Elon Musk and the Tesla Company

Globalization has made way for companies across the world to enter new markets. The automotive industry has been majorly impacted by globalization. Tesla entered the U.S market at a time when tech innovations have allowed startups to enter the electric car segment, effectively circumventing high entry barriers. Some of the barriers of entry that Tesla was faced with were high start-up costs and large scale production. By targeting a certain strategic group Tesla was able to avoid some of the barriers of entry that would typically trouble standard auto manufacturers. For example the engines manufactured by Tesla are much simpler than traditional gasoline engines.

When entering the market Tesla more than likely performed multiple external analysis’ such as the Pestel and Porter’s five forces model. These models are used to analyze the environment of a market before a firm decides to enter it. The Pestel Analysis organizes the firms environment into six categories political, economic, sociocultural, technological, ecological, and legal. The categories present opportunities or threats the the new entrants will face when entering the market. The following table represents the most recent form of Tesla’s Pestel Analysis.

Tesla’s PESTEL Analysis (Information retrieved from The Panmore Institute)

Political: Tesla receives incentives from the government to sell more environmentally friendly vehicles. Consumers that purchase a Tesla Model S, Model X, or Model 3 receives Federal tax credits. The amount of tax credits range from $1,875-$7,500, individual states will add on an additional rebate or benefits. California for example provides a $2,500 and free municipal parking to all that drive an electric vehicle. These incentives pose as positives for Tesla to enter into the electric vehicle market.

Economic: As renewable energy becomes more popular and competition increases the cost of manufacturing and selling products for Tesla is becoming much smaller. CTO JT Straubel commented on the R&D of finding a sustainable and affordable battery pack for Tesla automobiles by saying “It’s a difficult topic, but we are still very confident that we have the best price and performance of anything out there in the world. If there’s anything better, I don’t know about it and we have looked as hard as we possibly can”. As Tesla continues to search for the best strategy for its battery packs, the company’s Gigafactory seems to have found success. As Tesla’s R&D continues they will continue to create more opportunities to create a larger profit.

Sociocultural: As the popularity of the low-carbon lifestyle continues to increase Tesla will eventually receive more business. According to Bloomberg’s 2018 Electric Vehicle Outlook by 2040 “55% of all new car sales and 33% of the global fleet will be electric.” (Morsy, p. 2). Considering this projection Tesla will have many years to become a mature brand and try to become a cash cow since the demand for electric cars will be much higher.

Technological: The rate of technology change can either be an opportunity or a threat for Tesla. It could be an opportunity for Tesla because EV technology is young there is a lot of room for growth. New innovations could lead to more efficient technologies for electric cars. The threat that new technology poses is that a more advanced technology can emerge. This could led to the demise of electric vehicles if the new technology turns out to be more efficient.

Ecological: As global warming continues to remain a hot topic, electric vehicles will continue to see a rise in demand. There is a possibility if global warming becomes a proven fact there could be a reform on what vehicles we are allowed to drive. This would be a major opportunity for Tesla’s demand to surge.

Legal: Regarding global warming there might be legal regulations for auto manufacturers in the future. Since Tesla is a eco-friendly car company the ramifications of regulations would impact the company minimally.

Tesla has found lots of success in the United States and does not have a large amount of competitors that can offer similar products. The company fails to find major success in the largest electric vehicle market in the world– China. Tesla faces very high barriers of entry in China due to the large amount of competition. Tesla intends on growing its brand in the far east, but must be very careful they perform an external analysis before investing more into the Chinese market.  9. Corporate Strategy: Strategic Alliance, M&A (Kendrick)

There is a point in a company’s life cycle where it must determine how does it grow. One of the ways that Tesla improved its brand is by achieving growth through strategic alliances. Firms enter a strategic alliance in order to gain knowledge, resources, or capabilities from each other. In order for Tesla to reach its full potential they had to either build, borrow, or buy resources. The most viable option was was for Tesla to create strategic alliances and borrow practices from other companies since the electric vehicle market is still young.

There four strategic alliances that have contributed to Tesla’s success in the American market. When Tesla was in its infant years of existence Tesla was uncertain of the technology that they were producing. In order to hedge against uncertainty Tesla approached two auto manufacturers, Toyota and Daimler. Both automakers acquired equity in Tesla. In return Tesla used their extensive R&D to produce powertrains on the Toyota’s electric vehicle, the RAV-4. The company also assisted Daimler create the Mercedes B-class and the Smart car. These electric vehicles that Tesla helped did not live to the expectation, resulting in losses for both Toyota and Daimler. They later sold most of their stake in Tesla and cut their ties.

Panasonic and Tesla recently became strategic alliances, Tesla mainly partnered with Panasonic to access critical complementary assets. Panasonic exchanged information regarding making the lithium batteries inside of Tesla’s cars better. As Tesla found improvements to their batteries Panasonic continued to deliver by investing over one billion dollars into Tesla’s Gigafactory. This resulted in Panasonic becoming the sole provider of all battery cells in Tesla vehicles.

When Elon Musk acquired the energy company Solar City, it was mainly to assist Tesla uncertainty regarding vehicle charging. The idea was for Tesla to innovate a charging station that is stored at home, powered by solar panels. This acquisition was a strategic on behalf of Tesla, the company infiltrated a new market and had to learn the capabilities of it. Solar City panels have been tested by Target Supermarkets, and can power the entire store off of a few panels. This alliance has created the opportunity for Tesla develop a new company asset.

Tesla’s main focus is on continuous growth. Elon Musk makes many large decisions for the company and requires that his employees must be able to face adversity. Tesla has seen a lot of backlash regarding Elon Musk’s leadership style. The company is controlled by a centralized corporate structure. Elon Musk facilitates all corporate decisions made by Tesla and SolarCity.

Tesla benefits from the centralization structure because the company worldwide will be in sync. The structure also helps Tesla implement strategies globally. A downfall of this strategy is that if Tesla experience issues it takes much longer to implement new strategies from the top down. The company is unable to function autonomously, this is a tactic that will need to change over time as Tesla begins to grow. The acquisition of SolarCity will not align with the Tesla’s structure unless it begins to phase in some sort of autonomous structure.

The involvement of Elon Musk in all aspects of the company’s decision making has been a factors to the high turnover rate of executives in the company. Many executives have chose to part ways with Tesla due to being frustrated with the organizational structure that Tesla performs under. The public attention on each executive has brought great pressure to C-level executives.