This thesis aims to make a basic analysis of Tesla’s strategic management, identify and resolve Tesla’s strategic problems deeply, thereby, suggesting recommendations for performance advancement. The content of the thesis is divided into 3 chapters: Chapter 1: Introduction about Tesla Inc. Chapter 2: Analysis of Tesla’s Strategic Management. Chapter 3: Assessment and Suggestions for improvement.
《战略管理 L》期末结课论文 Strategic Management Analysis of ** Company 学生姓名：蓝静玉 - Ngoc Thanh Thu Doan 专 业：工商管理（国际班） 学 号：206140005 任课教师： 学 卢傅骁 院： 经济与管理学院 2022 年 12 月 STRATEGIC MANAGEMENT 2022 - 蓝静玉 Abstract Tesla began as an electric vehicle manufacturer start-up with headquarter in Palo Alto, California, after almost two decades of establishment and development, it has grown into a massive corporation with the sixth-largest market capitalization in the world Along with reputational success, Tesla is able to capture and cater to a vast majority of the market share in the thriving EV industry thanks to the flexible execution of differentiation, diversification, and vertical integration approach It could be concluded that Tesla is possessing critical sustainable competitive advantages over rivals Thus, this thesis aims to make a basic analysis of Tesla’s strategic management, identify and resolve Tesla’s strategic problems deeply, thereby, suggesting recommendations for performance advancement The content of the thesis is divided into chapters: Chapter 1: Introduction about Tesla Inc Chapter 2: Analysis of Tesla’s Strategic Management Chapter 3: Assessment and Suggestions for improvement Key words: strategic management; Tesla Inc; strategies analysis; environment analysis; CSR; generic strategy; diversification; low-cost strategy; broad differentiation strategy; competitive advantages; STRATEGIC MANAGEMENT 2022 - 蓝静玉 CONTENTS CHAPTER 1: INTRODUCTION ABOUT TESLA - CHAPTER 2: ANALYSIS OF TESLA’S STRATEGIC MANAGEMENT - Environments Analysis - 1.1 External environment analysis - a Macro elements - PESTEL Model: The PESTEL model by Francis Aguilar can demonstrate an overview of the general environment within which Tesla operates in the US: b Micro elements - Five-force Model: - 1.2 Internal environment analysis a Enterprise resources: b Value chain: - 11 1.3 SWOT Model 14 Tesla’s strategies analysis -15 2.1 Generic strategy 15 a Differentiation: - 15 b Low-cost strategy: 18 2.2 Vertical integration -19 2.3 Related diversification - 21 2.4 CSR activities - 22 CHAPTER 3: TESLA’S STRATEGIC MANAGEMENT ASSESSMENT AND SUGGESTIONS FOR IMPROVEMENT 24 General assessment about Tesla’s strategic management -24 Personal opinions on deficiencies of Tesla’s strategic management 24 Suggestions for future development -26 REFERENCES 29 STRATEGIC MANAGEMENT 2022 - 蓝静玉 CHAPTER 1: INTRODUCTION ABOUT TESLA Tesla, Inc is an American company that designs, manufactures, and distributes electric automobile products and components for electric vehicles It was founded in 2003 by two American engineers Martin Eberhard and Marc Tarpenning Martin Marc Eberhard Tarpenning * Vision: “To create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.” * Mission: “To accelerate the world’s transition to sustainable transport and electric technology.” STRATEGIC MANAGEMENT 2022 - 蓝静玉 “In the Middle East war: oil prices are high and the global climate is warming by the greenhouse effect A high-performance, eco-friendly electric vehicle is the solution to this situation.” said Martin Eberhard It has built a network of supercharger charging stations located around the world In 2020, despite the impact of the Covid epidemic, Tesla's sales still increased by 36% Tesla's market capitalization currently reaches $ 787 billion, the value of the company surpasses all best-selling car manufacturers in the world combined * Core values: “doing the best, taking risks, respect, constant learning, and environmental consciousness.” Tesla applies these values as the principles that govern the overall attitudes and practices of all stakeholders and its workforce The emphasis on performance is a value that has seen Tesla advance technological-wise, as the company also encourages its employees to take calculated risks while driving innovations STRATEGIC MANAGEMENT 2022 - 蓝静玉 CHAPTER 2: ANALYSIS OF TESLA’S STRATEGIC MANAGEMENT Environments Analysis 1.1 External environment analysis a Macro elements - PESTEL Model: The PESTEL model by Francis Aguilar can demonstrate an overview of the general environment within which Tesla operates in the US: STRATEGIC MANAGEMENT 2022 - 蓝静玉 b Micro elements - Five-force Model: - Threat