1.0. Introduction
Founded in 2003, Tesla Motors has undergone excellent growth in many aspects such as company size, profitability, product line, etc. Based on gradual progress, now the company has grown into one of giant industry players. It mostly deals in electric cars and trains with more focus on former (The Case, n.d.). This report sets out to analyze the company’s current strategies relating to its product line and future prospects of growth and identify the areas for improvement. In the final section, the consultant recommends the most practical strategy to the company directed towards raising its competitive strength in the long run.
2.0. Strategic Analysis
2.1. Company’s Mission and Vision
The company’s mission is unchanged since its inception, and it is as follows:
“To accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.” (Schilling, 2014)
The mission statement is complete in itself, as it clearly shows the intention of the company. Basically, it is focused on product differentiation while measured by Porter’s generic strategies (Porter, 1980). Furthermore, it also refers to sustainability that is an increasingly popular concept in the modern business scenario (Blackburn, 2007, p. 62).
2.2. Pest Analysis
2.2.1. Political Factors
There are no strict political restrictions imposed on the companies operating in the automotive sector. Rather, the US government and that of many other countries support sustainable growth. And, the idea of replacing old fashioned fossil fuels with renewable sources of energy is also directed towards environmental protection. Therefore, the government is giving incentives on the purchase of each new plug-in vehicle (Berman, 2016).
2.2.2. Economic Factors
It is important to note that the electric car sales are growing rapidly (e.g. growth of sales around 60% from 2014-2015) with a positive outlook. Consumer purchasing power is also at the increase that is another positive indication. However, emerging middle class in Asian Pacific regions, to some extent, puts a question mark on its global strategy (Randall, 2016; EY, 2015).
2.2.3. Social Factors
Awareness about environmental protection and sustainability is growing among consumers, and they are looking for environment-friendly solutions for their needs. The electric car, due to utilizing renewable sources of energy as fuel, is enjoying preference over conventional vehicles among large customer-base.
2.2.4. Technological Factors
Trends of technological advancements are growing that has brought several critical threats along with potential opportunities. The success of a company depends on how well it adapts and use any new technology and makes it a part of its business. Same is true for Tesla Motors.
2.3. Financial Analysis
2.3.1. Evaluation of Income Statement
The income statement as derived from the case of the company is given as under:
(The Case, n.d.)
It can clearly be seen that total revenue has consistently been growing from 2010 till 2012, but has undergone a sharp decline in the year 2013. It is also important to note that total cost of revenue increased dramatically in 2013 i.e. it reached $456262 thousand dollars from its level of just above $30000 one year before that. Despite excellent growth in sales volume, the shareholders’ equity suffered a critical decline of more than 50% in 2013. It is found that the company has increased its customer base, but its value proposition is not justified by its operational and other expenses.
2.3.2. Evaluation of Quarterly Financial Information
It is declared that the quarterly information provided by the company is also treated in Non-GAAP manner with some exceptions. Thus, the information provided in this statement is not as valuable as it would have been if the auditor had applied generally accepted accounting principles to that. Furthermore, the report is disclosed in the form of a letter audited by the company. It implies that it has not been prepared by an independent auditor. This fact makes it further unreliable. The information about revenue, sales volume, expenses, and gross profit is critically important. But, it may also get mixed with auditor’s bias because the auditor is also representative of the company. Therefore, the report being analyzed can be regarded as more misleading than valuable.
2.4. SWOT Analysis
Based on the understanding gathered from external analysis and the study of the company’s profile, some of the potential strengths and weaknesses of Tesla Motors in the background of opportunities and threats in its external environment are described below in SWOT Analysis of the company:
3.0. Strategy Generation
The consultant has devised three strategies that point out future prospects of growth for the company in hand. These alternative strategies are discussed and analyzed below:
3.1. Do Nothing
Currently, the company is faced with two major issues i.e. competition from manufacturing sector dealing with oil and gasoline vehicles and the high cost of manufacturing. Despite that, it is enjoying a good level of growth. So it is devised that it should not involve into experiments, as it can be risky. However, in doing so, the company will have to compromise on its profit margins that are consistently declining.
3.2. WT Strategy
Here, the company is recommended to overcome one of its critical weaknesses i.e. high pricing by bringing the prices low to avoid the threat of competition faced by vehicles using fossil fuels. As for benefit, it will enable the company to convert price-sensitive fossil fuel consumers into the customers of electric vehicles. However, the plan appears unviable due to limited and high cost manufacturing.
3.3. WO Strategy
In WO strategy, the company is advised to capitalize on the opportunity of mergers in order to cut its manufacturing expenses. Such integration will allow the company to take benefits of economy of scale. Hence, the company will be able to add to its profit margins, and its benefit can also be passed onto customers by cutting prices in extreme conditions of competitive rivalry. The only disadvantage of this strategy is that the company may lose its control on production as a result of integration as in-house production is one of the major strengths of Tesla at present.
Based on the cost benefit analysis of all three strategies, Tesla is recommended to follow WO strategy, as its short term and long term benefits are fairly exceeding its short term and long term costs (or disadvantages).
4.0. Implementation
In the initial phase of the implementation, the management will have to discuss the change strategy with all members of the board of directors and key members of the managerial and administrative staff. Three brainstorm meetings will be conducted for this purpose wherein all the suggestions, doubts, and threats will be discussed. The management will not proceed to the second phase unless all the doubts are cleared and all the participants (or a majority of them) are taken into confidence.
In the next phase, the company will communicate the change plan with the workforce in a justifiable way in order to minimize the chances of resistance on their part. This will be followed by the proposal sent to different manufacturers and suppliers for integration along with the details of mutual benefits.
As the proposals are approved, the management will conduct meetings on a directorial and managerial level with prospects wherein comprehensive presentations will be given relating to how both partners will proceed and what benefits they will enjoy in the long run.
After the integration is approved, the company will undergo the process of resizing and restructuring the organization. Furthermore, the process of documentation and fulfillment of all legal obligations need to be completed to finalize the proposed consolidation.
References
Berman, B. (2016). Incentives for Plug-in Hybrids and Electric Cars. Plug-in Cars. Retrieved May 19, 2016, from http://www.plugincars.com/federal-and-local-incentives-plug-hybrids-and-electric-cars.html
Blackburn, W. R. (2007). The sustainability handbook: The complete management guide to achieving social, economic and environmental responsibility. London: Earthscan.
Bowler, T. (2015). Falling oil prices: Who are the winners and losers? BBC. Retrieved May 19, 2016, from http://www.bbc.com/news/business-29643612
EY. (2015). Since 1800 the world has seen two great middle class expansions, and we are living through a third. Retrieved May 19, 2016, from http://www.ey.com/GL/en/Issues/Driving-growth/Middle-class-growth-in-emerging-markets
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press.
Randall, T. (2016). Here’s How Electric Cars Will Cause the Next Oil Crisis. Bloomberg. Retrieved May 19, 2016, from http://www.bloomberg.com/features/2016-ev-oil-crisis/
Schilling, D. R. (2014). The Story Behind Tesla Motors’ Mission As Auto Industry Trailblazer. Industry Tap. Retrieved May 19, 2016, from http://www.industrytap.com/story-behind-tesla-motors-mission-auto-industry-trailblazer/24795
