IS 601 Management Information Systems
COMPETITIVE STRATEGY ASSIGNMENT
TESLA
Submitted To:
Dr.Carlton Crabtree
Submitted By:
Sriharsha Kommareddy(PW68093)
M.S Information Systems
TESLA
INTRODUCTION:
In simple terms,Tesla Motors, Inc. designs, develops, manufactures and
sells fully electric vehicles and advanced electric vehicle powertrain
components like batteries,solar panels ,solar roof tiles and related
products and services.Through its subsidiary Tesla Energy, the company
develops and is a major installer of solar photovoltaic energy generation
systems in the United States. Tesla Energy is also one of the largest
global suppliers of battery energy storage systems, with 3 GWh of battery
storage supplied in 2020. It provides services for the development of
electric components and engages in the sale of electric powertrain
components to other automotive manufacturers.In 2020, Tesla had the
highest sales in the plug-in and battery electric passenger car segments,
capturing 16% of the plug-in market (which includes plug-in hybrids) and
23% of the battery-electric (purely electric) market.Tesla Motors has
manufactured its first electric vehicle, Tesla Roadster in 2008. The
company was founded by Jeffrey B. Straubel, Elon R. Musk and Marc
Tarpenning on July 1, 2003 and is headquartered in Palo Alto, California.
SUMMARY:
Tesla stands out with the rivals with four competitive techniques, each of
which gives Tesla an edge over the other competitors.Tesla builds cars by
developing software on unique hardware, much in the way Apple
develops the iPhone or Microsoft leverages Intel chips and Dell PCs.This
enables the company to improve its cars’ software functionality every few
weeks. This is in sharp contrast to the traditional auto industry model
where the product is the same for as long as you drive it.It simplifies the
buying process,keeping the consumer in control i.e. Tesla uses the classic
software “inbound” sales model: They know consumers are smart and
will find them. They understand the buyers’ journey very well.Tesla’s
battery-powered vehicles are significantly simpler than their internal
combustion competitors(Harvard business review,2020).By some
estimates they have significantly fewer parts per vehicle around 20 versus
the 2,000 in internal combustion engines. From a marketing point of
view, it attaches itself to the predominant trend of the world-” Go green,
Reduce global warming.
PORTER’S FIVE FORCE ANALYSIS:
In order for a company to thrive in the today world’s commercial market
with the other competing businesses we can use Porter's Five Forces
which is a model that identifies and helps determine an industry's
weaknesses and strengths. Five Forces analysis is frequently used to
identify an industry's structure to determine corporate strategy.porters
model is applied to understand the level of competition within a industry
and enhance the chances of survival and profitability of a company.
Porter’s five forces are:
1. Rivalry among the existing firms
2. Threat of substitutes or Services
3. Threat of new entrants
4. The bargaining power of suppliers
5. The bargaining power of buyers
RIVALRY:
Most of the existing firms have a separate segment for electric vehicles
like the BYD being the China’s top EV manufacturer with a 27.9%
market share and present automobile kingpins like Mercedes-
Benz,General motors,BMW and Audi foraying into the electrical vehicle
industry. Mercedes-Benz even announced that from 2025 all of its new
releases will be on the basis of pure electric or green energy platforms.
Several brands made in China have a large overlap in customer groups
with Tesla among new electric car enthusiasts, while veteran brands and
Tesla have a large overlap in customer groups among higher-end
customer groups. Because BYD has many cooperations with Chinese
public travel services, it is bound to become a major competitive force for
Tesla in China. XPEV and NIO are also encouraged by policies, its
technology has been strengthened.Tesla can collaborate with competitors
to form a joint ventures to increase the market size rather than just
competing for the market share.
SUBSTITUTES/SERVICES:
When a new product or service meets a similar customer needs in
different ways, the sustainability through the market of a company
suffers,for example google drive, drop box and cloud storage have been a
substitutes for traditional hardware storage devices like hard disks
memory cards. As a leader in the electric car industry ,Tesla Inc must be
most threatened.Nissan’s hydrogen energy vehicles were a major threat
for Tesla if the hydrogen tech(still in R&D) come into play. The threat of
substitute product or service is high if it offers a value proposition that is
uniquely different from present offerings of the industry.Tesla can tackle
these by being more of a service oriented rather than just product oriented
and by increasing the switching costs for the customers.(fern fort
university).
