Tesla’s Entry Strategy Into The Indian Market: A Detailed Analysis

Tesla Inc.: Overview

Tesla Inc. is one of the most well known energy and automotive companies in the world at present. The company is based out of Palo Altto in California and has its presence in companies around the world. Tesla specializes in the manufacture of electric cars and solar panel related products.

The company had been founded in July of 2003 by Marc Tarpenning and Martin Eberhard. Eventually, a few other members joined the board, which included Elon Musk. Musk has served as the chairman and chief executive officer of the company. At present, the company has a net income of nearly 2 billion US dollars with an annual revenue of more than 11 billion US dollars annually. The company has more than 45,000 employees and around three subsidiaries. The reason this company has been selected is because Tesla has been instrumental in speeding up the transitioning process around the world to sustainable energy resources by introducing electric cars and solar panels. The company which has a global presence has plans to enter India in the near future.

The company has a clear rationale for entering India, because India at present has a very limited industry for electric vehicles, although the automobile industry in the country is growing at a rapid rate. However, the strategies of the company to enter India and establish a successful business here is unclear and ambiguous. In the past, Musk has expressed interest in setting up shop in India owing to its highly developed energy and automotive industry and the tremendous scope for growth in the country. Yet, the company has failed to do so in the past. The following report thus carries out a detailed analysis of the Indian industry and provides relevant recommendations which can help Tesla establish itself as a forerunner in the foreign country.

Discussion 

Analysis of external environment using PEST

Before Tesla enters the Indian market, a detailed analysis of the various political, economic, social, technological and legal factors will have to be taken into account. These factors would affect the entry strategy as well as the marketing strategy of Tesla in India. They may be explained as follows:

Political factors

In 2002, a policy was formulated by the Indian government which ensured a self sustainable, phased and integrated growth within the Indian automotive sector. This policy also allowed for automatic approval for the foreign equity investments up to 100 per cent in the automotive industry. It also granted concessions which included a decrease in the rate of interests from export financing. In fact, the Indian government has also introduced a number of policies which take into account the use of fuels so as to reduce damage to the environment caused by emissions (Luthra et al., 2014). The Indian government has now laid greater emphasis on better infrastructure, robust economic policies which are growth oriented and the appropriate market environment. As a result, several international companies have found it easy to enter India.

Reasons for Selecting Tesla: Impact on Sustainable Energy Transition and Plans to Enter India

Economic factors

There are a number of economic factors which would affect Tesla’s entry into India. The GDP rate in India has been rising at a steady rate in the past five years. This has also led to an increase in the buying or purchasing power of Indian customers. The rate of per capita income has increased as well, which provides the consumers enough money in hand to purchase the electric cars. Moreover, this growth has not been restricted to only the urban spheres. Instead, rural India too has become urbanized, leading to an increase in sales (Krishnaveni & Vidya, 2015).

The automotive industry in India has also seen a number of changes in recent times, which could affect the strategies of Tesla in India. These changes include decrease in the costs related to renewable energy and decrease in battery costs (Nykvist & Nilsson, 2015). However, the economic conditions in India have been unstable for some time now, which could pose a threat to the profitability of the company in India.

Social and cultural factors

Owing to a number of economic factors, the lifestyles of people in India have changed. The upper middles classes and the upper classes in India prefer to lead a luxurious lifestyle. The increase in per capita income has also enabled them to purchase vehicles (Panwar et al., 2013). The average size of a family in India is 4, which means that families would have to purchase a four wheeler. Also, with a growing awareness about the impacts of excessive consumption of fuel, people in India are gradually becoming more conscious about the impacts of their activities on the environment. Therefore, there is a growing need to buy cars which are environment friendly and sustainable (Luthra, Garg & Haleem, 2015).

Technological factors

Electric cars are the new trends in the automotive industry. The electric car industry in India is still new and growing and therefore Tesla has immense opportunity to make a mark. Tesla’s energy and automotive solutions would depend on the technologies available in India. For instance the materials engineering technology used would depend on the cost effectiveness and efficiency levels of the batteries used by the company. The rate of technology change, the flexibility of the market and its ability to adopt new technology, increased automation in the business – these are some of the technological factors which would affect the growth of the company in the industry (Kale, 2017).