of new entrants: New entrants to the major automakers are bringing innovation, new ways of doing things, and putting pressure on Tesla, Inc with a lower pricing strategy, lower costing Tesla, Inc must manage all these challenges and build effective barriers to maintain its competitive advantage The simplest solutions are, innovating new products and services, building economies of scale so that it can lower the fixed cost per unit, etc - Threat of substitutes: Tesla might experience a moderate force of substitutes since this market has low switching costs When it is said that electric cars are better to reduce the emission and protect the environment, people completely are able to switch to use public transportation instead of spending a large amount of money to buy an electric car and pay electric bills Moreover, the market of vehicles using fossil fuel is the most prominent alternative to electric vehicles markets - Bargaining power of buyers: Buyers are often very demanding They want to buy the best deals available by paying the minimum price possible This put pressure on the profits of Tesla in the long term Additionally, the customer base of Tesla is very STRATEGIC MANAGEMENT 2022 - 蓝静玉 small and powerful The greater the bargaining power of customers, the more likely they are to seek discounts and incentives Tesla’s customers are a direct factor that determines the company’s sales revenues - Bargaining power of suppliers: Powerful suppliers in the consumer goods sector are using their bargaining power to get higher prices from major auto companies The overall effect of a higher supplier's bargaining power is that it reduces the overall profits of the companies - Competitive rivalry: Tesla operates in a monopolistic competitive market There is a competition in this fast-growing industry, which makes the threat of competitive rivalry considered as a strong force Fortunately, Tesla just has to compete with a small number of firms but in the opposite way, they are large industry sizes Be the same as Tesla, these firms are also highly aggressive 1.2 Internal environment analysis a Enterprise resources: - Business model: The business model canvas below demonstrates more clearly about management strategy of Tesla: STRATEGIC MANAGEMENT 2022 - 蓝静玉 - Extraordinary raw materials: Example: In a Model S The Tesla Model S is the world’s most-wanted electric car, with 100,000 units already sold as of December 2015 It is worth considering that it is the incredible raw materials that go into the Tesla Model S that help to make it most-wanted car Here’s what’s in a Tesla Model S: STRATEGIC MANAGEMENT 2022 - 蓝静玉 Battery: The Tesla battery pack weighs 1,200 lbs (540 kg) which is equal to about 26% of the car’s total weight This puts the car’s center of gravity a mere 44.5 centimeters off the ground, giving the car unprecedented stability Here’s what’s in each cell: - Product design: If you look at Tesla's post-Roadster vehicles, they are aesthetically unified and self-reinforcing The cars aren't especially flashy, but they collectively express a Tesla look that's unmistakable This is strategy given beautiful physical form, under-girded by Holzhausen's obvious belief that less is more Tesla's luxury cars aren't larded with luxury clues — the chrome isn't laid on with a trowel, the curves and lines are smooth and sleek but not dramatic, and the interiors are subdued STRATEGIC MANAGEMENT 2022 - 蓝静玉 10 such as solar roof tiles This generic strategy builds competitive advantage based on the development of products that differentiate the company from other firms in the industry Their products are competitive because they integrate advanced environmental friendly technology, considering that the vast majority of automobiles today use ICEs In using this generic competitive strategy, the company broadly attracts all potential customers, who are now increasingly interested in environmental friendly products For example, in the high-end market, Tesla developed a unique product – electric sports car (Model S/Model X) which comes with eco-friendly technology, making them attractive to a growing environmentally conscious market; meanwhile, it produced low-cost vehicles (Model 3/Model Y) to stimulate demand and strengthen its brand position in the low-end market Thanks to the efficient application of broad differentiation, Tesla’s production and sales of EVs have been increasing tremendously over 10 years: Figure: Tesla Model S/X/3/Y Production & Deliveries STRATEGIC MANAGEMENT 2022 - 蓝静玉 16 Figure: Comparison of EV market share among different corporations