Strategic Audit on Tesla Motors

Introduction

The report will focus on providing a strategic audit on Tesla Motors by critically analyzing the internal and external environment of the business using different analytical tools such as the strengths and weaknesses of the internal environment, opportunities, and threats of the external environments and the relationships between the two. Other analyses used are Porter 5 forces, the Steeple-pest analysis, and the Capital Asset Pricing Model analysis.

Company Background

Tesla Motors was established in 2003 by a group of 4 people but Elon Musk took over as Chief Executive Officer after funding the project. The first Model car produced by the company was the Tesla Roadster in 2006 with a speed of 130mph (Vynakov, et al., 2016). Production commenced in March 2008. In June 2008, Tesla announced the production of another model car to be unveiled in June 2010 with a first public offering of seventeen dollars per share amounting to over 200 million in the first sales. Tesla partnered with Daimler on battery technology, safety, and bulk production of cars. Tesla also partnered with Toyota to develop an electric RAV4 version in 2010. Tesla bought their production factory in California where it will develop Tesla vehicles in the future (Wheelen & Hunger, 2020).

Strategic Posture

Mission/Values

Tesla’s core goal is to develop substitute and maintainable energy electric vehicles for the lovers of automobiles and make a point to consumers that driving electric automobiles can be faster and more enjoyable than the traditional gasoline automobiles. The company’s first core value is respect and encouragement to people and the environment. The company believes in a non-conventional philosophy of interdisciplinary collaboration for world-class innovation. Tesla also believes in the inclusion of all manners of people as long as their best work is achieved.

Objectives                                                                               

Tesla’s main objectives are to attain high sales and yields, become the leading brand in the production of electric powered automobiles. The company also aims to avoid the depletion of natural resources, maintain an ecological balance and promote social responsibilities by the production of vehicles that are not powered by gasoline and end up producing very little carbon emissions (Salman, 2019). It has a goal to create higher demand and revenue from the sales of the electric automobiles and with the collaborations, it aims at supplying electric power technology to companies for use in their vehicle designs.

Strategies

Tesla’s strategy is to create demand in the market venture through development of innovative products at comparable low prices and high efficiency and thus eliminating the competition. Tesla has aimed at solving environmental and oil resource damage caused by gasoline-powered engines and creating a better and more sustainable transport system (Collins & Rukstad, 2004). Tesla Motors through Elon Musk implies a high-end disruptive innovation model that develops products that do better than already existing products and sell at a high price and focus to the least price-sensitive consumers before hitting the mainstream market.

Internal and External Environment

SWOT Analysis

Strengths

Tesla has an experienced administrative team with expertise in various vast technological fields such as finance, design, leadership. Elon Musk, who is also the Chief Executive Officer, has vast experience in business management and administration since he is also a founder in companies such as PayPal and SpaceX. The company has a large production capacity as they purchased the former NUMMI factory in California which is one of the largest and most developed automotive production factories. Tesla’s location is both geographically and strategically located in the United States where the availability of computer engineering technology is readily available due to its roots in Silicon Valley which has engineers with strong skills in electrical engineering (Wheelen & Hunger, 2020).

Weaknesses

Tesla’s electric models of vehicles are relatively expensive compared to traditional performance cars that are fuelled by gasoline offered by the BMW and Porsche companies. Tesla is less recognized in the automotive market as its products are electrically powered compared to other established leading that have been operating for a long period. Tesla’s electric cars have a limited battery range due to the proprietary packaging of its battery cells because it is reliant on its single battery supplier thus in case of any disruption it might lead to disruption of production (Wheelen et al., 2018).

Opportunities

With the championing against global warming, environmental matters have been of great concern recently thus the manufacturing of electric cars is considered more relatively environment friendly compared to the traditional gasoline cars. Fear of extinction of oil reserves globally has posed a challenge to the traditional gasoline-powered automotive companies as it has favored the Tesla electric car company that deals with a renewable source of energy. Environmental activists have increasingly supported Tesla’s invention of environmentally friendly vehicles (Wheelen et al., 2018).

Threats

There is a very competitive market due to the leading companies in the alternative such as BMW, Toyota, and Mercedes that have been in the market for some time. Many of the non-petroleum-powered automobile companies had already acquired the market before Tesla’s invention posing a great challenge into penetration into those markets. There is a growing lack of awareness on the importance of electric vehicles, especially in third world countries. Tesla is also facing trouble with a limited supply of raw material and experienced human resources (Wheelen et al., 2018).

TOWS Analysis

TOWS Matrix (Illustrated in Table 1.0 in the Appendix)

Strengths/Opportunities

Tesla having good leaders as strength could easily capture the market’s attention if they create a non-governmental organization championing for the use of non-pollutant carbon-emitting vehicles hence the reduction of global warming. With the unique design of electric vehicles, it is easy to compete for the market favorably with the gasoline-powered traditional models.

Strengths/Threats

With the introduction of uniquely designed electric cars, Tesla can give leading brands such as Toyota and Mercedes a challenge. Tesla’s strength in administration and affinity for development can be used to their advantage by forming organizations that create awareness in people on the importance of preference of electric cars over the traditional gasoline vehicles.

Weaknesses/Opportunities

Tesla can include in their marketing plan an ideology that supports better expensive and safe than cheap and environmentally hazardous automobiles. Tesla’s battery-powered vehicles can be developed further by the inclusion of the solar-powered system and eliminate the challenge of the battery running out. A solution to Tesla’s highly-priced vehicles is focus marketing in the highly developed countries for affordability.

Weaknesses/Threats

Prices are varying due to quality and their threats to the environment hence Tesla is at a disadvantage due to its expensive pricing compared to the other leading brands that are well recognized in the market.