Analysis of External Environment Using PEST

Analysis of internal environment using SWOT analysis 

In order to understand Tesla’s marketing and operational strategy in India, it is important to understand the strengths, weaknesses, opportunities and threats of the company.

Strengths

• The company has always managed to adopt cutting edge technology when it comes to electric cars. The technologies used by the company have been replicated in a number of companies across the world.
• The company has a very specific market segment – that of electric cars and other cars which use alternative sources of energy. Since there are very few cars which operate in this market, Tesla has almost complete monopoly over the market.
• The company is led and directed by very strong team spirits and leadership. The company is presently led by Elon Musk who is extremely passionate about the vision of the company and is a talented salesman who knows how to sell his product. Tesla is also led by a team of dedicated individuals who are committed to the growth of the company.
• Tesla has also been rapidly growing at a fast pace in the past few years. The company’s sales increased by almost 27 per cent in the last three years. There is also a string demand for the Model S which was introduced recently all over the world (Karamitsios, 2013).

Weaknesses

• The company has poor liquidity as compared to its competitors like Ford or even Fiat. The company only has about 3 billion US dollars in liquid cash which is not sufficient.
• The company manufactures its cars in only one manufacturing plant in California. This could lead to logistical issues while operating it India.
• Although Tesla makes specialized products which are environmentally sustainable and eco friendly, the company seldom takes into account unique needs and demands of the customers. For instance, a majority of the Indian population might not want to invest huge sums of money in such technologies unless they are convinced of its usefulness.

Opportunities

• The new models introduced by the company are a source of revenue for Tesla. The Model 3 was introduced in March of 2018 and is much cheaper as compared to the other models of Tesla. It also has a number of new safety features which the previous models are lacking in. At present, the company manufactures around 70000 or 80000 cars in a year (Moritz et al., 2015). With cheaper alternatives like Model 3, the company will be able to manufacture almost ten times more. The company has also adopted a number of cost reduction initiatives which would help improve its profitability and simultaneously reduce manufacture costs.

Threats

• One of the most important threats that Tesla faces at present is the highly competitive market. However, it must be remembered that most of Tesla’s competitors are luxury cars, which rely heavily on internal combustion systems. While some companies have attempted to come up with electric cars, only Tesla has managed to rely entirely on electric cars for their sales. However, companies like Nissan or Daimler have come up with cheap electric vehicles, which could pose a threat to Tesla.
• Analysis of the Indian industry using Porter’s Five Forces 

In order to understand the factors which could potentially affect the profitability and operations of Tesla in India, the Porter’s framework has been used. They may be explained as follows:

• Threat of new entrants – The entry of new companies or brands in the same industry, with these new companies gaining hold in the market share, could put added pressure on the existing companies. The electric car industry in India is developing, and thus Tesla might find it easy to penetrate the market. However, the threat from new entrants in this market is moderate to high owing to a few factors like capital requirement, customer switching costs, product differentiation and brand identity (Kumar & Kaur, 2016).
• Bargaining power of suppliers – In the case of the Indian automobile industry, the bargaining power of the suppliers is quite high. It is a labor and capital intensive industry which involves a lot of minute parts, including auto parts. In the case of electric vehicles, the number of suppliers is less as compared as to the number of manufactures, which places the power in the hands of the suppliers (Kumar & Rahman, 2016).
• Bargaining power of buyers – The bargaining power of buyers would depend on a number of factors in this case, which includes lifestyle, environmental awareness and consciousness and income levels. The bargaining power in this industry in India is low to moderate.
• Industry rivalry – The competition in this industry is fierce in India. While Tesla may be the only company to solely manufacture electric cars, there are a number of passenger vehicle companies like Nissan which have begun the manufacture of electric cars, at lower costs as well.
• Threat of substitutes – The threat from substitutes is relatively low in this industry. As a matter of fact, the electric vehicles pose a serious threat to ordinary passenger vehicles, because they are eco friendly in nature.

