External Environment
Americans have always been fascinated with vehicles. The US car business comprises up to 3% of the country’s GDP (Van Den Steen, 2015). This multi-billion industry gives jobs to 1.7 million employees. American households spend over 15% of their overall income on cars and associated products and services (gasoline, repairs, and the like). At present, the three largest car producers operate in the US market and make up almost half of the country’s car market. Financial crises that took place in the late 2000s shaped the way market share was distributed, as some large manufacturers went bankrupt. Their competitors took up their share and managed to maintain their leading positions.
The potential losses and high risks carmakers have to face are associated with the peculiarities of the industry. Their products require significant funds at the production stage. For instance, manufacturing costs commonly reach up to approximately 80% of the selling price (Van Den Steen, 2015). These high costs are partially due to a process that includes multiple stages and is associated with errors and quality issues. It is also quite expensive to market cars. For instance, Ford invested almost $4 billion in advertising in 2010. To compare, Coca-Cola, which is famous for its extensive advertising, invested almost $3bn. Even so, the value of car brands is approximately $8bn (for Ford) or $5bn (for Porsche), while the values of such brands as Disney or Pepsi are $27bn and $16bn, respectively.
The industry is also characterized by collaboration with dealers rather than direct sales and the provision of associated services. Dealers have exclusive rights to sell a brand or several brands of cars. Automobile producers also provide services associated with the maintenance of cars. Van Den Steen (2015) notes that changing motor oil is the most common maintenance task fulfilled in service centers.
As far as electric cars are concerned, their popularity increased in the late 20th century. It is noteworthy that electric vehicles were highly popular and were serious competitors to conventional cars in the early 19th century. However, the problems associated with batteries’ range, speed, and so on made electric cars less popular than those with internal combustion engines. The 21st century is marked by a focus on environmental issues and sustainability concerns, which made electric cars popular again.
It is noteworthy that the manufacturing process is quite similar in the production of conventional and electric cars. The major difference is the powertrain. Electric cars are powered by a battery pack and electric motor. This feature enables car developers to make motors smaller and use no transmission. At first, the batteries were quite heavy and had a rather low efficiency. EV and Li-Ion technologies have been used to power electric cars. The latest battery technologies are significantly more efficient, which has resulted in cost reductions.
The US government (as well as the governments of other countries) encourages its citizens to buy electric cars and car manufacturers to produce more electric cars. For instance, people received substantial amounts of money as subsidies for buying electric cars (Van Den Steen, 2015). The US government also contributes to the development of the infrastructure necessary to make electric vehicles appropriate for various settings and functions. Specifically, recharging facilities are appearing at a significant pace. The American government also imposes some quotas concerning the production of zero-emission vehicles. Furthermore, a tax credit is provided to electric carmakers. Some states provide additional tax reductions or credits and subsidies to carmakers. Finally, the government introduces laws that require the production of electric cars, and manufacturers who do not comply with these regulations have to buy ZEV credits from other car producers.
The development of the industry is also facilitated by a significant interest in electric cars among consumers. As has been mentioned above, modern society pays considerable attention to environmental issues and sustainability projects. This shift to a smaller environmental imprint has made electric cars appealing to car users. People are ready to pay more (although a reduction in prices is expected) for environmentally friendly cars. Apart from the government and car producers, various companies and organizations contribute to the development of the infrastructure. For instance, these organizations offer charging spaces for their employees free of charge.
This feature of the market mentioned above suggests that the industry is likely to develop rapidly in the coming years. Technological advances and issues with the availability of resources (oil or natural gas) will make electric cars more popular, especially in developed countries and emerging economies where the level of people’s incomes is growing. The shift in the position of governments also shows that the oil lobby is weakening, and the electric car industry will receive considerable governmental support.
As far as Tesla’s major competitors are concerned, Nissan has come up with models that have become quite popular. For instance, the Nissan Leaf became a rather successful model, although the manufacturer expected higher sales.
