Tesla, fact, society as a whole is taking

Tesla, Inc. is
involved in the design, development, manufacturing and sale of electric
vehicles and electric power train components. Its products include electric
vehicles such as the acclaimed Model S, Model X and the Tesla Roadster. The
company is involved in the manufacturing of renewable technologies included
solar energy and renewable batteries. Tesla was founded by Jeffrey B. Straubel,
Elon Reeve Musk, Martin Eberhard, and Marc Tarpenning on July 1, 2003.

Tesla thrives on
the relatively new perception of a need for alternative green technologies. The
company is seen by many as a response to the clear effects of fossil fuel use
in vehicles and its negative impact on the environment. In terms of marketing
Tesla has a moral and ethical vantage point but beyond this obvious fact,
society as a whole is taking more interest in environmental awareness. The
technology used in electric cars is both user friendly as well as affordable as
compared to petrol and diesel operated vehicles. It is shown in a report by
Cowen & Co that by 2020 electric cars will be significantly cheaper than
cars which use gas due to fuel efficiency standards imposed on traditional cars
and falling price of manufacturing batteries. (Bary, 2017)
There is evidence as researched by Cowen Osbourne that the global electric
vehicle appropriation could increase from 1% in 2017 to 7.5% in 2025 and Tesla
is already pushing forward with making its products more affordable with the
Model 3 costing  a mere $35000. The
rising interest in the use of electric vehicles is good for Tesla; however this
leads to an increase in incentive for rivals to compete more aggressively.  

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In term of
financial performance for the year ended 31 December 2016, Tesla had
significant increase in assets including manufacturing plants and property as
compared to 2016 and 2015; $22664m and $8067m respectively. (Tesla, 2016) This shows a massive
expansion for Tesla as the demand for the luxury electric vehicle grows. The
goodwill, which defines an intangible credibility that consumers have for Tesla
resulted in approximately $217m gain as compared to the $47m of 2015 (Tesla, 2016). The Net income of
Tesla over the 2015-2016 period shows cause for concern among investors. The
2015 Net income values come at a deficit $886,66 and this is due to a variety
of factors including the great operating expenses for upholding the automotive;
electric vehicle, stationery and energy storage; energy generation and storage
business departments. The fiscal year end 2016 shows a slight improvement with
deficits only being $674,91m (Tesla, 2016). The reason behind
these deficits are the operating expenses of mainly the electrical vehicle,
stationery and energy storage together with the energy generation and storage
departments which brought whose operations rather declined operating income
than add to it.

Macro Environment
Analysis:

Political:

The global
movement towards reducing our carbon footprint has not only motivated private
and public companies to innovate conservational campaigns, technology and
activities but government as well. The most prevalent examples of government
policy promoting environmental protection is the UK’s stance on carbon
emissions created from transport. Transport is a major source of pollution in
the UK which contributes to destroying air quality and in efforts to reduce
carbon emissions government is encouraging people to drive electric and hybrid
vehicles. This is done through various methods including: (v3.0, 2010)

·        
Providing grants to those who purchase ultra-low
emission vehicles

·        
Contributes to the funding of innovative
research and development through the Office for Low Emission Vehicles (OLEV)

·        
Is setting out a framework for the development
of a recharging network for electric and plug-in hybrid vehicles

·        
Continues to give funding to the Plugged-in
Places programme

Tesla benefits
greatly from the Climate Change Act 2008 as it encourages the concept of
electric vehicles in the public’s eye- government are doing their marketing for
them. The perceptions of people are positive towards Tesla’s products through
social learning as it not only saves the environment but they get remunerated
from government. Ethics plays a great role in motivating the purchase of Tesla
vehicles as the pressure of our carbon footprint is magnified by government’s
efforts to phase out petrol and diesel vehicles in the UK. An example of these
policies increasing both sales and attractiveness of electric vehicles is in
Norway, “JUDABERG, Norway (Reuters) – The Norwegian Island of Finnoey has the
highest density of electric cars in the world. The reason? They are exempt from
the $6,000-a-year toll charges for the tunnel to the mainland. There has been a
surge in sales of fully electric cars like Teslas and Nissan Leafs since the
tunnel opened in 2009 and they now account for one in five cars on Finnoey,
compared with less than 1 in 100 globally” (Thomas Reuters, 2017).

