Sample Business Paper on a strategic management analysis of how Tesla Inc. can manage extreme competition from large and premium automobile manufacturers and sustain its competitive advantage

1. Introduction
The automotive manufacturing industry has become super competitive, with consistent
innovative strategies among top companies to release the most updated machines that satisfy the
demands of the consumers. Tesla Inc., an automotive company from the US, has been in
operation for less than two decades and seeks to capture the market through the provision of
environmentally-friendly electric cars. However, the company is yet to obtain a sustainable
company, let alone creating a stable market environment for its products. Over the last three
years, Tesla has incurred significant losses with some of its projects failing to meet the target
deadlines. Most of Tesla’s challenges arise from limitations against beating its top competitors in
the industry, some of which have been in operation for over a century, thus have high experience
and vast resources at their disposal that they use to compete with incoming innovative
companies. Its top competitors include Bavarian Motor Works, General Motors, Ford, Honda
Motor, Volkswagen, Toyota Motor Company, among other established companies (Van Wee et
al. 2012). Tesla is, therefore, faced with a colossal task to penetrate an already dominated market
and manage the extreme competition from the listed companies for them to gain a sustainable
competitive advantage. The report entails an analysis of the strategic management position of the
company and provides recommendations that the company can utilize to achieve its desired
location.
The report is divided into three parts, the introduction of Tesla Inc., the second part entails an
analysis of the incorporation’s strategic position through strategic analysis models analysis,
PESTEL analysis Porter’s five force analysis, and the value chain analysis. The third section
provides the recommendations based on the findings from the analysis of the improvements that

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the company can adopt to improve its strategic management practices to enable it achieve a
competitive ability in the auto industry.

2. Background information
Tesla Inc., initially referred to Tesla Motors, was founded in 2003 by two brothers, Martin
Eberhard and Marc Tarpenning, with the desire to control environmental pollution from smoke
emission in fossil-fueled cars(Gafarov 2019). It has its headquarters located at Silicon Valley,
which is considered as an IT hub due to various technological innovations arising from the
valley. The company was then adopted by Elon Musk, who is the current CEO after he decided
to fund the operations of the company due to his desire for inventions (Steinberger-Wilckens
2015). The company launched the manufacture of its first sports car, the Roadster, that sold over
2000 vehicles in 2008. Since then, the company has advanced to release more electric car
models, with its recent car model being the Model 3 that targeted middle-income earners
(Steinberger-Wilckens 2015). The company is attributed as one of the fastest developing
companies in the United States. However, the company has faced significant challenges gaining
a competitive advantage in the auto industry, due to numerous established car companies. This
poses challenges for Tesla Inc. as they find it difficult to convince customers to use their
products.

3. Strategic position analysis
a) PESTEL ANALYSIS
A PESTEL analysis is a business framework that is used to evaluate the external environment
under which a business operates to identify the risks and opportunities posited by the
environment on particular strategies (Rothaermel 2016). The framework highlights the political,

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economic, social, technological, and environmental business factors in the bid to prepare the
company for significant long term transformation in case of change on the factors.

Political factors

The political analysis identifies government-related factors such as political stability, IP rights,
and taxation strategies, among others, and outlines their impact on the business operations of a
firm. Tesla Motors is set to benefit from government policies on the upgrading of the
environment since the US government is providing incentives following the government energy
loan programs for research and development of environmentally-friendly vehicles. The
government is offering financial support on electric automobile manufacturers as they seek to
discourage fuel cars. Also, political stability in the US and positive international relations is set
to benefit the company in the bid to expand its operations in the global market (Mangram 2012).
Such stability and positive strategies will assist Tesla in fulfilling their generic competitive
strategy, which includes penetrating international markets across Europe and Asian countries.
Further, having established its operations on the basis of environmental preservation, Tesla Inc.
will benefit from the environmental laws that are being imposed against car manufacturers as
they will have an added advantage.

Economic factors

The economic analysis presents various economic conditions such as foreign exchange rates,
market growth, GDP levels in target markets, and levels of employment, among others, that are
likely to influence the operation of the automotive industry (Mangram 2012). The fuel prices
have been raised in most regions as the government tries to encourage people to obtain more
environmentally friendly vehicles. This serves as an opportunity for Tesla as people will seek to
seek cheaper alternatives. Also, decreasing battery prices translates to the affordability of the

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company’s products, further favoring its operations. The gross domestic product in the US and
other target markets is relatively high, suggesting that people will have a higher ability to
purchase. Further, high employment opportunities lead to higher dispensable incomes among the
population that will prompt them to purchase Tesla products (Gafarov 2019). However, Asian
countries who are among the major target market for Tesla face harsh economic conditions as
they are under transition from being third world countries (Wulfsberg et al. 2015). Also, high
rates of employment indicates shortage of labor in the US, a situation that will force Tesla to pay
higher labor charges.