THREAT OF NEW ENTRANTS:
Although Tesla is one of the first companies to enter the new energy
market, there are still many companies that have the potential to enter the
market under the circumstance of vigorously promoting electric vehicles
all over the world. Therefore, if Tesla wants to achieve long-term
development in the target market, it should not only focus on existing
competitors but ignore potential entrants. It should pay close attention to
the new forces in the market. As the transportation industry involves
many people's livelihood issues, the requirements for policy supervision
and entry barriers are relatively high. However, with the development of
new energy vehicles, policies strongly encourage their development. As a
result of the continuous economic development and the emergence of
new technologies and new ideas, once a new competitor has a newer
experience, the advantages of technology and management will inevitably
give Tesla strong competitive pressure(ATLANTIS PRESS,2022)
SUPPLIERS:
Most of the companies in the automobile industry buy their raw material
from numerous suppliers. Sometimes Suppliers controlling the major
parts can decrease the margins of Tesla can earn in the market.In case of
Tesla the major supply comes with the procurement of lithium ion
batteries which is the whole source of the Tesla from major battery
manufacturers. These powerful suppliers use their negotiating power to
extract higher prices from the auto manufacturers.Tesla can see this
problem with building a efficient supply chain with multiple suppliers or
it could also venture into manufacturing its own batteries.Experiments
with product design using different materials, so that if the prices go up of
one raw material then company can shift to another.Taking up a stake in
the dedicated suppliers and developing suppliers whose majority of their
business dependent upon the firm.
BUYERS:
Nowadays, the electric vehicle industry has developed more maturely in
some cities owing to the ruling governing bodies encouraging the electric
vehicles,in such examples in many cities in India the government have
removed sales tax and road tax and zero registration charges for
customers buying electric vehicles. As a buyer we expect to buy the best
by paying the minimum amounts possible.The smaller and more powerful
the customer base of Tesla,the higher the bargaining power thus they seek
increasing discounts and offers.There are many car choices, and
customers can choose electric cars or traditional fuel cars. With the
increasing number of electric vehicle products from other brands and the
gradual improvement in cost performance, consumers have more and
more choices. Tesla should build a large consumer base so that the
bargaining power of buyers decreases which in return gives the company
to streamline its sales and production. Bringing in new products also
reduce the defection of existing customers of Tesla to its competitors.
(fern fort university,2021).
PORTERS VALUE CHAIN MODEL:
The Porter Value Chain Model is predicated on the idea that businesses
must provide goods and services that attract the attention of customers.
This model, like the previous one, consists of five separate components.
Incoming sales, outgoing marketing, and outgoing service delivery are
the opposite of outgoing logistics and operations. This strategy raises the
value of both the company and the products it sells, which is what the
name of the strategy implies would happen. It's possible that the company
may utilize the data to do some calculations and come up with some
innovative strategies for competing in the market.
INBOUND LOGISTICS
It is important to develop strong relationships with suppliers as their
support is necessary to receive, store and distribute the product. Without
analyzing the in-bound logistics,Tesla Motors can face various challenges
in product development phases. Analysis of in-bound logistics requires a
company to focus on every aspect of transformation from raw material to
finished product. Some examples of inbound logistics are retrieving raw
material, storing the inputs and internally distributing the raw material
and components to start production.Tesla inbound logistics involves the
receipt and storage of raw materials to build electric vehicles, energy
storage systems,batteries and solar panels. Along with a standard set of
raw materials, Tesla uses a range of scarce materials such as aluminium,
steel, cobalt, lithium, nickel and copper. In the US, the company receives
parts at its Fremont automotive factory,CA from thousands of suppliers
worldwide, including from its very own Gigafactory in Sparks, Nevada.