 

 

 

Economic
Environment:

The external
economic forces Tesla would mostly have to deal with have to do with their
vehicles being sold internationally and the manufacturing of Tesla vehicles and
products in States apart from the US. As Tesla is now a vehicle with great
international appeal there are various economic hurdles which the company must
overcome such as Exchange Rates, Export Quaota controls and price inflation. An
example where the exchange rate affects the sale of Tesla is in Germany where a
government agency has removed Tesla’s new Model S from the list of electric
cars eligible for subsidies. This is due to the fact that the vehicle is not
available in a version that falls within a 60,000 euro ($71,448) price limit. “Tesla
customers cannot order the Model S without extra features that push the price
of the car above the limit,” a spokesman for the German Federal Office for
Economic Affairs and Export Controls (BAFA) comments. (Factiva, 2017) Tesla Inc. has reached an agreement to
set up its own manufacturing facility in Shanghai. This strategic move could
help it gain traction in China’s fast-growing EV market. This new arrangement
would enable Tesla to cut production costs, but it would still likely incur
China’s 25% import tariff.

This example of
exchange rate and export controls affects the progression of Tesla’s expansion
into different international markets.

Socio
Cultural Environment:

Society has
reached a point where environmental preservation is imperative to ensure the
effects of global don’t become detrimental for our future. Businesses need to
constantly follow the prevalent values which society upholds to make their
marketing activities effective. Tesla is in an advantageous position as their
automotive department represents the future of green technology in luxury
transportation. Demographics and lifestyle play a great role in the marketing
decisions a company will make and essentially portray through their product.
Tesla vehicles are luxury electric cars and as such certain income brackets
aren’t eligible for its purchase.

The Tesla Model
S for example is compared to the new 2017 Mercedes Benz S Class, which
represents a typical luxury car in both price and appearance. The Model S and
Mercedes Benz S Class 2017 model are about $100,000 depending on specifications
chosen. Zhou Lixun said she bought a $166,000 Model X for her business partner,
who owns an auto-parts company in Beijing, earlier this year. “There are
other EV brands, but nothing else at the top end,” said Ms. Zhou. “We
think Tesla is high-tech, and it makes us feel young and fashionable.” (Trefor Moss,
2017)

 

Technological
Environment:

The innovation
of new technology affects most businesses as it changes the way a company goes
to market, operations and processes. A company must constantly be at the
forefront of technology if they are to remain competitive and efficient. Tesla
in this way has spearheaded the luxury electric vehicles market. Elon Musk, CEO
of Tesla, has significant relevance in China, where he is regularly praised in
the media as a tech visionary. His relevance as a visionary in the electric
automotive industry has contributed the foreign car maker to make significant
inroads into China’s electric-vehicle market despite being a foreign competitor
against EV with local customer bases. “Tesla sold roughly 12,000 imported cars
in the first nine months of this year, up from an estimated 11,000 in 2016 and
good for 4% of China’s plug-in market, according to EV Sales, a website
tracking the sector. Tesla hasn’t revealed unit sales figures, but says China
accounted for $1.1 billion of its $7 billion revenue last year, second only to
the U.S.” (Trefor Moss, 2017) This quote serves to
show the magnitude of the EV market in China as Tesla only made up a mere 4% of
the market. The technology in the EV sector is currently booming in China and
as such having a sustainable competitive advantage is imperative. The EV market
has already been saturated with great demand in the new age cars and as such
competition for significant market share is based on the technology and
marketing. Tesla vehicles are hailed as a significant entry into China’s EV
market due to the technology imbedded into its luxurious body.

Performance
Environment Analysis:

New
Entrants:

Tesla remains to
be in a very specific position in terms of market segmentation and brand
positioning. Tesla represents the innovations of electric vehicles however its
differentiation factor is the fact that it is associated with luxury
transportation. Tesla is not just an EV but is the market driver of luxury in
the EV industry. While Tesla has set the benchmark for luxury electric vehicles
and for a time Elon musk exclusively held the position of being the only luxury
brand EV in the market; that position is steadily threatened by the world’s
most established automakers. This year’s Los Angeles Auto Show is any
indication that there is growing momentum behind the luxury EV industry. The
well-known and trusted automakers like BMW, Jaguar and Volkswagen are greatest
threats to Tesla as they have been in the market for many years, with loyal
customer bases world-wide. Their entrance into the EV market poses issues a
great competition for Tesla in the coming years. Examples of these new entrants
are as follows:

The MINI
Electric Concept

Unveiled by BMW
in Germany in August, MINI’s electric hatchback is the company’s first electric
concept car. The vehicle will be powered by a lithium-ion battery, with the
car’s bold yellow accent bar and flashy rims, company officials have touted its
design. (Peter Holley, 2017)

Jaguar’s I-PACE
Concept

Jaguar’s first
electric car was on display this week. In addition to zero emissions, the
I-PACE Concept offers future drivers 400 horsepower and 0?60
mph in around 4 seconds, according to the company.