Social factors

Social analysis entails the alignment of Tesla Inc. with factors affecting the employees, investors,
customers, among other stakeholders. Today, the society has been influenced by the rising
popularity of low carbon lifestyle and the increased preference for renewable energies. As a
result, these customers are opting for products that have low emissions to the environment. This
factor favors Tesla Inc. since electric cars present no emissions to the environment (Wulfsberg et
al. 2015). Further, the bid to recover from the 2008 global recession has prompted countries to
increase wealth distribution in the developing markets. This will increase the disposable income
levels for participants in these markets, thus prompting them to purchase Tesla’s products.

Technological factors

As an innovative company, the technological analysis describes the available technological
advancements likely to improve the production ability at Tesla Inc. the high rate of consistent
technological innovation and change presents a strong opportunity or Tesla Inc. to update its
products. For instance, the invention of the self-operational car will help Tesla develop advanced
products with a limited number of accidents, and that satisfies consumer demands exceedingly.

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However, the same of the rate of innovation could pose as a threat to Tesla since it translates to a
high obsolescence rate as products developed by Tesla could be easily replaced with newer
innovations (Gafarov 2019). Consistent automation in business opportunities will act in Tesla’s
favor since it will easily integrate its operations using mobile phones.
Environmental factors

Ecological conditions present the effects of the company’s operations to the surroundings.
Today, most societies value their environment. Therefore, a company that produces extra
pollutants loses its reputation, thus destroying its market share. Ecological conditions present a
challenging opportunity for the innovation department at Tesla Inc. For instance, the company
could promote its electric vehicles to be conversant with harsh economic conditions such as rain
and extreme fogs (Geels 2015). Also, most raw materials used at Tesla are considered
environmentally friendly in that the batteries and solar panels pose no significant threat to the
environment.

Legal factors

Legal factors entail the requirements stipulated by the government to ensure safe working
conditions as well as the protection of a company’s operations. They include intellectual property
rights and employment protection rights. At Tesla Motors, the legal factors presentable include
the expounding international patent protection, imposition of energy consumption regulation, and
the new dealership sales regulation that has been introduced in the United States (Clark 2015).
The international patent protection presents an opportunity for Tesla to expand its manufacturing
firm in the international market since no company will infringe on its protection rights. Further,
with the existing business regulations, Tesla will be able to harness renewable energy that will
facilitate its operations. The dealership regulation rights present both an opportunity and a threat

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to Tesla. The rules will favor the company’s operations inside the US but will be limited outside
the country since most states do not allow direct sales. Based on the PESTEL analysis, there are
lots of presentable opportunities that Tesla can utilize to facilitate its growth opportunities and
manage the extreme competition.
b) Porter’s Five Forces Analysis
This a competitive force model that analyzes the ability of an industry to withstand external
threats. It is an essential tool in strategic management that helps in designing a strategic
innovation that will make a company more competitive. It analyzes external threats from buyers,
the threat of new entrants, threat of new products, the threats from suppliers, and competitive
rivalry within the industry. From the analysis below, it is clear that competitive rivalry poses the
most significant threat to the operations of Tesla Inc. factors such as bargaining power of
suppliers, bargaining power of buyers, and substitute products pose a medium threat while new
entrants have the least significant impact.

The threat of substitution by new products

Tesla Inc. experiences a relatively moderate threat from the substitution of its products. This is
because of the low switching cost, such as the use of public transport, biking, walking, or
obtaining a car from another company. However, despite this factor having a strong impact, it is
limited by the scarce availability of options, since walking and biking is only reliable for short
distances. Also, public transport is inconvenient in time limitation, thus making most people opt
for a family car. Also, the moderate performance of the available option is limiting. For instance,
a bus can only drop one at a bus stop, which will be inconvenient during late hours or when one
has lots of luggage.

Bargaining power of suppliers

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Most products at Tesla Inc. are sourced from limited suppliers with whom the company cannot
easily replace them. However, most of these suppliers, apart from the Panasonic, are moderately
sized thus limiting their impact on the company. Also, with the low level of forwarding
integration, most of these suppliers are forced to use third parties to deliver their supplies at
Tesla manufacturing point. These factors present the threat of suppliers as a secondary strategic
management policy at Tesla Inc. (Gafarov 2019).

Bargaining power of consumers

With the low switching costs barriers between different options for consumers, the bargaining
power for buyers at Tesla is strengthened. However, the limited availability of these substitutes
limits the customer’s ability to switch due to the convenience associated with personal electric
cars (Clark 2015). Furthermore, every customer has a limited influence on Tesla Inc., since they
will only purchase one or two products and us it over the long term. These factors place the
bargaining power of buyers at modest and place this aspect of Porter’s Five Forces as a
secondary management priority.

The threat of new entrants

The threat of new entrants is the most insignificant force in the list of Tesla’s priorities. The high
costs associated with developing a new brand will discourage any upcoming firm from
competing with Tesla. Further, with Tesla’s brand recognition and the popularity of the CEO, it
would be cumbersome for a new entrant to fight this force. Further, operating an automobile
manufacturing firm requires is very costly. The high economies of scale due to the popularity of
brands such as Tesla would be hard for any upcoming firm to achieve; thus, the threat of new
entrants is a minor strategic management concern in enhancing Tesla’s competitive ability
(Gafarov 2019).

