UNIVERSITY OF SUNDERLAND

NAME: AZEEZ ABIOLA ADETUNMBI

STUDENT NUMBER: 219412261

MODULE TITLE: VALUE CREATION IN ORGANIZATION-MANAGING

OPERATIONS AND MARKETING

MODULE CODE: PGBM 146

DATE: 22/09/2022

WORD COUNT: 3353

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 Table of Content

Front page 1

Table of content 2

Introduction 3

2.0 Value Creation 4

3.0 Tesla Analysis 6

3.1 External Environment (Macro) 6

3.1.1. Economic 6

3.1.2 Social 7

3.1.3 Environmental 7

3.2 External Analysis (Micro) 8

3.2.1 Consumer Power 8

3.2.2 Competition 8

3.3 Internal Analysis 9

4.0 Value Chain 9

5.0 Conclusion 11

6.0 Recommendation 12

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1.0 Introduction

The increasing globalization has made the world economy become more dynamic. The survival
of any business in the highly competitive business space is highly dependent on its competitive
advantage. A business gains competitive advantage when it creates economic value with is
actions and products which none or only few other firms possess similar action and products
(Barney, 2002). Moreover, the primary aim of economic activities and firms is to make wealth
through value creation (Windsor, 2017). This value creation is based on the abilities and
resources available to the firm which allows the firm gain competitive advantage and as well as
gain distinctive position with regards to business performance in the industry.

A visible competitive advantage is needed for firms to achieve current business success as well
as ensure business sustainability. One major objective of business strategy is to achieve a
sustainable competitive advantage (Dash, 2013). Such strategy will imply better sustainable
performance of such firm in the industry. Thus, effective integration of organization and
environmental resources enables the firm creates distinctive and unique product which enables
such firm creates value and acquires competitive advantage. Hence, competitive advantage is the
ability of a firm to be unique from the buyer’s perspective when compared to other firms in the
same industry (Pellicelli, 2014).

The automobile industry is one of the largest industries in the world (Traub-Merz, 2017). The
sector has been in existence for over 100 years and has overgone many but rapid upheavals in
these years of existence. Currently, there are over 11,000 automobile manufacturers with about
60,000 suppliers globally. The market for automobiles is high fragmented with five top players-
GM with 17.9% of market share, Ford with 14.7%, Toyota with 13.5%, Chrysler group and
Nissan with 12.9% and 9.8% respectively (Donald and Cate, 2019). The major evolution in the
industry is marked by technological innovations, demand and production as well as the
innovation in the production methods (Bartel et al., 2015).

In the recent time, new changes have fundamentally reshaped the automobile industry, such is
the trend in the shift towards electronic vehicles due to climate change issues (Ondrei Burkacky
et al., 2018). About 200,000 electronic vehicles were sold in United State in 2017 which
represents about 25% increase in 2016 sales with Nissan LEAF being the first mass-market for
electronic in the US (Jonathan, 2017).

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Tesla was founded in 2003 by two engineering entrepreneurs Marc Tarpenning and Martin
Eberhard in California. Tesla penetrated the automobile market by creating a niche for itself in
the luxury electric vehicles which was initially ignored by traditional automakers. The firm
succussed in winning a significant share of the luxury car segment from the other fueled models.
However, the Tesla models were late to market which often resulted in technological glitches,
missed sales projections and quality issues (Joann, 2016). The first car introduced by Tesla is the
two-seat Roadster model which was described as the “one of strongest automobile statement on
the road” (Drake, 2004). As of 2019, Tesla has had a market of 0.2% of the total automobile
industry (Donald and Cate, 2019).

Figure 1: U.S Car Manufactures Market Share

To expand business scope, Tesla offered to acquire $2.6 billion worth of shares from SolarCity
which was approved by the shareholders (Carr, 2017). Similarly, the firm added solar roof,
Powerwall and solar panels to its business scopes (Lambert, 2018). These important factors are
crucial for innovation position which prompted Forbes, (2016) to name Tesla Inc as the most
innovative firm in the world.

