complications in the development or integration of the advanced battery technologies there is a possibility of experiencing some risks. If competitors can deliver such technologies to the market much faster than Tesla, then the latter will have significant drawbacks.

2.2.2 Key Driver 2: Alterations of the Government Policies

An increase in the government incentives for EVs and putting into force stringent environmental norms could be beneficial for Tesla, particularly if the United States decides to go for a federal mandate similar to California’s Zero Emission Vehicle (ZEV) program (Ryan, 2020). These policies may help reduce the impediments to the use of EVs and thus make Tesla cars more accessible to the general populace. This compliance could fast-track the shift from ICE automobiles to EVs thus boosting Tesla sales and market share. Nonetheless, the reduction of EV incentives or the change in the policy to the hydrogen fuel cells can impact the strategic investments that Tesla made in the battery-electric vehicles. If the regulatory environment deteriorates or if the competing technologies are provided with favourable policies then Tesla might face adverse effects.

2.3 Industry Analysis (Porter’s Five Forces)

In the U.S. EV market, the threat of new entrants for Tesla is fairly low because of high brand recognition and capital requirements. Nonetheless, the big corporations and technology companies joining the market may pose a threat to the company as they come with a lot of resources and might be able to produce equally good products (Fernando, 2024). Even within the context of having a strong brand as well as a wide network of charging stations, Tesla is faced with stiff competition from other companies that offer competitive products and are constantly updating their technologies to capture the market leadership (Saxena and Vibhandik, 2021).

The buyers’ bargaining power has been on the rise due to the availability of more manufacturers which has created competition and price consciousness among customers. In the future, the market may reach its saturation, thus limiting the company’s influence over the pricing model, and affecting Tesla (Jing, 2020). On the other hand, the intensity of the threat of substitute products such as hydrogen fuel cell vehicles is still very high because they provide substitutes that have advantages over traditional EVs such as faster refuelling and longer distances (Greene, Ogden and Lin, 2020). Globalisation and the new entrants such as Rivian and Lucid Motors are expected to increase competition and hence, traditional automakers will have to engage in more marketing and price discounts. Therefore, Tesla has to keep on inventing not only in its products but also in the markets it serves such as India and Brazil, which are known to have a high demand for sustainable transportation (Miranda et al., 2021).

3 CAPABILITY ANALYSIS

 

3.1 Identification of Strategic Capabilities

3.1.1 Battery Technology and Range

Tesla’s battery technology, including high-density lithium-ion batteries as well as the ongoing development of solid-state batteries, solves one of the biggest problems of EVs, namely the range. Thus, by expanding the range of their vehicles, Tesla not only satisfies but also overprovides consumers’ needs in the U.S., where people more often drive long distances. The issue that still exists is how to reduce the expenses for the R&D and the production of these complex and expensive batteries and still reach the consumer (Wang, Duan and Liu, 2021).

3.1.2 Supercharger Network

Another issue that has been a concern among EV users is the availability of charging stations as well as the time it takes to charge the vehicle; Tesla’s infrastructure of superchargers across the U. S. solves this problem. This network proves to be one of the biggest selling points for this vehicle, greatly reducing the hassle of longer charge times, and allowing for extended distance travelling (Lang, Reber and Aldori, 2021). Although this network helps Tesla to be a step ahead of its rivals, it is an expensive asset that needs a capital injection to increase and update.

3.1.3 Brand Reputation for Innovation and Sustainability

The image of Tesla is closely linked with innovation and ecology, the indicators that reflect the values of the green consumer segment in the USA, which has a positive impact on the brand’s positioning and consumers’ willingness to pay a premium for Tesla products. However, society expects only the best from the company, and thus the organisation has to come up with new ideas and strictly adhere to the highest sustainability principles (Bhardwaj et al., 2020).

3.2 Application of VRIO Criteria

3.2.1 Valuable

Tesla’s strengths in battery technology and its extensive Supercharger network help it to overcome a major concern of U.S. EV buyers. The new battery range of Tesla enables longer trips without very frequent charges which is an advantage for American consumers who appreciate longer trips. This capability is unique in the crowded EV market where range anxiety is a major concern that can influence the decision to buy an electric car (Kryvovyazyuk et al., 2021).

3.2.2 Rare

Tesla has the best battery technology and a dedicated Supercharger network that is very hard to beat by rivals. This is because Tesla has invested early and has been innovating in these sectors and hence has created entry barriers. For instance, Tesla has strategically located its Supercharger network which offers Tesla drivers unparalleled convenience as compared to competitors’ charging stations (Rong et al., 2020).

3.2.3 Inimitable

The difficult-to-replicate factors include the high level of investment in the technology of battery and the Supercharger network since they are key assets in the development of the automobile industry by Tesla. Tesla Motors’ battery formula and the manner of its charging stations are strategic technologies and supply chain management that are probably exclusive to Tesla Motors products (Cooke, 2020).

3.2.4 Organised

Tesla has a well-coordinated organisational structure where vehicle design, battery production, and direct retailing are interconnected. This alignment helps Tesla to be able to seize opportunities and quickly implement innovations as well as to ensure the quality of its products and how they are being distributed. For instance, direct sales cut out dealership margins and are useful for getting close to the customer to make quick adjustments (Nweke and Nweke, 2024).