Target market and consumer buying behavior

The target market for Tesla would be people between the ages of twenty and forty, who fall under the three categories which determine buying behavior – eco friendly, city dwellers, wealthy or upper middle class and tech savvy (Martin & Vaisto, 2016). The main target for Tesla in India would be businessmen and entrepreneurs who have the means and resources needed to purchase such vehicles. Notably, the target market would consist of people who already have luxury vehicles of some kind and maybe looking for a change or a different kind of luxury car (Shende, 2014).

Analysis of resources and capabilities of Tesla 

The VRIO framework will be applied to the resources and capabilities of Tesla, to understand the factors which contribute to its success.

Resource and capability	Value	Rare	Costly to Imitate	Exploited by organization	Competitive implication
Battery packs	Yes	Yes	Yes	Yes	Sustained competitive advantage
Supercharger	Yes	Yes	Yes	Yes	Sustained competitive advantage
Giga factory	Yes	Yes	Yes	Partially	Potential for sustained competitive advantage
Direct sales	Yes	Yes	No		Temporary competitive advantage
Elon Musk	Yes	Yes	Yes	Yes	Sustained competitive advantage

The chief resources which contribute to the operational success of Tesla would include:

• Human capital
• Production plants
• Charging stations
• Financial resources
• Service centers

The main capabilities of the company which contribute to the success of the organization are:

• Brand management
• Public relations
• Powertrain development or RnD.

India entry strategy 

Objectives 

The objectives for Tesla on entering India would be:

• To establish Tesla as a global forerunner in the electric car industry
• To revolutionize the electric vehicle industry in India
• To increase revenue and profitability by at least 15 per cent.

Mode of entry, rationale and alliance 

Franchising will be the chosen mode of entry for Tesla in the Indian market. In a franchising mode of entry, semi independent business owners would be paying royalties and fees to the parent company or the franchiser, so as to become associated and identified with the original parent trademark (Garg, Pirem & Rasheed, 2013). The main reasons why the franchising mode of agreement will be selected is because of the low costs involved (Rajesh & Dileep, 2013).

Moreover, the political risks involved in this case would be low, since the semi independent business owners would be able to retain some level of control over the business (Stringham, Miller & Clark, 2015). Additionally, if properly executed, franchising would not only optimize financial investments but also bring managerial capabilities to Tesla, which can be beneficial in the long run (Salar & Salar, 2014). Tesla will be forming a franchising agreement with the following terms:

• The product in question will be electric vehicles, and the country shall be India. In India, the franchisee will only have distribution rights, which is restricted to India only.
• The franchisor shall provide 20 per cent of the profit of its business to its franchisee, which includes royalties, net income and so on.

Political Factors

Post entry strategy 

Competitive positioning and differentiation strategy 

At present, India is one of the most profitable markets as far as the automobile industry is concerned. Around the world, India is the fourth largest market in the automobile industry, meaning that it has overtaken Germany as well. However, the automobile industry at present, is still in the developing phases. The automobile industry has expanded by at least 20.5 million in the year 2016, yet the number of electric cars has been dwindling in the thousands. Yet, Mahindra, one of India’s top automobile companies, has introduced a range of electric cars, but is the only company to do so in the country (Kanagal, 2015).

However, Tesla is an internationally renowned manufacturer of electric cars, and the brand positioning in the Indian market would be as follows:

The 4 P’s strategy will be used to better position Tesla in the Indian electric vehicle market. Mahindra at present provides moderate quality electric vehicles at prices lower than Tesla. Tesla will thus have to provide a unique selling proposition to the customers so as to wean them away from Mahindra and convince them to purchase their products.

Marketing strategy 

The marketing strategy of Tesla in India would be to promote the cars and car parts to the environmentally conscious citizens of the country. The youth and the younger generations in India are at present growing in consciousness as far as the environment is concerned. There is a growing awareness about the impacts of business and human activities on the environment and the ecosystem. That will be the basis of the marketing strategy in India. Moreover, Tesla will be promoted in the country as the only automobile company in the country that solely manufactures electric vehicles (Yurynets & Tomyuk, 2014). The marketing mix for the company will be as follows:

• Product –The product in this case would be electric vehicles which are eco friendly in nature. The company is a well known manufacturer, developer, designer and distributor of these eco friendly sedans which are powered by batteries. The other services of the company include supercharging stations and sustainable energy technologies.
• Price – The company will maintain its premium pricing strategy in India as well. This is because the manufacturing costs are high, and as a result, a high pricing strategy will have to be followed (Milosheska, 2013).
• Promotion – The promotional strategies would involve social media marketing, online advertising, email advertising and other electronic means (Jutkowitz, 2014).
• Place –  The place of promotion in this case would be India, and the major urban cities in the country. This is because it is the urban population that would be more receptive to the idea of eco friendly vehicles.

