STRATEGY MAKING IN TESLA

Table of Contents

Abstract............................................................................................................................................3

1.0 Context.......................................................................................................................................4

1.1 Introduction............................................................................................................................4

1.1.1 The Current Strategy of Tesla and The Pros and Cons......................................................4

1.2 The Competitive Position of Tesla........................................................................................4

1.2.1 Porter’s five forces..............................................................................................................5

2.0 Situation.....................................................................................................................................7

2.1 Evaluation of Tesla’s Performance........................................................................................7

2.1.1 Financial Analysis..............................................................................................................7

2.1.2 Tesla Business Preview and 4 Strategy Tools....................................................................8

3.0 Problem......................................................................................................................................9

3.1 Tesla’s Portfolio of Business.................................................................................................9

3.1.1 Cons..................................................................................................................................10

4.0 Solution....................................................................................................................................11

4.1 Suggestions for Tesla’s Future Performance.......................................................................11

5.0 Conclusion...............................................................................................................................12

Reference List................................................................................................................................13

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Abstract
The strategy of Tesla is to differentiate in terms of innovation and creativity. This makes the
company a technology driven brand. The differentiation strategy used by Tesla has made them a
powerful brand. The use of sustainability and AI has made the company popular and the brand
value of the company increased many folds. Business diversification is one of the primary
advantages of Tesla. The company has entered into the solar roof tile markets and lithium
batteries. With their differentiation strategy, the company has been able to maintain their
authenticity and this has helped them to increase their customer loyalty. The products of Tesla
are exclusive and the company does not have any dealerships. There is a special feeling of
exclusivity while using the Tesla cars. This paper will evaluate the strategies of Tesla and the
potential problems along with some recommendations for improvement.

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1.0 Context
Tesla started innovating the automobile industry as a luxurious electric car manufacturer by
offering innovative and market disruptive vehicles for lower prices. The environment friendly
motto to accelerate the whole world of transportation towards zero emission and sustainability
has helped the company achieve its success by foreseeing the future and the upcoming demands
for convenience and comfort. The company itself has become an asset in the past decade for the
long term sustainable advantage and product quality in the competitive market of vehicle
manufacturing industry. This report will focus on the business strategy Tesla is taking to achieve
success, the pros and cons along with areas of further improvements.

1.1 Introduction

1.1.1 The Current Strategy of Tesla and The Pros and Cons

The basic example of Tesla’s current strategy can be seen from their Model X and Model S
which are the products that have disrupted the industry with their environment friendly
differentiation. The company has been trying to make their differentiation through implementing
lithium battery products in their automotive vehicles and their acquisition of Solarcity (Liu et al.
2014). It is worthy to mention here that the innovation and investment in automation was
considered as a liability in the early 2015 while in the present time, the growth of the company
has turned their investment in innovation and research into an asset. This is because of the long
term sustainability of their products (Thomas and Maine, 2019).
The main strategy of Tesla is to enter into the high end market where the customers would not
hesitate to pay handsome money for the innovations and Technology that are provided to them.
For this, the company mainly aims to upgrade their creativity and innovation in their automotive
cars and the implementation of artificial intelligence and sustainability in their cars is what
makes them a leading brand in the automotive industry.

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1.2 The Competitive Position of Tesla

Tesla has cemented its position as one of the most competitive players in the industry of
automobile through tapping into the future of transportation; electronic vehicles (EVs). The
company primarily manufactures EVs and has grabbed the respective market with innovations
and successful business models. These cars boosted the position of the company globally as they
run on clean energy and do not contribute to environmental degradation. The CEO of the
company, Musk identified the need for the development of cars that could save the world from
pollution and slow down the contribution of the transport sector to climate change (Niedermeyer,
2019). Tesla grabbed the market of EVs when governments and global dignitaries were voicing
for alternative means of transport that are eco-friendly.
Governments of numerous countries are encouraging their citizens to opt for eco-friendly means
of transport. The EVs developed by the company are not only high end and best in class, but it is
also efficient and financially friendly in the long term of events for those who are looking for an
alternative. This has provided the company with a competitive advantage over most of the EV
producers around the globe and has put them at the top of the market. Tesla was ranked
worldwide as the best-selling manufacturer of electric vehicles after they sold more than 936,200
units in the year 2020 alone (Statista, 2022).
Tesla developed a model of superchargers that is unique and provides the consumers of the
company to charge their vehicles super-fast and this service provided by the company is also
completely free (Han, 2021). These charging ports are located at numerous locations in the
places the company operates to increase the convenience of the consumers. This is another
reason for the dominance of the company that has provided a high competitive advantage over
other players. The company’s establishment of rechargeable power units and technology
platforms in the automotive sector has also positioned it as the leading brand in the market
among other related industries and the energy industry. Another major competitive advantage of
the company is the design and efficiency of the cars that are produced by it, which is far superior
to that of its competitors.

