Tesla Case Study
For a better understanding of sophisticated variables affecting the production of alternative energy vehicles, PESTEL Analysis is conducted with the main variables while studying a macro environment: political, economic, social, technological conditions, environment, and legal laws. This helps understand and have an insight into the impact of changes that happen day after day. From the result of the impact, the exposure to opportunities offers business advantages that can increase revenue.
Political power affecting the production of alternative energy automobiles has to cope with different factors like the political climate that has an effect on the economy changes. It aggregates the political mood changes, which can occur at any time, with the auto production and buying in regard to the policies on import, export, and production of components of vehicles. This also affects the policies of building production companies of foreign countries. Political power means the stability of the government, which changes the conditions of the country, concerning the result of wars that worsen the state of affairs. Policies, such as taxation, consequently influence the production and purchase of automobiles. It is obvious that industries manufacturing alternative energy sources need support of state institutions during any emergency phase.
Economic factors like the economic activity level that affect the commercial need to use an automobile, a change in the country's economy, such as inflation where there is a rise in the prices for gas, electricity, and raw materials, awake or lose interest in buying an automobile. Thus, from a general point of view, the economic impact can be direct, indirect or have related impacts (Rodrigue & Notteboom, 2013). An increase in the population figure contributes to the illiteracy rate and leads to low-income earners. This decreases the need for vehicles, therefore, affecting their production in the country. Automobile companies are the biggest users of raw materials like coal, aluminum, copper, steel, and iron. Companies make use of anything that has aluminum, lead, or vinyl. Thus, this also makes an effect on their performance.
Social factors that include an individual choice and a choice of transportation means predetermine the production of automobiles. They contain personal preference, lifestyle, social taste, and attitude towards a product. These factors cause more benefits because of the opportunity to increase production due to a rise in demand. However, this also leads to a change in the management strategies of manufacturers so as to follow the social trends. With an emphasis on security, social factors, such as cultural aspect, employment attitudes, and age grouping, play their own role in affecting automobile production.
Technological conditions relate to the fact that companies have to upgrade their technologies according to modern standards. Vehicle designs and automobile manufacturing have become a condition that threatens the company’s performance due to the competitive market of advanced technologies of other means of transportation. Limiting the use of automobiles by working on the Internet affects their production. Increases and decreases in automobile production can occur due to ecological and environmental aspects that lead to a change in technologies, prices, quality, and new inventions.
The environment, including physical and geographical conditions, has a high impact on the production of vehicles. The physical result deals with the infrastructural development of a place. When the environment has infrastructural facilities such as good roads, the production of automobiles becomes of benefit. On the other hand, when the environment has bad or no roads at all, the use of an automobile becomes less or not needed at all. The geographic conditions are connected with the climate of a territory to a great extent. In a place, where the climate is bad, the use of other means of transportation instead of automobiles should be encouraged. For instance, in the Sahara region, where the climate is unfavorable, the use of cars is not advisable. The situation leads to the use of other means of transport, like camels. Furthermore, Natural capital, consisting of the land, sea, water, livestock, energy, timber, and the whole ecological system, is affected by the automobile pollution. Nevertheless, there are ideas how to recycle products, influencing the current and future legislative changes. One of the most sustainable competitive advantages of automobile companies is to use effective aggregative resource management.
Legal laws that determine security measures affect automobile production. These measures are set to ensure the safety of people. They deal with health security by controlling car pollution, gas pollution, and noise pollution. Legal laws in the environmental community, trading policies, and regulating bodies exert an effect on the industry activity. Legislative laws governing the environment, competition, and consumer rights also cause changes in the automobile marketing. Consumers should know the Sales of Goods Act 1979 and use it for protecting themselves when making purchases anywhere (Catriona, n.d.).
Nikola Tesla made an automobile driven by gravity stressing energy. His idea was put into practice in accordance with the invention of a gravitational energy converter, believing that the high frequency current is harmless in contact with the human body and can be used to make new inventions like generators and automobiles. Since his views in the previous century, in 2003, some group of intrepid Silicon Valley engineers invented an electric vehicle that proves its value. Tesla Motors departed from existing auto industry practices by concentrating on electric powertrain technology in their vehicles (Tesla Motors, 2010). It is the first and currently the only company producing a highway capable electric vehicle. Tesla designs, manufactures, and sells high-performance electric vehicles and powertrain components.
