Assignment 2: External and Internal Environment
External and Internal Environment
Company: Tesla Motors Inc.
Industry: Automobile industryThe Tesla Motors company was founded in 2003 as an electric Sports cars company. A decade later, the company is the leading electric car manufacturer in the world with cutting edge technology defining its remarkable success. The company is located in Silicon Valley, California and is led by Elon Musk, its CEO, who also acts as the chief product architect. The company’s mission is to offer road transportation a new eco-friendly alternative, but with improved driving experience. So far, the company has made significant steps in this direction. Already, the latest Model, the Model S, is the most in-demand automobile in the United States and several countries in Europe, such as Norway where it accounted for the most sales of new vehicles in 2013 and 2014. The company experienced a turn-around in its fortunes in 2008 when Elon Musk took over as the CEO. Initially, he had been working with the company as the chairman of the board of the company. Tesla faces stiff competition from other car manufacturers in the automobile industry with traditional dominant firms. However, its cutting edge technology and new user experience gives it an edge over its counterparts (Bohnsack, Pinkse&Kolk, 2014). With the Oil resource expected to reduce in the near future and the world searching for green energy, Tesla Motors and its vision may just be the solution the world needs. Already the Model S, launched in 2012 has sold thousands of units across the United States and abroad. Tesla plans of introducing new models in the near future.
The external business environment is comprised of several factors. The main external factors affecting a business are competition, the political and legal environment, and technological advancements. For Tesla, competition and Technology are the main factors influencing its growth. Rapid growth in car technologies, both in the production process and to improve the car user experience affects car sales. Tesla is well aware of this fact, and it has already taken steps to address the issue. Tesla is considered the center of invention and innovation as far as car technologies are concerned. The company owes its advantage over its rivals due to the fact that it is located in Silicon Valley surrounded by technology companies and a pool of potential employees who can make a difference at the firm. In terms of competition, Tesla is the only all-electric car manufacturer in the United States. Globally, however, the company faces stiff competition from car manufactures such as Nissan (Bohnsack, Pinkse&Kolk, 2014). Its monopoly in the United States and its leading car technology not only makes its product to compete well when compared with already existing cars.The Powertrain components that make up the main components differentiating the car from gasoline cars are also manufactured by the company. The company is always designing new components that are meant to establish its brand in the market in terms of quality and value for money. On both the competition and technology front, Tesla Motors is doing well. The conditions are expected to remain relatively the same in the short term period.
Porter’s Five Forces
The five forces of competition, according to Porter, affect a firm’s operations within its industry. How a firm reacts to the forces of competition and addresses issues arising due to the forces may determine whether a firm can survive in a given industry or not. The five forces of competition include Threat of substitutes, a threat of new entrants, industry rivalry, and bargaining power of suppliers as well as the bargaining power of consumers. Tesla operates in the Automobile manufacturing industry, and other automobile manufacturers are its chief competitors. In the American market, Ford car manufacturer is its main competitor. On the global front, there is a host of other companies that manufacture cars a well.Tesla also manufactures powertrain components, and the car batteries used to power the electric cars and sales them as individual components to companies such as BMW and Daimler.Other Powertrain manufacturers in the market also form industry rivalry that Tesla Motors has to deal with it. Among the Porter’s five forces of demand, the threat of substitutes and the threat of new entrants are the two factors that can affect the growth of Tesla the most.
The only substitute for the Tesla products is the gasoline powered car produced by several automobile companies across the world. The gasoline powered cars have been around for ages, and the market is pretty saturated and the growth of these cars has been stunted in the past few years.The economic recession checked the growth of most of these companies as the purchasing power among the consumers declined this period (Liu et al., 2014). However, even with harder economic times, Tesla Motors product achieved significant interest probably due to the rising oil prices and the alternative it offered. Other companies cannot compete favorably with Tesla in the all-electric niche automobile industry; instead they have started production of hybrid cars that make use of both gasoline and electricity. So far, the electric car market is relatively new in the automobile industry; only a few people have experienced the thrill the car offers and the new car experience it promises to all. The excitement for the all-electric car is responsible for pushing up demand for its products, and the gasoline-powered cars cannot affect the demand for the cars. In this perspective, the Tesla electric car is viewed as the ‘alternative’ to the gasoline-powered cars and not the other way round (Becker, Sidhu&Tenderich, 2009).
The all-electric market promises a great future. Many automobile car manufacturers want to be a part of the market that is likely to define the future of the industry. The threat of new entrants into the market is real. With the growth prospects that Tesla has been experiencing in the past decade, other car manufacturers are watching keenly and some have already entered the market via the production of hybrid cars. Eventually, they will shift to all-electric cars when they feel that the target audience is ready or when they obtain the technology to make the cars cheaper (Liu et al., 2014). To make matters interesting, recently, Elon Musk made the electric car market ‘open-source.’ He released the patents for his electric car and made them available to all car manufacturers. He said that anyone willing to try out their technology was welcome to do so but could do so with good intentions. Pundits in the car industry have applauded the move. The Wall Street stock exchange also responded in kind as the market prices for the Tesla share shot up 14%. Essentially, his move is expected to help promote the electric car market and led to mass production of the cars. With the patents already available for the other car manufacturers, they do not need to re-invent the wheel and spend so much in design; they can jump into car production immediately. Critics could argue that the move will backfire and affect Tesla negatively in the near future, but from all signals it seems that the move will catapult the industry and make Tesla’s products even more marketable.
