Tesla Analysis: PESTEL, SWOT and Porter’s Five

Tesla Motors was founded in 2003 with the “mission is to accelerate the world’s transition to sustainable energy” and the intent of making electric cars that surpassed current gasoline-powered cars in both style and performance (About Tesla, 2017). Tesla Motors has experienced abundant growth and success starting with the 2008 release of the first Tesla Roadster which sold 2,400 in over 30 countries (About Tesla, 2017). Fueled by electric and heavy investment, Tesla has been able to redefine the automotive industry, and has recently overtaken General Motors as the most valuable US car manufacturer by market capitalization (Welch, 2017).

Industry Analysis

Political. Upon Tesla’s introduction to the automotive industry, factors were
ideal and the company was positioned for success and growth. The U.S.
Government’s interest and initiatives toward environmental stability, reduced
emission levels, and advanced vehicle technology allowed Tesla Motors to receive
federally backed grants, loans, and tax breaks to help finance heavy
investments into research and development, as well as production. Further, the U.S.
Government promotes adoptions of the electric car industry by also investing
directly in advancements. For example, the Department of Energy (DOE) plans to
invest $4.5 billion to install 48 new electric car charging stations across 35
states every 50 miles spanning 25,000 miles starting in 2017 (O’Kane, 2016). This investment directly addresses a
threat to Tesla and the industry without requiring any of Tesla’s resources.

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Economic. “After a lackluster outturn in 2016, economic activity is projected
to pick up pace in 2017 and 2018…. [h]owever, there is a wide dispersion of
possible outcomes around the projections, given uncertainty surrounding the
policy stance of the incoming U.S. administration and its global ramifications”
(International Monetary Fund, 2017). The current state
of U.S. politics and the looming threat of war leaves room for uncertainty
regarding the state of the economy as well as oil and material prices for all
automotive manufacturers.

As for the automotive industry itself, “worldwide sales reached a
record 88 million autos in 2016, up 4.8 percent from a year earlier, and profit
margins for suppliers and auto makers…are at a 10-year high” (Parkin, Wilk, Hirsh, & Singh, 2017). However, the auto
industry is struggling with total shareholder return and return on capital (Parkin, Wilk, Hirsh, & Singh, 2017). As Tesla has
recognized, and will continue to recognize, it will be difficult to earn
returns on the capital vested into research and development.

Social. As mentioned above, consumer demands for more environmentally friendly alternatives to traditional gasoline powered cars drives the electric car market. The original customer segment for Tesla Motors were wealthy men with a median income of $271,000 between the ages of 35-50 in California and Washington that were attracted to expensive luxury sports cars, wanted to own the latest and greatest sports car on the market, and wanted to follow the trend toward more environmentally friendly vehicles (Burdman, 2013; Pressman, 2016; Thompson, 2015). However, as Tesla expands its product offering beyond luxury sports cars to include SUV’s and more economical car models, Tesla is expanding its market to women and less affluent who are just as concerned with driving an environmentally friendly vehicle.

Technological. Tesla is the leading innovator of technology in electric cars and is
transforming the automotive industry. However, the existing battery technology
has some drawbacks. The Tesla Model S can only travel around 230-300 miles on a
single charge (Thompson, 2015, p. 254). This requires a
solid infrastructure of charging stations which is still being developed. This
need for charging stations creates “range anxiety” because though charging
stations do exist along many major highways, however, owners may have
difficulty finding charging stations in more remote areas (Thompson, 2015, p. 262).

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Environmental. The market for electric cars was created in response to a growing
awareness of environmental issues and impacts such as global warming and
climate change. These impacts are noted by both governments and consumers which
have encouraged the expansion of electric car technology through government
policies and changing consumer demands. Tesla’s electric cars have zero carbon
emissions and do not contribute to the carbon footprint, unlike other electric,
hybrids, or gasoline cars (Tesla, 2017; U.S. Department of Energy, 2017).