Volkswagen’s
I.D. Crozz

The Volkswagen
electric concept vehicle I.D. CROZZ, is expected to offer a range of more than
250 miles from a single charge. The company claims owners will be able to
charge the vehicle’s battery to 80 percent capacity in only 30 minutes. (Peter Holley,
2017)

Buyers:

It is important
for a company to ascertain what percentage of their sales their buyers
represent. In Tesla’s case, the company represents a niche market in the EV
industry and as such buyers hold a great deal of a bargaining power over Tesla.
Tesla is therefore highly affected by its set prices as its customer base is
still growing in comparison to established car makers. This high price
elasticity is reflected in the issues happening in Germany whereby fewer
customers are going to import Tesla S models due to subsidies being revoked
based on prices deemed too expensive. Germany does not make up a significant
customer base so these effects aren’t detrimental to company revenue. China
however makes up a 7th of Tesla’s global revenue and if the Chinese
market can’t cope with the 25% import tariff for Tesla’s, a significant portion
of sales is jeopardised. 

Existing premium
brands are still preferred over Tesla, and Tesla’s lack of a dense dealer
network could put it at a disadvantage however UBS surveyed about 10,000 people
in the six largest car markets (China, Germany, Japan, Korea, the U.K, and the
U.S.) and found growing consumer interest in electric cars and dwindling
interest in diesel-powered cars. Tesla’s future does look brighter with survey
findings at UBS showing its forecast of global electric-vehicle sales to 16.5 million
by 2025 or almost every sixth car sold globally.

 

 

Suppliers:

Tesla is a
vehicle powered by battery instead of traditional fuel consumption and as such
the manufacturing of this technology is specific to suppliers with access to the
raw materials needed. This creates a bargaining advantage for these suppliers
and possesses a potential threat to Tesla’s manufacturing process. Tesla’s
factories are mainly all based in the US, having manufacturing plants in
California, Fremont, Nevada as well as in New Mexico. Tesla eliminates supplier
bargaining power as it makes many parts itself, which is uncommon practice in
the industry. Tesla also works with 300 suppliers around the world, of which 50
are in Northern California, and 10 in the San Francisco Bay Area. (Hoge, 2016) Tesla’s dashboard supplier
SAS rents a building near the factory. Tesla has various suppliers with bases
of operations near to its plants for easy access and quality assurance which
include Eclipse Automation and Futuris Automotive Group.

Tesla maintains
its buying power from suppliers by differentiating input from various suppliers
globally as well as manufacturing some of their own parts. The appeal of having
many suppliers is that it gives perspective on prices of raw materials however
relationships between buyer and supplier suffer. Tesla ensures a good supplier
compliance and quality assurance through having its SAS dashboard suppliers
close to manufacturing plants.

Substitutes:

Tesla remains to
be in an interesting position as it is in a niche market of luxury electric
vehicles and as such its competitors/substitutes include both established
traditional auto car makers as well as EV car makers.  Tesla is looking to produce roughly 5,000 of
its mass market Model 3 vehicles each week by the end of 2017. This increase in
volume would move Tesla out of its high-end niche and compete head to head with
traditional automakers.

From marketing
perspective and to differentiate from possible substitutes Elon Musk outlined a
‘Master Plan, Part Deux’ in 2016. Tesla is seeking to create a sustainable
energy economy by supplying solar panels, home energy storage and fully
autonomous electric cars and trucks. In this way Tesla diversifies its brand
through a variety of products. Tesla has a defining feature of being both energy
efficient, performance driven and affordable as compared to the established car
makers.  

 

 

Internal Environment
Analysis:

Swot
Analysis

Strength:

High Product Differentiation: The
shift from fossil fuel to the development of electric vehicles positions Tesla
as a unique brand. Its focus on affordable luxury and environmentally friendly
automobiles differentiates it from many other EV in market currently.

