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Tesla Inc.’s Strategies and Course of Action Essay

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Updated: Jun 30th, 2021

To become successful on the market, Tesla Inc. requires more than knowledge of internal, external, and other factors and experience to handle it. Corporate and business strategy has to be implemented in order to act on the knowledge and use the experience. Competition on the market could significantly influence the choice of those strategies, as well as the type of market itself. Adequate management of these forces and planning capabilities could benefit the company both in the short and long term. Therefore, this paper is aimed to research and explain the above-mentioned concepts in application to Tesla Inc. in order to determine the best course of action for the corporation in the vehicle market.

Business-Level Strategies

Business-level strategy is a set of actions aimed at providing the customer with services or goods that will satisfy them and achieving leadership in competition through the exploitation of the company’s core competencies. Such a strategy is usually chosen judging from the organization’s stance in the industry, taking into account the competitive environment with all its forces (Hitt, Ireland, & Hoskisson, 2013). Electric vehicle industry appears, at the same time, a separate market and a sub-market integrated into conventional, gas/diesel car niche. As an individual industry, it continues to grow and expand at the expense of customers from gasoline-propelled car industry (Hertzke, Müller, & Schenk, 2017). There are also hybrid cars that can use both gasoline engine power and an electric one, which is why the market for electric or semi-electric vehicles is so complex to define as per the cars to include in the category. Nevertheless, Tesla Inc. successfully operates on the electric vehicle market, having a 30% share of it (DeBord, 2018).

Arguably, the most appropriate business-level strategy for Tesla Inc. is integrated cost-leadership differentiation. This strategy combines the features of the cost-leadership and differentiation approaches and may become a new solution for companies that are presented globally. Pure cost-leadership is not fully applicable to Tesla Inc. as their products are rather expensive in comparison to the company’s competitors. Differentiation is more likely to fit with the organization, yet, due to the peculiarities of the Tesla’s marketing strategies and technological advantages it may combine the two strategies. The reason the integrated approach would be best suited in this case is the premium-market electric cars that in the long-term perspective can be cheaper than conventional ones. Tesla Inc. produces cars on electric batteries that possess the high capacity and, as the company states, they can be less costly to use as they let customers economize significantly on fuel and road tax (Tesla Inc., n.d.a).

The core competencies of the firm include battery technology, brand power, and marketing strength. The company uses each of these competencies to its advantage in order to stay competitive. Patented battery design lets Tesla cars have extended mile range adding notable value to the product. Tesla Inc. is rather popular and stands in the same row as auto giants such as BMW and Mercedes Benz if not for annual sales then for recognition (Agrawal, 2016). The company positions itself as car manufacturer of the future staying on the verge of technological development and automation.

Corporate-Level Strategies

Corporate-level strategies include actions that allow the company to ally themselves with other corporations in order to achieve greater gains (Hitt et al., 2013). Alliances are crucial to the company from the standpoint of benefits they can yield. For instance, Tesla Inc. may experience difficulties with distributing their production on their own due to the limited nature of their facilities that are located only in the U.S. Since they cannot yet produce their vehicles in Europe or Asia, they require new factories and equipment. Consequently, it becomes evident that the growth strategy for the Tesla Inc. corporation becomes the best choice. In case of this company, vertical and horizontal growth can be expected. Vertical growth may be anticipated in the number of vehicles produced, the number of production facilities constructed across the regions of interest. Horizontal growth applies here in the aspect of new locations where Tesla Inc. can distribute their products.

This strategy can be seen as profitable due to the fact that the firm, like any other car manufacturer, is dependent on the number of sales it can make. By increasing the public and accessing new markets, Tesla Inc. can significantly benefit from the raised demand. The other reason is in the nature of the firm’s production facilities. Recently the company automated its Gigafactory for battery production, which means its capacity grew several times. The firm’s competitors produce rather significant numbers of vehicles overcrowding market with them, while Tesla electric cars can be considered a limited edition. As the demand for electric cars grows, the company needs to consider further expansion of its production capabilities and building new facilities in other regions such as Europe. In addition to that, growth strategy seems to be the best option for the firm due to the fact that it provides the opportunity of pursuing the company’s goals and objectives. Tesla Inc. leader, Elon Musk, announced that the company strives towards a renewable future and a new world without gasoline (Tesla Inc., n.d.b).

As the growth aligns with Tesla’s mission and vision, pursuing higher outputs becomes a natural strategy for the company. In addition to that, the popularity of the electric vehicles grows in other regions, such as China, where concern for the environment is a serious issue. China is a huge market and to satisfy its needs, Tesla Inc. might consider creating new facilities in order to be able to do it.