Legal. Tesla has faced difficulty with state laws and regulations regarding the Tesla’s decision to vertically integrate sales and service instead of selling through authorized dealers. “Legislation either forbidding or severely restricting the ability of automakers to sell vehicles directly to the public [has] been passed in 48 states (Thompson, 2015, p. 261).” This results in strategic challenges for Tesla in regards to their showrooms that offer both sales and service.

Porter’s Five Forces

Industry Rivalry. The U.S. automobile industry is a mature multi-billion-dollar
oligopoly. General Motors, the highest selling car manufacturer in 2016,
realized $166.4 billion in revenue (General Motors, 2017). The large
competitors and brands control market share and the industry is highly
competitive. In a fight for flat market share, competitors design new car
models and redesign existing car models, and offer attractive incentives to
influence potential customers.

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Bargaining Power of
Suppliers. The bargaining power of Tesla’s suppliers
is moderate because Tesla’s production is currently limited compared to other
competitors in the industry and the Tesla is dependent upon its suppliers.
Tesla is particularly dependent on its battery supplier, Panasonic, with whom
Tesla has a supply agreement through the end of 2017 (Thompson, 2015). There are other potential suppliers in
the industry and Tesla is expecting to significantly increase production which
would increase Tesla’s bargaining power, however, Tesla is leveraging their
agreement with Panasonic to create a Gigafactory that will “produce more
lithium ion batteries annually than were produced worldwide in 2013” (Tesla Gigafactory, 2017).

Bargaining Power of
Buyers. The power of buyers in the automotive
industry is high because there are many different manufacturers, makes, and
models to choose from, and many dealers will negotiate sale prices. However,
the bargaining power of Tesla customers is moderate because there all electric
and hybrid alternatives offered by other competitors, however, the company does
not negotiate sale prices.

Threat of New Entrants. The threat of new entrants into the market are low because of the
high barriers to entry and the large size of competitors in the industry. High
barriers to entry include the high cost of research and development to design a
car, the high cost of production (materials, labor), high economies of scale,
and the high cost of brand development and marketing. New entrants would
require significant upfront financing in order to produce a vehicle and compete
in the industry. New entrants would be competing against established name
brands that benefit from economies of scale and offer differentiated product
lines.

Threat of Substitutes. The threat of substitutes to Tesla in the automotive industry are moderate
because of alternatives offered by competitors, as well as public
transportation. The cost to switch from one vehicle manufacturer to another, or
to choose public transportation as an alternative is low. Also, competitors
offer other electric/hybrid models with varying price ranges that also perform
well.

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SWOT

Strengths. Teslahas multiple strengths
which are major contributing factors in the company’s success. Offering a more
environmentally friendly and technological advanced alternative to the traditional
combustion engine has allowed the company increase investor buy-in, receive
federally backed funding, improve sales incentives through federal and state tax
credits for buyers, and partner with Wells Fargo Bank and U.S. Bank to offer
special buyer financing (Thompson, 2015). Since 2004, Tesla has had significant
investor buy-in and funding, receiving “$145 million in investment capital
raised in [the] first five financing rounds” (Thompson, 2015, p. 247). In additional,
Tesla received “about $465 million in low-interest loans from the U.S.
Department of Energy” as investment financing (Thompson, 2015, p. 247).

Tesla’s product quality and brand image are also a major strength.
Tesla cars offer superior speed, style, safety, and overall performance, as
well as more storage space than traditional cars. All of which have allowed
Tesla to meet and exceed customer expectations of internal combustion engine cars.
Environmental friendliness and product quality have allowed Tesla to be
successful in international markets. Also, Tesla’s product quality and brand
integrity have resulted in pre-ordering of the company’s newest Model 3 car.

Tesla’s internally developed and managed designs, and core
competencies are also a strength. Tesla has managed to develop core
competencies in vehicle design and engineering, power train, gear boxes,
computer aided design, and crash test simulation, and has even been able to use
these core competencies to sell products to competitors (Thompson, 2015). Tesla also vertically integrated the
production of vehicles upon the purchase of the Fremont automobile plant. Tesla
integrates and oversees the portions of the production process that have a
great impact on the quality of their product and the integrity of the brand,
including forward integration of retail sales and services, while outsourcing
of minor components that are not the core competency of the company.