in the first half of 2021 Tesla has also ventured into the renewable energy sector as part of its broad differentiation strategy In 2015, the firm released its first “at-home Powerwall and Powerback” energy storage systems – capacity of 210kWh batteries – to target households And now, another proof for their success in generic competitive strategy is the breaking record number of batteries delivered in Q3 2022 It is reported that its battery energy storage systems deployment increased 62% year-over-year to a new quarterly record of 2,100 MWh Figure: Tesla energy storage deployment summary Based on this generic competitive strategy, Tesla differentiates itself among the competitors by increasing its R&D investment every year to develop a highly innovative unique ecosystem for increasing returns to an economics scale STRATEGIC MANAGEMENT 2022 - 蓝静玉 17 b Low-cost strategy: A low-cost leadership strategy is defined as a company gaining a competitive advantage by reducing its cost to compete with rivals For Tesla, one important source of its cost-leadership strategy comes from economies of scale which means the more units produced, the lower cost incurred Particularly, from the case, it is given that from the 51st car produced, the total cost will slightly decrease with the increased volume Moreover, each year the amount of cars significantly increases, which in turn causes a huge decline in its manufacturing costs Another source for its low-cost production comes from its access to low-cost inputs The Gigafactory in Shanghai China should be mentioned first for the tactic The factory allows Tesla to reduce labor costs to as low as one-tenth of costs in California Besides, since China is an export hub for Tesla products, the factory saves the firm a huge amount of transportation costs Moreover, the factory enables Tesla to gain cost advantages from local suppliers and slash procurement costs Figure: Tesla’s Low-cost Product Development STRATEGIC MANAGEMENT 2022 - 蓝静玉 18 2.2 Vertical integration Figure: Tesla’s vertical integration and its competitors Supply chain issues brought on by the pandemic have been particularly challenging for the automotive sector A global chip shortage among an onslaught of supply chain obstacles have adversely affected the entire industry Tesla's vertically integrated strategy proved to be very advantageous when facing these supply chain challenges Tesla has vertically integrated many production steps, from battery production to electric power-train production and self-driving software According to Tesla CEO Elon Musk, Tesla is a "chain of startups." Tesla vertically integrates the packing and assembly of battery cells and energy management systems within their own facilities They also internally manage the body design, assembly, and recharging systems STRATEGIC MANAGEMENT 2022 - 蓝静玉 19 This strategy allowed Tesla to avoid shortages of batteries, which have hindered legacy automakers from reaching volume production of electric cars Before legacy automakers began investing in electric vehicle manufacturing, Tesla partnered with Panasonic to build its first Gigafactory to produce batteries Now, the Gigafactory ensures a reliable supply of batteries Tesla's in-house software development is perhaps their biggest advantage over its competitors As a Silicon Valley born company, Tesla has never outsourced their software They have instead developed a proprietary self-driving software that is improved by collecting data from Tesla's network of over one million beta testers Tesla is potentially going a step further to vertically integrate their supply chain In light of the skyrocketing prices of lithium, Tesla may plan to get into the lithium mining and refining business Tesla is considering mining some of its own raw materials for the same reasons that they developed their own batteries, produced their own electric motors and built their own computer chip and software for autonomous driving Tesla's pace of innovation and lead in the industry has become clear as the traditional business model of outsourcing components and software to cut production costs is quickly becoming outdated STRATEGIC MANAGEMENT 2022 - 蓝静玉 20 2.3 Related diversification Tesla’s related diversification strategy intensified in 2016 when the company’s CEO announced the intention to acquire SolarCity The main motivation behind the diversification strategy was to achieve its long-term vision of creating a world powered by solar energy which is environmental friendly Some of the main advantages that Tesla has leaped from this strategy include the