Tesla, Inc. isinvolved in the design, development, manufacturing and sale of electricvehicles and electric power train components. Its products include electricvehicles such as the acclaimed Model S, Model X and the Tesla Roadster. Thecompany is involved in the manufacturing of renewable technologies includedsolar energy and renewable batteries. Tesla was founded by Jeffrey B.
Straubel,Elon Reeve Musk, Martin Eberhard, and Marc Tarpenning on July 1, 2003. Tesla thrives onthe relatively new perception of a need for alternative green technologies. Thecompany is seen by many as a response to the clear effects of fossil fuel usein vehicles and its negative impact on the environment. In terms of marketingTesla has a moral and ethical vantage point but beyond this obvious fact,society as a whole is taking more interest in environmental awareness.
Thetechnology used in electric cars is both user friendly as well as affordable ascompared to petrol and diesel operated vehicles. It is shown in a report byCowen & Co that by 2020 electric cars will be significantly cheaper thancars which use gas due to fuel efficiency standards imposed on traditional carsand falling price of manufacturing batteries. (Bary, 2017)There is evidence as researched by Cowen Osbourne that the global electricvehicle appropriation could increase from 1% in 2017 to 7.5% in 2025 and Teslais already pushing forward with making its products more affordable with theModel 3 costing a mere $35000.
Therising interest in the use of electric vehicles is good for Tesla; however thisleads to an increase in incentive for rivals to compete more aggressively. In term offinancial performance for the year ended 31 December 2016, Tesla hadsignificant increase in assets including manufacturing plants and property ascompared to 2016 and 2015; $22664m and $8067m respectively. (Tesla, 2016) This shows a massiveexpansion for Tesla as the demand for the luxury electric vehicle grows. Thegoodwill, which defines an intangible credibility that consumers have for Teslaresulted in approximately $217m gain as compared to the $47m of 2015 (Tesla, 2016).
The Net income ofTesla over the 2015-2016 period shows cause for concern among investors. The2015 Net income values come at a deficit $886,66 and this is due to a varietyof factors including the great operating expenses for upholding the automotive;electric vehicle, stationery and energy storage; energy generation and storagebusiness departments. The fiscal year end 2016 shows a slight improvement withdeficits only being $674,91m (Tesla, 2016).
The reason behindthese deficits are the operating expenses of mainly the electrical vehicle,stationery and energy storage together with the energy generation and storagedepartments which brought whose operations rather declined operating incomethan add to it.Macro EnvironmentAnalysis:Political:The globalmovement towards reducing our carbon footprint has not only motivated privateand public companies to innovate conservational campaigns, technology andactivities but government as well. The most prevalent examples of governmentpolicy promoting environmental protection is the UK’s stance on carbonemissions created from transport. Transport is a major source of pollution inthe UK which contributes to destroying air quality and in efforts to reducecarbon emissions government is encouraging people to drive electric and hybridvehicles. This is done through various methods including: (v3.
0, 2010)· Providing grants to those who purchase ultra-lowemission vehicles· Contributes to the funding of innovativeresearch and development through the Office for Low Emission Vehicles (OLEV)· Is setting out a framework for the developmentof a recharging network for electric and plug-in hybrid vehicles· Continues to give funding to the Plugged-inPlaces programmeTesla benefitsgreatly from the Climate Change Act 2008 as it encourages the concept ofelectric vehicles in the public’s eye- government are doing their marketing forthem. The perceptions of people are positive towards Tesla’s products throughsocial learning as it not only saves the environment but they get remuneratedfrom government. Ethics plays a great role in motivating the purchase of Teslavehicles as the pressure of our carbon footprint is magnified by government’sefforts to phase out petrol and diesel vehicles in the UK. An example of thesepolicies increasing both sales and attractiveness of electric vehicles is inNorway, “JUDABERG, Norway (Reuters) – The Norwegian Island of Finnoey has thehighest density of electric cars in the world. The reason? They are exempt fromthe $6,000-a-year toll charges for the tunnel to the mainland. There has been asurge in sales of fully electric cars like Teslas and Nissan Leafs since thetunnel opened in 2009 and they now account for one in five cars on Finnoey,compared with less than 1 in 100 globally” (Thomas Reuters, 2017).