Weaknesses. Tesla’s major weakness is price – both of car and of repair. Though
the company is in the process of offering a differentiated product line, the cost
of the vehicles currently on the market are still very high compared to other
alternatives. Cost of repair can also be very expensive for both for body work
on the aluminum body and general maintenance such as brakes that can cost
around $8,500 (Hines,
n.d.).
Access to sales and service can also be a challenge for owners. Tesla has only
36 total service centers across the U.S. which can make it very difficult for
customers to receive service in states without a service center or with only
one service center in a state (US Tesla Service Centers, 2017).

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Tesla’s low production rates are currently a weakness. The company
is not able to develop economies of scale and is struggling to implement
manufacturing efficiencies due to low sales volumes. Improved economies are
scale are very important based on the size of the competitors, the resources
available to these competitors and the competitiveness of the industry. Tesla
will also have to continue heavy investments into research and development to
continue innovation and technology advances to keep its place in the market.

Another weakness is the car’s battery. The battery’s ability to only
run about 300 miles on a full charge and the 75-minute recharge time is
restricting to owners (Thompson, 2015). Also, owners are facing the difficulties
with decreased battery capacity after extended use or use in adverse weather,
as well as high costs to replace the battery pack ($29,000 for the Tesla
Roadster) (Blanco, 2015; Thompson, 2015).

Tesla’s Supercharger network is also a weakness. Though there are
828 Supercharger stations with 5,339 Superchargers in the US, the
infrastructure of the Supercharger stations still needs large investments to
improve and expand (Supercharger, 2017). There are still
several states within the US where Supercharger stations are non-existent or
scarce, such as Arkansas, Maine, North Dakota, and New Mexico (see Appendix A).

Tesla’s current marketing strategy is based on word-of-mouth
referrals, as well as free media coverage of the company, products and awards (Thompson,
2015, p. 263).
Tesla is still in the early stages of the product life cycle, so outside
marketing and referrals have been beneficial. However, going forward, Tesla
will need to create a competitive marketing strategy to continue to set
themselves apart from traditional combustion engine car manufacturers in the
market.

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Opportunities. Tesla’s advanced technology and expansive investments in continued
research and development offer major opportunities. Advances in battery pack technology
including faster charger and increased traveling distance on one charge will
help further develop the adoption rates and market share of electric cars. If Tesla
could offer an economical, high performing model, like the Model 3, with a
battery pack that was able to charge in the same amount of time as fueling up at
a gas station and drive more miles on one charge, it would reduce barriers to
adoption.

Tesla also has some major opportunities with increased demand and
production allowing for economies of scale, as well as manufacturing and supply
chain efficiencies associated with increased experience. These improvements and
efficiencies will help to reduce costs of production and materials. Tesla could
then reduce the sell price of the cars in order to increase demand and sales.
Another option would be to reinvest the revenue increase back into research and
development. This opportunity is supported by Tesla’s manufacturing plant in
Fremont, California also being able to facilitate increased growth and
production (Thompson, 2015).

Tesla’s brand recognition is also an opportunity within the market.
Tesla has become a well-known brand, and was “America’s fifth best-perceived
car brand” in 2014. (2014 Car-Brand Perception Survey, 2014). The Tesla brand has
helped define a positive perception of electric cars, and prove that owning an
electric car is better for the environment and does not reduce performance. The
Tesla brand is recognized for advancements in technology and top of the line
performance.

Tesla’s opportunities with continued technology advances, economies
of scale, improved production efficiencies, and brand recognition contribute to
the opportunity for continued international and product expansion. The company
has many opportunities internationally as more governments are supporting
electric vehicles initiatives, such as “Canada, China, France, Germany, India,
Italy, Japan, Korea, the Netherlands, Norway, South Africa, Sweden, [and] the
United Kingdom” (International Energy Agency, 2017). Tesla also has
opportunities in expanding its product line to include new models, such as
pickup and commercial trucks.