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1.2.1 Porter’s five forces

Bargaining power of buyers: Tesla is one of the biggest payers in the EV manufacturing market
and the company segments its products in the high end market and has a premium pricing model.
The company provides premium quality cars that provides a sustainable competitive advantage
to the company and makes its products and services different from others in the market (McCain,
2019). However, the switching cost of the customers would be low. Analyzing the premium
quality cars provided by Tesla and the switching cost of the customers, the bargaining power of
the customers would be low.
Bargaining power of suppliers: The EV industry is relatively new and the kind of materials
required to produce a premium quality EV is limited (Qin et al., 2021). Suppliers can take
advantage of this situation and regulate the price of the raw materials as they deem fit. This
makes the bargaining power of the suppliers of Tesla high.
Threat of new entrants: The company will not face any challenge to the new entrants in the
market, as the new companies will have a tough time to attain the brand image that Tesla has
acquired and the trust it has among its customers (McCain, 2019). Therefore, the threat of new
entrants will be low for Tesla.
Threat of substitute products: Tesla controls a large part of the market but there are various
other players that offer similar kinds of products that can be substituted for the products of the
company (Wang, et al., 2021). Therefore, the number of substitute products for the company will
be high.
Rivalry among competitors: The number of companies that is currently operating the EV market
is high. Different players are competing for market domination and are trying to grab the
customers of other companies through intensive marketing strategies and improvement of
products (Han, 2021). Therefore, the rivalry among competitors will be high for Tesla, which
will push the company to improve its operations.
Group Mapping:
Competitor Analysis: Competitors of the company include Hyundai Motor, Renault-Nissan-
Mitsubishi Alliance, Mercedes-Benz, BMW and others (Statista, 2022). These brands also
provide similar types of plug-in EVs. The market share of Tesla was 13.84% in the year 2022,
which was way higher than its competitors (Statista, 2022). Compared to Tesla, other
manufacturers had a market share of 5.12% for Hyundai, 4.26% for Renault-Nissan-Mitsubishi,

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4.15% for Mercedes and 4.82 for BMW (Statista, 2022). This shows the high market share of
Tesla and how it has dominated the EV field while pushing its competitors into the corner.
Tesla Model S can be considered to be the perfect electric car, compared to other EVs ion the
market (Sovacool et al., 2019). One of the close competitors of the Tesla model S is BMW i3,
but it lacks behind the Tesla model in various ways. The Tesla model is far more spacious and is
more comfortable for people on long journeys and for those who want to ferry cargo and
passengers. Tesla model also has a great competitive advantage for the fast charging capabilities
it has and the range produced by the vehicle compared to the closest competitor of BMW i3.

2.0 Situation

2.1 Evaluation of Tesla’s Performance

Tesla has a dynamic approach in leveraging the best quality of talent from the employer’s
market. Tesla recognises the importance of the engagement and they try to get their employees
fully engaged because it has impacts on the customer engagement too. The company prioritizes
the use of traditional annual review of the performance and revenue details of the company to
make decisions about promotion, firings and demotions of the employees. Annually meetings are
arranged to let the employees meet with their managers to discuss the performance and
achievements. Reports show that Tesla is fully focused on delivering industry-defined products
on a very limited budget, thus firings without notices often occur. The good and bad parts or
impacts of the approaches Tesla is taking is a subject to discuss. Job design, effective human
resources and the management, ensuring the availability and adequacy of resources including
investment and finance is the main focus point of Tesla’s strategic decision making area.
Innovative ideas and their implementations, good management to handle manufacturing
complications, brand equity are some of the major strengths of the company. Tesla gets attention
from customers all over the world because of its unquestionably innovative ideas which defy the
expectations of the customers. Being committed to world changing technology, Tesla thinks for
sustainability and the future demands.

