CriticalPerspectives in Strategy BMAN 24141 essay ID:9970760 ChosenCompany: Tesla Introduction In today’s world due to the fast-pacedtechnological advances, economies and industries are changing at a constantlyaccelerating rhythm. Especially in the last decade huge shifts in theautomobile industry have been made.
Due to finite unrenewable resources, theincreasing price of oil and increasing ecological awareness of the population,a lot of automobile manufacturers have tried to access the electric car marketto meet the rising customer demand for sustainable technologies. The emerginge-car industry faces several challenges such as limited driving range and toohigh car prices. Firms operating in this industry need to create value and mustfind a solution to overcome these problems. Tesla has proved to be the companywith the greatest impact on electric vehicle development, and it is responsiblefor the huge raise in awareness about electric vehicles around the globe. Part A Thepurpose of the first part of this essay is to analyse Tesla using one of themain strategic tools that were taught in the course’s lectures.
The strategictool that I have chosen to use for the first part of my analysis is the PESTELframework. A PESTEL analysis is a framework used to analyse and monitor themacro-environmental factors that have an impact on an organisation (Professional Academy, no date).PESTEL stands for the Political, Economic, Social, Technological, Environmentaland Legal factors to which a company has to adapt the strategy that it plans tofollow. Tesla PESTEL Analysis The factors that Tesla has to plan its strategyunder, using the PESTEL framework, include: Political One of the biggest opportunities presented to Teslato expand is the government incentives that are offered in order to promoteenvironmental sustainability and reduce carbon dioxide emissions created by carengines. These incentives include exemption from purchase tax, VAT and roadtolling amongst others (Kristin Ystmark Bjerkan, 2016). This has proved tobe immensely effective in countries where these incentives were widelyimplemented, such as Norway and Germany, which are now global frontrunners inautomobile purchases. Another opportunity that Tesla has in order to expandinternationally and increase its market size, are the expanding free tradeagreements, which give it the opportunity for international expansion.
Finally,in all of Tesla’s major markets, which are mainly North America, Europe andChina, there is political stability and thus no danger of politicalcircumstances that could damage the company’s performance. Economic Tesla is expected to benefit tremendously fromdecreasing battery costs for its electric vehicles which will give it theopportunity to produce higher quantities of its products, and at a moreaffordable 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 energywill make Tesla’s products more attractive as renewable energy becomes morepopular. However, the economic instability in important regions for Tesla particularlyin Europe and Asia are expected to be a threat in the future. Social Tesla has huge growth opportunities based on thepopularity of low carbon lifestyles and increasing preference for renewableenergy. The global warming and the negative side effects of carbon emissionshave increased the social awareness for environmental sustainability, and thusconsumer demand is starting to shift towards electric vehicles. Moreover, theimproving wealth distribution in developing markets is set to increase Tesla’ssales in regions that it is yet not so familiar with (Kissinger, 2017). Technological The high rate of technological change is a greatopportunity for the future of Tesla in its effort to produce higher qualitybatteries and increase the driving range of its vehicles.
The increasingautomation that technological advances will bring to manufacturing willdecrease production costs and will be beneficial to Tesla (McKinsey& Company, 2017).In addition, the increasing popularity if online mobile systems should promptthe company to increasingly integrate these systems in its automobiles makingthem even more consumer-friendly. Environmental The most important factors that have contributed toTesla’s rise as an automobile manufacturer are environmental factors. Tesla hasopportunities to promote its electric vehicles based on concerns on climatechange, expanding environmental programmes, and rising standards on wastedisposal and gas emissions (the spherepress, 2017). Thecompany’s electric vehicles in directly addressing these issues and are linkedto corporate sustainability and environmentally friendly products. Legal Tesla has opportunities to safely expand itsbusiness overseas, considering expanding international patent protection. Inaddition, the company has the opportunity to promote its electric vehiclesbased on energy consumption regulations that client organizations must follow (Kissinger, 2017).Also, Tesla has the opportunity to grow through direct sales, which is allowedin many states in the US.
However, other states do not allow direct sales andinstead 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 thePESTEL framework to shape its strategy, is that the external factors consideredduring 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 thefuture of organisations.