2.0 Value Creation

The aim of every firm is to create wealth and maximize value through value creation (Windsor,
2017). However, for firms to succussed, plans, rules, relations and activities are needed to put
their value-creation capability in action (tricker, 2015). To keep pace with the changing business

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environment, every firm globally, must continuously review its products and services to ensure
that technological, economic, political and social realities of the consumers are of primary
concern and the firm is strategical positioned such that it enjoys competitive advantage. Value is
created by providing sustainable and superior products and services to customers. Values are laid
in products and exchanged for values in the market from producer to consumers. Thus, future
competition is maintained based on value creation between consumers and the producers
(Prahalad and Ramaswamy, 2004).

The process of value creation involves three key elements: the value customers receive, the value
the firm receives and lifetime value maximization for customers attraction (Tricker, 2015).
However, Christopher, Payne, and Ballantyne (2002) opined that everyday activities of the firm
should focus on customer value creation process. This is based on the understanding that value is
not directly obtained from the product but from its usage, consumption or processing (Polese et
al., 2017).

In the business world, products and services produced by different manufacturer are never of the
same quality, hence, every firm strive to create a distinctive product irrespective of how little the
uniqueness is and offer their price to maximize profit in the competitive environment (Akram et
al., 2018). Firms strive to produces goods and services that have ability to positively stand out
when compared with similar products from competitors from the buyers’ perspective (Pellicelli,
2014).

The consumption of products and services is propelled by the believe and value attached to the
product hence, the consumers of electric vehicles believe that the product matches their beliefs
and value (Qian and Yin, 2017). The production of Electric vehicles was aimed at the luxury
vehicle market segment which requires competence and high capital. Strategically, Tesla
penetrated the market at a high end where customers were more than prepared to pay premium
with the values created in this segment and subsequently drive price down with successive
models. Tesla has not only successfully made 3 models of electric vehicles but slod them through
value creation. The sales of electric cars were initially challenged by two prominent factors- less
than optimal battery and high cost. As a strategy, Tesla did not just produce electric vehicles as
value but also ensured that their customers were provided places to charge and service their
vehicles which is unlike other manufactures who depend on independent dealers to service,

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charge and sell their cars. The charging technology and innovative battery gave the company a
substantial lead in making cheaper batteries and quicker recharging which has enabled the
company to lower its prices faster than competitors (Sakshi and Garg, 2017).

Tesla possess a unique strategy of direct selling of products to customers which is significantly
different from other traditional automakers (Fred, 2018). The company’s website has a forum
page open for public participation and discussion about Tesla which enables the company have
first-hand information about their products and what the market demand is. The company’s
market approach provides showroom and online market distribution to significantly shorten the
distribution process and purchase time (Hull, Welch and Higgins, 2017)

To ensure that Tesla’s brands are of good value as well as drive customer satisfaction, the
company ensures before launching a new car model, the previous cars win award and are of
standardized quality which enables the firm enjoy competitive advantage and consumer’s loyalty
(Rahman, 2014).

3.0 Tesla Analysis

3.1 External Environment (Macro)

The external environment consists of political, Economic, social, Technological, environmental

and legal aspect of the firm. To understand the external environment of Tesla, we analysis the
factors that affect the organizational performance as well as key factors to be considered in any
decision-making process in the organization (Sun and Jin, 2017).

3.1.1. Economic

In 2019, the electric vehicle market had a growth rate of 14% with a total revenue of $30,039
million in the US with an estimated growth of 53.7% in 2024 (Sun and Jin, 2017). However, the
electric vehicle market segment is still highly concentrated which indicates existence of strong
competition. Moreover, it is stated by Crain (2012), that the country provides federal tax credit
up to $7,500 covers the purchase of electric vehicles. In addition, she added that incentives are
offered by many states for the purchase of electric vehicles while the absence of these incentives
will leave the sector small and prevent its growth.

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Overall, there is a great potential for the growth of Tesla as economic indicators shows that
although COVID-19 affects the economy but there is increasing in spending regardless of
income level of people. Moreover, the economy of United States is growing with customers
receiving different incentives from both federal and state government for the purchase of electric
vehicles (Yigit, 2021).