Van Den Steen (2015) provides a detailed comparison of three competing models offered by three carmakers. It is clear that Tesla aims at wealthy consumers as the price for its Model S is slightly over $61,000 while the BMW 5 is sold at almost $49,000. The Nissan Leaf can be bought for only $19,650, which is the most attractive price, which might make this model a mainstream product. It should be noted that many features of the Tesla model can justify its price. For example, the time the vehicle needs to accelerate to 60 mph is only 5.6 seconds, as compared to the BMW model’s 6.1 and Nissan Leaf’s 10.3. The difference in horsepower is also significant: 302 for Tesla, 240 for BMW, and 110 for Nissan.
Tesla leads in cargo capacity as well, with 26.3 cu ft, while the Nissan model’s capacity is 24 and the BMW model’s cargo capacity is only 14. The range is another advantage, as the Model S can go 208 miles without recharging, while the Nissan Leaf’s range is only 75 miles. Two other significant features are safety ratings and fuel cost per year. Tesla and BMW both score a 5 in NHTSA rating, while Nissan only scores 4. Fuel costs are lower for the Nissan Leaf ($384 /15000miles), but Tesla is also characterized by comparatively low costs ($468/15000 miles). Even so, US sales show an interesting trend as BMW’s models were more popular, with almost 30,000 sold in 2013. Compared to these figures, Tesla sold 10,500 cars, and Nissan’s sales were 9,839. Despite this, customer ratings show a greater degree of satisfaction with Tesla, as its model received 99 (out of 100) according to consumer reports. The same reports for the Nissan and BMW models are lower, with 78 and 81 respectively.
Tesla’s management expected to reach annual sales of 500,000 cars in 2013. However, the company sold only 26,000 cars in 2012. Some improvements and a reduction of prices led to unprecedented growth in sales, which almost doubled. Van Den Steen (2015) also notes that many car producers have started developing electric cars. Therefore, competition is likely to increase, and electric carmakers will have to come up with new technologies, infrastructure solutions, and services to remain competitive or maintain their leading positions.
Another important area where Tesla is operating in the market for Lithium-Ion battery packs. This segment is evolving even faster than the market for fully electric cars, as these batteries are used in fully electric vehicles, hybrids, as well as other spheres (e.g., machinery). Van Den Steen (2015) provides data concerning annual sales and industry shares. The growth is remarkable, as annual sales reached $10.6 billion in 2010, while they grew only up to $11.7 billion in 2012. Even so, annual sales in 2016 more than doubled compared to 2010 and comprised $22.5 billion. There is an obvious trend toward increasing the use of this technology in car manufacturing. For example, its share of the automotive industry was 14% in 2012, while industrial usage made up 22% of the entire market. In 2016, there was insignificant growth in the industrial share, while the automotive industry made an unprecedented leap and reached 25% of the market. This growth provides various opportunities for Tesla and other producers of battery packs and components. This trend also suggests that the electric vehicle market is likely to expand in the near future.
Internal Environment
Tesla has the necessary internal capabilities to become a leading electric car manufacturer in the US market or even globally. The company was founded in 2003, so it is quite young, which has both benefits and downsides. The company does not have a well-established culture and conventions like other carmakers. However, this can be quite beneficial, as the company does not have to accommodate changes in the industry, as its culture is based on the most recent trends. Thus Tesla does not redesign conventional cars into electric ones but creates fully electric vehicles instead (Van Den Steen, 2015). It is also necessary to add that the company’s founders do not have any experience in car manufacturing, which can affect the company’s development and performance.
The company’s major facilities are located in the USA. Tesla had a partnership with a UK-based company, and some parts of the battery pack were assembled in Thailand. However, after the termination of the contract in 2012, the company moved all of its operations to the USA.
