Strategic Management (MBA 550)

Case Study(2nd) on

Submitted to: Submitted By:

Dr. Md. Nazmul Hossain Name: Asad Uz Zaman

Adjunct Associate Professor ID: #2221301

Independent University of Bangladesh Section: #03

 1. Which PESTEL factors are the most salient for the electric vehicle segment of the car
industry? Do you see a future for electric vehicles in the United States? Why or why
not?

Answer:
PESTEL Analysis determines how technologies affect the remote or macro-environment of a
corporation. Due to a scarcity of lithium-ion battery providers, technological reasons are driving
the electric vehicle industry. Lithium ion batteries are now "provided by only a few technical
corporations, namely Panasonic in Japan," according to the report. Many Pestel Factors played
important role for the electric vehicle segment of the car industry. After going through the
materials in our text book, Essentials of Strategic Management and the Tesla Motor case study I
consider environment and technology to stand out from the PESTEL factors for the electric
vehicle market

Environmental factors are considered as the major factors for the electric car segment because
it will help protect our planet from the harmful impact humans make on a regular basis. As it is
based on electricity so it will reduce the use of fossil fuels in terms of operating cars. The need
for this new electric car is vital to the environment and helps reduce the level of emissions into
the atmosphere which limits greenhouse gases. The more popular electric vehicles become the
more options there will be and the prices will start to become more affordable for all the citizen

Technology is a big factor because this is a new forefront for the vehicle industry and when you
have limited suppliers that make electric car batteries it raises the price for the overall vehicle
and limits profit potential for the company. With electric cars being new technology the only
way to keep them charged is to have charging stations which are limited, but as time passes, I
do see more of these popping up around Oklahoma City and Edmond. One of the main reasons
for this technology is to help reduce CO2 emissions and help our planet.
Electric vehicles, in my opinion, represent the future of the United States. Electric car sales in
the United States are predicted to increase from around 500,000 vehicles in 2021 to over 4
million in 2030. Excessive gasoline prices and the environmental damage caused by gasoline
emissions have enraged consumers. Aside from the improvements, automakers made claims
about how swiftly new electric and hybrid vehicles will be delivered in the coming years,
partially in response to tighter efficiency and emissions regulations. Some manufacturers have
revised their forecasts in the hopes of achieving their electrification targets sooner than
expected. Emissions and fuel-efficiency regulations are tightening around the world, but not so
much in the United States, requiring automakers to build vehicles that meet these standards.
 2. Looking at Porter’s five forces of competition, how would you assess the profit
potential of the U.S. car industry?

Answer: Michael Porter five forces framework helps to determine an industry's profit
potentiality and shape a firm's competitive strategy.
I. Threat of new entrants: Threat of entrants means possibility of new competitors
entering a market. The expensive tag on electric vehicle will be removed as soon as
more competitors enters the business. Beside the regular competitors the non-
traditional competitors are also entering the electric vehicle industry. Google, for
example, has been developing a self-driving car since 2015, when it unveiled a
prototype. Apple is also developing an electric vehicle code-named "Titan."
II. Bargaining power of Buyers: Here, buyers can use them negotiate to buy better quality
products at a minimum price. Bargain power of buyers exists when the number of the
buyers are few but number of sellers are more. When this situation occurs, buyers holds
a lot of negotiating power. For example, if the price of a Tesla Motors vehicle falls below
a certain threshold, the customer can easily swap to another vehicle.
III. Bargaining power of suppliers : Increasing suppliers' bargaining power reduces industry
profitability by increasing the cost of production by demanding higher prices and
reducing the quality of the input in order to keep the price stable (Example: Tesla
Motors is currently addressing the bargaining power of suppliers). Not only are lithium-
ion battery packs in low supply, but they are also the costliest component of Tesla's
electric engines. Only a few technological companies, particularly Panasonic in Japan,
provide these vital inputs.
IV. Competitive Rivalry: The level of competition between enterprises in the same industry.
The other four components are putting a strain on this contest. Competitors may lower
prices in order to lure customers away from their rivals. Non-price competition, such as
adding value to a product's features and design, quality, promotional expenditure, and
after-sales service, adds production costs and, as a result, affects profitability.
V. Threat of Substitutes: Substitutes meet the same basic customer requirements. The
threat of replacements is high when a substitute offers an enticing price-performance
trade-off and the buyer's cost of switching to the alternative is low.