increased ability to hedge its portfolio, capital preservation, and reduced risks on investments Tesla has endeared its self to a global customer base because of its willingness to promote clean energy The world is currently experiencing adverse climatic conditions due to global warming The automobile industry is one of the biggest contributors to the volume of greenhouse gases released into the atmosphere Therefore, the decision by Tesla to invest more in clean energy production has played a pivotal role in strengthening its brand The strategy adopted by Tesla has allowed its products to reach a wider market pool, thus giving it a competitive advantage Any consumer who buys an electric car from Tesla will likely buy their batteries and solar panels because their efficiency levels are a tier above all the others available in the market The major disadvantage that Tesla has experienced due to its diversification strategy has been having below-average returns For example, the stock value of Tesla dropped significantly in 2013, as soon as the news of their decision to take over SolarCity was announced STRATEGIC MANAGEMENT 2022 - 蓝静玉 21 2.4 CSR activities Tesla’s Corporate Social Responsibility strategy focuses on sustainability and environmental friendliness of automotive, energy storage, and energy generation products Tesla has significant opportunities to show the world what a major global firm’s corporate social responsibility efforts can to satisfy the interests of stakeholders and contribute to the global community - For the environment: It is crucial to ensure that the natural environment is conserved or protected Thanks to many of the Tesla production sites being recently built, they have been designed to incorporate an array of ground-breaking energy-saving features As a result, Tesla goes a long way beyond being carbon neutral, and its factories consume a lot less green energy than the Tesla Solar panels scheme generates - For the community: The smaller carbon footprint and improved air quality associated with its vehicles bring about an enhanced quality of life for communities worldwide The technological advances it has made in terms of battery-based energy, particularly in improved power storage, allow both urban and remote communities to move away from using carbon generated power The Active Safety and Passive Safety features are a work in progress but are already reducing the number of fatalities associated with Tesla vehicles compared to conventional ones - For customers: The firm seeks new ways of minimizing costs For example, instead of continuing to buy battery cells from Panasonic, Tesla shifts to manufacture, in collaboration with Panasonic, its own batteries to make its electric automobiles more STRATEGIC MANAGEMENT 2022 - 蓝静玉 22 affordable Also, the company expands its network of charging stations to improve accessibility for customers This CSR approach improves customer experience and satisfaction - For employees: Their interests include high compensation and significant career opportunities Tesla’s CSR approach satisfies these interests through a competitive compensation strategy, as well as HR programs for skills development and leadership development Moreover, the company’s CSR strategy offers learning experiences through collaborative programs with partner firms Furthermore, Tesla’s organizational culture helps improve employee morale and minimize issues in the workforce Ex: Manufacturing Development Programme, Tesla Student Automotive Technical Program, Tesla’s Tool&Die Apprenticeship, Tesla’s Internship Programme, etc… - For investors: They have interests in the profitability and growth of the business Tesla’s CSR approach addresses these interests through long-term strategies that aim to transform the automotive/transportation and energy market For example, the company’s decision to allow other firms and individuals to use its technology patents is expected to increase market demand for electric vehicles and related products This increase in demand is expected to create business growth opportunities for Tesla STRATEGIC MANAGEMENT 2022 - 蓝静玉 23 CHAPTER 3: TESLA’S STRATEGIC MANAGEMENT ASSESSMENT AND SUGGESTIONS FOR IMPROVEMENT General assessment about Tesla’s strategic management Personal opinions on deficiencies of Tesla’s strategic management - About HR management: since Tesla's culture is so focused on the organization's vision, there appears to be disconnect on what truly matters within the organization: the employees Tesla's current culture has resulted in internal sabotage, high executive turnover, and