EconomicEnvironment:The externaleconomic forces Tesla would mostly have to deal with have to do with theirvehicles being sold internationally and the manufacturing of Tesla vehicles andproducts in States apart from the US. As Tesla is now a vehicle with greatinternational appeal there are various economic hurdles which the company mustovercome such as Exchange Rates, Export Quaota controls and price inflation. Anexample where the exchange rate affects the sale of Tesla is in Germany where agovernment agency has removed Tesla’s new Model S from the list of electriccars eligible for subsidies. This is due to the fact that the vehicle is notavailable in a version that falls within a 60,000 euro ($71,448) price limit. “Teslacustomers cannot order the Model S without extra features that push the priceof the car above the limit,” a spokesman for the German Federal Office forEconomic Affairs and Export Controls (BAFA) comments.
(Factiva, 2017) Tesla Inc. has reached an agreement toset up its own manufacturing facility in Shanghai. This strategic move couldhelp it gain traction in China’s fast-growing EV market. This new arrangementwould enable Tesla to cut production costs, but it would still likely incurChina’s 25% import tariff.This example ofexchange rate and export controls affects the progression of Tesla’s expansioninto different international markets.
SocioCultural Environment:Society hasreached a point where environmental preservation is imperative to ensure theeffects of global don’t become detrimental for our future. Businesses need toconstantly follow the prevalent values which society upholds to make theirmarketing activities effective. Tesla is in an advantageous position as theirautomotive department represents the future of green technology in luxurytransportation. Demographics and lifestyle play a great role in the marketingdecisions a company will make and essentially portray through their product.Tesla vehicles are luxury electric cars and as such certain income bracketsaren’t eligible for its purchase. The Tesla ModelS for example is compared to the new 2017 Mercedes Benz S Class, whichrepresents a typical luxury car in both price and appearance. The Model S andMercedes Benz S Class 2017 model are about $100,000 depending on specificationschosen. Zhou Lixun said she bought a $166,000 Model X for her business partner,who owns an auto-parts company in Beijing, earlier this year.
“There areother EV brands, but nothing else at the top end,” said Ms. Zhou. “Wethink Tesla is high-tech, and it makes us feel young and fashionable.” (Trefor Moss, 2017) TechnologicalEnvironment:The innovationof new technology affects most businesses as it changes the way a company goesto market, operations and processes. A company must constantly be at theforefront of technology if they are to remain competitive and efficient.
Teslain this way has spearheaded the luxury electric vehicles market. Elon Musk, CEOof Tesla, has significant relevance in China, where he is regularly praised inthe media as a tech visionary. His relevance as a visionary in the electricautomotive industry has contributed the foreign car maker to make significantinroads into China’s electric-vehicle market despite being a foreign competitoragainst EV with local customer bases. “Tesla sold roughly 12,000 imported carsin the first nine months of this year, up from an estimated 11,000 in 2016 andgood for 4% of China’s plug-in market, according to EV Sales, a websitetracking the sector.
Tesla hasn’t revealed unit sales figures, but says Chinaaccounted for $1.1 billion of its $7 billion revenue last year, second only tothe U.S.” (Trefor Moss, 2017) This quote serves toshow the magnitude of the EV market in China as Tesla only made up a mere 4% ofthe market. The technology in the EV sector is currently booming in China andas such having a sustainable competitive advantage is imperative. The EV markethas already been saturated with great demand in the new age cars and as suchcompetition for significant market share is based on the technology andmarketing. Tesla vehicles are hailed as a significant entry into China’s EVmarket due to the technology imbedded into its luxurious body.
PerformanceEnvironment Analysis:NewEntrants:Tesla remains tobe in a very specific position in terms of market segmentation and brandpositioning. Tesla represents the innovations of electric vehicles however itsdifferentiation factor is the fact that it is associated with luxurytransportation. Tesla is not just an EV but is the market driver of luxury inthe EV industry. While Tesla has set the benchmark for luxury electric vehiclesand for a time Elon musk exclusively held the position of being the only luxurybrand EV in the market; that position is steadily threatened by the world’smost established automakers. This year’s Los Angeles Auto Show is anyindication that there is growing momentum behind the luxury EV industry.
Thewell-known and trusted automakers like BMW, Jaguar and Volkswagen are greatestthreats to Tesla as they have been in the market for many years, with loyalcustomer bases world-wide. Their entrance into the EV market poses issues agreat competition for Tesla in the coming years. Examples of these new entrantsare as follows:The MINIElectric ConceptUnveiled by BMWin Germany in August, MINI’s electric hatchback is the company’s first electricconcept car. The vehicle will be powered by a lithium-ion battery, with thecar’s bold yellow accent bar and flashy rims, company officials have touted itsdesign.