In 2019, Tesla constructed a 870k sqft facility in lathrop,CA as a massive
spare parts storage.Tesla primarily works on build-on -order basis which
means procuring of parts supply on a timely basis could be a headache.So
its important for Tesla to establish a long-term strategic relationships with
the suppliers(BRM John Dudovskiy)
OUTBOUND LOGISTICS:
Outbound logistics refers to the activities that deliver the product to the
customer via various intermediaries. Outbound logistics activities include
material handling, warehousing, scheduling, order processing,
transporting, and delivering to the destination. Here the end consumer is
involved so customer satisfaction is of highest priority(ESSAY 48).Tesla
outbound logistics involves warehousing and distribution of electric
vehicles, energy storage systems and solar panels produced by the
company.The electric automaker typically maintains a small inventory of
vehicles at its stores for immediate sales. Tesla also provide it customers
with the customization options readily available to select through the
online ordering platform. Tesla does not deal with third party entities or
dealers to sell their products instead they directly sell to the end-users
thus decreasing the dealer commissions and other unnecessary
payments .i.e direct sales keeps the costs of tesla cars from increasing
further as these cars are already expensive.
MARKETING AND SALES:
Most of the automobile companies have a large competition among as
they market their brands through digital media and channels.Only
producing a high-quality product at an affordable price with unique
features cannot create value until Tesla Motors invests in marketing and
sales.The marketing funnel approach can be used by the company to
structure its marketing and sales activities. Marketing strategies can be
push or pull in nature, depending on Tesla Motors' business objectives,
brand image, competitive dynamics, and current market
position.Effective and strategically integrated marketing activities can
help Tesla Motors build brand equity and stand out from the
competition.The company also offers opportunities to finance their Solar
Roof through their home mortgage. The loan amount is equal to the total
Solar Roof cost.(John Dudovskly,2021)
SERVICE:
Todays modern customers are expecting a good post sale services is as
important as promotional and marketing activities of the companies,So
that their problems are rectified and maintenance of the consumer
products could be seamless.The pre-sale and post-sale services offered by
the Tesla Motors will play an important role in developing customer
loyalty.Tesla customer service practices have improved during the last
few years. The electric vehicle company aims to own the customer
experience and accordingly, does everything on its own, from production
to sales.In its attempts to deal with customer complaints issues more
effectively, the electric automaker allowed customers “to escalate their
issues directly to a company executive.The company is building 100 new
service centres on top of 150 service centres it currently has. Moreover,
Tesla is also rolling out 350 new on-demand service vans across the
country.(Abhijeet Pratap,2019)
OPERATIONS:
When raw material arrives, the importance of analyzing operational
activities increases,to process the raw material into the end product and
launch it into the market. Machining, packing, assembling, and testing are
all examples of operational activities. This also includes equipment repair
and maintenance.It includes both- manufacturing and service operations.
Analysis of operational activities is important for improving productivity,
maximizing the efficiency.Thus, Increased productivity can assist Tesla
Motors in achieving consistent economic growth, increasing profitability,
and establishing a strong foundation for competitive advantage.
CONCLUSION:
Hence, we can say that the tesla which started as a small firm turned into
a great business as it is following the value chain model developed by
Porter. The competition it is giving to the other companies is high and
even now tesla is holding the highest market value compared to the other
automobile manufacturers and stepped into different technologies
inventing new things by following the competitive strategies.
REFERENCES:
1. Fernfortuniversity,2021
http://fernfortuniversity.com/term-papers/porter5/analysis/862-tesla--
inc-.php
2. Essay48
https://www.essay48.com/value-chain-analysis/13195-Tesla-Motors-
Value-Chain-Analysis
3. Harvard Business Review,2020
https://hbr.org/2020/02/how-tesla-sets-itself-apart
4. Atlantic press ,Xiao Yang,2022
https://www.atlantis-press.com/proceedings/icemed-22/125975532
5. Abhijeet pratap,2019
https://abhijeetpratap.medium.com/tesla-value-chain-analysis-
f572c834fd39