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2.1.1 Financial Analysis

The company has reported total liabilities of a huge amount which is around 30.5 billion dollars.
In the last two years, Tesla has incurred at least 7 per cent of their total debt. And the due debt is
mainly for short term. The company has also reported around 925 million dollars of their
customer deposits for the products they have not delivered yet (Almenhali et al., 2021). The
company is holding around 5 billion dollars debt in form of long-term issues and lease
obligations. Total amount of the current asset of the company has been slightly increased but the
amount of cash on hand of the company has been decreased around 2 billion dollars from 2020
to the next year. According to the business analysis report of 2021, the company has remained
profitable throughout the whole year as it has earned around 2 billion dollars of operating income
(Shao et al., 2021).

2.1.2 Tesla Business Preview and 4 Strategy Tools

Tesla uses four strategy tools in the marketing to achieve the objectives in the corporate aims and
goals.
Product; the competitive strategy followed by Tesla is Broad differentiation from other products
available in the market. The company gradually adds new products with innovative future
friendly thoughts. The solar panels installation service along with in house manufactured
batteries for home and industry have made the target market of the company bigger. Because of
the growing demands due to awareness of people regarding pollution and greenhouse effects
caused by gasoline cars, the company continues to innovate and renovate its products.
Place; the services offered by Tesla are easily accessible as they can be found in company
owned stores, service centers, websites and charging stations. Tesla service centers are located in
mall locations too, for public access, which acts as showrooms for the company to promote the
innovative products through displays in public areas like malls. For repairing and maintenance
Tesla has their own service centers also, which add benefits to their sales strategy.
Promotion and Marketing; Tesla follows the traditional yet most effective method to promote
the products, customers’ word of mouth. Tesla uses viral marketing strategy for promoting the
motto and new innovative products by using the increasing awareness about the environment.
Personal selling experience, sales promotion, public relations, direct marketing are also being

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followed by the company. Social media platforms like twitter helps Tesla make a brand image as
the company has been discussed for a long time due to its campaigning and innovative
statements. The company also releases statements regularly to catch people’s attention and let
them discuss more. Tesla virtually leads a movement for supporting sustainable energy solutions
(Chen and Perez, 2018).
Price, the pricing of the electric vehicles is much better and affordable for most of the customers
with upper and medium income levels all over the world. The price of the products supports the
company’s profit along with the customer’s perception. The use of premium pricing with
customisable price points helps the company reach its goals. Premium pricing refers to high price
points for which customers value the specific high quality performance and technologies used in
manufacturing which can not be found in other products available in the same market (Zhou,
2022). The selling cost is lower for Tesla uniquely as the company promotes online transactions
only.
Tesla follows the Push strategy because as per their motto, the company relies on terms of
recycling and environment friendliness (Teece, 2018). Started as a luxurious electric vehicle
niche differentiator, the company is following the broad differentiator marketing strategy.

