Industry Analysis-Tesla Motors Company
Industry Analysis-Tesla Motors Company
Overview
The automobile industry is a very cyclical business. It is closely tied to the economical prices and cycles as well as other key macro factors. In comparison to the traditional segment, the alternative fuel segment has benefited heavily from the increasing prices of oil (Hoffmann & Coste-Manière, 2012). They are highly dependent on the technological or the political environment regarding supporting different government innovations and initiatives that can drive the prices of vehicles down. After almost a century of fueling vehicles using diesel and gasoline, the automobile industry is in a sharp transition towards obtaining an alternative source of fuel. It has been driven largely by the need to comply with different regulations concerning fuel-efficiency standards, which is a result of the global concerns about global warming as well as oil dependency.
Tesla is a young company, and it operates in a mature industry. However, it is strategically positioned in the automobile industry as a high-end dealer and manufacturer. The use of company-owned stores as well as service centers, high-performance vehicles, and high level of technological innovations are key to creating competitive advantage in the company (Dallinger, 2013). Tesla stands out in the traditional automotive industry due to a couple of factors. For instance, the company focuses on electric power train technology, which is quite different from the kind of technology based by the traditional automotive companies.
The market segmentation designed by the Telsa Motors Company takes different forms such as demographic, geographic, behavioral, cultural and occasional segmentation. For instance, in terms of geographic segmentation, the company marketers can create different markets based on different geographical areas served. Such differentiation allows the company to deliver different marketing messages and which are tailored to meet the specific needs of the different segments.
Electric Vehicle Market
The electric vehicle (EV) industry has moved past the infant state over the past few years, and it has been characterized by many young companies that have failed to commercialize their major operations (Ross, 2011). Currently, business models in the electric vehicle industry have started to reach and shape their profitability. Competition in the industry has also become very intense, and the regulatory standards have started to increase. For instance, regulations that require vehicles to reduce their emissions have been instrumental in shaping the electric vehicle industry. Additionally, the demand for electric vehicles has also been shaped significantly. For instance, the new regulatory requirements coupled with the technological advancements in the power trains have resulted in a sharp shift in the demand for the electric based vehicles. By 2020, the Electric Vehicle Initiative (EVI) is seeking to have more than twenty million electric vehicles on the market (Doeden, 2015). Additionally, the initiative also seeks to have more than 2.4 billion electric vehicles on the charging stations. In early 2014, there were more than 0.4 million electric vehicles in the market globally (Doeden, 2015). Tesla Motor Company competes in the market that is based on the rational automotive segment and in the market for the alternative fuel vehicles. The alternative fuel segment consists of electric vehicles (EVs), hybrid electric vehicles (HEV), and the plug-in hybrid (PHEV). Over the past few years, sales of the hybrid cars have been fluctuating significantly with the overall level of the economy. In 2008, the sales were hit hard (Ross, 2011). However, sales for this segment have started to pick up again following the stabilization of the US economy. The electrical and the hybrid market has outperformed the traditional automobile segment.
Strategic Analysis of the Industry
PESTEL Analysis of the Company
The macro economic factors are beyond the control of the company. There are many external factors that affect the operations of Tesla Motor Company significantly (Doeden, 2015). Such factors may have adverse effects on the company’s profitability and risk measures. For instance, the demand for the automobile products manufactured by the company is influenced by several factors. At the same time, the revenue of the company is influenced by many factors that the company may lack the influence of control over.
Political and Legislative Factors
The automobile industry is highly influent by the role of government in relation to environmental and energy policies enacted and later implemented. Major government policies have created the need to manufacture vehicles that emit less carbon monoxide into the environment. In the automotive industry, these government policies have increased the pressure to reduce fuel emissions and consumptions (Dallinger, 2013). Many governments in the world have created incentives for manufacturers of electric vehicles as a way of reducing fuel usage and emissions. The incentives which emanate from the supply side have helped manufacturers as well as suppliers to enter the electric vehicle market while expanding their operations and conducting thorough research.
Economic Factors
Economic developments have been critical in driving the automobile industry and more significantly, the electric vehicle industry. Activities in the automobile industry tend to follow the overall business cycle in the economy. The companies in the automobile industry depend heavily on the consumer trends as consumer sales amounts to the largest source of revenue in the industry. As a result, the vehicles tend to move with the level of consumer confidence, which in turn is directly correlated to the level of GDP in the economy (Ross, 2011).
Technological Factors
Technology is a major factor in driving the automobile industry. For instance, battery costs and range anxiety are two major constraints for the adoption of electric vehicles. The batteries pack is perhaps the most technically challenging component of the electric vehicles. Often, manufacturers seek to develop batteries that are safe, which can withstand high levels of temperature changes, and that can last for long (Fujimoto, 2013). At the same time, the manufacturers seek to minimize their costs. The extent to which a company in the industry strikes a balance between technology and costs will determine its success in the industry.
Environmental and Social Factors
In the current world, consumers have become more responsive to environmental factors more than ever. The trend is very evident in the increasing customer preference for companies that are in a position to provide them greener choices and which are more environmentally conscious. Additionally, customers are also seeking to purchase products that can maintain their social class or define a given social class (Calabrese, 2012). The electric vehicles are in a position to define these social classes among different customers.