As for partnerships, Tesla has had several successful projects with such partners as Panasonic and Lotus. The partnership with Panasonic was regarded as quite an unexpected move, as Tesla did not use EV technology like other car manufacturers (Van Den Steen, 2015). The company instead used modified Lithium-Ion batteries, which has proved to be an effective solution. Tesla and Panasonic developed batteries that could be used in cars. The new battery pack had a doubled energy density, which led to a reduction in the cars’ weight. Importantly, costs were also reduced.
As has been mentioned above, Tesla’s culture is based on the principles of modern society, focusing on the environment, technology (especially mobile technology), efficiency, customization, and innovation. Therefore, the company started developing cars that had touchscreens, software that could control various systems, and so on. The cars also had some component systems that could be customized (e.g., suspension).
The company enjoyed a very significant initial investment, and it was able to make use of subsidies provided by federal and state governments. Even so, the financial crisis provided several opportunities that Tesla did not waste. For instance, the company acquired the NUMMI plant (one of Toyota’s facilities) for $42 million. Struggling manufacturers had to sell their facilities and equipment, so Tesla was able to make its newly-acquired facility operational for a third of the $1 billion that had been the typical size of investment required before the crisis.
The acquisitions and various choices made in the early 2010s resulted in quite a remarkable increase in the company’s revenues. For instance, Tesla’s revenues were slightly less than $117 million in 2010 (Van Den Steen, 2015). They rose up to over $200 million in 2011. In 2012, the company’s revenues doubled again and reached $413 million. In 2013, the carmaker’s revenues more than doubled and grew to $967 million.
As for the company’s marketing strategies, it did not adopt the conventional approach, which can be associated with its organizational culture. Tesla is not involved in partnerships with dealers but instead sells its products through a network of its own stores (Van Den Steen, 2015). Another characteristic feature of its strategy was the way these stores’ employees were paid. They received salaries rather than commissions.
It came as a surprise to many that Tesla did not emphasize its environmental impact. The company focused on such properties as speed and maintenance costs. Tesla stressed that its cars were faster than many electric and even conventional cars. It also emphasized that its models did not require expensive gas or motor oil, as well as repairs of various types that are quite common for conventional cars. Although it manufactures completely electric cars, the carmaker devotes little attention to the environmental friendliness of its products.
In conclusion, the company’s internal and external environment was quite favorable for its development and growth. Successful acquisitions and the financial issues faced by many companies helped Tesla to obtain the necessary capacity to satisfy the needs of its customers. Nevertheless, competition also became rather stiff, which makes it vital for Tesla to develop innovative products and strategies to retain its position.
Tesla’s Status After 2014
Since 2014, the company has remained one of the leading electric car manufacturers. It constantly improves its models and develops new ones. For instance, the company has improved the first Tesla Model S by adding larger batteries that enabled the car to drive longer without recharging (DeBord, 2017). Teslas are quite popular, and new models are highly anticipated. For example, the company received almost $10 billion in pre-orders for its new Model 3 (Hern, 2016). Nevertheless, the company is facing some problems.
One of the major issues is associated with delivering the new model within the announced time. The company had similar problems with the launch of the previous model. The sales of the Model X had started three years after the due date, as the manufacturer had problems with the production of the car’s seats (Hern, 2016). These operational issues can have a negative impact on the company’s image and its competitiveness, as customers will buy from other carmakers.
It is also necessary to note that the industry has developed at a significant pace. Newcomers have created a new level of competition, and Tesla may lose its leading position, especially if the operational issues mentioned above are not addressed. The company’s co-founder and CEO, Elon Musk, announced that the company is committed to producing the first mass-production electric car in 2017 (Hern, 2016). This new model will be affordable, according to Musk, which will be the first step towards a new trend.
