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Strategic Issues at Tesla Motors

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Answer firs. Set, then one in end to help me understand

Tesla Motors: Charging into the Future?
will post what preliminary work I found to help out near the bottom .

In a four or five-page analysis answer the following questions :

-Should Tesla continue to compete in the automobile market, or should it allow itself to be bought out?

As it stands, Toyota already owns a significant amount of the firm's shares.

-If it does choose to compete, would a different approach provide the company with a better market share and position within the industry, as compared to a focus on the relatively high-end and environmentally conscious segment of the market?

-Can a firm with a Silicon Valley approach succeed in the more traditional automobile sector?

-Should Tesla expand its focus to include trucks and SUVs, or stick to just high-performance and luxury cars?

-What market segments should it pursue?

-to combat the debt and increase sales, how should Tesla pursue its expansion on the retail side of things?

-Is complete control of the stores better than franchising to dealerships?

-Another issue the key decision makers, such as CEO Elon Musk, face is how to address the maintenance of the cars, the network it would require, and how that fits in with the firm's strategy.

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Since its inception in 2003, Tesla Motors has made significant breakthroughs in the electric vehicle (EV) market with its proprietary power-train technology. Its first Roadster model provided a driving experience that was on par with a traditional gas engine and was the precursor for considerable success in the automobile market over the last few years. However, as the production of the most recent Roadster model winds down, Tesla is faced with a challenging situation that might determine the future direction of the company and ultimately its survival.1

In July 2012, Tesla released its EV family sedan, the Model S, priced at the upper range of the luxury vehicle market.2 This sedan represents Tesla's first foray into the family segment of the automobile market, providing a significant opportunity for company growth. Tesla currently takes only limited orders for the vehicles and expects the production capacity to be built up over the next few years. This model is intended to serve as a good introduction of Tesla's EV capabilities to the public and allay concerns about performance and reliability of EVs before its Model X crossover is introduced into the market.3 The Model X will not be ready for delivery until 2014, but it will be the first mid-sized vehicle produced by Tesla. Between these two vehicles, Tesla has an impressive product pipeline lineup that has the potential to appeal to middle-class consumers and to expand Tesla's current consumer base comprising high-net worth early adopters. However, Tesla is not the only manufacturer looking to develop EVs. Most automobile manufacturers have developed or are in the process of developing their own EVs—the Chevy Volt being the most well known. Toyota is developing an all-electric version of its RAV4 as part of a contract with Tesla.4 Currently, Tesla's vehicles have greater range and offer better performance, but these major automakers represent a significant threat to the viability of Tesla.

-*Address what you deem to be the MOST pertinent issues
1. How to move forward and in which direction?
Tesla could maintain its status as a niche manufacturer of high-quality, high-performance EVs, or it could seek to leverage its first mover advantage and therefore gain market share with expanded, affordable access to EVs in the greater automobile market. Tesla is limited in its ability to manufacture vehicles due to its size and access to resources, which puts it at a disadvantage in comparison to other automakers. However, if Tesla fails to act in a decisive way, it risks losing its technological advantage and opens the door for other manufacturers to develop their own EV models and crowd Tesla out of the lucrative automobile market.
2.How will Tesla maintain its technological lead over its competitors?
3. How will Tesla shift from targeting early adopters to reaching the larger consumer market—and should it?
4. How will it deal with the lack of infrastructure to support these new vehicles?
Finally, how will Tesla deal with the environmental effects of more EVs on the road and will these effects ultimately conflict with its founding principles?

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Solution Preview

Tesla Motors
STEP 1: Environmental Analysis

Tesla Motors electric vehicles business is not picking up fast and the company needs to take strategic decisions. Therefore, to address the questions on strategic decision making, it is essential to identify the company's vision and mission, conduct environmental scanning and SWOT analysis. There is a need to use Grand Strategy Selection Matrix to address whether the company needs to diversify or divest its electric vehicles business and further use the Generic strategies model for the choice of business level strategy as given below:

Vision and Mission of Tesla Motors
The Mission of Tesla Motors is to accelerate the advent of sustainable transport in the form of electric cars and the vision of the company is to be the leader in sustainable transportation (Tesla Motors, 2013: Nov. 18).
Tesla Motor's situational Analysis
Tesla Motors sold 1900 cars in United States of America in May 2015 constituting 0.1% market share as per the data available at motorintelligence.com (Wall Street Journal, 2015: June 2). The reasons for the company's low market share is the slow pick up of electric vehicles and this is due to the paucity of infrastructure for electric vehicles - the number of charging stations are not adequate (Cardwell, 2015: Feb. 19). As per the energy department statistics, there were 9,000 public charging stations and 22,900 chargers for electric vehicles (Cardwell, 2015: Feb. 19).

