TESLA CASE STUDY

Executive Summary

Tesla’s case study describes the business model used by this company to improve its business and get into international market. This also includes SWOT analysis to understand the internal factors that can affect the company and also PESTLE analysis to understand the external factor that can affect Tesla. It also includes the global strategy that will help Tesla to get into the high-end market. Tesla has amended various social responsibilities to satisfy stakeholders. The paper has aimed to cover all such ethical and social policies of Tesla. Moreover, Tesla has also faced certain issues due to lack of safety policy in its autopilot and self-driving cars. Recommendations are given so that Tesla can mitigate such issues and enhance their profitability.

 

 

 

Table of content

Introduction. 5

Task 1 -The External and Internal Environment 5

Internal and external environmental analysis of Tesla. 5

Critical success factors. 8

Analyzing competitive advantage of Tesla. 9

Task 2 – Strategy in Global Environment 9

Market entry models adopted by companies. 9

Expansion strategy of Tesla. 10

Recommendations. 10

Task 3 – Corporate Strategy. 11

Use of horizontal integration, vertical integration, outsourcing or strategic alliance. 11

Recommendations for increasing profitability of Tesla. 11

Task 4 – Strategic Purpose – Ethics and CSR.. 12

CSR strategy of Tesla. 12

Recommendations to address the ethical issues. 14

Conclusion. 14

Reference list 16

 

 

 

Introduction

A business model is a model that normally incorporates information and data of products, business plans, and company and company services. It also incorporates with the market to capture or sometimes future expenditure. This model generally helps a company to create a fundamental strategy for doing any business and also enhance its profitability. The business model helps the organization to create the basic structure for their business and help to improve their business from the core. It helps to create social value, economic value and cultural value in any organization. In a business model, there are various essential factors that are present to build a well structured business model. Some of the basic factors that are needed to build a proper business model are, marginal profit, and companies allotted assets. Factors that also include the problem of the company and its solution, company’s cost structure, customer attracting products, targeting an ideal market, identifying revenue framework etc.

There are various types of business models that are used by any organization to develop their business on a large scale. Different business organizations use various business models in their business. Tesla operates with a D2C business model in their business organization as this company directly deals with their customers without taking help from a middle man.

This current research paper is an analysis and discusses Tesla’s business model and how they implement and use their business model.

Task 1 -The External and Internal Environment

Internal and external environmental analysis of Tesla

SWOT

Strength Weakness Opportunity Threats
Tesla is the first company to introduce Electric vehicles in the market. Tesla faces complications and challenges in manufacturing its electric cars, as this is a very modern concept. Tesla’s primary opportunity is a rise in the high demand for electric cars in the market. The main threat that this company is facing is lack of infrastructure for solar power stations in many countries especially in South Asia and North America.
According to the wall street journal, Tesla is a company that is highly recommended for employees because of its innovative and creative ideas which attract young aspirants into their organization. It is limited to certain international markets as not many countries are that advanced to use an electric automobile due to a shortage of battery production and lack of solar power stations. Tesla produces most affordable cars for their buyers. The most crucial threat for Tesla is its autopilot mode in their cars. Already Tesla is facing many cases regarding failure in autopilot mode that could cause a grievous accident to the buyers.
Tesla has the most unique and advanced concept in their business. Tesla is the first company that launches electric vehicles in the market but it still failed to meet the demand of the consumers because of its experimenting and complicated procedure and lack of innovation in car models Tesla has most unique features in its cars apart from being an electric car it also has a self-driving mode (autopilot mode) that helps and is useful for many people. Tesla struggles with high competition in market from both sectors like auto driving sector and from brands who are currently investing in renewable energy resources. Brands like BMW, Ford Motors and Volkswagen are the main competitors of Tesla (Kancherla and Daim, 2018).
Tesla provides electric cars at an affordable price to its customers. Tesla is totally dependent on Elon Musk for the representation of their company. The crucial opportunity for Tesla to succeed in its business is the growing demand for using renewable energy resources to save and protect the environment among public. Tesla uses new technology in its automobile that affects finance of the company and it also increases the cost of production and because they produce affordable cars for their buyers it also affects the profit of company.

