Discuss about the Case Study of Tesla Motors.
Tesla Motors was founded as an auto company in 2003 by Martin Eberhard and Marc Tarpenning. In 2004, Musk invested from personal finances in the company becoming the company’s board chairman in 2004. Tesla’s objective was to commercialize the electric cars (Burns, 2014). The company’s first car was the Roadster with battery electric vehicle with more than 200 KM per each charge. This was a sports car that did not consume gasoline at all (GreenCar Magazine, 2009). The company manufactured its second car Model S in 2015 which best received in the market with worldwide sales of 1500 units in four years (Cobb, 2016). Tesla was named the top American brand by consumer Reports (Bartlett, 2017). This paper will discuss the internal and external environment the company operates in using the SWOT and PESTEL models and develop a market positioning strategy based on this analysis. It will also discuss the company’s core competency and how the company can leverage on this and develop strategies for competitive advantage.
Strengths
The company was the first to offer a fully electric car and thus can leverage from the first mover advantages. Tesla gained popularity when it produced the first mass produced the sports carthat was electric in 2008, the Roadster, (Abreu, 2010). The company has continued to enjoy popularity since this production of green cars with the brand recognized as the top motor brand in the USA (Bartlett, 2017). With a valuable brand name, the company can leverage on this to continue producing other products that appeal to the clientele all over the world. The cars have been driven by some of the top celebrities thus giving the company popularity including Arnold Schwarzenegger (Johnson, 2006). Others includeJay-Z and Will Smith amongst other top celebrities (Meggison, 2014).
The company has strength in the capability to raise and invest capital in its engineering and technology research thus being able to produce different models of the car which are an improvement of the first car.In 2004, Musk was the first large investor in Tesla putting in $6.5 million capital from personal finances. In 2005, Valor invested $2.0 million after the company was convinced that Tesla’s management was in line with their desired levels of operational efficiencies and the CEOAntonio Gracias joined the Tesla board(Tesla Motors, 2007).
Weaknesses
The company is still small with low output levels and sales. Therefore, it does not benefit from economies of scale compared to the bigger vehicle manufacturers. The vehicles manufactured maytherefore not be competitively priced for the mass market in comparison to the other vehicle manufacturers. It is therefore important to focus on mass production of moderately priced vehicles. Due to the massive investments in their research and development, the company has been suffering from debt and shortage of cash flows. The interest payments on the debt eat into the company’s earnings. Without enough cash flows, the company may not manage to continue with investments for expansion.
The company has been in business for a few years compared to other vehicle manufacturers. The credibility of the electrical vehicles has therefore not been confirmed in the motor industry.This compares with a company like GM which was known as the largest vehicle manufacturer from 1931 to 2007 (Marr, 2009). Customers would thus be more likely to trust the brands that have been in the market for as long as the competitors like GM.
Opportunities
The prices of oil and gasoline have been going up globally. This presents an opportunity for demand for the electric cars.The prices have been on upward trends globally not to mention the need for greener and renewable energy. This has made governments to promote the manufacture and use of electric cars by offering some incentives. The company should exploit this opportunity and expand their business, as customers continue to source for cheaper and more sustainable solutions.The oil and gasoline reserves are running out globally as this is not a renewable resource. It is therefore crucial that companies look for alternative renewable sources of energy and this is an opportunity for Tesla to expand.
The electric cars are also green and thus environmental friendly. This presents the clean energy sources for the future including the use of renewable energy sources like solar amongst others. The company thus has a great opportunity for the future as manufacturers will have to become more innovative to meet the demand for vehicles that supply for a cleaner environment without harmful carbon emissions.
Threats
The company faces the threat of competition from other bigger car manufacturers who are moving to hybrid vehicles and also electric cars.These include Toyota Prius and GM Volt. There is also competition from Wrightspeed X1 that offers an electric car competing directly with Tesla. Launched in 2005 by Wright, this was a high-end electrical sports car that was very fast for performance enthusiasts(O’dell, 2017).