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Threats. Tesla’s electric cars are a potential disruption to the automotive
industry, and the company’s successful entrance into the electric car market
has spurred the competition to follow suite in order maintain market share as
the automotive industry transforms. Volkswagen, in particular, stated in 2013
that “it intended to become the world’s largest seller of electric vehicles by
2018” competing directly with Tesla’s market share (Thompson, 2015, p. 270). Volkswagen and other
existing car manufacturers have large assets at their disposal to invest into
research and development, and many of these manufacturers are already producing
electric vehicles that compete with Tesla (Welch, 2017, p. 271). Tesla faces threats
of competition with competitor’s more economical models that are already in
production, as well as consumers purchasing used cars from other manufacturers
rather than purchasing a new Tesla model.

Minimal or no advancements in technology are a major threat to
Tesla. Tesla is able to add value to its products and brand through innovation.
Slowed or no innovation also allows time for the competition to catch up or
surpass Tesla’s technology. The current battery technology’s low mile per
charge, decreasing battery life, and expensive replacement leave room for
improvement. Also, consumer expectations are for Tesla to continue to be an
industry leading technology innovator and to always have top of the line
technology. Not meeting these expectations would allow room for competitors, as
well as be detrimental to the Tesla brand.

Tesla is also at risk for not having long term agreements with suppliers. Tesla could be missing supply chain efficiencies and lower cost options by not creating agreements while the company establishes itself in the market. Because of this, material prices can be more volatile and Tesla could be at risk for unanticipated increases in material costs directly affecting the bottom line.

Decreasing fuel prices, lack of charging station infrastructure, and poor publicity on safety are also threats to Tesla. As fuel prices decrease, drivers are able to save money and are less likely to adopt an electric vehicle (Korosec, 2017). Lack of charging station infrastructure also creates a challenge for consumers who may be less likely to purchase an electric vehicle given the restrictions of the current infrastructure. This creates a challenge for the electric car industry as a whole, including Tesla.

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Current Business Strategy

Tesla Motors is currently employing a transnational strategy as the
company does not alter the product based on the region in which it’s selling.
Currently Tesla has stores and galleries throughout the U.S., Canada, and
Mexico, as well as stores across Europe, Australia, China, Hong Kong, Japan,
South Korea, Taiwan, Jordan, and United Arab Emirates (Find Us, 2017). Tesla’s initial strategy was focused
differentiation which targeted high income males living on the West Coast
(particularly California and Washington) who wanted a car that was high tech,
high performance, and environmentally friendly. Tesla created a niche market in
which the company was able to thrive because the large industry competitors did
not have product offerings in this market. Tesla is currently adapting their
strategy to include a larger target market by offering the Model 3 at a much
lower, more economical price.

Tesla implements a highly controlled and regulated business strategy
which is evidenced by the integration of manufacturing, core competencies,
sales, and service into the business model. This allows Tesla to directly control
the quality of products and service that a customer receives, as well as
control the price by removing markups by third-party car dealerships. This also
includes Tesla’s strategic business alliances with industry competitors Daimler,
Mercedes Benz, and Toyota. Tesla is able to leverage their core competencies
with competitors who are unable to compete within the same market in exchange
for the competitor’s core competencies. A specific example would be Tesla
teaming with Toyota to create an electric SUV—combining Tesla’s technology and
electric vehicle competency with Toyota’s lean and more experienced
manufacturing competency.

Strategic Challenges

Some of the major strategic challenges Tesla is facing is the
ability to meet product release deadlines, state legislature, and continued
international expansion. First deliveries of Tesla’s new products have been
delayed on each of the three releases, and is likely to happen again with the
forth product release of the Model 3 (Randall, 2016). These delays can reduce stock prices
and reduce profits, as well as have effects on customer trust and brand
loyalty. State legislature and court decisions regarding whether a company is
able to both manufacture and sell cars also present a strategic challenge to
Tesla’s controlled business strategy. Tesla will have to set up strategic
alliances with car dealerships within the states that decide Tesla is not
legally able to sell their products, and decide what to do with existing sales/service
locations set up within that state. Further, it will be a strategic decision
whether to maintain sales facilities in the states that allow both manufacture
and sale, or to back out of the sales/service business and establish
partnerships in all states.

