Term Paper on "Strategic Analysis of Tesla"

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External Environment

This section summarizes the external environment that Tesla is operating.

Economic Segment

Millions of Americans are still feeling the impact of 2008 and 2009 global recession that makes many Americans to be homeless. Moreover, the rate of employment opportunities is still low and the overall economic issues have made people to be conservative in their spending. By consequence, the demand of luxury cars has declined in the last few years. Interestingly, the increase the price of gasoline still makes the market opportunities for electric powered vehicles more appealing.

Legal / Political Segment

The goal to enhance environmental sustainability has made increasing number of governments globally to encourage the production of electric vehicles. Policies include government subsidies for makers of electric vehicles and consumer price incentives. Government positive support towards electric vehicles has motivated manufacturers to embark on R&D (Research and Development) in order to produce electric vehicles at affordable prices. For example, the California government issued a zero emission vehicles mandate in 1990, and the policy required all the car manufacturers to abide with the mandate. The mandate has stimulated many car manufacturers to build electric and hybrid cars to enhance environmental sustainability. (Kampen, 2014).

Demographic Segment

Tesla targets upper middle class. The company believes this group of income class will be able to afford the Tesla vehicles. The company does not focus on some emerging market and markets in developing countries because Tesla believes that large percentages of population of these countries may not be able to afford its cars.

Technological Environment

Tesla has been able to take advantages of the U.S. sophisticated technological environment to develop innovative electric vehicles for consumer. Typically, the United States is one of the top technologically developed countries in the world. Yearly, the government provides free money to individuals and organizations to enhance technological development. Tesla has taken the advantages of the U.S. technological environment to develop innovative electric vehicles. However, the company is still carrying out the R & D. To improve on the battery technology to reduce the costs of the electric vehicles offered to consumer.

Social-cultural Segment

The climate change and global warming are the top environmental concerns of many governments around the world. Typically, fuel emission has been identified as one of the major causes of global warming. Since 1980s, automakers have implemented different strategies to design vehicles that emit low gas, and the trends of vehicles design gradually change to enhance environmental sustainability. Thus, Tesla being influenced by the socio-cultural environment has embarked on the design and production of electric cars that deliver zero emission.

Internal environment

Tangible and Intangible Resources

Tesla has access to huge financial resources than can make the company to achieve competitive market advantages. The company total assets are $5.8 billion at the end of 2014 fiscal year. Moreover, Tesla composes of skilled and talented management who have accumulated knowledge in a superior and innovative technology.

Core Competencies and Capabilities

The company has a superior technology in developing a lithium-ion battery that can provide power to the vehicle. Tesla can also boast of 40 patents awards coupled with 200 patents pending awards.

SWOT ANALYSIS

This section provides summary of the opportunities and threats that the company is facing within an industry environment. The study also discusses strength and weakness of Tesla within a competitive market environment.

Strengths: The strength of Tesla lies in its resources and capabilities, which are the core foundation of its competitive market advantages. Tesla is the first mover of electric vehicles and the company has used superior technologies and innovation to design and develop battery technology, power train technology, and electric vehicle. The technologies have assisted the company to develop superior products that have exceptional performance. Moreover, Tesla has been able to develop a good reputation from customer, which assisted the company to develop a solid brand. Additional strength is its innovative and unique sales distribution networks. Its strong access to financial capital from private, public, and government organizations is also part of its strengths Although, Tesla is facing an indirect competition from other brands such as Jaguar, BMW, and Mercedes Benz, nevertheless, the company has been able to enjoy competitive market advantages through loyal customer bases and aggressive marketing strategies that have assisted the company to dominate market of electric vehicles.

Weaknesses

Tesla primary weakness with relative to the manufacturing of electric vehicle is that the company has been unable to cut the cost of operations. Within the last 5 years, the operating expenses continue to increase, which has made Tesla to record a net loss. Although, Tesla can boast of sales increase yearly, nevertheless, increase in the operating expenses has made Tesla to face challenges in recording profits. In essence, the high costs structure has been attributed to lack of economies of scale because the company has not yet taken advantages of mass production to reduce the costs of production.

Opportunities

Numerous changes have occurred in the external environment that has led to the development of BEV market opportunities, and the changes occur within political, economic, technological and socio-cultural environment. For example, increasing number of governments is creating a conducive environment for the development of electric vehicles in order to create sustainable and clean environment. The positive initiative towards a clean environment has enhanced market opportunities for the production of electric vehicles, and the opportunities will continue to increase in next coming years. Moreover, a significant barrier to enter the industry is high because of the innovative battery technologies that require high technical skills. Typically, the development of electric battery requires significant technical skills to develop. Rising of consumer awareness in favor of electric vehicles has been the other opportunities that Tesla is enjoying. (Binkiewicz & Czubakowski, 2008). Moreover, a substantial rise in the price of gasoline has made increasing number of consumers to search for alternative vehicles that will reduce costs of vehicle management. Rising anxiety about environmental concerns that include global warming, pollution and regulation has favored the market opportunities for electric vehicles in the United States and other countries that Tesla is operating. (Google 2011).

Threats

Tesla is still facing competition from other automakers despite its superior market advantages in electric vehicles. Increasing number of buyers still prefer gasoline vehicle which has made Tesla to face stiff competitions from other auto manufacturers. Moreover, Tesla is facing competitions from makers of natural gas vehicles, gasoline-powered hybrids, plug-in hybrids, and ethanol-fueled vehicles. Typically, a possible technological break- through from other competitors can diminish the competitive market advantages that Tesla is currently enjoying. For example, some competitors are investing in the R&D in the hydrogen power vehicles. In the last few years, Toyota and GM have invested over $1 billion in electric and hybrid vehicle programs. A breakthrough in this line of business can reduce the price of non-gasoline vehicles and encourage market availability for BEVs.

Strategic Challenges

Tesla faces strategic challenges in satisfying the demand for the BEV's battery, and a sharp increase in demand for the BEVs can be jeopardized by the shortage of battery. Typically, the high technology and technical skills involved in the designing and manufacturing of Bev's battery can hinder a supply of battery. In the last few years, Tesla has recorded a sharp increase in the sales of BEVs and in the next 10 years, consumer will start demanding for the replacement of battery and if Tesla is unable to offer supply that will meet the demand, the issue can jeopardize Tesla's business model. Thus, Tesla's future expansion might be hindered with the shortage of battery. Major factor… READ MORE