How Tesla has become world’s most successful clean energy and auto manufacturing company

By simon Odera

About Tesla

Tesla, Inc. is an American clean energy and auto manufacturing company headquartered in Palo Alto, California, USA. Tesla develops and manufactures electric cars, home, and grid battery storage, solar panels, roof tiles solar, and other related products. Tesla Inc. CEO Elon Musk revealed during the company’s annual shareholder meeting that the company’s headquarters would be relocated from Palo Alto, California, to Austin, Texas. In 2020, Tesla had the highest number of battery electric vehicle and plug-in electric vehicle sales, capturing 16% of the plug-in market (including plug-in hybrids) and 23% of the battery-electric market (all-electric). The company is a major developer and installer of photovoltaic systems in the US through its subsidiary Tesla Energy. With three gigawatt-hours (GWh) installed in 2020, Tesla Energy is also one of the world’s largest battery energy storage systems providers.

The company was founded in 2003 as Tesla Motors by Martin Eberhard and Marc Tarpenning, and named after Serbian American Engineer and investor Nikola Tesla. In February 2004, Elon Musk became the company’s largest shareholder after investing $ 6.5 million in the company. He has been the CEO of Tesla since 2008. According to Musk, Tesla aims to accelerate the transition to sustainable transportation and energy by increasing its investment on electric vehicles and solar energy.

The Roadster, Tesla’s first vehicle model, was introduced in 2009. In 2012 Tesla introduced the Model S, and Model X SUV in 2015. In 2017 the company introduced the Tesla Model 3 sedan, and the Tesla Model Y crossover in 2020. The Tesla Model 3 is the world’s highest-selling plug-in EV globally and became the first electric vehicle (EV) to sell over 1 million units globally in June 2021. Tesla’s electric vehicle sales in 2020 were over 490,000 units, which represented an increase of 35.8% over the last year (Almenhali et al., 2021).

Apart from the automotive products, Tesla Energy, a Tesla subordinate company, develops, manufactures, and sells solar power production systems and battery storage devices for residential, industrial, and commercial clients. Tesla Energy’s generation products include solar panels, Solar Roof, and Tesla Solar Inverter. Other products are Powerwall, Powerpack, and Megapack energy storage systems. Currently the number of full-time employees working for Tesla and its subsidiaries is 70,757, 47.36% increase from 2019. The overall number of Tesla employees in 2019 was 48,016, 1.64 percent decrease from the previous year.

Tesla’s Current Business Strategy

When Tesla was founded in 2003, electric vehicles were very expensive. Tesla’s initial strategy was to produce low-volume, high-priced vehicles where customers are less sensitive to price. This would enable the company to gradually reduce battery costs, allowing it to offer less costly and bigger cars. The Roadster, Tesla’s first electric vehicle, was low-volume and cost more than $ 100,000. The subsequent models are more affordable and luxurious vehicles. Model Y and Model 3, are relatively cheaper and target a larger market. Tesla sells more than 100,000 vehicles each quarter. Unlike almost all other automakers, Tesla continually improves the hardware in its cars instead of waiting for a new model year.

Tesla does not sell its automobiles through franchised dealerships. The company prefers selling cars directly through a network of corporate-owned dealerships and on its website. Automobile companies are restricted from selling automobiles directly to customers in several countries, notably in the US. Tesla has branches in some regions that educate and enlighten clients about its vehicles and energy products, but such sites do not sell the company’s products. Tesla has almost 438 outlets and galleries spread across over 35 countries. Direct advertising is not paid for by Tesla. The firm uses its showrooms in malls and other places to interact with buyers, and it sells automobiles online rather than through the traditional dealership. Tesla is the first company in the US to sell vehicles to people directly.

The company has a high level of vertical integration, with over 80 percent vertical integration rate in 2016. The firm manufactures car components as well as unique charging stations for clients’ automobiles. In the automobile sector, vertical integration is uncommon since companies usually outsource almost 80 percent of components to suppliers and concentrate on engine manufacture and final assembly. Tesla enables its rivals to license its technology in general, to speed the global adoption of renewable energy. The agreements of licensing contain clauses stating that the receiver will not sue Tesla for patent infringement or direct duplicate its ideas. To avoid direct duplication of its technology, Tesla holds on to ownership of its other intellectual property, including trademarks and secrets.