In addition, it is possible that there will beunexpected opportunities or threats that could have not been predicted thatwill affect the company at a greater or lesser scale (Thakur, 2010). A threat that couldarise for example is Tesla falling behind competitors in the future or thethreat of new entrants in the electrified vehicle industry with greater capitalthan Tesla, or with more innovative products. The best way for Tesla, a company that is now inits growth stage, to continue its international expansion and to keepincreasing its sales and to ensure the continuations of its growth and theavoidance of unexpected threats it to establish a successful business model. Part B The business model has been in recent years thefocus of substantial attention from both academics and practitioners and it isemerging as a new unit of analysis for organizations. Business models emphasizeon 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 howit is captured. A definition of the business model is: a representation of afirm’s underlying core logic and strategic choices for creating and capturingvalue (Shafer& Smith, 2005). As it was analysed more thoroughly in Part A, themarket for electric vehicles is growing exponentially, for reasons that includenew regulations for vehicle emissions, technological advances and shiftingcustomer wants and expectations.
However, much of the mainstream acceptance ofelectric cars and their increasing popularity can be traced to Tesla Motors, asthe 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 modeland critically evaluate how it can affect the company’s strategy, taking intoaccount the analysis of Part A. Tesla’s Business Model Tesla’s business model is distinguished from otherautomobile manufacturers as it follows a unique retail strategy. Instead ofusing dealerships to sell its cars, as most major automobile manufacturers do,Tesla has a direct sales strategy and sells its cars through company ownedstores (Dutta, 2017). By owning the saleschannel, Tesla aims to gain an advantage in the speed of product developmentagainst its competitors, and also to provide a superior customer experience, asall of the sales and service staff in these galleries are Tesla employed. Thedirect sales strategy is a problem in a few states in the US where direct salesare illegal.
However, in these states Tesla operates galleries whereinformation and guidance is provided by staff to prospective buyers, howeverall sales are performed online (Tesla, 2015). Tesla also focusesheavily on providing excellent customer service. This is why it has opened manyService Centres in many locations internationally. Typical service itemsoffered at service centres include resolving any problems that may arisepost-delivery, annual services, and switching between summer and winter tyresets (Tesla, 2015). In order to tackle on of Tesla vehicles’ maindisadvantages against gasoline fuelled cars, which is the short driving range,Tesla has created a supercharger network: a network of charger stations where Tesladrivers can fully charge their vehicles in 30 minutes’ time for free (Zucchi, 2015).
Tesla holds thisconcept as crucial to speed up the rate of adoption of its cars by the masspublic, as it has been so far unable to offer its customers with a method ofcharging their cars on the go, as opposed to getting gasoline from a gasstation while driving. This is why one of Tesla’s main goals is to open as manycharger stations as possible in the future. Finally, in order to achieve the goal of increasingthe economies of scale Tesla is building its first ‘Giga-Factory’ in Nevada,which will be a massive and completely supported by renewable sources of energyfactory which will increase Tesla’s production in units and decrease itsproduction costs. The ‘Giga-factory’ is expected to be the main catalyst ingiving Tesla what it always wanted: making electrified vehicles available tothe 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 Europeand 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 lithiumbatteries used by Tesla vehicles will cost 100 dollars per kWh when in 2010 thecost was $1000 per kWh and in 2016 $227 per kWh. Tesla is following a business model that has provednothing but successful so far. It has taken advantage of external market factors,especially the increased demand for electrified vehicles, the governmentincentives for the use of electrified vehicles and the decline in renewableenergy costs to expand its production and sales and strengthen its brand as aninnovator in the electric car industry.
It has basically created the supply forthe increasing consumer demand for sustainable electrified vehicles. Tesla hasmade the first steps and has established itself as a pioneer in the electriccar industry, and is now ready to further exploit the opportunities presentedto it, such as the decreasing production costs due to technological advancesand increased production capability, in order to continue its expansion. Tesla’sbusiness model has achieved to address the biggest threats in the electric carindustry, which are the high costs and the low driving range, and has answeredthe question of whether electric cars will be able to compete with ICE cars, asapart from offering an environmentally sustainable product that satisfiesconsumer demand, it has a more effective supply chain than many other carmanufacturers and offers a better customer experience.
Through its businessmodel, Tesla has managed to dominate and gain a huge market share in anindustry that has immense growth potential, which is the e-car industry, andthe company’s future is expected to be bright. Conclusion Tesla did not invent the electric car or even theluxury electric car. What it did manage to invent was a successful businessmodel to make electric cars accessible to a larger share of the population thanever before. It was able to do that as it adapted its strategy to the mainpolitical, economic, social, technological, environmental and legal factorsthat had the possibility to affect its performance. Its business model focusedon producing high quality electrified vehicles, with the long-term goal ofbeing able to compete head to head with gasoline fuelled vehicles and makingelectric cars available to the mass public.
Tesla’s business model has takenadvantage of the opportunities that external market factors have provided, andhas tried to tackle with the threats and weaknesses that exist or may bepresented, 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).
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