Tesla Inc.: Navigating the Fast Lane to a Sustainable Future

Introduction

Founded in 2003, Tesla Inc. is an American company in the electric vehicle and clean energy niche. The company, headquartered in Austin, Texas, United States (US), has its products spanning from electric motors vehicles (Model S, Model Y, Model X, and Model 3), solar panels modules, and rechargeable lithium battery. In addition to manufacturing motor vehicles, the company offers other range of services that include vehicle servicing, electric charging, premium connectivity, and solar energy software (Cohan, 2021). With the leadership of Elon Musk, a visionary innovative billionaire, the company has grown becoming not only a leader in electric motor car industry globally but most valuable motor vehicle company. Tesla become the first electric car company to reach USD 1 trillion in capitalisation and sixth company behind Apple, Microsoft, Alphabet (Google), Saudi Aramco, and Amazon (Forbes, 2021). In 2021, the company growth rate reached 157% becoming the fastest growing brand worldwide (Statista, 2021). The company reported revenue grew to USD 13.76 billion and net income ballooning by 388% by USD 1.62 billion in 2021 (Figure 1).

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This drastic grow has been attributed to number of factors that include innovative nature of the company, electric market niche, the strategic entry into clean energy, and leadership. In this strategic report, the discussion on the strategic roadmap taken by the company will be done extensively. The paper critically analyses the internal and external environmental factors that have propelled the company to being most valuable in the industry. It also covers approaches adopted in entry into global markets, corporate strategies that have increased its net income and profitability, and strategic social responsibility and ethical purpose observed towards its goal.

Tesla Revenue growth between 2008 and 2020

Task 1: The External and Internal Environment

External Environmental Factors

Using PESTEL analysis model, the external environmental factors influence the company is discussed. The model captures ways in which such factors as political, economic, environmental legal, technological, and social have impacted the company’s growth.

Political factors

The US government, jurisdiction in which the company is Headquartered, has expressed a huge interest and shown commitment for clean and renewable energy. One approach is expansion of solar PV energy and investing heavily on electric vehicle. Tesla has, over the years, received grants, tax credits, and subsidies from the government (Szymkowski, 2021). Regulations have been passed by both federal and state governments that enable production and distribution of both electric cars and charging systems include infrastructure bill aiming to expand EV charging network (Breetz and Salon, 2018). Globally, governments include United Kingdom, Demark, Germany, and Frace have formulated regulations favourable to EVs adoption (Rogers, 2021). Others variables such as restrictions on lithium batteries, trade and customs regulations, and tariffs on EVs have been modified to encourage clean energy uptake.

Economic Factors

The advancement in lithium battery technology and renewable energy have made it possible for EV to be produced and sold competitively in motor vehicle industry (Codani et al., 2021). During its inception stages, governments include the US, UK, Norway, and China incentive the EVs making them affordable (Rogers, 2021). The cost of charging the vehicle being supported by renewable energy and failing price of storage units have accelerated transition to electric cars (Meisel, and Merfeld, 2018; Camara et al., 2021). Over time, the demand for clean energy cars have drastically increased due change in consumer perception of sustainability and environmental protection.

Social factors

Globally, increased social perception and consciousness of need for environmental sustainability and clean energy sources needs have propelled uptake of renewables and EVs (Bansal, 2021) Consumers are changing their consumption behaviours and purchasing trends towards environment friendly approach (Bennett, and Vijaygopal, 2018). Tesla has exploited these trends with entry into EVs and renewable markets.

Technological Factors

Tesla has pioneered the electric vehicle technology, battery storage devices, and self-driving cars. Since production of its Roadster model, Tesla has advanced technology in its vehicles increasing efficiency, modelling autonomous driving, and software updates (Furr and Dyer, 2020; Kim, 2020). These have made it being perceived as innovation-centric company that manufacture vehicles and not vice versa. Due to the threats posed by technological advancement in EV and storage devices, the company has adopted a strategy of constantly updating its autopilot software, industrial automation, battery range, supercharging network, data driven approach, and payment systems (adopting cryptocurrency) (Siddiqui, 2021). In its solar energy segment, Tesla has a solar PV software that monitors and manages productions, consumption of solar energy, integration with the power supply by distribution companies.