3.0 Problem

3.1 Tesla’s Portfolio of Business

Tesla was founded by a group of engineers who used to think about innovative cars which can be
sustainable and environment friendly. The founders wanted to prove that electric cars can be a
better replacement of gasoline cars, it would be quicker too, and people do not need to
compromise to have one (Thomas and Maine, 2019). Initially founded for producing electric
cars, Tesla now builds clean energy storage products too. The motto of the company is to make
the world stop relying on fossil fuels and create a zero-emission better world. Since 2008, Tesla
has invested its resources in cutting edge battery and electric powertrain technology. By this, the
company has made world class all-electric quality cars to meet customers’ demand for
alternative cars. Safety, efficiency and performance enhancement has helped Tesla to move
forward from its initial goal. These all-electric zero emission cars have now reset the whole
world’s expectations. Tesla offers the longest range of electric vehicles, with updated software
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and technology which makes the cars better over time. Tesla has also introduced the quickest yet
safest sport utility vehicle with high safety ratings across all categories from the ‘National
Highway Traffic Safety Administration’. Producing low priced and high volume with better
utility electric vehicles to combat the problems created from large amounts of carbon emission is
the main goal of Tesla. Starting from introducing ‘Model S’ to ‘Model Y’, Tesla focuses on the
safety in their giant manufacturing factories too. Tesla has the infrastructure to offer its
employees a multi-day training program before starting work in the factory, to ensure the safety
of the products and the workers themselves. On the job training programs and day to day
performance tracking helps the company manage and maintain the operation and the quality of
the production as well as improving the whole procedure and products. Thus, the safety rate of
Tesla continues to improve better than other manufacturing companies. Many interviews with
spokespersons of the company have revealed that the company thinks about creating a fully
sustainable energy system which will be eco friendly, so Tesla invests in manufacturing a unique
bunch of energy solutions like Solar Roof, Powerpack and Powerwall (Perkins and Murmann,
2018). Managing renewable energy resources is an important thing to focus on nowadays, Tesla
has been manufacturing storage products to be utilized in managing the energy generation,
consumption and storage for future. Tesla has introduced Gigafactory 1 in manufacturing its
energy and automotive products, which refers to a facility for reducing battery cell costs in a
significant amount. Inhouse cell production of the company creates a large amount of jobs itself.
The vehicles and products designed and manufactured by Tesla are innovative yet most
affordable ones. They have the continuous process of moving forward to make the world better
with clean energy production and a clean transport system (Rimmer, 2018). Self driving software
makes the process of driving more easy, the company surely knows how to foresee the future
demands of the customers and how to inspire them to think and use innovative products (Akakpo
et al., 2019).

3.1.1 Cons

The main cons associated with the company are

● Supply chain: The supply chain of Tesla is limited and for that the company has decided
to manufacture every single part of their products on their own.

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 ● Price: Tesla mainly aims to target the high class society and for that the price of the cars
of Tesla are on the high end (Park et al. 2014). This makes them not so popular with the
middle and lower class of people who cannot afford such high end products.
● Limits: The world has not yet turned to fully electric transportation and for this reason,
Tesla's idea of manufacturing only electric cars many a times drives away the potential
buyers.

4.0 Solution

4.1 Suggestions for Tesla’s Future Performance

The sales and demands of electric car vehicles are continuing to grow, the supply chain and
manufacturing procedure must be reviewed and upgraded regularly to meet the demands.
Engaging more and more in the movements regarding awareness about environment and
pollution as well as sustainability will help in increasing the relevance of the company’s aim
towards making a sustainable future transportation system. Low income customers are still
beyond the target market of the company. By providing many choices, designs and possibilities
to its customers the company will not have a hard time to attract buyers in future; especially
when the price will be budget friendly for people with lower income level too (Ding and He,
2022). Working with the governments can be a strategic plan when it comes to subsidies for the
customers. Many incentives and subsidies are already available across Europe for electric car
vehicle users in form of discounts, loans etc.(Jingchao, 2021). securing deals with other
manufacturers can be helpful for meeting future supply chain demand. As a high tech company
Tesla needs more efficient and innovative research teams who would help the company with
innovation through using the latest advancements of technology. Tesla still relies on their own
service centers for repairing and maintaining their own produced vehicles, third party shops do
not carry parts for their vehicles usually, users face it as a big problem. Appointments are needed
to be made online which often shows as already booked up for weeks or months in advance. The
improvement in customer interaction is much needed for further expansion of their business. In
the past two years Tesla has not come up with any innovative plan or idea and their profit seems
to go downwards recently. Sharing and renting facilities with third party shops and hiring more
customer relation employees can solve the problems. Tesla can also put more investment in
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innovation and research about the development of automated vehicles (Shao et al., 2021) which
can give the company an opportunity to shift towards commonly used public transportation
vehicles from private car ownership, because there is a trend going on among the young
professionals to reduce the uses of private cars (Ahmad and Khan, 2019).

5.0 Conclusion
Increasing environmental issues like fossil fuel shortage and pollution along with greenhouse
emission are pushing people to think about sustainability more than ever. New research
regarding sustainable energy production and development can secure the future of available mass
energy consumption. This brings new opportunities to companies like Tesla to innovate and
renovate newer technology and replace fossil energy. The quality problem of the products
manufactured by Tesla has been reported repeatedly in recent years which has caused concerns.
The company faces different influential factors, which should be discussed too.

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