Strategic Audit - Tesla Motors Inc
- Current situation
Current performance
Tesla Motors has continued with its growth strategy which includes the expansion if its product line and the revamping of its manufacturing on its current programs. This includes products such as All-Wheel Drive Model S 85D so as to increase its and general return on investment. Since the delivery of Roadsters in 2009 which enabled the company to secure more investment, the growth and expansion plans have been working out well. The firm was able to secure around $500 million loan so as to support its initiatives. By 2010, the firm had gone public with an announcement that Toyota would buy about $50 million in form of common stock (Tesla, 2016). This also comprised of an arrangement where the firm would enable Toyota to succeed in a plan to develop electric powered vehicles. Later, Tesla was able to sell 13.3 million shares at about $17 per share (Tesla, 2016). As the firm’s success continue to grow, it has become possible to move towards the overall goal of offering viable electronic alternatives in the market. The company has released a new Model 3 vehicle and it’s presently taking the product’s reservation with a price set at $35,000. There is an increment in the company’s product orders which has been observed since 2016 period where about 80,000 to 90,000 deliveries of Model S and X vehicles have been estimated (Tesla, 2016). The company’s report also shows a posting of positive cash flow from the major operations at $ 179million for the year 2015. In its report to investors and shareholders for 2016, the firm highlights various major accomplishments for the year 2015 and 2016 and which is expected to spill over onto 2017 (Tesla, 2016).
Strategic posture
The firm has focused on such a goal since its foundation in 2003 by breaking new barriers through the development of high-performance vehicles that are safe and highly rated (Tesla, 2017). Further from Model S sedan and X-sports utility models, the firm plans to launch a new brand, Model 3 sedan, in late 2017 at $35000 base price and which is expected to drive the electric cars into the conventional market. Moreover , the firm has opened Gigafactory and acquired SolarCity that are poised to enable the company to provide complete set of energy products comprising of grid services , solar and storage. The firm enjoys the status of the only energy company in the world that is wholly integrated and sustainable, which places at better place as the world inevitably shift towards a platform based on sustainable energy (Tesla, 2017).
- Strategic Managers
Board of Directors
Tesla’s board of direct comprises of internal employees as the main directors. The board is headed by the chairman Elon Musk, who also adds up as CEO and product architect of the firm. Elon Musk is the founder of the company, and his passion was focused on electric cars and has been building on this dream for over two decades now. The other directors include Brad W. Buus , IRA Eth renpreis , Antonio J. Gracias , Harald Kroeger, Steve Jurveston and Kimbel Musk. Each direct is tasked with a responsibility to manage their sections in the company (Tesla, 2017). The directors are chosen from individuals with extensive background in terms of business experience and knowledge, since they have worked in other firms in the industry before they joined Tesla Motors. The board of the company also sets standards that are high to be emulated by directors themselves, officers and employees. This is a philosophy that is implicitly important and which is founded on elaborate corporate governance (Tesla, 2017). The Board of Directors also a tasked with the duty of serving in their capacity as product fiduciary for investors and shareholders and oversees the management of the business operations of the firm. So as to perform these responsibilities and discharge these duties, the board acts in accordance to standards and procedures highlighted in the corporate governance guidelines. The guidelines can be adjusted with time as deemed right by the board in the best interests of the firm or when the applicable regulations and laws requires. The top management is majorly composed of the various sectional heads whose actions are also guided by the guidelines of corporate governance (Tesla, 2016).
- External environment
External environment consists of the different outside factors that influence the operation of an organization or a business and on which the business should act or react so as to continue with its operations (Hamilton, 2015).
Societal environment
Tesla operates in a society that is increasingly becoming concerned with the impacts of business operations on the environment. The culture and attitudes of the society are also geared towards accepting products that are considered fit, safe and of high quality in the market. The present societal factors involve increased concern, emphasis and attitudes for environmentally friendly products in the market (Hamilton, 2015). Customers are tending to lose faith in energy sources like gasoline fuel and related production cost and effect on environment (Raine & Funk, 2016). The present customer is also judged by the society in the basis of the car which they own. This means that the idea of electric vehicles augurs well with the society if it raises a person social status, is more safe and eco-friendly. There is also a rise in ageing part of the population that has most savings and wealth and these are likely to spend such resources in purchasing premium electric vehicles.
Natural environment
The last decades has seen increased competitive pressure in the vehicle manufacturing industry for production of vehicles that are fuel-efficient and eco-friendly. The major environmental factor that is likely to affect Tesla’s operations is increased knowledge on climate change. The firm has been trying to change its products and operations through adoption of electric cars since customers are becoming more knowledgeable about the impact of gasoline fuel on their natural environment.