Environmental Analysis
PESTEL Analysis
Political factors
Tesla Motors has been positively influenced by the government policies such as subsidies die to which the company was able to pay off its $465 million loan in 2013 although company founder CEO Elon Musk is not in favour of such bail outs (Harkinson, 2013: n.d). Besides this, the government also provides tax credits of $7,500 for sale of each car (Koopman, 2013: June 3). Elon Musk has received subsidies to the tune $4.9 billion for his companies Tesla Motors, Solar City Corporation and Space Exploration Technologies Corporation popularly called as 'SpaceX' upto May 2015 (Hirsch, 2015: May 30). Therefore, the political environment for Tesla Motors is favourable.
Economic factors
There was a strong economic growth in the alternative energy industries as a research report developed by Bloomberg New Energy Finance and commissioned by The Business Council for Sustainable Energy revealed that U.S carbon emissions from energy sector dropped by 9% and total U.S investments in clean energy including electrified transport technologies, renewable and advanced grid reached $386 billion between 2007-2014 (Pantsios, 2015: Feb. 4). The demand for electric vehicles is growing rapidly in United States of America where the demand grew by 69% in 2014 (Ayre, 2015: Mar. 28). Therefore, the economic environment is favorable for Tesla Motors.
Social factors
Electric cars are considered more as a status symbol by the consumers and car models like Tesla's Model S are highly preferred by the consumers because the consumers are becoming more tech-savy and like being associated with an all electric sports car which is cool, the only concern of the consumer being the lack of trust wherein the consumers fear that the car may go any time out of charge and the charging stations are inadequate (Gross, 2015: Feb. 3). Therefore, the social environment is also favourable for the company.

Technological factors
There is a rapid advancement in technology as companies like Panasonic are developing additional batteries for stationary storage applications and the costs of battery packs are falling rapidly as reported that the costs of battery packs declined by 14% per annum between 2007-2014 (Kille, 2015: Apr. 9). Researches have solved key challenge through development of Lithium-air batteries which are 10 times heavier than the Lithium-ion batteries and are more efficient reducing the number of charges required (Bullis, 2015: Jan, 27). There is a strong focus of companies on Research & Development as even Tesla Motors has doubled the R&D expenditure in 2014 as compared to 2013 (Statista, 2015: n.d.). Therefore, the technological environment for Tesla Motors is neither favorable nor unfavorable as lot of efforts need to be undertaken.

Environmental factors
Electric vehicles have a lot of environment friendly benefits as a research undertaken by Michigan State University reveals that in addition to the benefits of less air pollution and reduced carbon footprint, these vehicles are found to have low emissions of heat thereby leading to reduced global warming (Ayre, 2015: Mar. 25). Therefore, the environmental factors for Tesla Motors are favorable.

Legal factors
There are lot of rules and regulations especially those governing innovations, patents, consumer protection, dealerships etc. in United States of America (Harpaz, 2014: Apr. 15). Tesla Motors is also entangled in a litigation as the company had to appeal against a ruling wherein the company was stopped by the court to sell cars directly to the consumers in New Jersey as it broke the traditional model of car dealerships (Harpaz, 2014: Apr. 15). Therefore, the legal environment for the company is unfavorable.

Competitive Analysis
Porter's Five Forces Model
Intensity of Competitive Rivalry
Although Tesla Motors is having only 0.1% of the overall automobile market in United States of America (Wall Street Journal, 2015: June 2), the company has attained market leadership in January 2015 in the electric vehicles market wherein the company's Tesla Model S is having 24% market share, followed by Nissan Leaf with 17% market share, BMW i3 being the third with 11% market share (Shahan, 2015: Feb. 6). The combined market share of the four major players represented by concentration ratio is 61% including the fourth largest player Chevy Volt commanding 9% of the market (Shahan, 2015: Feb. 6).