Automobile Industry life cycle model
The industry life cycle consists of five main stages; development, growth, stakeout, maturity and decline. The following section discusses each of the stages in relation to the auto mobile industry
Development
At this stage of an industry, there are few users and buyers of the product. The stage is usually comprises mainly of trail and early adopters. There are also very few competitors in the industry. The automobile industry has passed this stage with regard to most of the products offered (Doeden, 2015).
Growth
At this particular stage of an industry life cycle, the number of buyers and users are increasing significantly. The number of adopters also increases significantly. There is the entry of other competitors in the industry. The Electric market is at this stage of the life cycle (Dallinger, 2013).Shakeout
At this stage of the life cycle, there is a growing selectivity in terms of purchase. The compactors are likely to be many. Additionally, price cutting techniques may be applied by different companies. The weakest competitors may be thrown out of the market. In the automobile industry, most of the products can be seen to be passing at this stage as there is an increased competition (Doeden, 2015).
Maturity
Here, the number of users of the industry products is saturated. Repeat purchase and resilience may also be witnessed. In terms of competitor, companies fight to maintain their market share.
Decline
At this stage, there is a sharp drop off in terms of usage of the company products. Some of the competitors in the industry may be forced to exit. Selective distribution may also be witnessed in the industry products. The Automobile industry has not yet reached this stage.
Analysis and Results of the model
Most of the products offered in the automobile industry are in their growth stage. For instance, with regard to the electric vehicles, the number of users is now increasing significantly while presenting new challenges for the other players in the industry. Both existing and new companies are now starting to produce electric vehicles. However, Tesla possesses many features of a disruptive company (Doeden, 2015). The disruptive technologies arise as a result of lower profit segments that the industry leaders tend to ignore. It is attributed to the fact that the industry leaders tend to concentrate on high-profit areas, which seem to cater for their operating costs within a very short period. Tesla also continues to improve its technologies. As a result, it has developed a technology that is more effective regarding costs as compared to the other existing technologies.
Major Industry Trends
There are key trends that the automobile industry expects to witness over the next few years. Some of these trends include; increased competition, changes in demand, tighter government regulations, customer awareness of the benefits of electric vehicles, and advancement of the automobile technology (Doeden, 2015). All these trends will be in a position to strategically position Tesla in the market as the company is in a position to incorporate technology in its vehicles.
Corporate Level Strategy
Corporate Level strategy is usually concerned with the kind of strategic decisions that businesses have to make and that affects the organizations a whole. The main corporate level strategy of Telsa Motors is their market penetration strategy as well as the related constraints (Fujimoto, 2013). Telsa seeks to enhance its influence in the automobile market with the current products they have. Additionally, the company also seeks to market its electric power train components to the other players in the automobile industry. Another corporate level strategy being pursued by the company is to make to company serve as a positive example and a catalyst to the other companies in the automobile industry in terms of meeting the demands of their customers
Growth and 5 Year- Sales Trend
The production expansion witnessed in the automobile industry will be a key factor in driving the sales growth in the industry over the next five years. Within the next five years, the industry expects to receive new vehicles that are environment-friendly. The government regulations touching on fuel consumption and emission will also be instrumental in increasing production and hence revenues in the industry. As discussed earlier, by 2020, the Electric Vehicle Initiative (EVI) is seeking to have more than 20 million electric vehicles on the market (Calabrese, 2012).
Conclusion
Tesla is strategically positioned in the automobile industry as a high-end dealer and manufacturer. The electric vehicle (EV) industry is one that has moved past the infant state over the past few years, which has been characterized by many young companies that have failed to commercialize their major operations. Many external factors affect the operations of Tesla motor company significantly. Tesla possesses several features of a disruptive company. The disruptive technologies arise as a result of lower profit segments that the industry leaders tend to ignore. Key trends in the industry include increased competition, changes in demand, tighter government regulations, customer awareness of the benefits of electric vehicles, and advancement of the automobile technology. Within the next five years, the industry expects to receive new vehicle productions that will be instrumental in increasing the revenues of the company significantly.
References
Calabrese, G. (2012). The greening of the automotive industry. Basingstoke, Hampshire: Palgrave Macmillan.
Dallinger, D. (2013). Plug-in electric vehicles integrating fluctuating renewable electricity. Kassel: Kassel University Press.
Doeden, M. (2015). SpaceX and Tesla Motors engineer Elon Musk. Minneapolis: Lerner Publications.
Fujimoto, T. (2013). The long tail of the auto industry life cycle. Journal of Product Innovation Management, 31(1), 8-16. http://dx.doi.org/10.1111/jpim.12076
Hoffmann, J. & Coste-Manière, I. (2012). Global luxury trends. Basingstoke: Palgrave Macmillan.
Nicoline, Eeg Praem. Valuation of Tesla Motors Inc. Copenhagen Business School, August 2014
Ross, D. (2011). Cars Now. Köln: Taschen.
