Tesla, Inc. is an American manufacturer that primarily focuses on the production and development of electric cars, solar panels, and devices for energy storage. In this paper, PESTEL, Five Forces, and SWOT analyses will be provided to evaluate the company.
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The PESTEL (“Political, Economic, Social, Technological, Environmental and Legal”) analysis focuses on the macro-environmental factors that can influence the company, its strategic management, and business (Goncharuk 37). The PESTEL analysis is a part of the external analysis of the company because it analyzes external factors that need to be considered by the executive team (Goncharuk 37).
The government policies strive to provide more programs and technologies that will reduce the adverse influence of carbon emissions on the environment. Production and manufacture of electronic vehicles are supported by the American government with the aid of various programs (U.S. Department of Energy). Therefore, Tesla, Inc. has the opportunity to use government subsidies to improve its performance in the market.
The popularity of electric vehicles, sustainable environmental strategies, and renewable energy devices are growing. It is reasonable to assume that Tesla Inc. will be able to make its products more attractive to the customers. Nevertheless, as vehicles are considered as a major investment, any economic crises and issues might lead to decreased sales. Therefore, economic instability is a direct threat to Tesla Inc.
Environmental considerations and issues become more alarming for consumers, which implies that greener vehicles and devices that correspond with the “healthy” lifestyle will become more popular during the next decades. The use of alternative energy sources is encouraged not only by the public but the environmental and official governmental organizations as well (Da Rosa 19). Therefore, these trends present opportunities for expansion.
The main issues with technology highly crucial for Tesla Inc. are batteries’ sustainability and infrastructure for electric vehicles. First of all, batteries for electric vehicles are still too expensive to be produced for the mass market. This issue is a threat to Tesla Inc.’s expansion in the local and global markets. Second, although the USA provides the infrastructure for electric vehicles, many of the stations still need to be built to cover clients’ needs. Therefore, Tesla, Inc. is dependent on the development of infrastructure for electric vehicles.
Ecological factors present several opportunities for the company. First, the public concern with climate change positively influences the promotion of electric vehicles that the company produces. Second, the government’s focus on climate change and renewable energy provide the company with additional support in addressing environmental programs. Third, the company’s mission perfectly aligns with the existing trend towards low-carbon lifestyles and environmental awareness.
The main legal factor that influences the sales and distribution of products is the ban on direct sales from the company to the client. Restrictions and bans are used as a tool to protect automobile dealers, although it is also possible that these legislations are passed because of the dealers’ lobby in some states (Stolze 293). Nevertheless, the company has the opportunity to expand itself to the foreign markets (Europe and Asia), where such restrictions are less common. Furthermore, not all states in the USA support these restrictions.
Porter’s Five Forces Analysis
The Five Forces analysis was developed by Michael Porter. It is based on five factors: competitive rivalry, bargaining power of buyers, bargaining power of suppliers, the threat of substitutes, and the threat of new entrants (Porter and Heppelmann 67).
The rates of competitive rivalry in the industry are high. Tesla Inc. has to compete with both electric and non-electric car manufacturers. Although there are not many major players, aggressive promotion and innovations of other enterprises can adversely influence the company’s ability to compete.
The low switching costs in the industry are a serious factor because it allows customers to choose between products provided by other companies (strong force). Nevertheless, there are few substitutes for Tesla Inc.’s products, which reduces customer’s bargaining power. It should also be noted that customers buy electric cars in a very limited amount: one, two, possibly three cars per purchase. A low volume of purchases also reduces customer’s bargaining power.
The bargaining power of suppliers is moderate because Tesla Inc. cooperates with several suppliers that only partially control the distribution of their products (Mangram 181). Nevertheless, one should also point out that the company highly relies on the supplies of other companies because it cannot continue the manufacture of products without these supplies. Some of the suppliers are major players in the industry, while others are not, which moderates the force.
The threat of substitutes is high because of the low switching costs: customers might decide to purchase a car from another manufacturer because the difference in costs is not crucial. Nevertheless, there are not many substitutes that can compete with Tesla Inc. in all factors, which weakens the threat.
The threat of new entrants is low because the industry has high entrance levels, demands serious investment, and the business in the industry is quite costly. Therefore, the company may see the threat of new entrants as low force.
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The SWOT analysis reviews the strengths, weaknesses, opportunities, and threats that the company faces (Goncharuk 36).
The use of innovation and modern technology is a definite strength of the company. It is one of the most famous manufacturers of electric vehicles in the world. What is more, these vehicles are highly innovative and include all the technologies that customers might demand. The next strength of Tesla Inc. is the high brand awareness that allows the company to be more competitive in the market. Customers are more prone to rely on a recognizable, visible brand than on a newcomer. At last, the company takes a strict approach to the control of the manufacture, which results in high-quality products.
The main weakness of the company is the high cost of its products. Many customers cannot afford these products, and the company has to focus on a limited circle of clients. Furthermore, this weakness also does not allow Tesla Inc. to expand and raise brand awareness in other countries, including the developing ones. Tesla, Inc. is mostly present in the American market, which adversely influences its ability to promote products in Europe and Asia.
The opportunities for the company are linked to its weaknesses. The main opportunity is to become present in the global market by promoting the products in markets that are not located in the USA. Global expansion will possibly lead to the expansion of supply chains as well (Mangram 186).
The threats were discussed above: instabilities in the economy, competitors, and legal issues linked to the dealership can adversely influence the distribution and sales of the products. It is evident that clients will prefer not to purchase expensive products during economic crises, and competition among rivals will increase. Furthermore, dealership legislations can also lead to problems with sales because customers will have limited support from the company (only via online resources in some states).
Da Rosa, Aldo Vieira. Fundamentals of Renewable Energy Processes. Academic Press, 2012.
Goncharuk, Anatoliy G. “Banking Sector Challenges in Research.” Journal of Applied Management and Investments, vol. 5, no. 1, 2016, pp. 34-39.
Mangram, Myles E. “The Emperor’s New Clothes: A Framework for Market-Based Management at Tesla Motors.” Journal of Strategic Management Education, vol. 8, no. 3, 2012, pp. 179-204.
Porter, Michael E., and James E. Heppelmann. “How Smart, Connected Products Are Transforming Competition.” Harvard Business Review, vol. 92, no. 11, 2014, pp. 64-88.
Stolze, Eric D. “A Billion Dollar Franchise Fee? Tesla Motors’ Battle for Direct Sales: State Dealer Franchise Law and Politics.” Franchise Law Journal, vol. 34, no. 3, 2015, pp. 293-309.
U.S. Department of Energy. “ATVM Loan Program.” energy.gov, n.d.. Web.