Furthermore, the preferential tax treatment Tesla receives from the government as result of its
production of eco-friendly automobile reduces its cost of production and increase net-tax which
can be associated the firm’s long-run success and growth (Stringham, Miller and Clark, 2015). In
addition, the firm profitability s increasing as result of decrease in the cost of battery. The
estimation according to Bloomergy New Energy Fnance shows that the lithium-ion that is
currently USD 137 per kilowatt-hour will fall as low as USD100 per Kilowatt-hour in 2023
(Kharaya, 2021)

3.1.2 Social

It is suggested that more attention should be paid to psychological influences and cultural values
by public initiatives when sustainable consumption is being promoted (Claudy and Peterson,
2014). Consumers of electric vehicles are of the believe that its consumption is commensurate
with their belief and values (Qian and Yin, 2017). Although Electric vehicles are classified in the
luxurious car market, its technology has not been improved enough relative to the technology of
the gasoline vehicles and these cars are associated with femininity and conservatism (Sovacool,
2009). The production of cars that matches customers values and beliefs will drive more market
share for Tesla in the future, in addition, if Tesla produces electric vehicles that is not only aimed
at the luxury market but other market segments, this could increase the competitive advantage of
the firm.

With the rising popularity of the low carbon life style and increase in the preference for
renewable energy source, electric vehicles is fast becoming a valuable product which increase
the growth potential of Tesla since is the market leader in this automobile manufacturing
segment. This factor does not only increase the value placed on the product but also increase the
market demand for the products and its related products (Sudhakaran, 2020).

3.1.3 Environmental

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Use of electric buses is suggested to US policymakers to reduces the emission of carbon dioxide
(CO2) this is because research has shown that carbon emission grows as gross Domestic product
per capital grows in the US (Vinuya, DiFurio and Sandoval, 2010). It is therefore recommended
that sustainable transportation that uses less of fossil fuels should be adopted to reduce carbon
emission for both environmental and economic benefits. Therefore, good environmental policies
support the adoption of electric vehicles as a result of its reduced carbon emission, better
transport medium and increase in GDP. Overall, electric vehicles have positive impact on both
economic and environmental impact which Tesla will benefit it from. This is because the
promotion of electric cars in the country is as result of its environmental impacts will increase
the value customers attach to the product.

3.2 External Analysis (Micro)

To analyze the micro environment of Tesla they to key factors are employed: competition and
consumer power

3.2.1 Consumer Power

Before the first Tesla premium electric car- Sedan was introduced to the market, $5,00 deposit
was made by over 3,000 people to buy the model without one of it been built (Anonymous,
2011). In the same vein, 180,000 people Paid deposit for model 3 before its launch which was
not delivered for more than a year because of slow production (Burke and Wayland, 2018).
Research shows that customers perceive Tesla as the future of electric vehicles and their vehicles
are considered stylish, environmental-friendly and innovative (Long et al., 2019). Hence, Tesla
can be considered a market leader in the electric car market because of their early adapter and the
significant market shared gained over the years as well as their good brand image.

Furthermore, customers now prefer to purchase electric vehicles form Tesla as a result of
guarantee on their products, quality, safety, efficiency and the most important aspect which is the
ability of products to run on battery which is eco-friendly (Sudhakaran, 2020).

3.2.2 Competition

Tesla enjoys competitive advantage from selling directly to customers while other auto-
manufactures sells to dealers (Hull et al., 2016). However, the firm faces competition from many

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auto makers especially US largest automaker, GM. It was announced in 2017 that GM’s Chevy
Bolt model was expected to compete with Tesla’s Model 3 (Alissa Williams, 2015). Similarly,
Audi partnered to develop an electric SUV to compete directly with Tesla’s X model (Korosec,
2015). In addition, GM announced in 2017 that it will release 20 electric models in 2023 which
two were expected to be delivered withing 18 months of the announcement (Jekins, 2017).
Furthermore, electric SUV coupe by NIO Inc was developed to compete against Tesla electric
vehicles and Mercedes-Benz. From all indications, it is vivid that strong competition exists in the
auto industry. However, Tesla has built a good image for its brand and the brand is associated
with good quality which derives the firm’s competitive advantage.

