Competitive Environment for Tesla
Question:
Discuss about the Strategic Management for Capabilities of Tesla.
Currently, the major disruption or breakthrough that is being witnessed in the automobile sector is the growing popularity of electric vehicles. In accordance to this situation, automobile manufacturers are coming up with electric and hybrid vehicles to meet the new demand and requirements of the customers (Zivin, Kotchen & Mansur, 2014). Among all the existing automobile firms, Tesla is one of the newest entrants in the market along with having distinctive market and product strategy. Tesla entirely changed the current market scenario in the automobile industry with their slew of electric vehicles and created a niche for them (Hardman, Shiu & Steinberger-Wilckens, 2015).
However, more players are coming up with products to compete with Tesla creating a more competitive environment. Thus, it is also becoming important for Tesla to determine their positive and negative business factors in order to survive in the current business environment. This essay will discuss about the competitive environment for Tesla along with determining their competitive advantages. In, addition, the core competencies and capabilities of Tesla will also be discussed in this essay. The external factors for Tesla will also be discussed along with discussing about their business level strategy.
Threat of new entrants
Tesla is having lower threat of new entrants. This is due to the reason that huge capital investment is required to operate in the automobile market. Along with the capital requirement, new entrants should have extensive research and development program for developing new automobile technologies. Thus, it will be difficult to have the required capital and expertise and match the economies of scale of the existing companies (Moritz et al., 2015).
Threat of substitutes
Tesla is having higher risk of substitute. This is due to the reason that more automobile companies are coming up with the electric vehicles in the market. Moreover, the established players such as General Motors and Ford are having huge capital and expertise to introduce new electric vehicles and already there are flood of electric vehicles in the market from different companies.
Tesla is having moderate bargaining power of suppliers in the market. This is due to the reason that there are huge numbers of suppliers for the automobile components are available in the market. However, on the other hand, Tesla is very much dependent on the suppliers for the sourcing the car components.
Barging power of buyers is also moderate for Tesla. This is due to the reason that buyers are having the number of choices in the market for electric vehicles from different carmakers. On the other hand, the distinctive product and business approach of Tesla will create less option for the customers. The distinctive approach of the products of Tesla will attract more customers.
Tesla is facing strong force of competitive rivalry. This is due to the reason that more players in the market are coming up with newer technologies to lure customers. In addition, the customers are having more options to select. Another major factor in enhancing the competitive rivalry is the lower switching cost for the customers from one brand to another.
Competitive Advantages of Tesla
Thus, from the above discussion of the competitive environment for Tesla, it can be concluded that they are having higher intensity of competition in the market and the level of competition is increasing with time (Galateanu & Avasilcai, 2016).
Tesla is having different sources of competitive advantages including brand value, differentiated products, internal management, technologies and human resources. These resources will be analyzed with the help of VIRO framework in order to judge their sustainability.
Brand value of Tesla is one of the major sources of competitive advantages and it creates value for them. This is due to the reason that positive brand value of Tesla is helping them to attracting more customers over their competitors. Another valuable competitive advantage for them is technologies. Tesla cars are known for their latest technologies compared to their competitors (Porter & Heppelmann, 2014). Thus, it is also helping them to stay distinctive in the market.
The skill sets of the human resources of Tesla are one of the major competitive advantages that cannot get imitated. This is due to the reason that the training and development program for Tesla is unique to them only and that cannot be accessed by their competitors. Moreover, the internal management of them including the leadership of their CEO, Elon Musk is one of major inimitable competitive advantages for Tesla (Paterson, Luthans & Milosevic, 2014). This is due to the reason that Elon Musk is known for his visionary leadership skills and managerial skills.
The technologies possessed by Tesla are rare in nature due to the fact that these technologies are indigenously developed. Thus, only Tesla is having the access to these technologies. Moreover, these technologies are helping them to create more value creating products for the customers. Another competitive advantage that is rare for them is the internal management. This is due to the reason that the leadership and managerial approach followed in Tesla are unique and uncommon in nature.
Tesla is short period of time garnered huge capital from the market along with market presence. Moreover, currently they are having operations in different countries and along with the access to latest technologies; Tesla is having positive organizational capabilities to enhance their future business.
Determination of core competencies and capabilities
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Strategy |
· Tesla is having business strategy of marketing electric vehicles. · Environmental concerns are helping them to operate effectively. · Providing electric vehicles with having practicality and utility. |
|
Structure |
· Tesla maintains mainly flat organizational structure. · This helps them in having effective communication process. · It also helps them to have precise idea about the organizational vision. |
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Systems |
· Employees in Tesla are given flexibilities in their workplace. · They are motivated to generate innovative and out of box thinking. · The individual skills of the employees are given more preferences. |
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Shared value |
· Tesla follows the vision of having cleaner world by reducing vehicular emissions. · Employees with having same vision are being selected. · All the stakeholders are working towards same vision. |
|
Skills |
· Employees working for Tesla are highly skilled and experienced. · They are having years of experience and expertise. |
|
Style |
· Elon Musk is having charismatic and transformational style of leadership. · Visionary approach of him helps the organization to grow better. |
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Staff |
· Employees in Tesla are having the competencies of generating innovative ideas. · Having vast experience in technology and automobile sector helps Tesla to initiate radical development in their products. |
One of the major weaknesses identified is the limited approach in relation to the recruitment. This is due to the reason that Tesla maintains certain standards for selecting the employees. Thus, it is restricting Tesla in having extensive talent pool. Another weakness that is identified is the lack of diversity in their workforce. Tesla is having majority of their employees from American origin. Thus, in the future, they may face difficulties in operating their facilities in other regions (Podsiadlowski et al., 2013). They will not be able to determine the requirement of the foreign market without having diversified workforce.
