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Tesla is one of the most famous automobile companies, which has gained a remarkable brand image in the marketplace because of its products that support sustainability. The current report would be based on the case study of Tesla, in order to evaluate its strategy to enhance its competitive advantage and be sustainable in the marketplace. Along with that, the internal and external environment would be evaluated in order to reflect critical factors, which are influencing the growth of this organisation. Additionally, strategies taken by Tesla to enter new international markets would also be analysed critically in this report. An evaluation of vertical integration, horizontal integration, and strategic alliances of the organisation would be included in this report along with effective recommendations that can help it to increase its profitability. Moreover, ethical issues faced by the organisation would be discussed in order to reflect the effectiveness of its corporate social responsibilities.
Analysing the internal as well external environment of a company becomes extensively crucial for understanding the essential factors for conducting businesses in competitive marketing. Hence, with the use of PESTLE and SWOT models, the external and internal environments would be discussed in detail in Appendix 1.
From the above analysis, the main critical factors that can be achieved are the technological and environmental factors of the automotive industry along with the strengths of Tesla.
In terms of technological factors, the aspect of utilisation and research along with development on the technological factors is increasing at a constant pace.
Figure 1: Global revenue of technology market
(Source: Statista, 2021)
From the above figure, the revenue of the overall technology hardware market over the years can be substantially noticed, which implies a heavy utilisation of technologies around the world (Statista, 2021). Additionally, the automobile industry is making extensive use of technologies for increasing the efficiency of automobiles. Through the use of technologies, the outlook of automobiles is rapidly changing with automation in the factories, AI in self-driving systems, augmented reality dashboard and others (Industry Europe, 2020). The specific technologies used by Tesla are FSD chips, Dojo systems, Autonomy algorithm, Code foundation and others (Tesla, 2022). Hence, the immense implication of technology for the automobile industry can be substantially determined.
In terms of the environmental aspect, the concept of sustainability is increasing at a phenomenal pace. It had been typically found that in 2018, 86 million cars were sold that resulted in 9% of global greenhouse gas emission (Forbes, 2021). The company is also attempting to achieve net zero carbon in the near future. Due to these reasons, the automobile industry is rethinking their designing and building of the cars, which is further supervised by government intervention and others to lower the carbon footprint of the overall automobile industry (Forbes, 2021).
On the other hand, the strengths of Tesla can be referred to as another essential factor for achieving success in a competitive marketplace. Primarily, the market capital of Tesla is at $673.69 billion, from which it can be determined that the company is holding a substantial portion of the market (Companies market cap, 2022). Furthermore, the company has diversified its products from cars to selling batteries, solar panels and others for lowering reliance on any single sector (Cuyjet, 2019). This factor has assisted the company to achieve revenues from different segments of products. Furthermore, the company’s capability of handling obstacles is extensive. With these capabilities, the company has delivered about 201,250 cars despite the challenges. This is an extensive strength that has helped in outstanding the company from the crowd of other potential players in the market (Waters, 2021). Thus, the potential factors can be potentially observed from these analyses.
Figure 2: Revenues growth of Tesla
(Source: Carlier, 2022)
From the above figure, the growth of Tesla’s revenues over the years can be substantially noticed due to the competitive advantages in the market. Primarily, one of the major sources of competitive advantage is its supply chain. Tesla produces a varied segment of cars such as the Tesla Model S, X, 3 and Y (Fortuna, 2020). It is potentially understood that for electric cars, one of the major requirements of the company is the batteries. Apart from the use of batteries solely in the cars, Tesla’s batteries are also used in homes, large-grid appliances and others (Fortuna, 2020). Hence, having an efficient supply chain base of the company results in a great competitive advantage. Moreover, another source of competitive advantages is the use of technology with extensive implications on AI (Fortuna, 2020). The company uses AI in a potential manner for providing the consumers with an efficient and intelligent self-driving car. Due to these competitive advantages, the company has been able to satisfy the customer extensively with an average rating of 4.53 out of 5 (Lambert, 2022)
Based on the case study, it can be significantly understood that Tesla minutely focuses on strategizing its company for the “bigger picture”. The company focuses on innovation at an extensive level and it even happens to delay the launch of new cars due to achieving the aspect of precision. The main mission of the company is to accelerate the world’s transition to sustainable energy (Analytics insights, 2020). Additionally, the company manufactured high-end cars for the premium customers that are ready to pay a premium price for the electric and advanced cars.