Diversified Products: Tesla is not
only included in the automotive industry but in electric renewable power
systems. Tesla has developed a power pack for domestic household, commercial
and utilities which produces up to 10 megawatts.

Weaknesses

Negative Cash flow: Tesla has been
going through significant amounts of cash over the years. This is largely due
to the significant investments it has made in research and development for the
innovative technology in its cars and storage renewable technologies. It is
also the result of the rapid expansion the company has experienced in recent
years. Tesla is also investing heavily for the construction of its Gigafactory
in Nevada, which has already begun producing battery packs. Due to these large
cash outlays, Tesla has reported negative free cash flows and earnings for
nearly every year since its IPO.

Limited Experience in new product
development: Tesla has reflected this weakness in the annual reports as their
other two departments have resulted in losses and debt. Tesla has been in news
recently as their production goals had to be undercut due to issues in their
manufacturing process. Model S and X release dates had to be moved as a result
of the inexperience in running absolutely efficient manufacturing lines.

Opportunities

Cost-Reduction Initiatives: The
Gigafactory, which will allow it to build batteries for its vehicles at reduced
costs, possibly up to 30% lower than what it currently pays, forecasts profits
due to this new plant. The factory should help to increase capacity, lower
costs and support economies of scale while realizing greater efficiencies in
production and distribution. The subsidies in the UK also provide an edge for
Tesla as it encourages the purchase of its renewable products.

 

Threats

Competition: The automotive market
is highly competitive, although Tesla finds itself in a unique position. Given
the high price of its current offerings, most of its competitors are other
luxury cars, which all are currently using standard fossil fuel engines. BMW,
Audi, Nissan and Jaguar are examples of car makers that have EV; all of these
companies have been in business a lot longer than Tesla, and have greater
financial, manufacturing, and marketing capabilities, so Tesla will need to
prove that it is capable of competing on a larger scale.

Marketing Performance:

3C’s:

Customer

Tesla must
target a larger segment of consumers who are both interested in functionality
and performance and are also environmentally and politically conscious.  Tesla believes that the combination of
functionality, performance, style, energy efficiency and overall cost of
ownership of the planned Model S will draw buyers from several market segments,
including the lower, medium and upper premium sedan classes. The ideal target
market for the Model S will include consumers who see EVs as symbolizing their
commitment to the environment and will embrace the role as a member of a brand
community by becoming a member of the Tesla community.

Corporation

Tesla should
seek to gain a more global presence and grow their business through greater
international expansion before other established European firms are able to get
their premium EV cars to the market. Tesla should achieve this through increased
brand awareness.  Target countries with
EV infrastructure currently developed.

Competitors

Tesla’s battery pack technology is imperative to the
company’s positioning and competitive differentiation. The low cost of the
battery pack allows Tesla to design cars with battery ranges greater than the
competition but also place emphasis on design, performance, and energy
efficiency. Tesla CEO Elon Musk stated that the Model S battery pack cost less
than the Nissan EV Leaf’s pack; calculations of battery pack costs given
information in Tesla’s IPO. Keeping this crucial advantage is essential for
Tesla in order to maintain its competitive advantage in the EV market.

 

Corporate Social Responsibility:

Tesla’s products contribute to the community through
protection and conservation of the natural environment. Tesla also satisfies
communities in terms of this stakeholder groups benefiting from advanced technologies.
For example, CEO Elon Musk announced that the company would allow other
individuals and organizations to use its patents. This corporate social
responsibility strategy directly benefits communities interested in using or
developing renewable technologies.

In terms of employees their interests include high
compensation and career opportunities. Tesla satisfies these interests through
a competitive compensation strategy, as well as HR programs designed to enhance
skills development and leadership development in employees.

Tesla’s current CSR strategy addresses the main ethical
issues with our carbon footprint and in this way the product solves this issue
and in addition Elon Musk’s generosity in making his patent available
contributes to advancements in renewable innovation. Triple Bottom line is
addressed in contributing to employee’s growth as well as company sustainability.

Tesla in 3-5 Years:

There exits great opportunities for Tesla in the future as
society look towards environmental preservation. The completion of the
Gigafactory in Nevada and manufacturing factory in Shanghai is a calculated
step towards cutting cost by up to 30% and possibly bring Tesla net profits.
Transportation is a vital infrastructure and as such Tesla motors has potential
for further growth however competition is sure to pressure the Tech company.
There will be emergence of further EV from the established