(Peter Holley, 2017)Jaguar’s I-PACEConceptJaguar’s firstelectric car was on display this week. In addition to zero emissions, theI-PACE Concept offers future drivers 400 horsepower and 0?60mph in around 4 seconds, according to the company.Volkswagen’sI.
D. CrozzThe Volkswagenelectric concept vehicle I.D. CROZZ, is expected to offer a range of more than250 miles from a single charge.
The company claims owners will be able tocharge the vehicle’s battery to 80 percent capacity in only 30 minutes. (Peter Holley, 2017)Buyers:It is importantfor a company to ascertain what percentage of their sales their buyersrepresent. In Tesla’s case, the company represents a niche market in the EVindustry and as such buyers hold a great deal of a bargaining power over Tesla.Tesla is therefore highly affected by its set prices as its customer base isstill growing in comparison to established car makers. This high priceelasticity is reflected in the issues happening in Germany whereby fewercustomers are going to import Tesla S models due to subsidies being revokedbased on prices deemed too expensive.
Germany does not make up a significantcustomer base so these effects aren’t detrimental to company revenue. Chinahowever makes up a 7th of Tesla’s global revenue and if the Chinesemarket can’t cope with the 25% import tariff for Tesla’s, a significant portionof sales is jeopardised. Existing premiumbrands are still preferred over Tesla, and Tesla’s lack of a dense dealernetwork could put it at a disadvantage however UBS surveyed about 10,000 peoplein the six largest car markets (China, Germany, Japan, Korea, the U.K, and theU.S.) and found growing consumer interest in electric cars and dwindlinginterest in diesel-powered cars. Tesla’s future does look brighter with surveyfindings at UBS showing its forecast of global electric-vehicle sales to 16.5 millionby 2025 or almost every sixth car sold globally.
Suppliers:Tesla is avehicle powered by battery instead of traditional fuel consumption and as suchthe manufacturing of this technology is specific to suppliers with access to theraw materials needed. This creates a bargaining advantage for these suppliersand possesses a potential threat to Tesla’s manufacturing process. Tesla’sfactories are mainly all based in the US, having manufacturing plants inCalifornia, Fremont, Nevada as well as in New Mexico. Tesla eliminates supplierbargaining power as it makes many parts itself, which is uncommon practice inthe industry.
Tesla also works with 300 suppliers around the world, of which 50are in Northern California, and 10 in the San Francisco Bay Area. (Hoge, 2016) Tesla’s dashboard supplierSAS rents a building near the factory. Tesla has various suppliers with basesof operations near to its plants for easy access and quality assurance whichinclude Eclipse Automation and Futuris Automotive Group. Tesla maintainsits buying power from suppliers by differentiating input from various suppliersglobally as well as manufacturing some of their own parts.
The appeal of havingmany suppliers is that it gives perspective on prices of raw materials howeverrelationships between buyer and supplier suffer. Tesla ensures a good suppliercompliance and quality assurance through having its SAS dashboard suppliersclose to manufacturing plants. Substitutes:Tesla remains tobe in an interesting position as it is in a niche market of luxury electricvehicles and as such its competitors/substitutes include both establishedtraditional auto car makers as well as EV car makers. Tesla is looking to produce roughly 5,000 ofits mass market Model 3 vehicles each week by the end of 2017.
This increase involume would move Tesla out of its high-end niche and compete head to head withtraditional automakers. From marketingperspective and to differentiate from possible substitutes Elon Musk outlined a’Master Plan, Part Deux’ in 2016. Tesla is seeking to create a sustainableenergy economy by supplying solar panels, home energy storage and fullyautonomous electric cars and trucks.
In this way Tesla diversifies its brandthrough a variety of products. Tesla has a defining feature of being both energyefficient, performance driven and affordable as compared to the established carmakers. Internal EnvironmentAnalysis: SwotAnalysisStrength:High Product Differentiation: Theshift from fossil fuel to the development of electric vehicles positions Teslaas a unique brand. Its focus on affordable luxury and environmentally friendlyautomobiles differentiates it from many other EV in market currently.