Table 1: SWOT analysis of Tesla

 (Source: created by author)

PESTLE  

According to a PESTLE analysis, the external factors that affect and create challenges for Tesla Inc. include factors like:

Political factors that determine Tesla Inc.

For Tesla, political factors play an opportunity role because of the new trade agreement that was made recently. Also, the global political consistency made it easy for Tesla to trade in global market.

Impact of Environmental factors on Tesla’s business organization.

The people who primarily focused on saving and protecting the environment can shift from regular fuel consuming vehicles to Tesla.

Economical factors that determine Tesla Inc.

Economic factors that determine Tesla’s business industry is that they produce affordable and budget-friendly products to their buyers. Furthermore, with a diminishing of battery prices, it has become cost-efficient for Tesla to produce an affordable electronic vehicle for their buyers without affecting their allotted financial budget.

Legal factors that influence Tesla’s business organization

As Tesla follows directly to consumer business model strategy it is very important for them to expand their patent protection in their business. Further with the rise of accidental cases of its failure in autopilot mode many states have banned Tesla.

Impact of Social factors on Tesla Inc.

A growing inclination towards using renewable resources among people is creating an opportunity for Tesla to expand its business globally.

Technological Factors that influence Tesla Inc.

According to PESTEL analysis, the rapid growth of new technology of renewable resource energy, and use of lithium-ion batteries in its car models are creating many opportunities for Tesla. They are also using CTP technology (Guno, Collera and Agaton, 2021).

Critical success factors

In the opinion of Hastig and Sodhi, (2020), some of the critical success factors of Tesla are their low vehicle prices that attract their target consumers. Also, their advanced entry into the electric vehicle market makes them unique from other brands. The strong branding name and the leadership of Elon Musk have created a powerful market value for Tesla Inc.

Analyzing competitive advantage of Tesla

After analyzing competitive advantage of Tesla it can be said that its supercharger network creates an upper hand for Tesla over other brands because no other brands are providing supercharging networks or stations for their electric vehicles. Tesla is also using lithium ion batteries in their electric vehicles whereas no other brands are using them. Thus, all these factors create a competitive advantage for Tesla Inc. and keep them a favourable brand for consumers in these sectors (Dai, 2020).

Task 2 – Strategy in Global Environment

Market entry models adopted by companies

There are four broad categories of international business expansion that are determined by purpose of expansion. In the opinion of Thomas and Maine, (2019), international expansion strategy is categorized in exporting, licensing, foreign direct investment and joint ventures. Each of the entry modes has its own specific set of advantages and risks. The entry mode or strategy implemented by an organization rests on the extent to which an organization is allowed to take risks in its expansion procedure.

Exporting is defined as a sale of products in a different country from that one in which production has taken place. As stated by Teece, (2018), the advantage of this lies in adding the home country’s gross output. The downside of this entry strategy is least control over production procedure.

Licensing is the process of granting legal rights over intellectual property of a business including patents, technology, work procedure, copyrights and brand names. The advantage of this entry mode includes lower risks in foreign markets in terms of financial and legal fields. However, the negative side of this includes poor brand image as a result of ineffective brand management.

A joint venture is merging of two or more companies with a shared vision and mission. Joint ventures are usually formed between companies that have similar tasks and business operations. Joint venture members can share equal rights over profits and losses. The disadvantage of this includes a risk of conflict due to dissimilar opinions of partners.

Foreign direct investment is defined as attracting foreign investors who would provide financial backup needed for hiring people and conducting leading business operations. However, as influenced by Yan (2020), the high cost of this entry strategy is one of the most negative aspects.

Expansion strategy of Tesla

According to Lugtu Jr, (2019), Tesla uses a market penetration strategy in their business model to expand their business in both domestic market and international markets as well. Tesla wants to take part in cosmopolitan markets and wants to target the consumers who look forward to investing in supreme cards so that they can cut down the price and take over the market by introducing various car models. They also apply generic strategies in their business to accomplish competitive advantages in market. Further studied by Kim, (2020), by using a generic strategy they try to implement advanced and new sustainable technology in their business to get ahead from other brands such as BMW, Toyota Motors, and Volkswagen etc. Furthermore, Tesla also uses intensive strategy in their business for improving their market growth aside from generic strategy.