Competitive Environment

The competitive environment in the market for electric vehicles with the entrance of Tesla Inc. became harsher. Interest in renewable solutions in the private car industry is evident as the exhaust fumes produce a toxic effect on urban environments, negatively affecting health and life of their residents. One of the first fully electric cars for the mass market was Nissan Leaf that earned popularity in Canada and Europe (Nissan Motor Corporation, 2018). However, Nissan cannot be considered a competitor for Tesla Inc. as it occupies the market niche for low-price electric vehicles, while the company in question produces cars for the high-end segment. Arguably, the true competitor for Tesla Inc. is BMW. Bavarian Motor Works company operates in markets for premium vehicles for a rather prolonged period of time.

The market commonality in the two companies is rather high, as both companies produce sedans and roadsters for high and middle-income customers, which indicates a multi-market competition (DeBord, 2018). Geographically, BMW sells its vehicles in many regions that Tesla Inc. is also interested in including Europe, Asia, and the U.S. Resource similarity is also significant in these two companies. Capable personnel and technology can be considered the assets BMW and Tesla Inc. both require. Yet, their strategies in acquiring them differ. BMW creates value through its well-established brand that focuses on the quality and power of its vehicles, making a proud statement that many people respect and honor. Tesla Inc., on the other hand, sets forth the positive environmental impact that their cars produce along with technological advantage (Tesla Inc., n.d.b).

The competitive behavior of the BMW is rather diverse from Tesla’s. The rival strives for defending its competitive advantages by producing an increased number of vehicles and developing new models to compete in multiple markets. Such a strategy is understandable and justified in terms of BMW’s considerable resource pool. For instance, its model 5 series that is close to model 3 of Tesla in terms of technical characteristics is produced volumes far greater than those of Tesla (DeBord, 2018). Among other competitive actions, BMW expands its line of products by developing fully electric and semi-electric cars such as the i3 series (Stewart, 2018). To counter that, Tesla Inc. develops model 3 in order to win the competition for middle-income customers that may be interested in electric vehicles. BMW responds with developing batteries of their own, which are not yet ready for production but can potentially challenge Tesla’s leadership in that technology (“Solid Power, BMW partner to develop next-generation EV batteries,” 2017).

Overall, competitive dynamics can be characterized as a battle for technological advantage and sales. The development of technological solutions for electric vehicles can be considered a key to winning the competition against conventional cars, as now many people doubt their potential as a substitute for gasoline-powered vehicles. Sales may, arguably, be called one of the criterions for success in many car market segments as each sale of high-price commodity brings additional value to a company. As far as capabilities are concerned, BMW has a higher potential to win the competition with Tesla for the electric car market in the long-term perspective. BMW has multiple production facilities, strong distribution and partner network, a large pool of tangible and intangible assets, and a well-established brand with a long history. Compared to Tesla Inc. that has only two factories, BMW can outmatch it as soon as it puts i3 on conveyer belts.

Market Cycles

In slow-cycle markets, Tesla Inc. has an advantage of unique battery technology that can shield it from rivalry and grant temporary leadership. The imitation of that technology can be costly even for large ventures such as BMW or Mercedes Benz. In addition to that, research and development require considerable time. In fast-cycle markets, Tesla will quickly lose its competitive advantage. Mainly, it could happen due to its relatively low production capabilities and resources as compared to huge corporations such as General Motors or the above-mentioned BMW and Mercedes Benz. Above that, Tesla’s brand name may be associated with innovative technologies which in fast-cycle markets is not as permanent as in slow-cycle ones.

Conclusion

All things considered, Tesla Inc. is a solid company with considerable competitive advantages that can be exploited with the implementation of integrated cost-leadership differentiation at the business level and growth at the corporate level. However, one of its greatest rivals on the market, BMW, has larger capabilities that in the long term can surpass those of Tesla. In slow-cycle markets, Tesla Inc. may hold a privileged position, but in fast-cycle ones, it can dwindle quickly.

References

Agrawal, A. J. (2016). Forbes. Web.

DeBord, M. (2018). Business Insider. Web.

Hertzke, P., Müller, N., & Schenk, S. (2017). Web.

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2013). Strategic management: Concepts and cases: Competiveness and globalization (10th ed.). Mason, OH: South-Western Cengage Learning.

Nissan Motor Corporation. (2018). Web.

(2017). Reuters. Web.

Stewart, J. (2018). Wired. Web.

Tesla Inc. (n.d.a) Cost comparison. Web.

Tesla Inc. (n.d.b). About Tesla. Web.

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