Diversified Products: Tesla is notonly included in the automotive industry but in electric renewable powersystems. Tesla has developed a power pack for domestic household, commercialand utilities which produces up to 10 megawatts. WeaknessesNegative Cash flow: Tesla has beengoing through significant amounts of cash over the years.
This is largely dueto the significant investments it has made in research and development for theinnovative technology in its cars and storage renewable technologies. It isalso the result of the rapid expansion the company has experienced in recentyears. Tesla is also investing heavily for the construction of its Gigafactoryin Nevada, which has already begun producing battery packs. Due to these largecash outlays, Tesla has reported negative free cash flows and earnings fornearly every year since its IPO. Limited Experience in new productdevelopment: Tesla has reflected this weakness in the annual reports as theirother two departments have resulted in losses and debt. Tesla has been in newsrecently as their production goals had to be undercut due to issues in theirmanufacturing process. Model S and X release dates had to be moved as a resultof the inexperience in running absolutely efficient manufacturing lines.
OpportunitiesCost-Reduction Initiatives: TheGigafactory, which will allow it to build batteries for its vehicles at reducedcosts, possibly up to 30% lower than what it currently pays, forecasts profitsdue to this new plant. The factory should help to increase capacity, lowercosts and support economies of scale while realizing greater efficiencies inproduction and distribution. The subsidies in the UK also provide an edge forTesla as it encourages the purchase of its renewable products. ThreatsCompetition: The automotive marketis highly competitive, although Tesla finds itself in a unique position.
Giventhe high price of its current offerings, most of its competitors are otherluxury cars, which all are currently using standard fossil fuel engines. BMW,Audi, Nissan and Jaguar are examples of car makers that have EV; all of thesecompanies have been in business a lot longer than Tesla, and have greaterfinancial, manufacturing, and marketing capabilities, so Tesla will need toprove that it is capable of competing on a larger scale.Marketing Performance: 3C’s:CustomerTesla musttarget a larger segment of consumers who are both interested in functionalityand performance and are also environmentally and politically conscious. Tesla believes that the combination offunctionality, performance, style, energy efficiency and overall cost ofownership of the planned Model S will draw buyers from several market segments,including the lower, medium and upper premium sedan classes. The ideal targetmarket for the Model S will include consumers who see EVs as symbolizing theircommitment to the environment and will embrace the role as a member of a brandcommunity by becoming a member of the Tesla community. CorporationTesla shouldseek to gain a more global presence and grow their business through greaterinternational expansion before other established European firms are able to gettheir premium EV cars to the market.
Tesla should achieve this through increasedbrand awareness. Target countries withEV infrastructure currently developed.CompetitorsTesla’s battery pack technology is imperative to thecompany’s positioning and competitive differentiation. The low cost of thebattery pack allows Tesla to design cars with battery ranges greater than thecompetition but also place emphasis on design, performance, and energyefficiency. Tesla CEO Elon Musk stated that the Model S battery pack cost lessthan the Nissan EV Leaf’s pack; calculations of battery pack costs giveninformation in Tesla’s IPO.
Keeping this crucial advantage is essential forTesla in order to maintain its competitive advantage in the EV market. Corporate Social Responsibility:Tesla’s products contribute to the community throughprotection and conservation of the natural environment. Tesla also satisfiescommunities in terms of this stakeholder groups benefiting from advanced technologies.
For example, CEO Elon Musk announced that the company would allow otherindividuals and organizations to use its patents. This corporate socialresponsibility strategy directly benefits communities interested in using ordeveloping renewable technologies.In terms of employees their interests include highcompensation and career opportunities. Tesla satisfies these interests througha competitive compensation strategy, as well as HR programs designed to enhanceskills development and leadership development in employees.Tesla’s current CSR strategy addresses the main ethicalissues with our carbon footprint and in this way the product solves this issueand in addition Elon Musk’s generosity in making his patent availablecontributes to advancements in renewable innovation. Triple Bottom line isaddressed in contributing to employee’s growth as well as company sustainability.Tesla in 3-5 Years:There exits great opportunities for Tesla in the future associety look towards environmental preservation.
The completion of theGigafactory in Nevada and manufacturing factory in Shanghai is a calculatedstep towards cutting cost by up to 30% and possibly bring Tesla net profits.Transportation is a vital infrastructure and as such Tesla motors has potentialfor further growth however competition is sure to pressure the Tech company.There will be emergence of further EV from the established