However, other carmakers have come up with models that are sold at the same price or even offered at lower prices. As for the major competitors in the industry, the most serious rivals may be models offered by Daimler, Ford, Nissan Leaf, Kia, and Chevrolet (Breuninger, 2017). Eisler (2016) stresses that Toyota’s hybrids also represent serious competition, as its Prius models are cheaper and have become quite popular in the USA. As for all-electric vehicles, Smart Fortwo Electric Drive costs $20,000, which is the most attractive price for an electric car. Nissan Leaf, which is one of the primary competitors of Tesla’s models, can be purchased for over $30,000. While this is quite a high price, it is still lower than the Model 3, which is slated to become a mainstream car.
Regardless of particular difficulties, Tesla remains one of the most innovative companies. For instance, Tesla’s Model S was equipped with an Autopilot technology in 2014 (Dikmen & Burns, 2016). This option was soon offered in all Model S cars. Dikmen and Burns (2016) note that drivers report some downsides of the system (e.g., speed control, errors in detecting lanes), but they still find the vehicle comfortable. This model is characterized by a high level of popularity among customers.
Since 2014, the company has continued to develop its recharging facilities. Its supercharge points can recharge any Tesla model within 30 minutes (Eisler, 2016). It is noteworthy that these recharging points can be used by Tesla vehicles only, which leads drivers and other carmakers to criticize the practice.
The company has continued its efforts towards expansion and collaboration. It reached the Australian market after 2014. Tesla showrooms are now available in some Australian cities (Voigt, Buliga, & Michl, 2016). The company is also developing its recharging facilities to make their customers’ driving experiences more pleasant. Finally, Tesla continues to sell electric car components (battery packs and associated products) to other carmakers. In addition, Tesla earned $51 million, selling its ZEV credits to other companies.
Communication with existing and potential customers has remained unchanged since 2014. Tesla uses its showrooms and social networks to share news, receive feedback, and so on (Voigt et al., 2016). Again, this practice is consistent with the manufacturer’s culture, as traditional channels are not used to communicate with consumers. Online services and communication are preferable channels for young adults and many adults. These people are also environmentally conscious, which makes them a target population of the company.
As for the major messages delivered, they have changed slightly. Before 2014, the focus was on the speed and efficiency of Tesla models. At present, Musk still devotes most of his attention to these features, but he also draws people’s attention to such areas as environmental sustainability and prices (Hern, 2016). When speaking about Tesla’s new model, the company’s co-founder claims that the Model 3 will become an affordable electric car that will lead to a major shift in society. The company’s CEO believes that people will become more environmentally friendly and will try to use corresponding practices. Electric cars are regarded as the future of both the US market and the entire society.
In conclusion, it is clear that Tesla has pursued a consistent strategy since its first days. The company focuses on innovation and sustainability. The carmaker continues its expansion, and its cars and recharging facilities are already in all major markets. The most recent trend is Tesla’s focus on the development of a mainstream model, but it is associated with certain operational issues. The company faces various issues related to the production process, as its facilities seem to have insufficient capacity. However, interest in Tesla models is on the rise, and people are still willing to buy luxury models and wait for the development of the promised affordable vehicle. The existing trends also create various opportunities for electric carmakers. Therefore, Tesla is likely to remain one of the leaders in the market if it addresses the existing gaps.
References
Breuninger, K. (2017). 5 electric alternatives to Tesla’s Model 3. CNBC. Web.
DeBord, M. (2017). The Model S is still Tesla’s best car – here’s why. Business Insider. Web.
Dikmen, M., & Burns, C. (2016). Autonomous driving in the real world. In Proceedings of the 8Th International Conference on Automotive User Interfaces and Interactive Vehicular Applications – AutomotiveUI’16 (pp. 225-228). Ann Arbor, MI: ACM.
Eisler, M. (2016). A Tesla in every garage? IEEE Spectrum, 53(2), 34-55.
Hern, A. (2016). Tesla Motors receives $10bn in model 3 pre-orders in just two days. The Guardian. Web.
Van Den Steen, E. (2015). Tesla Motors. Harvard Business School, 9-714-413, 1-26.
Voigt, K., Buliga, O., & Michl, K. (2016). Business model pioneers. San Francisco, CA: Springer International Publishing.