Environmental Factors

Tesla has tapped into the environmental conservation and sustainability fray where governments, consumers, activities, NGOs, and companies are pushing environment-centric and protection. The need to reduce greenhouse gases has shifted the focus to alternative energy sources both in production and consumption (Stenquist, 2021). The company has taken advantage of these by focusing on renewable and EVs. The company also boost on the efficiency of its vehicles, solar energy systems, and automation that are collectively geared towards reducing greenhouse emission.

Internal Environmental Factors

The internal factors that have propelled the company to its current status is analysed using SWOT analytic tool. The tool captures the company’s strength, weakness, opportunities, and threats it faces in working towards its goal.

Strengths

Tesla models its goal as an innovative company focused on accelerating uptake of electric vehicles towards sustainable transport. It emphasises on the need to transition to renewable energy as a solution to environmental sustainability. Tesla has also taken advantage of the incentives and support by governments aiming to transition to clean energy. Its timing when most governments include the US and China (biggest economies globally) were seeking clean and sustainable energy production and consumption boosted the company’s reputation (Kaštelan, 2020). Currently, it is not only a leader in EV market but also most valuable vehicle company worldwide.

Weaknesses

During infancy, the company faced several challenges stemming from technological innovation, market perception, battery problems, and malfunction of its autopilot. Being the first in the market, technology and infrastructure supporting its production, charging, and car-to-car communications was not there (Akakpo et al., 2019). It had to invest heavily in manufacturing and infrastructure that lead to delays in distribution. The company still struggle to meet its huge demands despite building Giga-factories across the US and globally. The long-term government subsidies and incentives that provide a huge support and reducing the cost of its vehicle are bound to run off, and given that the company has established itself as a luxury brand, it is bound to face setbacks on affordability compounded by lack of infrastructure in new markets (Mo, and Wang, 2021).

Opportunities

The EVs market is an emerging niche showing a huge potential particularly in the era of consumer and governments demanding for environmental sustainability and clean energy. Consumers and other automobile companies are increasingly showing their trust and acceptance of the technology including autopilot indicating growing market share (Griffiths, and Sovacool, 2020). In addition to investing in its Giga-factories such as in China and Germany, and battery technology, supercharging networks enhances convenience that initial lacked in EV markets.

Threats

Several automobile companies have entered the EV market. Nearly all traditional car manufacturing companies such as Toyota, Ford, GM, and Volkswagen have started productions of EVs and hybrid vehicles. Additionally, the potential in the market has attracted start-up such as Nikola, Rivian, Nio, and Faraday, most backed by governments and Tesla’s competitors (Walton et al., 2020). Emerging technologies in electric storage and energy efficiency in cars is putting pressure on the company to constantly innovate resulting huge operational costs (Bhardwaj et al., 2020). There is a question of long-term sustainability of the company both in manufacturing and energy consumption.

Emerging Critical Factors

From the discussion above on internal and external factors influencing Tesla’s performance, the following core factors can be derived.

Timing: Tesla production of electric vehicles came at a time when the world and consumers were looking and demand for clean energy and environmental sustainability as solution to climate change. Although aided by maturity of lithium-ion batteries giving it range and efficiency needed for it to be viable, the governmental support through incentives boosted its operations. By the time its Model X and Y rolled out of the manufacturing plant, the market was eager for new paradigm of clean electric powered vehicle.

Innovation: The company through its revolutionary approach to electric energy storage, motor, vehicle interconnectedness, and autonomous driving systems differentiated it from others. At the time of its first production of Roaster Model, there was no other luxury vehicle in the market. In line to its objectives, the company has emphasised continuous innovation.

Consumer-centric approach: identifying and meeting consumer needs and demands is an essential aspect of any business entity. Tesla has prioritised the consumers’ demand for sustainability, clean energy, efficiency, and safety standards.