There is also the threat of innovations in alternative energy sources like natural gas and hydrogen powered vehicles.With the green movement and environmentally conscious consumers, the future of energy sources is green. If any of the manufacturers are quick to innovate and launch a vehicle powered by these energy sources, it will be at an advantage as the energy costs are also likely to be lower and more sustainable. The company must, therefore, continue being innovative and always set the pace in the area of green energy vehicle manufacturer.
Political
Tesla benefits from government incentives in terms of tax credits and investments in R&D to encourage investment in the entire infrastructure that supports electric cars like charging stations and others (Birk, 2015).This should encourage the company to exploit the benefits and reinvest the resources to boost the business.
Governments are also encouraging the increase in a number of people who drive electric cars in support of the use of renewable sources of energy that are also sustainable. There are plans to incentivize infrastructure deployment and development for electrical vehicles (Barton and Schütte, 2005). The company should take advantage of this government goodwill to expand and manufacture electric cars that are affordable by many people to replace the gasoline driven cars.
Economic
Tesla may benefit like other US companies from the free trade relationship between the USA and the European Union. This hopes to achieve reduced trade barriers and thus lowering costs for US products in the EU markets (Birk, 2015). This will benefit the company as it can now expand to the European markets and benefit from reduced trade barriers and thus make better profits.
The company needs to evaluate the effects of Brexit on the European markets and the currency fluctuations that came with it. This will enable Tesla to make proper predictions of how this will affect their business and the pricing strategy. Increased economic empowerment of populations in both USA and other European markets, the purchasing power of people continues to get better and thus the company is likely to benefit from higher sales.
Social
There is a paradigm shift from people being interested in economic development but also ecological sustainability. In the sources of energy, there is a shift in renewable sources as opposed to non-renewable. Tesla thus stands at an advantage with their electric cars as compared to the gasoline driven vehicles and is definitely the future in energy sources (Birk, 2015).
It is also increasingly becoming prestigious to drive electric cars (Abreu, 2010). This has given the company a good brand name above other motor vehicle manufacturers and thus a good opportunity for the company to expand and reach more people. Tesla should use this chance in their marketing to show prestige and use respected personalities who drive their cars for promoting the brand.
Technological
Electric vehicles are the new invention which requires the use of rechargeable batteries. Notable is that there are fewer charging stations compared to gas stations and thus creates fear to customers on what would happen if the electric car ran out of charge. Therefore, there is need for investment in more charging stations and customer education of using the electrical cars technology.
The company has already embarked on development and testing of the self-drive cars, another invention that will revolutionize the motor vehicle industry (Eisenstein, 2017). It should therefore continue to invest resources in further research to maintain leadership in innovation and expect other benefits that will continue to be attributed to the new technologies that are the future of this industry.
Environmental
Environmental conscious customers view it as a social status symbol to own an electric car thus gives Tesla an edge. The highly affluent customers are also proud to own an electric car and are proud to show it off thus help in marketing for the company (Sharma, 2016). It is notable that there is a lot of focus on technology that does not harm the environment. This has led to environmental bodies pushing for sustainability of the environment. The company thus enjoys a lot of goodwill due to the focus on sustainable motor vehicle energy. Tesla will continue to receive goodwill and support from all quarters that are conscious of the environment. Therefore, it should take advantage in pushing up sales so that the benefits can be felt across the globe.
There is less awareness of the environmental harm caused by vehicles that use traditional sources of energy. People don’t believe the performance of electric cars compared to gasoline cars. This is mainly because oil and gasoline vehicles have been in existence for a long time and thus customers get used to them without much knowledge about how negatively they affect the environment. The company should consider the partnership with environmental bodies to educate people on how their vehicles use clean energy and do not have harmful emissions to the environment.
Legal
Tesla is restricted in selling in some areas that have strict dealership networks due to its direct selling strategy. This might affect their sales where the strategy may be prohibitive and need to consider other methods of distribution. There were a few concerns with the safety of the cars when a few were involved in fire accidents raising concerns about the safety of the battery technology (Eisenstein, 2017).