Lastly, continued international expansion is a strategic challenge
for Tesla.

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References

2014 Car-Brand Perception Survey. (2014, February). Retrieved April 28, 2017, from
Consumer Reports:
http://www.consumerreports.org/cro/2014/02/2014-car-brand-perception-survey/index.htm

Blanco, S. (2015, September 1). Tesla
Roadster Battery Pack Replacement Will Cost $29,000. Retrieved from
AutoBlog:
http://www.autoblog.com/2015/09/01/tesla-roadster-battery-pack-replacement/

Burdman, S. (2013, December 27). NBC.
Retrieved April 16, 2017, from Oh, Man! 83% of Tesla Owners are Male:
http://www.nbcbayarea.com/news/local/Oh-Man-83-of-Tesla-Owners-are-Male-237515761.html

General Motors. (2017, February 7). GM
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Hines, M. (n.d.). How Does A 2012
Tesla Model S Need An $8,500 Brake Job? Retrieved from CarBuzz:
http://www.carbuzz.com/news/2016/5/23/How-Does-A-2012-Tesla-Model-S-Need-An-8-500-Brake-Job-7733684/

International Energy Agency. (2017). Electric
Vehicles Initiative (EVI). Retrieved from OECD/IEA:
http://www.iea.org/topics/transport/subtopics/electricvehiclesinitiative/

International Monetary Fund. (2017,
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Korosec, K. (2017, January 25). Tesla
CEO Elon Musk Says Cheap Oil Will Hurt Electric Cars. Retrieved April 18,
2017, from Fortune: http://fortune.com/2016/01/25/elon-musk-oil-prices-electric-cars/

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O’Kane, S. (2016, November 3). The
White House Announces a Sweeping Plan to Increase EV Charging Stations.
Retrieved April 16, 2017, from The Verge: http://www.theverge.com/2016/11/3/13507634/ev-charging-stations-white-house-obama-department-of-energy

Parkin, R., Wilk, R., Hirsh, E., &
Singh, A. (2017). 2017 Automotive Trends. Retrieved from PwC:
https://www.strategyand.pwc.com/trend/2017-automotive-industry-trends

Pressman, M. (2016, April 19). Tesla
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https://evannex.com/blogs/news/116150725-tesla-owner-survey-results

Randall, T. (2016, May 9). Elon Musk’s
Tesla Strategy: Win Big by Falling Short. Retrieved April 19, 2017, from
Bloomberg:
https://www.bloomberg.com/news/articles/2016-05-09/elon-musk-s-tesla-strategy-win-big-by-falling-short

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Tesla. (2017). About Tesla.
Retrieved April 16, 2017, from Tesla: https://www.tesla.com/about

Tesla. (2017). Find Us. Retrieved
April 19, 2017, from Tesla: https://www.tesla.com/findus/list

Tesla. (2017). Supercharger.
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Tesla. (2017). Tesla Gigafactory.
Retrieved April 16, 2017, from Tesla: https://www.tesla.com/gigafactory

Tesla. (2017). US Tesla Service
Centers. Retrieved April 16, 2017, from Tesla:
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Thompson, A. A. (2015). Tesla Motors’
Strategy to Revolutionize the Global Automotive Strategy. In A. A. Thompson,
M. Peteraf, J. E. Gamble, A. J. Strickland, & 20th (Ed.), Crafting
& Executing Strategy: The Quest for Competitive Advantage: Concepts and
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U.S. Department of Energy. (2017, April
03). Alternative Fuels Data Center. Retrieved April 16, 2017, from
U.S. Department of Energy:
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Welch, D. (2017, April 10). Tesla Just
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Appendix
A: Tesla Supercharger Stations Map

(Supercharger, 2017)

Appendix
B: Tesla’s History of Delays

(Randall, 2016)

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