Tesla Inc. Corporate Strategy and Competitive Advantage Essay

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Comprehensive Analysis of a Fortune 500 Company: Tesla, Inc.—Corporate Strategy and Competitive Advantage

Introduction: Background

Tesla, Inc. was launched in 2003 in California as a niche market luxury carmaker that specialized in electric vehicles (EV). The Tesla Roadster was its first product. The Roadster was a high-end EV and not a mass market car. Today, Tesla offers the much more affordable Tesla Model 3, which is a mass-market EV designed for the common man. Its other products include the Tesla Model S and the Tesla Model X. Tesla sells its cars in North America, Europe and in Asia. It has recently obtained financing to build cars in China, where its vehicles are already being sold, and is currently poised to enter Japan’s market. Tesla’s focus on sustainability and its CEO Elon Musk’s use of social media has made Tesla a favorite among investors who view sustainability as the future and Musk’s innovative leadership as a major factor in Tesla’s growth. Baumgartner (2014) has shown that sustainability is a major factor in the corporate social responsibility policies of companies, and Tesla’s is vital to its success. Its vision for the future of technology and energy has made Tesla the leader in the EV market around the world (Hardman, Shiu & Steinberger-Wilckens, 2015).

Tesla is also involved in green energy through its SolarCity subsidiary. Tesla produces the Powerwall which is supposed to harness solar power for residential homes. By having this business, Tesla has shown to consumers and investors that it is serious about the green energy revolution. However, SolarCity is buried under a mountain of debt and Tesla’s purchase of SolarCity was questionable among many as the company was actually owned by a relative of Elon Musk’s. While green energy is the latest trend among tech companies, Tesla has been able to capitalize on the trend so far by merging green energy technology with luxury car manufacturing. However, competition is heating up in the industry, and Tesla will need to move more vehicles to keep ahead of competitors.

The industry overall is still heavily involved in producing cars that rely on fossil fuels. This means that Tesla is still very much a unique manufacturer. Nonetheless, the industry has taken notice of Tesla’s appeal among consumers. Hybrids have already come to market, but Tesla offers something different—a fully electric car—and companies have begun to design their own to compete with Tesla. Nissan, BMW, Jaguar, Audi, Ford, Infiniti and many others are working on EVs now. As Tesla noted in its 10-K from February of 2019, “a significant and growing number of established and new automobile manufacturers, as well as other companies, have entered or are reported to have plans to enter the alternative fuel vehicle market, including hybrid, plug-in hybrid and fully electric vehicles, as well as the market for self-driving technology and applications” (Tesla 10-K, 2019, p. 23). Still the car industry overall may be in decline as recent reports indicate stagnant sales (Gardner, 2018). As Gardner (2018) notes, in many parts of the world borrowing is becoming more expensive as central banks raise interest rate levels, which means that taking out a loan to buy a new car is not as affordable as it once was. Rates are rising in the U.S. and in China, which is a major market for the auto industry. In order for Chinese consumers to buy new cars, they need good low-cost loans—and rising rates will put a damper on the auto market in China and kill the growth story there. As Ferris (2019) reports, auto sales in China have fallen for the first time in two decades with a 3% drop in sales in 2018, and there is likely to be an even further drop for 2019. This paper will focus on how Tesla can develop a corporate strategy to increase its competitive advantage.

SWOT Analysis

Strengths

Tesla’s value is mainly in its mission and vision statements. It appealed to environmentally-concerned consumers who wanted to buy from and be loyal to a company that cared about the environment and that held the same values they did. Tesla aimed to be a sustainable company and to help make the green energy the focus of the future. Plus, in Elon Musk Tesla had a CEO who was widely considered a visionary and who could relate to the average young person (Yauney, 2018). Musk was innovative and seen as the man who made Tesla cars so unique and technologically impressive.

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As Yuying and Qingrun (2018) note, most of Tesla’s revenues are generated by sales in the United States, which means that its main focus till now has been building its market share domestically. However, the company is looking to ramp up marketing in foreign markets to become a truly global player. If Tesla can do this, its value will rise exponentially.

Weaknesses

Now that Musk is under fire and may be suspended as CEO by the SEC, Tesla could be without its main value driver. It does not help either that political conditions are changing or that Tesla’s tax break incentive is being phased out. Additionally, the demand for the Model 3, which Musk identified as the car that would make or break Tesla (Crothers, 2018), is drying up (Engle, 2019). Tesla delivered nearly 30,000 EVs in Q1 of 2018. While that number rose to 51,000 in Q1 2019, it was well below analysts’ estimates of 80,000, which indicates demand is not where it needs to be. This may be the result of repeated bad press for both Musk and the Tesla brand, as numerous celebrities have taken to Twitter to announce their displeasure with their vehicles’ mishaps, including most recently Sheryl…

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…has taken a hit over the past year. If Tesla can restore its image and get an improved Model 3 to market along with the EV semi-truck it has been promoting, it could continue to lead the revolution in green energy auto manufacturing. Its long term focus should remain on innovation and research and design.

Tesla can create more competitive advantage by continuing to leverage its brand appeal as the leader in green energy tech (Stringham, Miller & Clark, 2015). Elon Musk’s appeal was an advantage in the past, but that advantage may now be a disadvantage. Tesla needs business sense now more than anything. It needs to create sustainable competitive advantage by fixing the problems with the Model 3 and building out charging stations and service stations around the world to support consumers.

Conclusion: Recommendations

Tesla needs to overhaul its corporate strategy and abandon for now its vertical integration plans. It needs to begin outsourcing jobs and cutting costs. While it has prided itself on being the only wholly American car producer in the world, that goal is not a viable way forward. While geographical diversification may sound like a good corporate strategy, it does not align with its internal capabilities at this point: Tesla is out of cash and notes are coming due. It is going to have to shrink just to stay solvent. It should abandon China for the time being—especially as the auto market in China is in decline with rates rising there. No manufacturers are going to prosper in China for the time being, and that means Tesla can refocus on Europe and North America.

If Tesla were to be outstripped by a competitor like the Nissan LEAF or the Chevy Volt/Bolt or the BMW i3, its brand image would become seriously tarnished. Tesla is respected because it is considered a leader in the EV market and that means it has to maintain its position as the leader no matter what. In 2015, it was only beating Nissan by a few thousand vehicles in sales, and if it is not careful, it will stop being a leader. Tesla needs to focus on rebuilding its image in Europe and North America by getting an improved Model 3 to market. Rates are still low in Europe, which means people will be more willing to buy there, so Tesla should double down in Europe before manufacturers like BMW and Audi cut into market share. In order to succeed, Tesla needs to renew its commitment to the Model 3 production, improve the design and engineering so that it is more reliable in all weather climates, and get these cars to market. Tesla has to manage its brand just as much as it manages its innovative scale of products. The problems with the Model 3 that caused Consumer Reports to drop the car from….....

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