Paper Due Date
Introduction
Tesla entered the market in 2003 with a team of professionals, none of which had experience in automotive industry. Elon Musk started as a major investor and product designer, but when in 2007 the company recognized the need for new leadership, he assumed the position of CEO and quickly optimized operation by reducing headcount and attracting a diverse team with strong background in the automotive industry. This mix of professional was central for innovation and short product development lifecycle in-house, which differentiated Tesla from its competition, such as Nissan and General Motors.
Tesla has grown dramatically through its diversified business model and sales, which included the vehicles as well as batteries and powertrains. Such diversification strategy allowed the organization to develop stronger competitive advantage and shielded from imitation as (1) other manufacturers depended on the Tesla auto parts for their EV cars, (2) long-life strong batteries constitute Tesla’s major competitive advantage.
Strategic Issues
Tesla generated almost USD$ 970 million in revenues in 2013, doubling its volume relative to 2012. While the company is successful and its strategic potential is evident in a financial and operational analysis, several major strategic issues should be considered to develop strong risk and change management strategy. First, the company is small and its liquidity is limited, resulting in limitation for refinancing into new product development. Secondly, Tesla is a niche operator in a relatively new market, where uncertainty and doubt still constitute the major element of consumer decision-making process. Charger network is one of the most significant drawbacks, which prevents EV vehicles from entering in direct competition with traditional cars at full speed. Additionally, many consumers are concerned with the limited range of EV cars on the market and Tesla’s product line specifically. Indeed, despite the e fact that Tesla revolutionized the product development lifecycle concept in the industry, reducing it to less than a year, comparing to an average of 4 years for other manufacturers, there is still a great deal of doubt about how effectively the current range can address the target consumer market. Another important element of success if the Li-ion battery, which represents the major cost and limits the potential improvements in cost and design of EV vehicles. Additionally, the growing demand for the EV vehicles can result in the shortage of this product and hinder the growth of the company. Finally, protectionism strategy of domestic governments, such as the demand for dealership distribution network and limitation of direct and e-commerce sales represent the major obstacle for revenue growth and market penetration.
Recommended strategy
Based on the analysis of the situation, it is evident that Tesla is entering the stage of maturity, where the growth is limited by several external factors and its internal capacity to generate financial capital to support aggressive growth. As such, Tesla spent only USD$ 107 million on advertainment in 2013, while its competition average spending is above USD$ 3 billion. This aggressive marketing strategy in the automotive market will require the stronger response from Tesla in the future. Additionally, the company should be able to focus on incremental and radical innovation that demands new partnerships with suppliers of drivetrain components. Given the growing market of EV vehicles and Tesla position as one of the major supplier of the train and its components for other car manufacturers, it is essential that Tesla further diversifies its portfolio of upstream suppliers to ensure that it can continue maintaining the early-mover position and support the growth of the market. Given the fact that the competitive environment places pressure on price, forcing the organization to limit its margins, such strategy can ensure that this pressure is partially transferred to the upstream partners.
Secondly, the “green” market overall is growing exponentially over the past decades, bringing new opportunities in renewable energy. While Tesla’s core business is automotive, the knowledge and expertise along with the infrastructure, built by the company can allow it tapping into the renewable energy market as an alternative model of a diversification strategy. By doing so, Tesla management, however, should recognize the higher risk associated with the business and ensure to close the competency gaps, existing currently between the company and external environment (Porter, 23-45).
The third recommendation is based on the traditionalist approach, which outlines the limited potential for EV market in the medium-term. While the industry is developing, the total sales of EV vehicles relative to IC are still very low. It is expected that the proportion is not likely to change dramatically over the next decade. The transactional data, such as overestimated Nissan Leaf sales, which reached only 26,000 against forecasted 500,000 by 2013, serves as the evidence to this argument. With that in mind, Tesla should consider entering the mainstream automotive market by offering simple and affordable mass models. This strategy will attract strong response in the format of litigation, and aggressive pricing strategies from competition, but will allow attracting new customers and gain volume when the profit margins are going down.
It is critical to recognize the impact of the infrastructure on the development of EV market. Charger stations and access to maintained and repair facilities are critical for consumers to gain confidence in the segment and start to consider EV cars a viable alternative to their traditional vehicle. Tesla should promote the industry-wide coopetition strategy, attractive other market players to horizontal alliances, investing in urban and rural infrastructure for EV cars (Van den Vooren and Alkemade, 2-16).
Works Cited
Porter, Michael. Competitive Advantage. Creating a Sustainable Superior Performance. Berlin: Simon and Schuster. 2008. Print.
Yami, Said, Castaldo, Sandro, Dagnino, Batista, and Le Roy, Frederic. Coopetition: Winning Strategies for the 21st Century. Northhampton: Edwar Elgar. 2010. Print.
Van der Vooren, Alexander, and Alkemade, Floortie. The diffusion of infrastructure dependent technologies. A simple model, Utrecht University, Utrecht. 2010. Print.