Operational management 

There are a few aspects of operational management at Tesla which must be discussed:

• Design of goods and services – The design of the products and services and their impacts on the costs, resources and quality objectives of the company will have to be considered. Tesla follows an innovative policy when it comes to its products and ensures that each aspect of its operations is innovative and productive in nature.
• Quality management – Quality management will also be one of the most crucial aspects of Tesla’s operations in India. In India, clients have a very high expectation as far as the quality of products and services is concerned. The quality management policies of Tesla in India would be based on quality management initiatives, extensive market research and regular quality checks (Kalra & Pant, 2013).
• Location strategy – Since Tesla is starting out in an entirely new location altogether, it needs to come up with a strong location strategy so as to be able to target the customers effectively. The location strategy must take into consideration the availability of resources, human capital and suppliers.

Organization of Tesla in India

As mentioned above, Tesla will use franchising to establish subsidiaries in India. These subsidiaries will be working in accordance with the other subsidiaries around the world. This is because for the time being, Tesla’s manufacturing factories will be located in the US and like other subsidiaries, the manufactured vehicles will be distributed to the subsidiaries. Regular internal investigations must be introduced by Tesla to ensure smooth functioning of the franchise and also to maintain a degree of control over the franchise. It is expected that the establishment of Tesla subsidiaries in India would increase the overall profitability of the firm. It is also expected that Tesla will be able to dominate the electric vehicle industry in India, since this is the first sole manufacturer of electric vehicles to penetrate the country.

Economic Factors

Organization structure and culture 

In India, Tesla will have an organization structure which supports and promotes continuous growth of business. The organization structure at Tesla is traditional in nature and places the control in the hands of the managers. This ensures that the employees of the organization are aware of the hierarchy within the company. Moreover, a strong leadership will be required to ensure that the franchisees remain under the control of the company. Elon Musk will continue to exert his effective leadership in India as well, so as to promote business improvement and growth in the long run. Also, the organization structure that it promotes the development of new strategies and innovative ideas.

Tesla India in the bigger picture 

The US based automobile company is all set to India soon and it plans to do so with Model 3, which is the company’s brand new model. It has also been mentioned that Model 3 is one of the most affordable models of the company and the starting price in India is expected to be around 18 lakhs, which is affordable considered given the premium pricing strategy. In India, the main target audience of the company will be upper class millennials and upper and upper middle class businessmen and entrepreneurs who prefer to lead opulent lives.

The target will also be environmentally conscious individuals who prefer to use vehicles that produce less emissions as compared to traditional vehicles. The electric vehicle industry in India is almost non-existent and it is expected that with the arrival of Tesla, the industry will yield revenues worth billions in the upcoming years (Sarangi, Bano & Pant, 2014).

Conclusion

In conclusion, it can be said that Tesla entering India would be beneficial for both parties. The electric vehicle industry in India is relatively small, with very few companies manufacturing eco friendly vehicles. Similarly, India is an untapped market for Tesla, and being able to penetrate the market would increase the profitability and revenue generation of the company. The following recommendations can be made to Tesla:

• A flawless location strategy must be in place for Tesla to prosper in the country. There are a large number of urban cities in India, but Tesla must touch ground in an area which is likely to yield the maximum sales, for instance, Bangalore or Mumbai.
• Thorough market research is recommended. Tesla will need to delve deep into the minds of the customers and understand what the Indian customers really want. Their mindset and perspective and opinions about the electric vehicles must be accounted for.
• Tesla should launch its company in India with Model 3, which is the most affordable model released by Tesla so far. This will set a favorable first impression for the customers who might be under the impression that electric vehicles garner unnecessary costs as compared to traditional vehicles.

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