3.2.3 Suppliers

The suppliers of Tesla Inc are manufacturers of goods used in production of electric vehicles or
part of the vehicles. These products are either entire assemblies such as door mules or individual
components such as screws. The major concerned about the suppliers is the issue of competitors
obtaining information as regards the suppliers and buy out the necessary parts, Tesla is secretive
about more than a dozen of its model suppliers but a large percentage of the suppliers have been
discovered by diligent competitors. However, the basic electric components of Tesla’s products
are manufactured by the company such as the battery pack, electric motor and the charger while
other parts of the are sourced from different suppliers across U.S., Asia and Europe (Sudhakaran,
2020).

3.3 Internal Analysis

Telsa Inc has a different approach in reaching customers which has enabled the firm to have
competitive edge in the automobile industry. The firm has a driving goal of accelerating the
world’s electric mobility with a range of efficient and affordable electric cars (Francis, 2013).
The company creates values from doing the best, through constant learning, risk taking, respect
and environmentally consciousness (Hitler, 2020). The firm’s total value is greater than the
combination of the three-Big automobiles in the US- GM, ford and Fiat Chrysler and the
company’s average revenue has grown by $14 billion. With the good performance of Tesla,
many firms are willing to invest in the company’s stock and be part of the market for electric
vehicles through Tesla. The firm’s ability to deliver over 90,000 cars during the pandemic Crisis

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(COVID-19) shows that the firm can grow even in unprecedent times and still have competitive
advantage (Dey, 2020).

Tesla has been able to maintain the leadership in the electric vehicle car segment as result of the
ability to source and efficiently use the renewable energy such as solar energy as an alternate to
gas powered automobiles. Despite the firm be relatively new in the automobile industry, it sales
has increased as result of its designs, innovation rate and brand influence. However, the firm
faces problems which are associated with complexity in experiments and procedures which may
cause imbalance in the demand and supply of the firm’s products as result of inability to meet
production requirements as well cost of production, space expansion and resource management.

4.0 Value Chain

The value configuration theory which rests its ideas and also an extension of the Porter’s value
chain framework explains that competitive advantage is not understood by mere looking at the
firm as whole but that competitive advantage stems from several distinct activities performed by
the firm that generates and deliver values to customers. the theory suggest that one of the three
elements of value creation technologies is the value chain. The chain is representation of
physical goods production with primary focus on transformation and inputs assembled to make
finished goods. The other two configuration values are mediation services and problem-solving
services.

The theory emphasizes that while primary activities are creating values that are purchased by
customers directly, the support activities impact the values bought by customers. thus, in the
automobile industry, values are created from production of automobiles while the support
activities are activities such as new model development, innovation in production process, these
activities will indirectly have impact on the future manufacturing activities. Thus, competitive
strategy strives to locate a firm in a unique position such that there is synergy in the line of
interaction of the direct value creation activities and the support activities.

Similarly, yang, and He Ziwei (2015) stated three essential characteristics of new auto
manufacturer supply chain: first, high vulnerability and short exploration time of the supply
chain, second, difficulty in end demand prediction of the supply chain and lastly, high level of
dependency on technology. The direction of auto manufacturing company’s supply chain is

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always complex because of the thousands of different parts, models which are often completely
different incorporated to made and individual model. Therefore, the process involved is complex
from the planning review to materials to sales (Liu, 2015).

Artificial intelligence has and still has the potential to drastically improve the synergy in the
supply chain of many companies. This allows all the different teams in the company to be
directly involved in the decision making and manage interdependencies without direct
communication. This process is enhanced by the end-to-end supply chain approach where the
majority of the decisions and process are run by real time autonomous planning. In this
approach, changes in demand forecast are allowed to be automatically factored in all decisions
and process of the supply chain.

To produce cars that delivers high driving satisfaction, maximize safety and convenience, Tesla
Inc combines different manufacturing operation, marketing, research and development, corporate
governance, services and distribution (Tesla, Inc, 2019). Value is created by Tesla in the
manufacturing operations unit with different activities in different factories location. according to
Tesla, the cars are considered to be hardware while the technology, charging and services are the
software. Thus, Tesla is much of a software company as it is of hardware hence, the cars are
considered to be sophisticated computers on wheels. This allows the company rely technology
and autonomies planning to produce different aspects of the cars and support services at different
location simultaneously and reduced human involvement relying on integrated advanced
analytics

Relying on In Fremont Factory in California, the manufacturing operations which includes

battery packs, drive units and vehicle assembly are carried out. Integration of battery materials,
module, cell and battery pack are carried out in the Nevada facility while the New York
Gigafactory is use for the production of all kinds of solar related components and products as
well as the components of supercharger. To reduce manufacturing and transportation cost, as
well as import tariff to China, the Shanghai gigafactory was opened in China (Tesla, 2019).