Threat of New Entrants
There is a strong threat of new entrants along with the electric versions of existing car manufacturers as BYD Co. of China had plans to enter the American market (Lloyd-Miller, 2014: Jan. 7) and such entry plans of new entrants are encouraged due to the reason that the switching costs are low and government policies are favorable in the form of subsidies and tax credits on the electric vehicles sold (Hirsch, 2015: May 30). Due to these reasons, it is also rumoured that Apple Inc, the leading smart phone and PC manufacturer will get into electric vehicles business as Elon Musk, CEO of Tesla Motors welcomed the move if Apple decides so as Google has already decided to do so (Johnston, 2015: May 7).

Bargaining power of buyers
Since the brand is aspirational and is treated as a status symbol, the buyers are not bargaining power on the electric vehicles will be low as these vehicles are also providing them additional utility and reduces the consumer's operating costs with lower spending on the fuel (Gross, 2015: Feb. 3). Although the number of suppliers is now increasing with the market space becoming more competitive (Shahan, 2015: Feb. 6) but Tesla is now focusing not only on creating battery charging infrastructure across United States of America but also on extensive research and development activities to increase the longevity of batteries as the company has invested more than $462 million in 2014 (Statista, 2015: n.d) and when buyer is more concerned on car discharging, the buyer has to rely on company which provides assurance on battery quality and longevity.

Bargaining power of suppliers
Worldwide, there are 350 different suppliers of Tesla Motors located worldwide (Tesla Motors10-k Annual Report, 2014). At times of high demand, these suppliers have been unable to supply components on time leading to loss of business for Tesla Motors (Wang, 2013: 8 Aug.). But these suppliers may always have a fear that the company can go for backward integration as the company acquired one of its suppliers - Riviera Tool of large scale custom metal stamping die parts (Naughton, 2015: May 7). Since some parts are custom built, the company always has a choice from large number of suppliers and can also have global sourcing if the demand is not met, therefore, the bargaining power of suppliers is low.

Threat of Substitute products
The substitutes for cars can be travelling by walking and bicycling but it will be difficult for long distances and therefore, the propensity to substitute of these transport alternatives will be low. Travelling through trains and buses can be substituted but for these sources of transportation, there will be fixed stations and bus stops and travel to these stops also may be a long distance. The substitutes of electric cars are cars based on other fuels such as petrol, diesel and gasoline but there are few other greener cars that can substitute electric cars including hybrids run on both electricity and gasoline or petrol or diesel, cars run on ethanol, bio-diesel, liquefied and compressed natural gas, fuel cells, solar powered cars and steam powered cars (Taylor, 2013: Nov. 1). But the consumer propensity to substitute the greener fuels based cars is low due to the scarcity of the resources. The hydrogen fuel cell based cars are criticized as it is difficult to produce hydrogen and the process of extraction is not efficient (Braun, 2015: Mar. 19). The only major substitute for electric vehicles are the traditional fuels - petrol, diesel and gasoline that have strong propensity to substitute and this is also the reason that consumer are not easily adopting electric vehicles.

Resource Based View Analysis
Tangible Resources
Physical Resources
- The company has manufacturing facilities located at Fremont, California, Lathrop and Tilburg, Netherland and are developing Tesla Gigafactory where the company plans to work together with its suppliers to integrate the battery precursor material, module, cell and the production of battery packs at a manufacturing site near Reno, Nevada (Tesla Motors10-k Annual Report, 2014).
- Its Gigafactory comprises of advanced robotics with 10 largest robots in the world used in the manufacturing facility along with 72 miles of Ethernet cable, 12,000 gallons of paint, 50 tons of recycled material and 200,000 sq. ft. Epoxy flooring (Tesla Motors, 2014: Nov. 17).
- The company does have a different company owned distribution system rather than selling through dealers and the company had a sales and services store network of 159 ...

Solution Summary

The solution provides guidance on how Tesla Motors takes its strategic decisions, dilemmas with the company and assessment of environmental impact

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