As studied by Grijalva, (2017), it can be said that the intensive strategy used by Tesla helps them to develop its business moderately in this EV market sector. This shows the company’s rising popularity in the market and its increasing profitability.

After SWOT analysis it can be seen that Tesla’s focus on building power stations for its electric vehicles also gives a higher advantage to the company to attract consumers who want to invest in an electric vehicle as no other brands have built power stations for their electric cars (Wu and Wang, 2021).

Recommendations

Recommendations that are needed for Tesla Inc. to improve their business and excel in international markets are described below:

Firstly, improving their Artificial Intelligence Technology to control their failure of autopilot technological mode in its electrical vehicle model would increase profitability. The major issue hindering competitive advantage of Tesla in global field is a risk of accidents in its autopilot cars. Therefore, integration of latest artificial intelligence in cars would eliminate this risk, leading to competitive advantage of Tesla in global field (Rong et al. 2019).

Secondly, diversification of leadership roles in Tesla Inc. Tesla is solely dependent on Elon Musk for their business. It needs to be changed and other CEOs and CTOs must take responsibility for improving their business (Bilbeisi and Kesse, 2017).

Thirdly, Tesla Inc. must improve their cars model according to its price so that it can attract more consumers and improve its business globally (Adnan et al. 2021).

Task 3 – Corporate Strategy

Use of horizontal integration, vertical integration, outsourcing or strategic alliance

Horizontal integration strategy is a strategy that is used by many business sectors where they buy competitors to improve their business (Alghalith, 2018). This strategy is used by companies that have a potentially successful growth model.

Vertical integration is the procedure taken by any company to control the production chain of the company. According to Di Minin, Ferrigno and Zordan (2019), Tesla analyzes and understands the complication of using supply chains in automobile business sector. Thus, by incorporating vertical integration they revolutionized the whole automobile business sector. Various steps have been taken by Tesla to improve the battery quality of its electric vehicles. At present, it can be seen that vertical integration has helped Tesla to improve and grow its stock price in the share market.

According to Liu and Meng (2017), Tesla uses a radical approach in their business. It has also been seen that Tesla wants to build a super charging station that can charge its electric vehicle within 30-40 minutes.

As studied by Salman (2019), Tesla’s strategic alliance is collaborating with brands like Toyota and Daimler to enter into international markets and grow its business globally.

Recommendations for increasing profitability of Tesla

Collaboration of artificial intelligence with autopilot

Tesla can easily enhance their profitability by deploying artificial intelligence in their cars. Manual work leads to several calculation errors. Hence, robotic technology can be deployed to calculate complex formulas that can be used to improve autopilot services (Tesla, 2021). Neural networks and complex algorithms can be amended by robotic technology to improve autopilot facilities in cars. Tesla cars can also deploy several modern features which can improve safety of customers in cars that can be driven by autopilots. Modern technologies and improved safety measures will attract customers to try their new models and profit margins will increase significantly.

Cutting up cost of human resources

It is highly recorded that Tesla must cut out their huge workforce (Trefis, 2018). Staff members have to be tried and they need to be monitored regularly for errors. Tesla must aim to deploy modern technologies that can compete with work done by thousands of employees in a time-efficient manner. Robots can be depleted in various departments and big data can be used to keep a track of customer records. Employees who look after customer service can also be replaced by artificial intelligence. The firm can try to manage their stakeholders through automatic chatbots and keep them informed about new launches so that they can be attracted towards the firm. New designs of vehicles can be  invented by machines as well, which will encourage stakeholders to try the new models. Cutting off expenses on wages will increase their profit margins.

Management of price

Tesla cars are quite overpriced and consumers are not able to buy them easily, which leads to constriction of the consumer base. Hence, Tesla must aim to cut up miscellaneous expenses so that the cost of cars can be reduced. Moreover, reduction of price will enhance sales of electric cars and other products. Enhancement of sales margins will also enable engagement of profit margins. Whenever automatic tools are deployed to design and manufacture cars, the cost of hiring employees can also be cut and will cause a sharp decline in car prices as well (Özdemir and Hekim, 2018).