In delivering values, Tesla’s supporting activities includes the marketing and promotion services.
the promotional techniques Tesla use to reach its customers is the direct sales, sales promotion,
personal selling, public relations and the most germane which is the viral marketing (Tesla,
2019). The firm has many stores that are strategically located which allows promotes their easy

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accessibility for customers. Moreover, the firm has its supercharger network scattered in Europe,
North America and Asia to provide charging services for long-distance travel. Hence, the
superchargers are located near highways which enables drivers’ easy accessibility. For quick
value delivery, Tesla does not use the dealership model which enables their customers to reach
them quickly however, this model of delivery poses a challenge for when delivery and services is
high in the international market, thus, the firm opened the Gigafactory to solve logistic problems.

5.0 Conclusion

This analysis shows that Tesla understands the importance of value creation in having
competitive advantage against competitors. Tesla did not just create value directly by producing
electric cars but also makes available strong batteries that complements these vehicles as well as
provide supercharge outlets which are close to highways for easy accessibility for drivers. This
enables the firm to have competitive advantage since other auto makers rely on other
supercharge networks to charge their electric vehicles but Tesla offers the complete package of
electric vehicles by making available all the components of the vehicle. In addition to value
creation of making full electric car, the firm ensures that value is delivered through its value
chain by selling directly to customers instead of the dealership method as adopted by other firms
in the industry which slows down delivery of value (electric car).

6.0 Recommendation

Based on the internal and external analysis of Tesla Inc, the following recommendations where
made;

The study of electric cars showed that Tesla’s product draws attention from tech savvy customers
and the luxury market segment, it is recommended that awareness should be increased on the
environmental benefits of electric cars and every market segment should be provided with cars
that suits their class, this will suggest to customers that unlike other automakers who are only
driven by profit by designing luxurious electric car models, Tesla is driven by value creation and
this will increased the competitive advantage of the firm against competitors

Analysis shows that over 94% of US residents are not aware of the federal and states incentives
attached to purchase of electric cars, it is therefore recommended that Tesla increase awareness
of these incentives as its matches customers believe and value.

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Tesla is considered the most innovative company in the world resulting from their various
breakthrough in technology usage and energy sources. It is recommended that the company
invest in other renewable energy sources. The usage of solar energy is limited to sunlight
availability which does not suit some states such as the Midwest States and Pacific Northwest
(Washington and Oregon) other energy sources will serve as an alternative to solar panel and
enable abundance supply of energy for their various products.

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 Appendix

PESTLE analysis

P
POLITICAL FACTORS: political instability is one of the factors that affects Tesla. The cobalt for Model
X, S and 3 are gotten from Democratic Republic of Congo (DCR) which its mines ha increased conflict
in the country which is capable of creating risk in supply chain of Tesla. The political factor that
affects Tesla inc is the international trade agreement. During the Trump’s administration, Tesla was
hit by to an extent by the trade war between China and US as at the time

ECONOMIC FACTORS: Tesla benefit from the tax incentives that electric vehicles producing
companies enjoy especially the California, Alternative Energy and Advanced Transportation

E Financing Authority Tax incentives as well as the Nevada Tax Incentives. In addition, the decreasing
cost of battery significantly reduce the cost of production of the firm which will reflect in the selling
price of the vehicles and appeal to the customers to purchase more of it. However, currency
exchange rate remains a barrier to the firm. The international market is growing but is greatly
affected by difference in the currency of the countries.