Competitive Market Analysis

Tesla’s stock soared in 2020, valuing the firm at more than $400 billion. To put things in perspective, this is more than the combined revenue of the majority of major automotive manufacturers. Numerous forces are working in Tesla’s favor. Many of them are related to future dreams. Tesla Inc. can be the best electric vehicle (EV) manufacturer globally, but the company faces stiff competition from other big and established car manufacturing companies like Chevrolet and Ford, which have been manufacturing cars for a long time. They are, however, relative newbies to the world of electric vehicles. They are catching up with their new automobile alternatives, despite their EV manufacturing lag.

Although Tesla strives to become a magnificent, productive factory, this may no longer be a selling factor in the future. Tesla’s software also has to be considered. The company has developed self-driving software that may be used in its cars and also by other automakers that wish to include autonomous driving capabilities in their vehicles. As it works through the problems of all-inclusive software, Tesla is beginning to provide limited self-driving software alternatives. One issue is that other firms are developing extremely powerful self-driving technology, maybe even ahead of Tesla’s software. Alphabet’s autonomous driving software is one example.

Additionally, that translation isn’t yet obvious in the sales of the technology to various vehicle makers. While Tesla emphasizes the use of cameras for self-driving, many cars today depend on laser sensor technologies. Tesla, according to some, has the potential to become a fantastic “robotaxi” firm. This means that ordinary people may buy vehicles and convert them into self-driving taxis. When owners don’t need their cars throughout the week, they may rent them out and earn money from rides. The car’s purchase price may be justified solely based on these taxi services. However, apart from the self-driving technology, there are other problems associated with self-driving robotaxis, such as creating maintaining map for the vehicles, social interaction complexities, and threats of cyber attack.

Porter’s Five Forces Analysis

Tesla Inc. maintains profitability by implementing strategic plans that meet the aggressive difficulties identified in the worldwide automotive business Five Forces analysis. This Porter’s Five Forces study evaluates the critical external variables in the automotive and energy industries, and how they impact Tesla company. Tesla must properly manage such external issues so that it maintains its long-term competency, power, and resilience amid fierce competition.

1. Competitive Industrial Rivalry

The company operates in a highly competitive market. The following are the external elements and their magnitudes that contribute to the strong force of competitive rivalry:

• Firms with a high level of aggression (strong force)
• A small number of businesses (weak force)
• Low-cost switching (strong force)

A limited number of companies dominate the automobile industry. According to Porter’s Five Forces research paradigm, This external factor minimizes the impact of competition on firms like Tesla, Inc. These companies, on the other hand, are typically proactive in terms of product innovation and promotion. Large automobile firms, for example, run extensive marketing efforts. Tesla’s marketing mix, or 4Ps, addresses some of this aggression, amplifying rivals’ negative impacts. According to this part of Tesla Inc.’s Five Forces research, competitive rivalry is a high-priority strategic management challenge in the automotive and energy solutions market environment.

2. Customers’ bargaining power

The customers of Tesla have a direct influence on the company’s sales revenue. Below are the external components and their intensities which sustain the moderate force of consumer negotiating power on the firm:

• Low-cost switching
• Moderate accessibility of substitutes
• Seldom purchases

Tesla customers may easily move to other brands due to low switching costs. This external factor operates as a substantial deterrent to the firm and other car industry participants. However, in many cases, replacement items are scarce, limiting the customer’s options for negotiating with Tesla Inc. Furthermore, due to limited purchase volume, customers’ influence on Tesla is diminished. The strength of external variables in this phase of the Five Forces research reflects the negotiating power of clients as a moderate force and a secondary managerial priority.

3. Bargaining Power of Suppliers

The company depends on the reliability of its suppliers. The forward integration of Tesla Inc.’s suppliers is minimal. This external element refers to providers’ limited influence over their products’ distribution and sale. The bargaining power of suppliers exerts little influence on the firm’s performance. Moreover, the majority of these suppliers are small, thus have minimal influence on the automobile business environment. Another external element is the limited supply, which allows suppliers to exert some little control over Tesla. The suppliers’ bargaining power is, therefore, a secondary priority in strategic management.

4. The Threat of Substitute Products

The car and energy solutions sectors are both affected by substitutes. As stated earlier, low switching costs enable competitiveness. Low switching costs enable alternatives, such as public transportation, to readily acquire customers in this external analysis scenario. This external element has a significant influence on Tesla’s operating environment. The limited supply of alternatives, on the other hand, limits the impact of providers. Customers, for example, have a limited number of other alternatives accessible to them on the market. The force of replacements against Tesla is further limited as a result of this situation. The threat of substitutes is, therefore, a secondary strategic management priority.