Task 4 – Strategic Purpose – Ethics and CSR

CSR strategy of Tesla

Carroll’s CSR model 

Caroll’s csr model includes four major social responsibilities such as economic, legal, ethical, and philanthropic. Tesla faces economic issues as it has quite expensive cars and the customer base is quite limited. Tesla has taken several initiatives to protect the environment. Tesla mainly develops electric cars that do not create any type of air pollution. Moreover, Tesla has been selling solar cells and allowing their consumers to have quick access to alternative as well cleaner sources of energy. However, one of the major ethical issues is that electric energy required running cars are generated from fossil fuels and indirectly pollute the environment.  Model 3 had several quality issues such as cracked glass windows and loose door locks. Illegal worker suits have been raised against the firm. Whistleblowers have also filed cases against issues in Model Y and Model 3. Dutch taxi service Bios Group has also filed cases against Tesla. Bios group has claimed 1.3 million from Tesla due to poor quality of steering in cars and odometers. Elon Musk supports several social communities and provides funding so as to improve living conditions of poorer segments of society. Elon Musk has spent $150 million in schools of Texas (Schleifer, 2021). He also provides clothing and food to poor people. Elon musk is the founder of several charitable foundations that aim to award financial support to people and students. However, the firm has allowed rival firms to use their technology for good purposes and have not initiated lawsuits or patents for future techniques (Hettich and Müller-Stewens, 2017).

Stakeholder theory 

Stakeholder theory ensures that ethical and social responsibility is maintained towards organizational stakeholders (Freeman and Dmytriyev, 2017). Tesla has several stakeholders such as customers, visitors, government sponsors and employees. Tesla has aimed to make its product more affordable for customers. Customer satisfaction is prioritized by this firm. Tesla has however not given much priority to stakeholder groups in the decision making process and that creates issues in the firm. Tesla has amended various policies to ensure stakeholder interest and manage all such activities that can impact their business entities. Tesla has always kept their stakeholders informed about the new models of cars and change of strategies that can benefit customers. For example, this firm has taken initiative to inform customers about the development of model 3 and have also informed them that this is not the big thing that was announced earlier. As for employees, Tesla has always allowed freedom at work and excessive work pressure is avoided. The Tesla workplace has several mentors that trains new staff to absorb the work culture of the firm and work accordingly to provide profits to the organization.

Ethical issues faced by Tesla

The major ethical issues faced by Tesla were the quality of their cars. Several safety issues were also raised where consumers were not satisfied with autopilot service of the cars (Banks et al. 2018). Tesla has developed self driving cars; however, consumers complain that such automatic software requires constant assistance of human resources. Hence, Tesla cars are facing several ethical issues, related to quality. Tesla batteries are not safe and get heated very easily. There is a safety issue that the battery may catch fire at any distance and it is not safe to travel in such as for a longer distance.

Recommendations to address the ethical issues

Checking of quality before selling the products

Tesla has been facing several issues due to lack of proper quality check while manufacturing. Development and manufacturing of car products must be checked several times. Checkpoints must be created and managers must be directed to check product quality before they are delivered to market. Such controlling of quality will enable managers to evaluate problems and quality issues of glass windows and door handles can be handled easily (Nichols, 2020). Automatic intelligence tools such as robots can be employed at several checkpoints to ensure the final product is made of superior quality products.

Providing guidance on autopilot and self driving cars

Consumers as stakeholders are not satisfied with autopilot or self driving cars facilities. Lack of knowledge and education may not enable customers to use such services effectively. Hence, Tesla must arrange for seminars so that proper education about autopilot can be given to consumers. Such seminars must provide necessary information about features of autopilot as well as self-driving cars of Tesla such as self parking, automatic lane changes and auto steer (Tesla, 2021). The firm must also look for improvement of services related to self driving cars.

Conclusion

After analyzing and researching about Tesla’s case study, it can be concluded that Tesla as a brand uses directly to consumer business model in its organization. The SWOT analysis states the internal environment of Tesla. The PESTLE analysis shows the external environment of Tesla Inc. Further, it can also be seen and understood that the drawbacks of Tesla company in the market and reason why they failed to capture the global market. Moreover, this research paper has also discussed the recommendation that Tesla must implement in its business sector. Also, the strategy used by Tesla to crack down on the global market.

 

 

 

Reference list

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