However, in terms of expanding the businesses to foreign markets, the company vision is to reduce cost for acquiring a major portion in the new competitive markets (Yuying and Qingrun, 2018). Additionally, the company has also reduced its channel length through direct-to-customer distribution, which can also be called as direct selling to customers. The aspect of direct selling has extensively become possible due to Tesla’s immense presence on the internet. With direct selling, the company acquires the ability to conduct customer-centric businesses, creating an increased level of customer engagement in the market (Yuying and Qingrun, 2018).
Tesla has been noticed to use direct sales international businesses strategy to enter the UK (Lee, 2020). In addition, this direct sales model of the company is the envy of the automobile industry. Through direct selling of the cars to customers online, several layers of expenses get cut and it also eradicates the length of car buying processes. Most of the cars in the UK are sold through regular traditional or auto dealerships. However, Tesla delivers cars directly to the consumer’s homes by over taking the dealers. With these, the Tesla Model 3 became the bestselling car in December (Trinkwon, 2021). In the Norway as well, the sales of Tesla cars have immensely grown over the years.
Figure 3: Number of Tesla cars sold in Norway
(Source: Statista, 2022)
From the above figure, the sales growth of Tesla cars in Norway can be potentially noticed. The fall in 2020 was typically due to the emergence of Covid-19 pandemic. The company with the utilisation of FDI has entered into the ground of China for further expanding its businesses (China-certification, 2019).
The main motive of Tesla is to increase the aspect of sustainability around the world through its electric cars. With these implications, the business strategy of Tesla of increasing the aspect of sustainability in the world is effectively getting addressed. With the efficient use of electric cars in Norway, the government is intending to reduce greenhouse gas emission from road traffic. Recently, around 70,000 electric cars are on the road and 20% are fully electric cars (Centre for public impact, 2016). Hence, the implication on the company strategy with sustainability can be substantially understood. However, due to the direct selling of the company in different countries, Tesla is encountering legal battles in Indiana for direct selling restrictions in the country (Forbes, 2016). Previous to this as well, the company has faced similar hurdles while direct selling as well. However, with direct selling, the company ensures a higher profit margin.
From the above analysis, it can be substantially noticed that Tesla is encountering issues with direct selling in Indiana and others. Due to these reasons, it can be recommended that the company use a mechanism of joint venture while entering in new markets. Joint venture is typically referred to as a combination of two different companies, seeking development as a single enterprise (Nippa and Reuer, 2019). Through this, Tesla would be able to reach to the market on physical terms and would also be able to analyse the market same as direct selling but would not let any dealers question on the process of selling. Additionally, the company, while entering in new international markets, needs to adopt a competitive pricing strategy for getting a larger share of the market through increasing sales with the affordable ranges of the products (Gerpott and Berends, 2022). Due to the premium pricing strategy, several consumers are unable to afford the electric cars. For this as well, Tesla can diversify its segments of cars into affordable cars and premium priced cars for acquiring a larger segment of the market.
In accordance with the study of Pérez-Lara et al. (2020), there are always complex relationships between operational goals and strategy goals from different levels of the production system, which can hamper the realisation of an intelligent production system. Furthermore, horizontal integration is as an effective business strategy in which an organisation can acquire or merge with other organisations that are operating in the same industry (Pérez-Lara et al. 2020). The horizontal integration strategy can help businesses to increase their profitability. This strategy can help businesses to explore market segments and eliminate competition by increasing their efficiency as well as product capabilities. This also means that horizontal integration can help companies to enhance their production capacity, which can directly influence sales and revenue growth in a positive manner. Findings reflect that renowned companies in the automobile industry have been utilising the horizontal integration strategy in order to enhance their profitability (Kumar, 2019). For instance, “Daimler Benz”, a German automotive company, has been noticed to utilise this strategy, as it acquired “Chrysler Corporation” for approximately $38 billion in the year 1998 (Kumar, 2019).