Tesla Motors seems to handle its competition pretty well. The only way that Tesla has been able to ward off competitors is its superior technology and sound designs. It owes this ability to its locality, Silicon Valley. The location is saturated with giant technology firms and obtaining excellent engineers for the company has been easier. Tesla has also partnered up and outsourced the design and production of some of its sections to allow it to concentrate on the engineering details. Panasonic is one such company. Tesla has partnered with Panasonic in the manufacture and design of the dashboard and the ‘infotainment’ section of the car. A 17-inch capacitive touch screen was introduced in the Tesla products in 2011 and instantly became a benchmark. The user experience it presented to the user was unbelievable. With reviews of 99 percent, Tesla’s consumers’ satisfaction has clearly been achieved. With Silicon Valley the home for technology innovations and inventions, Tesla is poised to take advantage of new technology that will continue to set it apart from the rest of its competitors (Liu et al., 2014).
Tesla, however, faces competition on this front, the ‘infotainment’ system. When Tesla launched its EMS system in its cars in 2011 and instantly benchmarked the industry, other car manufacturers took up the design and outsourced their services to EMS providers. Companies such as Daimler, Ford, Jaguar and General Motors have embraced the new system, and their cars are already running similar systems. Transitioning into the new system can be problematic with Ford having to learn this the hard way. The company’s EMS system had system errors and technical software errors that forced it to recall its cars for a software update. It cost the company millions of dollars and has recently recovered. Tesla, on the other hand, has installed a 3G system similar to the one installed on computers and mobile phones. The car’s system can update its software wirelessly and does not need the cars to be recalled to its factories or dealers. Software technical problems have been a major issue in the recent past with several car manufacturers having to do recalls of their products to update the software and to make other minor changes. A system such as the one installed by Tesla on its cars with the ability to integrate wirelessly sets it apart from the rest. It has also saved the company from unnecessary costs and expenses that could be used to further its cause in the automobile industry (Liu et al., 2014).
Tesla’s Opportunities and weaknesses
The electric car market expansion presents Tesla with an opportunity to expand and to further establish itself in the automobile industry. Tesla also manufactures batteries for storage purposes. On Friday, the company launched a battery that could power entire homes. The new product is poised to reduce the electricity cost by 25% for home users. California has also recently passed legislation requiring businesses in the state to invest in backup energy storage systems such as batteries to provide backup power in case of power blackouts. Tesla is already in the industry of production of such batteries and is poised to take advantage of the market as it grows. The push for green energy and the eco-friendly solution presents another valuable opportunity for Tesla to grow further. Oil is a non-renewable resource but electricity is not. The Tesla products are Zero-emission products and at this time and age present a global solution to the global warming threat that threatens to wipe out the earth soon. More companies are facing sanctions in the developed world in terms of gas emissions into the environment curtailing their mass production. Companies are being forced to take up renewable energy alternatives as well as design products that reflect environment awareness. Tesla and its products are at the forefront of this revolution in the car industry, an opportunity that guarantees its survival in the market for years to come (Becker, Sidhu&Tenderich, 2009).
However, Tesla has a major weakness in its target audience. The company’s mission to mass produce electric cars and help bring sustainable products in the transport industry has only been partly achieved. The main problem has been the target audience. So far, only the high middle-income earners can afford the luxury cars. Only 10 percent of the world’s population fall into this category, and most of them are located in countries such the United States. It effectively means that the product is not viable to people in lower middle and the lower income earners across the globe that account for 90% of the world’s population. This inadequacy is a major weakness that Tesla is fighting hard to solve. The company has invested in research and in innovation plans to introduce new technology in the production of its batteries and its Powertrain components. This move is expected to considerably reduce the cost of production of the electric cars, hence making them readily available to more people (Bohnsack, Pinkse&Kolk, 2014).
The company has achieved its success because of a number of key competencies and resources. Top-notch engineers and technology enthusiast are readily available in Silicon Valley making the recruitment process fairly easy for the company. Elon Musk is a visionary man fiercely focused on success in all his missions. He has single handedly turned around the company in a series of strategic management decisions that helped turn around the fortunes of the Tesla Company. The Eco-friendly products manufactured by the company are ideal for this time and age when global warming is an issue and governments worldwide are desperately trying to find Eco-friendly solutions (Becker, Sidhu&Tenderich, 2009). The company has also invested in technology to set it apart from its competitors. In fact, the company is considered more of a technology company than an automobile manufacturer. In order for Tesla to further establish itself in the industry, brand building is the key to its mission. The company is already defined by attractive high-tech models, the company needs to produce more models and differentiate them from the rest of the competitors. Advertising its products is also crucial to the creation of brand loyalty and to foster the growth of the company. New technology needs to be carefully evaluated to ensure that the basic factors that have built the Tesla brand are maintained.
Becker, T. A., Sidhu, I., &Tenderich, B. (2009). Electric vehicles in the United States: A new model with forecasts to 2030. Center for Entrepreneurship & Technology (CET) Technical Brief, (2009.1).
Bohnsack, R., Pinkse, J., &Kolk, A. (2014). Business models for sustainable technologies: Exploring business model evolution in the case of electric vehicles. Research Policy, 43(2), 284-300.
Liu, Y. E., Kang, Y., Wu, H., Chen, C., & Hon, E. (2014).Tesla Motors Inc. Case Synopsis.
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