In order to become a direct seller of electric vehicles and electric vehicle technologies and leader in the industry, Tesla key elements in the competitive market include successful launching of the model S, which gave them the ability to capitalize in the electric vehicle market. They made a plan to design, engineer, and build out the production facilities and obtain equipment to support its production, which was effectively carried out in 2012. The use of platforms to introduce a new design also contributed to their competitive advantage. The reason is the use of adaptable platform architecture and general electric powertrain that provide flexibility to use the model S platform for efficient funds to launch new products. They intend to develop integrated engineering and manufacturing capabilities, making their production teams work together so as to streamline feedback connections for rapid production growth and improving its quality. Tesla also plans to continue concentrating on cost improvement and technological advancements by further developing their powertrain system range capabilities while reducing production costs.
The idea of expanding Tesla Motors owned sales and service networks began its realization. Since December 31, 2009, they have opened about ten Tesla stores in the United States and Europe. Tesla plans to open more stores around the globe in several years to come so that they can expand their sales. Tesla intends to leverage their business advancement in battery cells, investing globally in battery cell manufacturers. This plan was made as they designed their powertrain technology, which allowed flexibility in relation to the chemical element of the battery cell. The aim is to establish and develop the strategic relationships with business leaders to carry out their plan on launching the electric vehicle and selling the powertrain components. The company faces some risks because of different issues like their past losses, the history of limited operations, and dependence on consumers to pull down their loan status. Thus, Tesla needs to emphasize their plans, as well as promote courage and hard work.
They need to use strategies that will increase their competitive advantage and factors explained in Porter’s model, which is a foundation for the business competitive strategy. This model includes three strategies. The first is cost leadership that involves selling a good quality product at a lower price. The next strategy is a differential strategy of producing and rendering services that are unique and different from those of competitors. It should be taken into consideration that the strategic decision-making process depends upon current technological conditions and the rate of technology change (Morden, 2012). Finally, Tesla should focus on a strategy that aims at unique developing and delivering of products and rendering of services, which other automobile businesses are not able to launch. Tesla plans to use these strategies as an advantage over other players. They addressed to improve delivering and regulation of their products and services immediately and at a low cost through the transformation of two forces, involved in software intensive production and connectivity. Tesla made a complex software intensive product and connectivity that is unique and different from others. All these strategies need to be used to increase their income.
Tesla has an advantage over its competitors in a way that it uses electricity instead of gasoline that is less harmful to the environment and has higher performance due to improved battery technology. The battery pack is designed to use high power lithium ion, which allows flexibility. Thereby, they leverage investment in the battery industry globally in order to improve battery performance at low cost. Considering the present changes in society, their business can expand if they are able to change consumer preferences. A rise in beneficial government regulations and incentives also results in a growth of their electric vehicle market. Many consumers need to adapt to changes in the current environment with respect to changes that include environmental factors, economic factors, and safety of the use of dangerous products such as gasoline (USGS, 2013).
In conclusion, Tesla should remain such a unique company as it has appeared to be different in a couple of ways where other automobile businesses still have challenges. Moreover, Tesla is independent of all those challenges faced by other automobile companies, which involves dependence on the internal combustion engines. This explains that many automobile manufacturers have to invest in the internal combustion engine technologies that support their core competence and income. A rise in demand for environmental products and industrial processes worldwide as a result of awareness presents competitive challenges and opportunities for the raw material market. In case of profitable pressures and reduced operating flexibility, other automobile manufacturers face deteriorating margins and liquidity that lead to a substantial reduction in their flexibility and ability to make investments in the alternative fuel programs. Given new time-consuming and expensive products in the development process, Tesla has a considerable competitive advantage over their competitors because the production of its new product is of interest at a lower cost of development. At the same time, the incumbent automobile manufacturers’ development process takes a long time and needs significant investment.
- Catriona. (n.d.). Sales of Goods Act 1979.
- Morden, T. (2012). Principles of strategic management. Farnham: Ashgate Publishing.
- Rodrigue, J-P., & Notteboom, T. (2013). Transportation and economic development. In The geography of transport systems.
- Tesla Motors. (2010). Form S-1: Registration statement under the Securities Act of 1933.
- USGS. (2013). Mineral commodity summaries 2013.