Vertical integration allows companies to streamline their business operations by taking direct ownership of different stages of their production process rather than only relying on external suppliers as well as contractors. As per the study of Luco and Marshall (2020), vertical integration can impact the pricing incentives of organisations, which can further influence their overall profitability. In accordance with a news article, it can be stated that vertical integration can occur when an organisation starts controlling more than one part of its supply chain (Economic Times, 2019). There are two types of vertical integration, which has been helping businesses to enhance their profitability, which are backward integration and forward integration (Economic Times, 2019). One of the most important factors of vertical integration is its contribution to enhance competitive advantage. Renowned automobile companies have been focusing on taking the vertical integration strategy in order to enhance their competitive advantage, which can also further influence their overall profitability. For example, Tesla’s vertical integration has been helping it to overcome challenges such as supply chain issues (Insideevs, (2022). Apart from that, an example of Mercedes-Benz can also be drawn in this regard. Mercedes-Benz can be drawn in this regard. In accordance with a news article, the organisation wants to increase its vertical integrations for the next generation of its EVs (Verhelle, 2022). This objective of the organisation is likely to be achieved through its in-house manufacturing of electronic vehicles from 2024 onward (Verhelle, 2022).
In accordance with the study of Cacciolatti et al. (2020), strategic alliances can help companies to improve their performance significantly. This is indicating the importance of strategic alliances for enhancing profitability by improving business performance. Specifically, strategic alliances can be seen as arrangements between two organisations in order to undertake mutually beneficial projects along with retaining their independence. In this regard, an example of a strategic alliance between Toyota and Suzuki can be drawn. Furthermore, the “Toyota-Suzuki alliance” would be beneficial for both of these organisations. The global leadership of Toyota in technology and Suzuki’s strength in manufacturing small cars would significantly influence their productivity in India, which further influence their profitability in a positive manner (Goyal, 2017).
Based on the above discussion, it can be stated that vertical integration can help companies to increase their profitability significantly, which is already adopted by Tesla. It is evident that Tesla has been focusing on innovation in order to become a self-sufficient company (Lienert et al. 2020). It is recommended to Tesla that it would be beneficial for the organisation to take the strategy to expand its business new in international markets. In accordance with the Ansoff matrix, the organisation should be focused on market development (Kurniawan et al. 2020). Apart from that, Tesla is also recommended to take other effective strategies for enhancing its profitability such as facilitating team contribution, conducting market research more effectively, analysing financial statements, keeping high-performing teams, and reducing waste. Based on the ideas of De Mendonca and Zhou (2019), it can be stated that an increased focus on sustainability in its corporate strategies can also help the company to increase its profitability.
Corporate social responsibility can be referred to as an official statement of a company’s commitment towards managing the social, economic and environmental effects of its operations. From the above analysis, it can be understood that in terms of Tesla’s contribution to CSR activities, the company has the aspect of CSR hardcoded into its DNA. As per its mission, the company focuses “to accelerate the world’s transition to sustainable energy” (Ask traders, 2022). Additionally, Tesla has taken a target of reducing its carbon emission to Zero. Through this, the air quality of the environment can be significantly maintained. On the other hand, in terms of providing growth to the community, the company has also launched manufacturing development programs, which is a two-year programme where recent graduates from the high school would be able to start a career with Tesla while continuing their education (The CSR journal, 2020). The initiative was launched in 2017 and to date; the company has placed over 100 high school graduates into the programs (The CSR journal, 2020). Tesla has undertaken other initiatives too for community engagement, disaster relief assistance to the government and others.