3.3 Competitive Implications

The evaluation of Tesla’s strategic capabilities using the VRIO framework reveals the following strengths and weaknesses that have competitive consequences.

3.3.1 Strengths

3.3.1.1 Technological Leadership

The company has been leading the EV technology through innovation in battery technology; for instance, the 4680 battery cells are said to offer higher energy density and low manufacturing costs (Ank et al., 2023). This innovation not only serves the environmentalists, who usually are Tesla’s clients but also attracts tech-savvy customers who are interested in new technologies.

3.3.1.2  Charging Infrastructure

It currently has over thirty thousand Superchargers across the globe with a large number of them in the United States to ensure that users of its electric cars can easily charge their cars. This network tackles one of the major issues that are closely related to EV owners and ensures that Tesla is one step ahead of its rivals, which has an impact on consumers’ decision-making and brand preference (Chervenkova and Ivanov, 2023).

3.3.2 Weaknesses

3.3.2.1  Production Scalability

Tesla has also faced some production issues in its operations, for instance, the Model 3 production issues that affected 450,000 pre-order customers with production taking longer than expected (CNBC, 2018). Such challenges underscore the problems that Tesla encounters in the process of ramping up production while preserving the quality of the cars.

3.3.2.2  High R&D and Manufacturing Costs

The firm’s innovative culture means that it has high levels of research and development (R&D) expenditure and spent roughly $2. Globally, it is estimated that 6 billion is wasted annually with a projection of increasing in the year 2021. Nevertheless, such investments are a factor that contributes to the development of new technologies in Tesla vehicles, but at the same time, it result in increased overall prices of the cars (Thomas et al., 2021).

4 PROPOSED STRATEGY

 

4.1 Strategic Options

 In this case, it is necessary to analyse the business-level and corporate-level strategies of Tesla. Ansoff Matrix is used for this purpose;

Market Penetration: To expand its market share in the current U. S. EV market, Tesla should boost marketing, reward customer loyalty, and reduce the cost of its cars. This approach entails increasing the sales of current products in current markets and is the least risky of the strategies.

Product Development: Tesla can always come up with new technologies or models that are specifically meant for different segments of the U. S market or different needs.

Market Development: Tesla has the potential of increasing its market penetration within the US where there are other regions with low levels of EV uptake. Possible ways for increasing development in these regions include partnering with state authorities in infrastructure projects or incentives.

Diversification: Tesla could use product diversification strategies which involve developing and introducing new products that are related to the company’s current products. For instance, they could look at electric-powered public transport such as buses or commercial vehicle fleets, which would allow them to build on their current skills and production facilities.

4.2 Recommended Strategy

Based on the analysis, the strategy suggested for Tesla is differentiation. This strategy can be highly effective for Tesla because it leverages the company’s strengths in innovation and brand identity. Tesla has better-performing cars, advanced technologies and a well-established brand identity to compete in the crowded EV market (Warnock, 2021). Differentiation means that Tesla can charge a premium price for its cars and can cover the costs of research development and production.

4.3 Implementation and Conclusion

The following are some of the steps that are involved when adopting the differentiation strategy: First, Tesla needs to keep up with the research and development expenses to keep up with the technological advancement. This includes the development of better batteries, enhanced self-driving systems, and new energy products (Abro et al., 2023). Hence, such investments are important in supporting the aspects that set Tesla’s products apart from the rest. Second, Tesla should improve the brand experience. This includes not only the selling of new and unique cars but also offering excellent services to clients, increasing the number of Supercharger stations, and designing an excellent digital ecosystem through the Tesla app and the website. Improving the general ownership experience will strengthen customer loyalty and increase the number of consumers (Hossain et al., 2021). Third, increasing the production capacity is a must. Expansion of Giga factories around the world will aid in addressing demand and decreasing costs through economies of scale (Asaba et al., 2022). These facilities should be established in areas that will not complicate the supply chain and thus increase logistical issues.

This strategy requires resource allocation for it to be implemented. Heavy capital expenditures in research and development, marketing communication, and production capacity call for proper capital budgeting (Sureka et al., 2022). Tesla has to make sure it has enough cash and has to be careful with its resource usage so it does not overstretch itself. Threats are such factors as technological difficulties, shifts in the regulatory environment, and actions by competitors. These are some of the challenges that Tesla needs to be flexible and adapt quickly to solve. The differentiation strategy is ideal for Tesla due to the company’s competency in innovation and brand identity. This strategy is based on the company’s strengths and focuses on sustaining the competitive advantage of Tesla while responding to the opportunities and threats in the market. If Tesla learns to innovate more constantly, improve the brand appeal, increase production and market strategically, it will remain the market leader and keep pushing the world towards a sustainable energy future.

The proposed strategy fits Tesla’s mission because it seeks to advance the capabilities of electric vehicles and provide innovative, superior products to the global market. It responds to the threats outlined in the macro and industry analysis, including the opportunities for technological development and increased consumer interest in environmentally friendly transport. The differentiation strategy is key to Tesla’s growth in the EV market and supports the company’s mission of accelerating the world’s transition to sustainable energy. By doing so, Tesla can avoid problems including heightened competition as well as problems in the supply chain since it focuses on the company’s innovative power as well as market prospects. In this regard, Tesla can address the challenge of intense competition and leverage on various opportunities in the automotive sector while staying true to its vision.

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