Tesla also collects driver data and sends it via the car’s operating system for improvement of user experience which could lead to future law suits if the company does not protect this data (Sharma, 2016). To avoid law suits, the company’s legal experts need to advise on the contracts the company has with customers and also ensure there is proper protection of customer information so that it is not used for unintended purposes but only for customer support.
The suggested target market is middle aged career men and women are educated and are conscious of the environment and are proud to be associated with electric cars who are adopters of new technology (Clover, 2013).The population in New Zealand of the prime working age makes up around 35% and the main population of about 71% is based in urban areas (New Zealand Government, n.d). These are the people who have the purchasing power to purchase the electric cars and thus will be targeted by the company. The company can also target the high profile people in the career fields and government and also celebrities who can create a buzz for the company and thus raise awareness and sales.
The company should adopt the high price strategy based on the value based pricing. This is because the company is known for innovativeness and quality of products and thus customers will be willing to pay for quality and prestige. The identified target market group is made up of value buyers and thus company should focus on innovativeness to retain quality in customer’s mind which they will be ready to pay for. Moreover, the government and various companies may be interested to buy this car as to show social responsibility and being environment-friendly to make people aware.
For ease of access by chosen customers, especially from the fact that these are working class who need convenience, the company should partner with a distributor or distributors who can make accessibility easy and in appropriate selling spots in the cities. Other marketing campaigns can help the company newspaper advertisements and bill boards. Social media can also target the middle aged people appropriately for example on LinkedIn which is a professionals’ site who are the main target group. Sponsorship of events that deal with motor vehicles that this target group is likely to attend can also help to reach the targeted group.
Tesla should consider using these strategic partners for warehousing and distribution who already understand the New Zealand market and will reach customers with ease. It should also consider partnering with local marketers who will assist in promotion campaigns that align with the brand image but also localized in order to impact more people locally. The company should also partner with the local professionals bodies who can assist the company to reach out to more professionals in their target marketing campaigns.
The company does not have a true competitor in New Zealand. There are a few imports of the Toyota Prius which is a hybrid vehicle and only a few electric cars that have been privately imported. This may indicate there are people interested in the product and opening of the retail center will make customers easy to access to the products. Therefore there is need to keep focus on innovation, quality, and unique designs to continue being in the lead in this industry. However, the company faces future competition from Ford, Microsoft, and Google who are working on the self-drive cars. Tesla must move with speed and invest in this technology to ensure it is not beaten in this area and continue to be the leader in innovative technology in motor vehicle manufacturing.
Tesla’s core competencies include the innovative electric power engineering. Unlike the competitors like Toyota Prius that offer the hybrid cars that use both gasoline and electric sources of energy, Tesla was the first to offer the fully electric car in the market. The company has managed to manufacture vehicles that were first slow moving to very fast cars as per client needs. Their new models have continued to impress customers with the Model S car winning major big auto awards. This Model has proven to be more superior to other competitor vehicles accelerating at 0 to 60 Miles per Hour (Zach, 2015). This gives the company an advantage and the benefits of being first in the market in this category and also of gaining reputation of being excellent with their models.
The company also has unique vehicle software which is difficult for the competitors to imitate (Tansel, 2015). Their software is far more superior to the competitors. While vehicles were considered as big machines with a small computer, Tesla has managed to change this perception and now their vehicles may be viewed as big computers on wheels. Updates on the vehicles can be done over the air just like happens on smart phones thus improving the customers’ experience without the customer having to visit a service center. If a vehicle has a problem the company can even recall it virtually (Zach, 2015). This is competitive advantage for the electric vehicle which is way above the competitors’ non electric vehicle capabilities.
The company also has unique and good customer service and support which also gives the company an advantage. The company has a reputation of providing excellent service, unique products and being honest with the customer which was lacking in the industry (Zach, 2015). The vehicles operating system also helps to offer customer support over the air in case they face any challenges thus superior customer support (Sharma, 2016). The brand reputation of the company is also high with the company overtaking other competitors to be named top American brand in 2017 by consumer Reports (Bartlett, 2017). The ability to scoop such awards in comparison with competitors who have been in the industry for many years shows the company has won the customers’ reputation and they will likely be brand ambassadors.