Figure 4: Triple bottom line theory
(Source: Tseng et al. 2020)
From the triple bottom line theory, it can be significantly understood that apart from focusing just on generation of profits of a company, the focus needs to be put on the aspects of contributing towards the well-being of the planet and also the people (Tseng et al. 2020). In respect to Tesla’s sustainability focus, the company has provided major implications towards the development of the planet through the manufacturing of electric cars and also growth of the people through development schemes. Thus, the mission of the company is noticed to be in line with the concept of CSR.
Companies need to conduct business in the market in an ethical manner for efficiently growing businesses. However, in terms of Tesla, it is significantly noticed that there are several ethical issues that have resulted in defamation of the company. Primarily, one of the major ethical issues is sexual harassment in the workplace (Telangana today, 2022). Several employees have filed case against Tesla for encountering sexual harassment and racism in the workplace. Additionally, the safety of the workers of Tesla is a major question. Even in the reports of Tesla, the company leaves several injuries of the employees unreported (Hull and Eidelson, 2020). These issues need to be mitigated for making the company ethically appropriate.
In order to ensure that the company is ethically stable, Tesla needs to open a wing where the employees would be able to drop their complaints anonymously. In this manner, the aspect of sexual harassment can be potentially removed. Furthermore, employees can be referred to as one of the most crucial aspects for enhancing the activities of the company through their enhanced productivity (Ali and Anwar, 2021). Thus, efficient supervision of the CCTVs needs to be present for over viewing such activities of harassment in the workplace. The company also needs to provide effective training to managers and leaders for creating a positive working environment in the company. Furthermore, protective gear needs to be provided to the employees of the companies for eradicating the aspect of injuries and accidents.
From the overall discussion, it can be concluded that external factors such as technology and the environment have been influencing the overall business strategy of Tesla. In other words, the focus on technology as well as sustainability has been influencing the profitability of this organisation in a significant manner. Findings reflect that the organisation has been focusing on direct selling, which is influencing its revenue growth positively. However, joint ventures can also help the organisation in capturing a new international market. Findings reflect that different organisation in the automobile industry have been taking strategies such as horizontal integration and strategic alliances for increasing their profitability. Even Tesla has also utilised these kinds of strategies. Although the organisation has gained a huge reputation in the market because of its focus on sustainability, it needs to be more focused on dealing with its ethical issues.
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|Political||● Government regulation
● Government support to automobile industry through loans and tax benefits (Shepardson, 2020)
|Economic||● Global GDP rate 5.9% in 2021 (IMF, 2021)
● Global inflation rate at 4.35% in 2021 (O’Neill, 2022)
● Corporate tax at 21% (Trading economics, 2022)
|Social||● Increased inclination of consumers towards automobile industry (McKinsey, 2021)
● Global population is at 7.95 billion in 2022 (Worldometer, 2022)
|Technological||● Increase in technologies over the years (Statista, 2021)
● Heavy contribution of technology towards transforming the automobile industry (Lidhoo, 2022)
|Legal||● The Equality Pay Act 1963 (GOV, 2022)
● The Fair Labour Standards Act 1938 (SHRM, 2022)
|Environmental||● Increased inclination towards sustainability
● Enhanced effort of automobile industry towards sustainability (Forbes, 2021)
Table 1: PESTLE analysis
|● Strong brand value
● Emphasis towards diversification (Cuyjet, 2019)
● Capability of handling challenges (Waters, 2021)
● Market capital $673.69 billion (Companies market cap, 2022)
|● Complication in manufacturing resulting in delays while launching new products (Lambert, 2022)
● Concerns with employee safety (The Guardian, 2017)
● Expensive cars
● Open source patents (Venner shipley, 2020)
|● Business expansion in untapped markets
● Manufacturing batteries in-house (Lambert, 2021)
● Capturing market share with enhanced implication towards sustainability
|● Increased level of market competition (Clifford, 2021)
● Shortage of materials
● Product liability claims (Brown, 2020)
Table 2: SWOT analysis
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