3. Using the five forces model, what implications can we derive for how Tesla Motors
should compete in the U.S. car industry? What would be your top three
recommendations for Elon Musk? Support your arguments.
Answer: The five-force model includes the threat of entry, supplier power, buyer power, threat
of alternatives, and rivalry among existing businesses. Because the current battery supply is a
monopoly, Tesla should focus on supplier power and the risk of being pushed out of the top
five. As a result, the battery is the costliest part of the vehicle. As well-known firms in the
automotive and technical industries construct electronic cars, the danger of entry is increasing
every day. Elon Musk's leadership and popularity are responsible for this accomplishment. By
addressing the Porter's Five Forces competitive landscape, the company will be able to expand
its operations in the worldwide vehicle market. Profitability is determined by the quantity and
size of competitors, as well as other factors. The degree of price power held by the enterprises,
What kind of product or service are you looking for? The height of the entry gates
I would advise Elon Musk to build a larger car to meet public demand, continue to improve your
vehicles, and make your vehicles affordable to the average consumer. By making a larger car,
Mr. Musk will be able to appeal to the public. According to the book, "With low gas prices,
Americans choose to buy large SUVs and trucks, favoring GM, Ford, and Chrysler." As a result,
building a larger automobile with new technologies while keeping the vehicle affordable for
average people will help Tesla maintain its leadership position in the electronic vehicle
business.
.
4. Draw a strategic group map for the U.S. automotive industry. What are your
conclusions?
Answer: A strategy map is a simple diagram that shows the causal, cause-and-effect link
between strategic objectives. Because it is used to quickly describe how the firm creates value,
it is one of the most significant components of the balanced scorecard technique.
Price Map of Strategic Groups in the United States Automobile Market:

High TESLA VW AUDI MERCEDES

Rover Group JAGUAR
Medium SAAB
TOYOTA FORD GM
Low NISSAN MAZDA
Special Limited Mass FULL MASS
Production Production

In terms of battery life per charge, Tesla, in my opinion, is the technological leader. Tesla cars,
on the other hand, are out of reach for the vast majority of potential purchasers. Tesla, on the
other hand, would appeal to more people if it could strike a balance between price and battery
life of 180 to 200 miles per hour. Due to its restricted product line diversity and high pricing
quality criteria, Tesla is positioned in the top left corner of the Map of Strategic Groups in the
US Automobile Market. They must find a way to make more models at a lesser cost than their
competitors, as well as the capacity to create them on a greater scale
 5. Why do you think that Tesla’s market capitalization (Share price × Number of
outstanding shares) is roughly 50 percent that of GM, while GM’s revenues are more
than 50 times larger than that of Tesla Motors?
Answer: Tesla is a relative newcomer to the vehicle industry, whereas General Motors has been
operating for a long time. GM is also taking advantage of lower gas prices by producing larger
vehicles that appeal to a broader spectrum of customers.
On its first day of trading, Tesla's stock finished at $23.89 a share. In 2013, the price had grown
to over $285 per share after three years. Thanks to this massive gain in share price, Tesla's
market worth is now over half that of GM. Following the IPO, investors forecasted the future of
electric vehicles and began purchasing shares. As demand soared, so did the stock's price. As a
result, Tesla's market value increased considerably. Despite this, Tesla's market capitalization is
less than half that of Apple.

Reference
1. https://www.cambridge.org/core/journals/management-and-organization-review/article/tesla-
and-the-reshaping-of-the-auto-industry/5E551257839D03D5E430F61CB93AFA62
2. https://www.kbmanage.com/concept/pestel-analysis