Essay, Pages 6 (1446 words)
From value chain analyses, one can determine the strengths and weaknesses of Tesla Inc., as follow:
- In a very short time, Tesla has gained a strong brand name which has developed its image in the market.
- Tesla is being considered as the USA’s one of the most innovative brands that successfully utilizing renewable energy.
- As learned before, Tesla uses vertical integration and it has strong hierarchical centralization control in the organizational culture of Tesla. This has strengthened Tesla’s production process.
- Tesla’s biggest strength is that it has been able to optimize the cost of production and has reached economies of scale. The batteries that are used in Tesla’s car can also be used as renewable energy batteries. It is more affordable for consumers. Tesla is associating in making a large battery plant in Nevada with its battery provider Musk.
- One of Tesla’s competitive factors is that it is thinking to supply electricity storage to power supply companies.
This will help to get electricity at a lower cost.
- Tesla has a good reputation in the market. This has helped Tesla to gain better partnerships from companies. Such as partnership with Musk, Panasonic, etc. Recently Tesla has made an agreement with Panasonic to produce its battery cell.
- Tesla has poor strategic planning. It is operating throughout a very little boundary, in countries of America-Europe and in some parts of China. The organization has a poor supply chain management which has decreased its market.
- Tesla has been disrepute regarding providing enough after-sale service or customer care services.
- Tesla has a good battery production but this overflow will not be able to replace its car manufacturing. The organization has forecasted production of 500,000 cars within by 2020, but research says that this would be 240,000 maximum.
- Other car manufacturers are thinking and introducing automated cars now which can hinder the productivity of Tesla. For this, the low compatibility of charging stations is liable.
- Tesla is running on negative cash flow now. Its operation is long term which has made complexities in getting loans. Research has found that Tesla’s net cash was about to be empty at the end of 2016.
Evaluating and Applying Outcomes of Analysis Using Porter’s Five Forces Model
Porter’s Five Forces Model
There are many models that work as planning toolkit in taking strategic decisions. Porter’s five forces model is a model that helps to evaluate an organization’s competitive position along with its strengths and weaknesses. It helps to identify steps that are fairly well for the organization and to stay away from those are wrong steps. There are five elements in Porter’s model. They are a combination of external and internal factors. There is a brief discussion of the evaluation of the factors on Tesla Inc.
The Threat of New Entrants
Car and electronic manufacturers face a doubt between quality and price. Normally there are little chances to compromise between them. That is why this sector faces a moderate threat of new entrants. Moreover, the electric car is new to consumers. Other existing competitors like General Motors, Toyota, and BMW have not been able to measure the performance of Tesla. So, a new entrant will face more criticality to understand those issues.
Tesla is a new genre of car manufacturing company. Its production process, equipment all are different from traditional cars. Technically it is still facing many complexities. So, potential car manufacturers will wait and see the solutions to such complexities. Once there are solutions to these complexities, Tesla may face the threat of new entrants.
Bargaining Power of Buyer
The buyer of Tesla has high influence. There are alternatives of electric vehicles and solar panels. So, it would cost nothing for the customers to switch Tesla. Another issue is that Tesla has a high price in comparison to another car manufacturer. This may cause price sensitivity. If a customer notices that they may switch Tesla. Moreover, now there are many differentiated cars in the market. So buyers can easily think to switch Tesla. So, one can see, there is a high risk that Tesla’s buyers can switch it without any second thought.
Bargaining Power of Suppliers
Tesla’s suppliers have a high power to influence the business. Tesla manufactures a specified car. Its parts are not easily available. Tesla itself manufactures some parts and it has to take the others from the suppliers. Tesla cannot switch them because of quality matters. Mercedes Benz supplies some interior parts. Panasonic provides batteries for Tesla. One can understand the quality issue after knowing Tesla’s suppliers.
However, the China government is developing a market for automated parts and energy storage. Tesla can switch to them for its inventories but the quality will vary up to a great extent which may create an impact on Tesla’s brand name.
Threats of Substitute Product
There are not plenty of substitute products of automobile car, but situation is not like the beginning. When Tesla has started it operation there was no substitute for the automated car but now other companies have started manufacturing automated cars. China is manufacturing a kind of hybrid car that provides the same utility as Tesla can easily replace Tesla’s automated car. It can become a strong substitute for Tesla. So, one can see, the threat of substitute for Tesla is high.
Rivalry Among Existing Firms
Tesla was the first brand that introduced an electric vehicle and has gained a strong brand name. The time it was started, there was no rival firm, but time has changed. Major automobile companies are now competing to take a position in manufacturing automated electric cars. In fact, some companies like Chevrolet Bolt and Nissan have already introduced automated cars. So, one can see, there is a high potential of rivalry in between firms that are manufacturing cars.
Competition in energy supplies has also increased. Siemens, LG Chem. and Sunrun Inc., Trinity Solar, SunPower Corporation, and many smaller local solar companies are getting popularity day by day which is increasing Tesla’s rivals.
After this discussion, one can see that Tesla is operating in a great competitive environment. As time will pass it will be tough for Tesla to sustain easily. All of the components are subsistent with a high risk. To run the business in a better way, Tesla has to ensure the reduction of competitive force. To reduce these adverse impacts, Tesla can take such steps like-
Tesla should build up a proper value chain policy and it should make use of different raw materials. So, if the price of one raw material raises it can easily switch to others on the same cost. Tesla has to build up economies of scale. This will help it to reduce fixed cost per unit which reflect on the price of Tesla product. This will encourage customers not to switch Tesla.
Competitive advantage increases by strengthening competitiveness. Tesla should work on the innovation of more advanced technology or developing the current one. This would make it more compatible, will reduce the threat of rivalry. Tesla can also work on research work on energy-generating products.
Innovating new products, giving discounts easily attracts the customer. Tesla should work on those things. However, at first, Tesla should build up a large faithful customer base so that it gets customers all time throughout the year. Tesla should work on what customer needs rather on specified technology. It should provide enough after-sale service to the customer so that they can depend on Tesla. Moreover, Tesla should implement some strategy so that its customers find it expensive to switch Tesla.
Tesla should develop a relationship with its suppliers and should make more dedicated suppliers upon whom the firm can solely depend on. Tesla should make a better marketing and advertising policy. Media coverage will help to spread the organization throughout the world.
Tesla should re-build its marketing infrastructure. It should take some initiative that can make it capable of operating and competing in a large market place. It should increase its market size and bring variation and differentiation in its product. This will help Tesla to provide different types of products in different areas according to their needs. For example, electricity cost is high in a developing country. Tesla can manufacture low-cost solar panels for those countries.
Appling Models, Theories and Concepts to Assist with Understanding and Interpretation of Strategic Directions
To operate successfully and to sustain a long time, it is important to know the strategic default of business. The business should take strategic steps by applying strategic models to remove the obstacles. Two models are described below to understand the strategic direction in Tesla. The two models are – Porter’s generic model and Bowman’s extended strategic model.