Musk, the CEO in 2006 explained the vision of the company moving forward towards the sustainable solar electric solutions among other sustainable energy sources (Musk, 2006). The CEO needs to continue being on the front line in show casing the capabilities of the electric vehicles and the commitment to innovation which will keep the company at the top of customers’ minds. This he can do by interacting with customers in motor shows, in the service stores and other events that will attract media attention.
The company needs to open more service centers to showcase their innovativeness to customers. These centers should be located in high traffic areas where more people can be reached. The centers need to stand out in the service offering, giving customers world class service. A good beginning is the design store Santana row. Customers can actually design their own dream Tesla Models and share it thus personalizing the experience.
To enhance the customer experience at the design store, customers can interact with other users of the brand who share their experiences and thus act as brand ambassadors. Customers engage with the touch screen experience which is one of the company’s innovations and get a feel of it. Customers can interact with the Tesla story and give feedback on what they would like to see better on the next models.
The company can use social media as a tool for reaching out to customers, offering information about the products and also showcasing their unique features and offer customer experience. Again loyal customers can give their experiences with others while showing off their models to customers. They can for example discuss the cost benefits of using electric vehicles compared to the gasoline vehicles in addition to reduction in emissions to the environment.
The competitors cannot ride on this market leadership which is an aspect that cannot be copied. Being that the company does not have a direct competitor as yet, it can continue to ride on this goodwill and spread across all the markets in the world as it continues to innovate. The company must however be wary of competitors like Toyota who have an offering for home charging system and also a larger battery packs that could be more superior to Tesla’s (Binkiewicz, Chen, & Czubakowski, 2008).
The plan will involve a marketing communication plan to the customers that will highlight the innovative features of the company. This will involve use of company outlets and other platforms like bill boards and the print and electronic media. It will have a compelling message that shows it is cool for people to own and drive Tesla vehicles. It will show how much benefits the electric car has over other vehicles and hot Tesla represents the future of motor vehicle industry. The company will use some of the users and especially celebrities and other respected people in their fields in their advertisements.
The company will also continue with the virtual personalized services with customers and offering support and upgrades of their vehicles. This will continue to enhance the experience and create ambassadors of the brand. Customer feedback will be incorporated in the customer experience strategy to ensure their voice is important.
Top Management
Top management will ensure customer service is core to the business and the customer always comes in all the activities for example when designing, pricing, distributing, and all other activities.
Middle Management
Ensure that there are many service centers in areas where customers can be reached and other channels of engaging with customers.
Functional level
Ensure quick services in all contact points and collection of voice of customers and incorporating it in daily activities.
Investment Strategy for Superior Software Enhancement
Top Management
Top management will ensure continuous investment in ensuring company continuously develops superior software to remain ahead of others.
Middle Management
Ensure recruitment of highly capable engineers who will continue to deliver more enhanced capabilities of the software.
Functional
Continuous roll out of the improved software to staff and customers, and education to ensure proper utilization and enjoyment of the benefits.
Research and Development
Top Management
At the top management, ensure the electric vehicles remain superior to competitors and that new models are being developed ahead of competition. This will involve sourcing for competent engineers who can continue to innovate and keep company ahead of others.
Middle Management
Ensure rolling out new models and designs with enhanced capabilities as a result of research and incorporation of customer’s feedback.
Functional
Ensure that any new updates are done to customer vehicles virtually as soon as they are released. In case there are new models, they need to be delivered to the customers as soon as released to the market in a seamless manner.
Conclusion
Tesla has survived in the auto mobile industry by being different from other players in the industry. The company was first to manufacture a fully electric car. This paper has analyzed the company’s internal and external market using the SWOT and PESTEL models. The paper has suggested a market positioning strategy focusing on the middle aged working professionals. It has also discussed the company’s core competencies including electric power engineering, unique products, and quality customer service. Suggested ways of leveraging on the core competencies that have been discussed include strategic partnerships and investments in research and development and in mass production in order to benefit from economies of scale. With continued good will from governments due to focus on renewable sources of green energy, the company can gain the competitive advantage by leveraging on the core competencies.
References
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