Task environment
Tesla operates in an environment that is highly competitive, suppliers who are mainly retailers and other interest groups. The firm operates in an environment with high threat of new entries given it also entered the market that has large and resourceful manufacturers. On the other hand, established firms with significant economic capacity may not find it easy to compete with the firm due to limited capabilities and the programs supported by government to build electric vehicles. Currently the are several opportunities in the market the firm may continue to exploit , which comprises of federal policy and government state policies that facilitate the EV technology (Plumer , 2012). The electric vehicles will have a big role in transportation sector in US and global in the coming days. The fact that supply of oil products will continue to be limited while the production cost for electric vehicle technology will continue reducing means that in coming days this technology will overtake human and material movement (Randal,2016).
The firm has the opportunity to capitalize on such government programs and incentives and hence, expand its viability until it can stand on its own. The customers in the market have a modest bargaining power in general but with increased competition the buyers may gain more power. The company relies on its relationship with other firms such as Toyota and Daimler, an important partnership and supplying to these firms makes up a large part of Tesla’s income (Tesla, 2016). This means the firms have higher bargaining power. The firm can sell its car to individual buyers and various incentives by the government provide tax credit reduction for the customers. The market demand for the electric vehicles is stimulated and bargaining power lowered. The suppliers have high bargaining power since Tesla depends on them to deliver components, and any problem may negatively impact the image of the firm.
- Tesla Internal Environment
Corporate structure
Corporate structure refers to the systems and designs from which the interaction patterns in the organization’s components are defined (Alkhafaji &Nelson, 2015). The organizational structure of Tesla Motors takes a traditional form when its limited approach to the development of production facility is considered. The corporate structure enables the firm to maximize its capacity to adopt new strategies and manage various operational activities. The structure is based on organizational function which is the major defining aspect. The major features of the structure include global hierarchy, centralization and few regional divisions. The global hierarchy comprises of functional teams or even offices tasked with overseeing local and international operations of the company. The goal is to maintain total control of all the operations around the world (Quora, 2015). Global centralization involves central groups that make the main decision of the firm .Minimal Regional Divisions involves various divisions of the automotive business of the firm, which are important in the implementation of various strategies or marketing efforts, organization of financial records and required reporting (Tesla, 2017).
Corporate culture
The corporate culture of the firm is base on various standards that are set by the Board of Directors and which are followed by directors, officers and all employees. The culture is founded on the need for reasonable corporate governance that informs the interaction and relationship between various stakeholders. Innovation is central to the culture of Tesla where advanced electric cars are developed in a way they stand out from other automobiles (Tesla, 2017). An established Code of Business Conduct and Ethics helps in guiding the operations of the firm. It covers the basic principles that guide all the procedures and practices of employees, officers and directors of the firm, so that they must carry themselves by avoiding any practice that may imply improper behavior. The culture upholds observance of established standards and violation is subjected to the approved disciplinary actions (Tesla, 2017).
Corporate resources
Corporate resources include an organization’s financial resources, human resources, inventory, information technology and even different production resources (Alkhafaji &Nelson, 2015). The production resources that are needed by the firm include lithium for building various lithium-ion cells for electric batteries for the electric cars (Debord, 2015). The information technology resources include the EV infrastructure that is necessary for developing its products. Financial resources are necessary for the firm to continue and expand its operations in the market which is necessary for long term sustainability. The human resources include its officers and employees whose skills helps in carrying out its production and marketing operations in the market (Tesla, 2017).
- Analysis of Strategic Factors
SWOT analysis
SWOT analysis is a highlight of major aspects from external environment and internal strategic capabilities that affects the strategy development of a firm.
- Strengths
Tesla Motors has several strengths that assist the company to have competitive edge over its rivals in the automobile industry. Through outsourcing secondary materials or components enables the firm to maintain low production cost and pay attention to technological advancement. This strengthens the research and development capability of the firm and creation of battery systems that are highly productive. The system of lean management adopted by the firm improves the working conditions of employees resulting in simple process of decision making and enhancing relationships and trust between workers, supervisors and management. The own stores enables good distribution and their locations in high traffic areas improves interactions with customers. Digital marketing and e-commerce helps in retail efficiency.
- Weakness
The most significant problem for Tesla is lack of financial liquidity. Even though the firm has experienced high sales in the past more so for the Model S, the firm has a large debt. In addition, the slow buying rate for its vehicles and failure to achieve targeted cost reductions and operational cost weigh heavily on the firm’s financial well being. The manufacturing capacity of the firm is also limited to just Fremont factory which may result to result to meet the customer demands in the market.
- Opportunities
A major opportunity available to be exploited by the firm can be achieved through customer awareness on the benefits of buying electrical vehicles over other conventional vehicles. The subsidy program by the government and various loans for supporting green-energy can help the firm to find more growth investment. The market segment served by the firm is rapidly expanding in terms of eco-friendly vehicle demand.