a percent layoff of staff Next, employees are selected to work at Tesla based on passion and team resilience However, the employee's passion must match Elon Musk's passion, which can create unrealistic expectations placed on the employees Research has found that unrealistic or unmet employee expectations produce a surprise in the workplace environment Therefore, Elon Musk must strive to attain an employee's values instead of confirmation of expectations, which will produce job satisfaction STRATEGIC MANAGEMENT 2022 - 蓝静玉 24 - About working environment management: It is reported that demeaning jokes and retaliation on the basis of race are all common at Tesla There are even over 100 sworn statements from a class-action lawsuit for this racism discrimination matter The ex-workers say Tesla allowed a hostile and discriminatory workplace such as calling peers in the factories “cotton workers” or N-word These negative organizational citizenship behaviors can have grave consequences on the company image - About customer service and public relations: Elon Musk's "honeymoon" in the world's most populous market has come to an end After walking the red carpet, hailed by Beijing officials, Tesla must now rethink its strategy, from customer service to public relations in a key market like China Examples of Tesla failure in China: + Huang Jiaxue - a businessman in Wenzhou (China), was delighted when he received the Tesla Model at the end of 2020 However, in May, he quickly sold the car and in spite of a 25% loss for 249,000RMB ($38,600) "The reason is safety concerns." Huang said He mentioned domestic articles about Tesla's brake system failures "Reading the news about this every day makes me scared to drive." he said + Chinese authorities once ordered a recall of almost all Tesla cars sold in the country, ie more than 285,000 units, to deal with software errors The reason is because the authorities are concerned about Tesla cars being able to send data back to the US Furthermore, local electric carmakers like Nio and Xpeng are posing a challenge to Tesla's dominance STRATEGIC MANAGEMENT 2022 - 蓝静玉 25 + At the Shanghai Auto Show in April 2021, a woman blamed a faulty brake on her Model and caused the accident, killing almost all four of her family members Therefore, a protest protest took place right at the Tesla booth Initially, Tesla's reaction was quite harsh, when the director of external relations Grace Tao thought that this woman was being manipulated and said her car was still operating normally when the accident happened However, criticism quickly flooded social networks and media, and the electric car company was forced to issue an apology Figure: A female customer in China believed that her Model had a brake failure and was the cause of her accident Suggestions for future development To begin with, Tesla should pay more attention to the sensitive problem within the working environment, prove fairness by actions It is essential to make sure that all of the managers and employees are knowledgeable in recognizing and tackling racism They must have the perception and practice of equality and diversity via training programs as well as self-study Additionally, if there is any discrimination occurs in STRATEGIC MANAGEMENT 2022 - 蓝静玉 26 the workplace, the staff should not ignore the issue; instead, they would better understand the context and address the act in time to not let things go further Secondly, it is recommended that Tesla should keep focusing on battery R&D Since the switching cost between an EV and its substitute is relatively low, the customers then are unwilling to change their current vehicle to an EV Particularly, one of the buyer’s concerns regarding having an EV is battery quality and capacity Additionally, when battery fires are a remaining problem of the brand, it is necessary to invest in battery design to offer the safest battery with a higher driving range To achieve improvement of its battery modules and packs, Tesla could acquire technological and engineering expertise company, which allow the company to maximize its control and benefits, to gain sustainable competitive advantages Next is to focus on market development This strategy involves entering new markets to generate more sales and grow the global business For example, the company gradually expands its market reach worldwide by establishing new offices and facilities This strategy supports Tesla’s mission and vision statements, which highlight global leadership in the automotive industry, with energy solutions for the transportation and other sectors This