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Political factors |
· In the current time, more regulations and legislations are being introduced in order to promote cleaner fuels. · Different countries are already offering incentives in buying electric vehicles. · Governments are trying to electrify the mainstream transportation process (Bonges & Lusk, 2016). · Thus, it is important for Tesla to make their presence in different regions in order to tap the growing demand. |
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Economical factors |
· Cost of Lithium Ion batteries are reducing and thus it is becoming more economical to produce electric vehicles. · Demand for electric vehicles is also increasing with in the developing country where low cost electric vehicles are required. · Electric vehicles will be more seen as mainstream alternatives rather than expensive luxuries. · Increasing in the competition in the electric vehicle market will further force the manufacturers in reducing the price of the vehicles. |
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Social factors |
· Customers are becoming more concerned about the environment and they prefer electric and hybrid vehicles. · However, they also require practicality from the electric vehicles in order to reduce the use of conventional vehicles. · Customers from different regions are having different requirements and expectations from the electric vehicles. |
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Technological factors |
· Automobile technology is rapidly developing and evolving. · Thus, it is important for the manufacturers to come up with latest technologies in their products (Manzetti & Mariasiu, 2015). · Technologies should not only be disruptive but also sustainable. |
One of the major business level strategies for Tesla is differentiation. According to this strategy, Tesla created distinctive approach and image in the market. Tesla able to create an image where assumes them as more than a conventional automobile company. They initiate the differentiation strategy by offering distinctive products, initiating distinctive promotional activities and targeting customers differently (Ray Gehani, 2013). For instance, majority of the electric vehicles available in the market are less practical in nature. However, products of Tesla effectively competing with the conventional vehicles and they are even superior that the rest in some areas.
VIRO Framework Analysis of Tesla’s Resources
The major advantage that is being gained by Tesla by initiating differentiation business level strategy is cutting off the impact of competition. Having distinctive image in the market helps Tesla to stay ahead in the market and create a niche branding in the market. Tesla is also having the advantage of preventing the price issues by having distinctive image (Teeratansirikool et al., 2013). However, there are few risks may get emerge for Tesla. One of the major risks is limitation in increasing sales volume due to not considering the price factor. Thus, customer base may not get increased for Tesla. Another major risk for them will be increased cost of research and development. Differentiation strategy will lead to huge investments in research and development to maintain the distinctive image in the market.
The major challenge for Tesla in global expansion will be meeting the diversified requirements. Developing countries will have the need of low cost electric vehicles, which is not being offered currently by Tesla. Another challenge will be to find favorable infrastructure for electric vehicles. This is because extensive charging points are required for electric vehicles and these charging facilities should be available in the target country.
It is recommended that Tesla should introduce low cost electric cars in the market in order to increase the sales volume and revenue. Moreover, it is also recommended that they should target the developing countries more due to the reason that these countries are having huge potential market and witnessing huge growth in demand for electric vehicles. Tesla is also recommended to come up with electric commercial vehicles in order to meet the requirements of commercial operators. This will also increase the market size for Tesla.
Reference
Bonges III, H. A., & Lusk, A. C. (2016). Addressing electric vehicle (EV) sales and range anxiety through parking layout, policy and regulation. Transportation Research Part A: Policy and Practice, 83, 63-73.
Galateanu, E., & Avasilcai, S. (2016). Framing the Competitive Behaviors of Niche Players: The Electric Vehicle Business Ecosystem Perspective. Procedia-Social and Behavioral Sciences, 221, 342-351.
Hardman, S., Shiu, E., & Steinberger-Wilckens, R. (2015). Changing the fate of Fuel Cell Vehicles: Can lessons be learnt from Tesla Motors?. international journal of hydrogen energy, 40(4), 1625-1638.
Manzetti, S., & Mariasiu, F. (2015). Electric vehicle battery technologies: From present state to future systems. Renewable and Sustainable Energy Reviews, 51, 1004-1012.
Moritz, M., Redlich, T., Krenz, P., Buxbaum-Conradi, S., & Wulfsberg, J. P. (2015, August). Tesla Motors, Inc.: Pioneer towards a new strategic approach in the automobile industry along the open source movement?. In Management of Engineering and Technology (PICMET), 2015 Portland International Conference on (pp. 85-92). IEEE.
Paterson, T. A., Luthans, F., & Milosevic, I. (2014). A proposed orthogonal relationship between psychological capital and ethical leadership. Advances in authentic and ethical leadership, 1-23.
Podsiadlowski, A., Gröschke, D., Kogler, M., Springer, C., & Van Der Zee, K. (2013). Managing a culturally diverse workforce: Diversity perspectives in organizations. International Journal of Intercultural Relations, 37(2), 159-175.
Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, 92(11), 64-88.
Ray Gehani, R. (2013). Innovative strategic leader transforming from a low-cost strategy to product differentiation strategy. Journal of technology management & innovation, 8(2), 144-155.
Teeratansirikool, L., Siengthai, S., Badir, Y., & Charoenngam, C. (2013). Competitive strategies and firm performance: the mediating role of performance measurement. International Journal of Productivity and Performance Management, 62(2), 168-184.
Zivin, J. S. G., Kotchen, M. J., & Mansur, E. T. (2014). Spatial and temporal heterogeneity of marginal emissions: Implications for electric cars and other electricity-shifting policies. Journal of Economic Behavior & Organization, 107, 248-268.
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