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Competitive rivalry in the industry

Competition is the strongest threat affecting the operations of Tesla Inc. Despite the limited
number of competing firms, the already established firms are highly aggressive in innovating and
promoting their products, a factor that Tesla has consistently failed to contain as per its
marketing mix. This is further strengthened by high levels of disposable income among
competitors such as Ford, General Motors and BMW. The low switching costs and impediments
for clients to purchase cars from other manufacturers also strengthens the competitive rivalry.
Therefore, competitive rivalry is the most crucial and highly relevant management issue that
Tesla Inc. needs to review and address.
c) Value chain analysis
VCA assists a company determine its abilities in terms of strengths and weaknesses in the
functions that assist in product and service development (Fournier 2017). It entails all primary
activities directly concerned with production and corresponding support activities that enhance
the effectiveness of the primary activities(Lakhani 2017).
Primary activities

Inbound logistics: crucial components at Tesla are developed in-house, with others sourced from
the suppliers on time to reduce the waiting period and facilitate efficiency in production.
Operations: Tesla has one joint firm for car manufacturing in Northern California in the Fremont
factory. The factory is equipped with multi-function robots that produce at least 83 different car
models daily.

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Outbound logistics: the company has established distribution channels internationally that
facilitate in customer education on the advantages of electric cars, and also serving as showroom
and reservation centers (Perez 2018).
Marketing and sales: Unlike other companies, Tesla has does not utilize any advertisement
agency, but rather opt to advertise their products via their established stores. They have also used
celebrities from Hollywood to advertise their products. For instance, Morgan Freeman owns a
Model S and has significantly played a role in making the model popular (Perez 2018). The
company also uses social media platforms such as YouTube and other web based films.
Servicing: Tesla has developed advanced service stations in US, Europe and Asia, and also uses
its stores as service centers. Further, the company has installed fast and free charging centers
along most highways.

Support activities

Infrastructure: The incorporation has a flat structure with a small and strong management team
lead by the CEO, Elon Musk. The structure facilitates easy communication and decision making.
Procurement: the company has key relationships with key suppliers such as Panasonic (Fournier
2017). They also agree on short term agreements with supporting suppliers
Technology development: Tesla focuses on technology as their key differentiation factor. The
company invests in R&D to facilitate cost reduction while developing excellent product designs
(Perez 2018).
Human resource management: the company has a strong HRM team that facilitates efficient
outsourced recruitment with a developed reward system to outstanding employees. Also, the
company boasts of a close and open relationship across all ranks in the company.

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d) Bowman’s strategy clock
The strategy indicates the different positions in a market where different potential consumers
have different requirements in terms of the value for their money (Echchakoui 2018). This means
that different consumers will opt for different products based on the level of disposable income.
Most products at Tesla have focused on a differentiation strategy where the main target is a small
proportion of the rich members of the society that are attracted by stylish and beautiful cars.
Through market research, Tesla understands that it would be unrealistic to compete for an
average person since they will barely purchase a short distance travel electric car at the prices
indicated by Tesla (Rothaermel 2016). Tesla lacks the scale, capacity and capital to compete on
cost basis, thus survives through unique designs and leading edge tech to attract consumers. This
has enable Tesla retain a top position. However, the CEO has established a market segment of
medium clients and has initiated the manufacture of a model 3 car which will be favorable to
these market segment.

4. Conclusion
The report has performed a situational analysis in the bid to develop a competitive strategy that
will help Tesla to gain a sustainable competitive advantage among the highly competitive close
competitors. The report has established Tesla to have had a successful start-up by achieving a top
position in innovation. The company has utilized renewable energy to revolutionize the
automotive industry by replacing gasoline vehicles with electric cars that have less emissions and
therefore are environmentally friendly. An analysis of the external business environment presents
a merging opportunity with the company’s internal operations that could facilitate the growth of
Tesla motors and make it a leading car manufacturing company, a position that will assist the
company obtain the desired competitive advantage. However, established brands poses a great

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threat towards the introduction of electric cars in the market. To beat this competition, Tesla uses
product differentiation to target the upper class of consumers to gain a competitive advantage.

5. Recommendations
To gain and sustain a competitive advantage, this section recommends some steps that Tesla
could adopt to improve their products. The Bowman’s Strategy Clock indicates that Tesla
utilizes focus differentiation, where they target the top class portion of the society. The company
could review this and instead apply differentiation strategy, where they avail the same benefits
associated with their products at similar prices as those of the competitors (Hu et al. 2016). The
company could seek to generate profits on quantity. Alternatively, the company should expound
their differentiation strategy, where they widen the range of available car models with premium
and small premium cars that merge the demands of all market segments.
Tesla could also advance their products through technology. These can be done by accelerating
the recharge time, such that electric cars can consume less time in recharging stations as
compared to gasoline cars in petrol stations. Also, they could improve battery types to incase
durability in a single travel. This will encourage more consumers to purchase these products,
thus enabling them to achieve a competitive advantage.
The company could also increase their marketing strategies by introduce advertisement offices
where interested parties can visit and gain prior knowledge on Tesla’s products. Incorporation of
these strategic management practices will assist Tesla Inc. sustain its competitive ability in the
highly competitive automotive industry.

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