strategy can also be conducted by creating unique products that attract customers when the company enters new markets Based on the market development strategy, the strategic objective is to grow Tesla’s multinational business by establishing alliances with other companies that make it easier to enter new markets STRATEGIC MANAGEMENT 2022 - 蓝静玉 27 Last but not least, Tesla should enter a win-win collaboration with the government to which it tends to expand its operation Moreover, the brand should also design its charging infrastructure in accordance with the standardized format of the industry This would save the brand a huge amount of cost in building charging networks to focus on other business areas Since it can be learned from the second biggest market for EVs is the United States in which the government plays an important role in controlling and growing the industry In the USA, the government aid the development of the EVs industry by implementing tax incentives and credits for EVs buyers, meanwhile the government and states invest in building EV charging infrastructure across the country On the other hand, the government also establish industry standards for charging infrastructure to minimize the negative effects of format wars ACRONYMS DEFINITION EV electric vehicle ICE internal combustion engine PESTEL political, economic, social, technological, environmental, legal CSR corporate social responsibility R&D research and development SWOT strength, weakness, opportunity, threat HR human resource CEO chief executive officer STRATEGIC MANAGEMENT 2022 - 蓝静玉 28 REFERENCES Alec, F (2020) “Tesla: Business Model and Strategic Analysis” Dobbs, M (2014) “Guidelines for applying Porter’s five forces framework: A set of industry analysis templates” Competitiveness Review Grundy, T (2006) “Rethinking and reinventing Michael Porter’s five forces model” Strategic Change Porter, M (2008) “The five competitive forces that shape strategy” Harvard Business Review Roy, D (2011) “Strategic Foresight and Porter’s Five Forces” Walder, J (2013) “A critical evaluation of Michael Porter’s Five Forces Framework” Kolodny, L (2021) “Tesla must pay 137 million to ex-worker over hostile work environment racism” Kramer, A (2021) “Tesla fremont racism discrimination” Kurter, L (2020) “Ways you can tackle racial discrimination in your workplace” Tesla Car Battery Fires & Defective Product Claims (2021) Retrieved from Enjuris Tina, B & Paul, L (2021) “Five facts on the states of the US electric vehicle charging network” Change Suite Vehicles & Road Traffic (2021) “Tesla quarterly vehicle production” Study Corgi (2022) “Tesla Differentiation Strategy and Its Distinctions” STRATEGIC MANAGEMENT 2022 - 蓝静玉 29 Gabe, M (2022) “Tesla's vertical integration and efficiency show why they're the leader in EVs” Christine, R (2018) “Tesla generic strategy (Porter’s Model)” Kauerhof, A (2017) “Tesla motors Inc market entry strategy in Germany: A corporate strategy analysis” Tansel, K (2016) “Marketing audit, segmentation & targeting analysis and analysis of product/brand strategy and positioning” Marketing report on Tesla Motors Mark, K (2022) Tesla energy storage deployed Q3-2022 Results Mark, K (2022) Tesla production, deliveries graphed through Q4-2021: Huge Surge Minh, Q (2021) “The cause of Tesla's collapse in the Chinese electric car market” VietTimes News & Analysis Locke, A (1976) “The nature and causes of job satisfaction” Handbook of industrial and organizational psychology Bianca, C (2021) “Social and Organizational Culture” Tesla Case Study Warrick, D (2017) “What leaders need to know about organizational culture” Business Horizons Voyage Consulting Group (2018) “A peek behind the curtain of Tesla’s culture reveals it’s missing one key ingredient: Warmth” Lucas, J (2020) “Day 10: Tesla and their CSR” Roberta, G (2018) Tesla, Inc.’s Corporate Social Responsibility & Citizenship Justin, F (2022) “What is Tesla’s CSR Policy?” Ask Traders STRATEGIC MANAGEMENT 2022 - 蓝静玉 30 ... report on Tesla Motors Mark, K (2022) Tesla energy storage deployed Q3-2022 Results Mark, K (2022) Tesla production, deliveries graphed through Q4-2021: Huge Surge Minh, Q (2021) “The cause of Tesla'' s... Warmth” Lucas, J (2020) “Day 10: Tesla and their CSR” Roberta, G (2018) Tesla, Inc.? ??s Corporate Social Responsibility & Citizenship Justin, F (2022) “What is Tesla? ??s CSR Policy?” Ask Traders... raw materials that go into the Tesla Model S that help to make it most-wanted car Here’s what’s in a Tesla Model S: STRATEGIC MANAGEMENT 2022 - 蓝静玉 Battery: The Tesla battery pack weighs 1,200