SOCIAL FACTORS: the increasing quest for alternative energy source and low carbon life style as well

S
as preference for renewable energy has increased the value of Electric vehicles by extension
TESLA increase the demand for Tesla’s vehicles as the market leader in this segment. In addition, the
improvement in the distribution of wealth in developing markets increases the value placed on Tesla
MOTORS products as it is perceived that electric vehicles belongs to the luxurious car market.
INC
TECHNOLOGICAL FACTORS: the increasing rate of innovation in technology of the firm creates

T opportunity for advancement of the firm and production of more efficient models of electric
vehicles at a reduced production cost. Through business automation, the firm has huge potential to
remain the leader in this market for another decade and the increasing popularity of its online
mobile system prompt the company to integrate the technology demanded in its products.

ENVIRONMENTAL FACTORS: the promotion of electric cars is based on the adverse effect of the gas

L
powered automobiles on the environment. Based on the concerns of climatic issues, environmental
concerns and waste disposal, a great potential exist for Tesla in production of electric cars as the
firm’s solar panels, batteries and electric vehicles are considered to be environmental friendly and
address the issues of climate and environmental concerns.

LEGAL FACTORS: the expansion of the international patent protection gives Tesla an edge in
expanding business abroad. This further enables the firm to identify opportunities to promote its
electric vehicles and products based on the regulations on the countries. However, many countries

E do not allow direct sales of cars. hence Tesla would have to comply with these rules or find
alternative within the legal means in selling its products

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 Porter’s Five Forces

SUBSTITUTE

Audi partnered to develop an electric SUV to compete directly with

Tesla’s X model. In the recent time, there are investment into other
renewable energy sources to power automobiles.

SUPPLIERS CONSUMER POWER

There are over 11000 COMPETITION The general consumers of cars have
companies that supply There is strong competition in the electric car high bargaining power because of
automobile parts NEW
globally. ENTRANT the saturated market of automobile
market even though Tesla still maintains market
These suppliers have about and the numerous vehicles offered
The barriersleader. In 2017,
to entering the Gm
autoentered
industrythe
are market
high. Newwithentrants
60,000 facilities for production. Chevy Bolt and planned to launch about 29 for different prices by different
had to contend with creating brand loyalty, building manufacturing
These suppliers have high producers. However, the electric
capabilities electric vehicles in
and factories, 2023. In addition,
developing a dealerinnetwork,
2018, and
power because of there Ford invested $11billion in 24 and
hybrid power consumers have low barging
attaining the capital requirements to develop buildanda new car,
production of essential parts of power because the car initially
which couldelectric
be as muchvehicles. However,
as $6 billion Toyota
and take up to sixlagged
years.
automobiles. It predicted that behind in production of electric vehicles. In belong to the luxurious car segment
between 2014 and 2025, 2020, the firm just rolled out is plan to roll out and the value attached to it in its
automakers would spend $110 10 models of electric vehicles. Other renewable energy usage and it
billion on fuel-saving competitors include BMW who launched its first environmentally friendly nature
technology, of which $90 billion electric vehicle in 2015
would be paid to suppliers.

SWOT Analysis

STRENGTHS WEAKNESS OPPORTUNITIES THREATS

Good research  Inadequate brand Increase in oil and gas Production of
capability and recognition in public prices increases the WRIGHTSPEED X1 which
engineering skills demand for electric is the only direct competitor
vehicles of Tesla products
Ability to raise capital Lack of economics of scale as Penetration into the High numbers of automobile
a result of company size and Sedan Market and firms producing full electric
small sales volume production of goods that and hybrid cars
not just for automobiles

19
 First mover advantage: Possibility of components Expansion: development Short run fall of oil and gas
the first auto company supply problem especially with of lithium batteries and prices
to produce full electric increase in demand other energy technologies
car
Components designs in Lenitively of full electronic Partnership with battery Breakthrough in Hydrogen,
cars including vehicles is yet to be proven. companies to improve natural gas and ethanol
electronics, motor and For instance, the Roadster has the battery technology powered vehicles
battery packs been absent in the market for
long

Value Chain Analysis

Support activities
Firm infrastructure
Human resources

Technology Development

Procurement
Inbound Operations Outbound Marketing and Services
Manufacturi Logistics sales The firm
logistics ng and This include Unconvention attempts to be
This assembly warehousing al sales more effective
includes facilities are and practices. The in dealing with
the receipt in distribution firm does 20
not complaints for
and California, services, invest in customers. in
storage of Nerthlands solar panel endorsement addition, the Margin
materials and China. production and firm provides