5. The threat of New Entrants

New entrants are new businesses that impact the sector and influence the success of companies like Tesla Inc. Tesla’s company is tough to compete with, particularly given the high cost of brand creation and Elon Musk’s celebrity. For example, it will be tough for newcomers to match the company’s established brand. This external component acts as a barrier to access. Furthermore, the cost of producing automobiles is high. The high production costs pose a barrier to entry for new firms into the industry. Established firms, such as Tesla, enjoy the benefits of increasing economies of scale, which newbies can only get after reaching a particular level of production. In Tesla Inc.’s industry, the danger of new entry is just a small strategic management issue.

Internal Analysis

1. Strengths

The following strengths shape the capabilities of Tesla as a competitive participant in the automotive sector;

• Highly innovative processes- the company’s design is incredible. They take into account several factors while designing electric vehicles to give consumers a high degree of comfort.
• Strong brand- the company’s sales have grown despite its many challenges due to its brand influence, design, and creativity. The company’s ability to attract and retain new customers is enhanced by having such a strong brand.
• Energy efficiency- Tesla uses renewable energy sources, specifically, solar power. The company has managed to become a leader in the electric vehicles industry.

2. Weaknesses

Tesla Company has become a big brand in the market. However, the company still experiences a lot of challenges. Some of the challenges which may limit Tesla’s progress include

• Limited presence in the market – most of the company’s income comes from the United States. The company has limited markets in China (a potentially large market) and other developing countries.
• Limited supply chain- The limited supply chain is also a linked vulnerability that inhibits the company from swiftly developing in international markets.
• High prices- Tesla produces more expensive vehicles than its competitors, especially vehicles with internal combustion engines. The company cannot, therefore, expand its share in the market and client base swiftly.

3. Opportunities

Opportunities focus on external elements that provide avenues for the organization’s growth and development. Tesla, Inc. has an exponential potential for enhancing its financial abilities and competitive advantage in the global energy and automobile industries. The opportunities include:

• Global sales expansion- This potential is based on strong economic growth in countries with a small market share. For example, expanding into the Asian auto and renewable energy industries can help the company increase its sales.
• Global supply chain expansion- This external aspect underlines Tesla’s comparably restricted area of activity when compared to giant businesses like General Motors.
• Diversification of business- diversification can help Tesla improve its financial and general performance in the industry. The company can achieve this by creating or venturing into additional businesses. Diversification may reduce Tesla’s exposure to blows in the automobile industry.
• Autopilot technology- Tesla’s autopilot system is popular because of its safety and convenience. Tesla has the opportunity to progress its autonomous driving research.
• Battery production technology- Tesla plans to manufacture its batteries (Kissinger, 2018). This has the potential to alter the game’s rules by assisting the company in lowering manufacturing costs.

4. Threats

Due to stiff competition, Tesla’s potential earnings from the electric automobiles, batteries, and solar panels global market are restricted. Tesla must handle the following risks to stay robust in the face of the ever-changing technological space, even though its business has been profitable:

• Fierce competition- Automakers compete fiercely with each other. With continued attempts by other companies to make electric cars, this external strategic issue poses a threat to Tesla.

• Fluctuations of material prices- the cost of lithium has been increasing tremendously in the recent past. The mineral is utilized by Tesla in the manufacture of energy storage devices. The fluctuations in prices pose a great threat to the company’s performance and success.
• Regulations of the dealership- Tesla now sells its goods and services directly to customers rather than through a wholesaler. The presence of intermediaries raises the price of products. However, the direct sales of the company’s products are illegal in several states, such as Virginia and Texas, and must be done through distributors.

Tesla is one of the most well-known electric car manufacturers with a strong reputation for providing environmentally friendly and sustainable solutions. Furthermore, the electric car industry’s external market study assisted in finding that demand for electric vehicles is expanding in contemporary times due to growing concern for environmental sustainability. However, many external market variables have resulted in supply shortages, necessitating the company’s improvement of supply chain performance to deal with competitive challenges and the danger of inventory shortages. In addition, to increase its market reach and fulfill its objective of speeding the world’s transition to sustainable energy, the firm should implement a market development plan.