The case study reveals that there are a number of challenges faced by Tesla. These challenges rose up when the environmentalist came up with laws and regulations so as to limit the fuel emission from cars. Then technology chipped in which called out for making car models which are based on the latest form of innovative technologies in terms of fuel consumption. Many international car manufacturers have also joined the automobile industry including the companies from Korea, Japan, and China. Due to the increase in care manufacturing companies, the competition has also soared for Tesla.
There were some questions in the mind of Elon Musk about Tesla which became the foundation of his stress such as:
Will Tesla be recognized as a finest American car company?
Since the new trend is for electric-based vehicles, so what could be the possibility that Tesla will be able to disrupt the market just like the Korean and Japanese care manufacturers?
What will be the degree of competition for Tesla and how will it beat it?
How will Tesla maintain its competitive advantage while offering electric vehicles to its customers with limited infrastructure?
Is there instability in the business model of Tesla?
How will Tesla continue to meet the growing demand for its existing Model S and upcoming Model X while adhering to low cost structure?
Would Tesla consider a partnership with a stakeholder or sell itself to a renowned car company?
Major Challenges for Tesla
The major challenge faced by Tesla is related to the introduction of hybrid vehicles. The CEO is strictly against the idea of manufacturing hybrid cars because this way the emission will come from both the electric and gasoline sources which can cause a negative impact to the environment. However, many car manufacturers are making hybrid models and they seem to be content with its sales and their volumes are rising but Tesla is not in favor. The loyal customers of Tesla demanded that the company manufactures state of the art hybrid cars to which the company policy did not respond. However, the number of customers interested in hybrid cars declined when the recession hit the entire global market.
Noticing that Americans would prefer bigger cars and SUV’s, many car manufacturers including Ford, Hyundai, Kia and Toyota shifted their business models of small to medium sized cars to include bigger and technologically advanced vehicles so as to capture the American market. This led to a very high competition for Tesla. Tesla’s manufacturing plants were based in California whereas other cars had their manufacturing plants at low cost locations so it became quite challenging for Tesla to maintain a low cost structure. Customers preferred cars by Japanese and Korean manufacturers as they came at a low price and offered great mileage.
As the oil prices began to rise at the global level and concerns for the environment began to rose, car manufacturers also decided to look up for alternate sources of energy. The possible sources of alternate fuel for cars were identified. Compressed natural gas, ethanol, hydrogen, and electricity were highlighted and it became mandatory for Tesla to increase it research and development efforts in this area. This caused an increase in expenditures for Tesla.
Many car companies are making a heavy investment in battery operated and electric cars but these cars are quite expensive and out of reach of common people. If Tesla directs its research and development efforts to the production of electric cars, it will not be able to make an investment in other two businesses of Elon Musk (Fehrenbacher, 2016). This means that the there is a limited budget for Tesla’s research and development efforts and it can be seen as a great opportunity for the Japanese, Chinese and Korean car manufacturers to dominate the American automobile market.
Plug-in hybrid vehicles have also been manufactured by some Chinese companies and the biggest threat to Tesla is from BYD Motor. BYD Motors is a leading manufacturer of plug-in hybrid cars which first entered the western market with high affordable models which are embedded with plug-in technology. Being a battery company, BYD has placed lithium iron phosphate batteries for cars which can give the car a speed of two hundred and fifty miles when charged for three hours. The usual charging time offered by other manufacturers is very long and the speed is not too satisfactory either.
The business model of Tesla is not as strong as of its competitors such as Nissan, Toyota, Hyundai, GM etc. The entire infrastructure is also weak which means there is a lack of research and development facilities and a limited number of manufacturing sites. Also, there is a need for more technicians, engineers and management people so that they can coordinate in a strategic manner and fulfill the mission of Elon Musk (DeBord, 2015).
The price of Tesla vehicles is quite high as compared to its competitors. When Tesla introduced its Model S cars in the market, it intended to price it high but then it viewed results from a poll which revealed that the traditional cars have been replaced by electric cars and customers in the American market are not willing to pay more for the advanced technology. This means that Tesla can only gain profits if its keep its manufacturing cost of electric vehicles low.
Two negative news articles were published which caused the reputation of Tesla to suffer. One article was based on the idea that although Tesla claims that the Model S will be successful in giving 400 miles per single charge but it could not live up to this claim (Palin, Johnston, Johnson, D'Hooge, Duncan & Gargoloff, 2012). The second article mentioned that although Tesla set up recharge stations 200 miles apart from each other but the charging of the vehicles drops before the next station arrives.
Recommendations
There are several strategies which can be adopted by Tesla for overcoming the mentioned challenges. For instance, Tesla set up charging stations at 200 miles apart but this distance shows the charging stations are only established for the Model S. Later, Elon Musk came up with a battery replacement system which would take less time than the time spent at a regular gas or petrol station. Tesla can also make the most of the strategic partnerships to improve its infrastructure. For instance, allowing Toyota to purchase shares of Tesla, the company can offer better and improved components which could increase the life and functionality of Tesla cars. Lambert (2016) mentioned that Panasonic is known for its great electronic products so by getting into a partnership agreement with Panasonic, Tesla can strengthen its powertrain project as well as play its role in the conservation of the environment as Panasonic aims to manufacture green products for its partners and customers.
Tesla has also considered international expansion by opening its stores in Canada, Europe, and Asia. Tesla does not depend on franchises rather carries out in-house operations. A car leasing unit will also add to the profits of Tesla. Tesla also needs to make sure that it optimally utilizes its assets such as manpower, manufacturing sites as well as make use of effective operational moves.
References
DeBord,M. (2015). Tesla has 2 major problems, and they have nothing to do with its cars. Available: http://www.businessinsider.com/teslas-problems-are-not-its-cars-2015-10. Last accessed 23rd Jul 2016.
Fehrenbacher, K. (2016). Elon Musk Confessions: All the Stupid Things Tesla Has Done. Available: http://fortune.com/2016/05/31/elon-musk-confessions-tesla/. Last accessed 24th July 2016.
Lambert, F. (2016). Panasonic ‘gearing up for significant growth’ at the Tesla Gigafactory, will host a special hiring event next week. Available: http://electrek.co/2016/06/17/panasonic-tesla-gigafactory-battery-cell-hiring-event/. Last accessed 23rd Jul 2016.
Palin, R., Johnston, V., Johnson, S., D'Hooge, A., Duncan, B., & Gargoloff, J. I. (2012). The Aerodynamic Development of the Tesla Model S-Part 1: Overview (No. 2012-01-0177). SAE Technical Paper.