Porters 5 Forces Analysis

The Buyers’ Bargaining Power

In Tesla’s case, the buyers have high bargaining power because of other cheaper alternative energy vehicles produced by other leading brands such as Honda and BMW that manufacture hydrogen consuming automobiles.

 The Suppliers’ Bargaining Power

Tesla has a low supplier bargaining power since most of the components used in the production of these electric cars such as expertise in safety and mass production are supplied by Daimler that in return, receive battery packs and electric power trains from Tesla. Tesla also agreed with Toyota where they receive other elements as the gearbox and motor.

Rivalry Competition

Tesla has very high competition in the automobile industry as some of the traditional industries like BMW and Toyota would even want to introduce the same product as Tesla in the market.

The Threat of an Alternative Product

Since Tesla invents cars that use electricity, another company might create the solar-powered car which would also be favorable to the environment, thus causing stiff competition to the existing Tesla invention.

The Threat That Hinders Entry into The Market

When a product enters a new market there are regulatory bodies that do inspect the given product for standardization and quality assurance thus if a product is well packaged with the Tesla Company it would be easy for them to penetrate the global market as the products are asserted worth for use.

Steeple-Pest Analysis

Political

In a country like the United States, the support of environment friendly efforts would be part of the country’s agenda to reduce global warming which would act as a marketing strategy to the external market for the Tesla products. In the international market, the new global agreement about environmental conservation would encourage the use of electric vehicles.

Technological

The Tesla Company is of great achievement as what they will be offering to the market is new and advanced to date and is what is desired by the masses as it is part of the newly introduced technology and also with the automation of vehicles in which even advanced solar cars would be required to the market.

Economical

The growing economic recession is what determines the consumer’s and supplier’s bargaining power and therefore, for effective marketing, the Tesla Motors should consider a mutual selling price to all its customers hence serving as a strength to the company.

Environmental

From a global perspective, environmental changes such as the change in climate and the environmental pollution which are considered harmful to humanity would act as an opportunity in which Tesla could introduce environmentally friendly products.

Ethical

With the great international energy consumption rules in which countries have induced policies such as car-pooling because of environmental pollution Tesla should mint on these by availing their products to the in-need nations thus growing the targeted markets.

Social

With the introduction of the electric cars, it is considered safe since electric vehicles emit low carbon to the environment vehicles thus causing the societal demand of safe products would be available by Tesla offering them thus would lead to financial gain in the Tesla Motors production as their products would go beyond satisfaction to even bettering societal health.

Capital Asset Pricing Model Analysis

This Model of analysis, explains the relationship between the projected return and the threat of investing in a particular business opportunity. The advantage of this analytical method is that it offers reliable predictions to calculate risk and the relationship between the expected return and the risk (Fama & French, 2003). This expected return is achieved as follows; Ra = Rrf + (Rm –   Rrf) whereby Ra is the projected return on a business, Rrf is the Risk-Free Rate while Ba is the relative volatility or systematic risk in the business in comparison to the market and lastly Rm is the expected return of that particular market. The risk premium is equivalent to the risk-free rate subtracted from the expected return. The risk-free rate is similar to the profits on a 10-year bond in the United States government. The beta is a measure of the product’s risk shown by calculating its price changes in the market. In general, it is the stock’s sensitivity to the risk of the market. The market risk premium denotes the extra return above the risk-free rate that is important for the compensation of investors is a particular business. The current yield on a 10-year United States treasury is 4.44%. The average historical annual return for United States stock is 10%. The beta of the stock is 1.30; Expected Return = 4.44% + (1.30 x 10%). The projected return for Tesla is averaged at 13.04%.

Recommendations

From the above strategic audit analyses, Tesla can profit so much from the Research and Development projects when they focus on innovation and production of new and effective automobiles. Tesla can be a leading electric motor manufacturer in the electric vehicle sector. Implementation of research and development would enable Tesla to capture huge markets as they are introducing foreign products to the global arena. Tesla should produce different types of electric vehicles as it offers a wide range of varieties for customers to choose from killing the monotony of one similar product. Since the research and development sector is one of their strengths, product identity and brand awareness will receive a boost if there is a recurrent production of cars. Tesla can make its operations diverse by venturing into the solar panel business favored by its battery technology. Therefore, they can combine car production and the battery solar storage business. This will create competition, give them strength, and provide the company with more capabilities for its operations. It will also allow them to take exploit its economies of scale, overall productivity, and its profit margin. Tesla should look for strategies to overcome the market competitiveness through its Research and development sector and work together to build its brand name. This will ensure that its products are recognized in the market and Tesla will become a leading brand in electrical-powered vehicles.

References

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Collis, D. J., & M. G. Rukstad, (2008) ‘Can You Say What Your Strategy Is?’, Harvard Business Review, 86 (4) pp.82-90. Retrieved from https://cb.hbsp.harvard.edu/cb/pl/22461329/23097336/3603197803aedc16047c1482b9496df2

Corporate Governance Voluntary Guidelines 2009. (2010). Indian Journal of Corporate Governance, 3(2), 176-183.

Fama, E., & French, K. (2003). The Capital Asset Pricing Model: Theory and Evidence. SSRN Electronic Journal.

Salman, D. (2019). An insight for the market driving forces: Case of Tesla Model- S. International Journal Of Business Ecosystem & Strategy (2687-2293), 1(2), 25-30.

Vynakov, O., Savolova, E., & Skrynnyk, A. (2016). MODERN ELECTRIC CARS OF TESLA MOTORS COMPANY. Automation Of Technological And Business Processes, 8(2).

Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2018). Strategic management and business policy: Globalization, innovation and sustainability. Harlow, England Pearson

Wheelen, T., & Hunger, D. (2020). Strategic Management and Business Policy, 15e, GE (15th ed.).Bottom of Form

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