- Threats
The main threat that Tesla faces is the entrance of established manufacturers into the market, and such firms have capabilities in form of large economies of scale. These firms can produce similar products at lower prices than Tesla. The innovation of other energy sources and technologies brings more competition in the market.
Current Mission and objectives
The company’s mission involves the acceleration of advent of sustainability in transportation through providing attractive electric vehicles for the mass market in the soonest time possible. This is based on the overall mission for Tesla which involves the acceleration of the transition of the world to sustainable energy (Tesla, 2017).
The marketing objective for Tesla has been to directly reach customers through online retail and showrooms and doing away with dealers. The policies of the firm involve gathering of customers’ personal information and align products and services to their needs but such data can only be sold to third party in batch so that it is not possible to identify a person. The data is also protected in the best way possible in order to make sure it is not compromised (Tesla, 2017).
- Strategic Alternatives and Recommended Strategy
Strategic alternatives
- Low production cost strategy
Since the firm aims at expanding and fulfilling its mission may need to finally face competition from established firm. The company needs to reach lowest prices possible by exploiting the assistance from the government until it reaches a pricing point where buyers will not be required to bear upfront costs. The high cost acts as barrier to consumers. The firm should lower the battery costs and try to generate economies of scale through consolidation of all production aspects.
- Fulfilling the current demand
Since the orders for Model 3 has been exceeding expectations, it is obvious that demand for electric cars at price offered by the firm is high. The present projection in terms of production capacities and demand shows that Tesla is not able to serve the market demand. The company should improve its production capacity and grow its marketing efforts to exploit the existing sales opportunities.
- Diversification strategy
The firm should also consider providing alternative products to guarantee its survival, as electrical vehicles become popular and competitors invest in the industry. Tesla should develop other products that meet other needs in the market and hence, have a supplementary revenue stream. This involves finding ways in which products such as battery technology may be used by consumers.
Recommended strategy
The best strategy that the firm should adopt is to focus on production cost reduction. Cost reduction strategy can help a firm to do away with wastage, reduce unnecessary costs and improve their overall profits (Leiwand &Couto, 2017).
- Implementation of cost reduction strategy
In order to implement the cost reduction strategy, the firm should be more strategic through identification and understanding all the costs including good costs, bad costs and best costs. Bad costs involve those that don’t align with the growth strategy and mission of a firm. Good costs are those that drive strategies that enable growth of the firm while best costs drive the building and expansion of various capabilities (Leiwand &Couto, 2017). The firm should then embark on strategic cost reduction, whereby managers maximize investment in best costs and minimize exposure to the operation’s bad costs. Cost management will be a way of supporting the strategy and mission of the firm.
- Evaluation and control
This will involve assessing the effects of the cost reduction strategy in terms of pricing and product sales. The impact of cost reduction on the income statement should be measured and assessment made to see its sustainability. The capacity of the firm to lower its production cost and translate this to the price will determine whether the strategy is effective. Controlling the application of the strategy should be done to ensure it does not affect the quality of the product.
References
Leiwand, P., Couto,V., (2017).How to Cut Costs More Strategically. Retrieved from: https://hbr.org/2017/03/how-to-cut-costs-more-strategically
Tesla, (2016).FORM 10-K.Retrieved from: http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_TSLA_2016.pdf
Tesla, (2017). Retrieved from: http://ir.tesla.com/index.cfm
Hamilton, L. (2015). The international business environment. Oxford University Press. 122
Daft, R. L. (2011). Understanding management. Mason, OH: South-Western Cengage Learning.
Alkhafaji, A. F.Nelson, R.A. (2015). Strategic management: formulation, implementation, and control in a dynamic environment. Routledge. 61-63
Raine E., Funk, C., (2016).Climate Change and Energy Issues. Retrieved from: http://www.pewinternet.org/2015/07/01/chapter-2-climate-change-and-energy-issues/
Debord M., (2015).Tesla is moving to secure the critical resource it needs for its future. Retrieved from: http://www.businessinsider.com/tesla-is-moving-to-secure-the-critical-resource-it-needs-for-its-future-2015-9?IR=T
Plumer , B., (2012).CBO: Government will spend $7.5 billion on electric vehicles. What are we getting back?. Retrieved from: https://www.washingtonpost.com/news/wonk/wp/2012/09/21/cbo-government-will-spend-7-5-billion-on-electric-vehicles-what-are-we-getting-back/?utm_term=.176c0edae4b3 Quora, (2015).Why People Turn Down Jobs At Apple To Work For Tesla. Retrieved from: https://www.forbes.com/sites/quora/2015/10/16/why-people-turn-down-jobs-at-apple-to-work-for-tesla/#6849e73c1ab1 Randal, T., (2016).Here’s how Electric Cars Will Cause the Next Oil CrisisA shift is under way that will lead to widespread adoption of EVs in the next decade.Retrieved from: https://www.bloomberg.com/features/2016-ev-oil-crisis/