Tesla Current Source of Competitive Advantage

The company has modelled luxury nature in its vehicles with integrated sustainability perception which have increased its popularity and creating better value (Noel et al., 2019). The company has built itself as a vehicle manufacturer driven by innovation and technology in delivery of affordable electric cars. Its niche is not only electric cars but luxury automobile in the market supported by technological innovation (Alghalith, 2018). Since it was the first company to curve this niche, the brand has growth to embody a household name in the market. In addition to first to enter EV market, the company has pioneered autonomous driving, supercharging, data driven driving, and battery storage technology, which are growing in popularity in the vehicle industry (Mo, and Wang, 2021). Additionally, autonomous driving has gained popularity due to its safety standards and convenience.

Task 2: Strategy in the Global Environment

In addition to selling its vehicles worldwide, the company has expanded its operations that include supercharging networks and manufacturing process in other countries. Giga-Shanghai in China began construction in 2018 aimed to boost operations in the country. The factory acts as Asian base taking advantage of the cheaper manufacturing and assembling process as well as expanding EVs market in the region (O’Kane, 2018). It also avoids 25% import duty to Chinese market, which is the largest automobile market globally. As a result, the Chinese government exempt Tesla’s Model 3, Model S, and Model X from auto tariffs. Giga-Berlin that is still under construction is thought to be a strategized approach to combat competition from German automobile industry while at the same time enhancing manufacturing and distribution systems within European region. The factory aims production 500,000 EVs annual (Vats, 2021).

Responding to popularity of EVs in EU region, the company plans to establish supercharging point. The move is boosted hugely by EU committed to environmental sustainability and transition to clean energy (Ponders, 2021). Ideally, the expansion approach is driven by need to expand charging network, decentralise distribution systems, enhance efficiency of production process, and taking advantage of regional and governments incentives and support measures for EVs and clean energy (Woodhouse, 2021). In addition to building its own facilities and distribution networks, the company as employed mergers and acquisitions strategy to expand its operations. In 2019, the company acquired two Canadian companies DeepScale – an Artificial Intelligence start-up and Hibar System, a battery manufacturing entity adding to the acquisition of Grohmann Engineering, a Germany company acquired in 2016 (Kolodny, 2019).

The company has relied largely on green field expansion strategy because of being in emerging and developing market niche. This forces it to develop its own distribution networks, supercharging networks, and manufacturing Giga factories. Although such expansion strategies such as joint venture and strategic partnership would offer a better market expansion approach through minimising investment and risk, the EV market before Tesla was inexistent. Currently, several companies develop EVs and hybrid, however, the industry is not standardised. Nevertheless, the company should work towards partnering with local companies and governments as part of reducing investment cost on infrastructure and accelerating penetration owing that establishing new infrastructure and distribution systems is time consuming and financial intensive.

Task 3: Corporate Strategy

Since its inception, Tesla has based its business strategy on entry into high end market where consumers are willing to pay premium for the product quality and services. The production of its first car, Roadster Model, was based on designing and manufacturing the quickest not just electric vehicle but fastest car globally supported by record-setting acceleration, range and performance. Recent launch of Cybertruck, Model S Plaid, and Tesla Semi-truck have seen push the limit and old perspective of the idea of truck and vehicle variables. Cybertruck with its nonconventional features associated with trucks poised to change the industry by introducing EVs, high towing and range, security (bulletproof glass and unfinished stainless steel body). Like its Model Y and Model 3 before it, Model S Plaid featured with 1020-hp, a record-breaking acceleration of 0-60 metres under 2 seconds, and 520-mile range aimed to revolutionise the industry (Valdes-Dapena, 2021; Fink, 2021).

Under vertical integration strategy that argues maximising efficiency of operations through taking direct ownership of production process, the company perceive the need to circumvent the complexity designing and producing revolutionary products and supply chain system (Zhang, 2013). Given that the company has pioneered most of its products including features and design, sourcing would be a challenge. Hence, opting to produce any part in its factories at will and, therefore, alleviating the risks with suppliers (John, 2021; Chen, and Perez, 2018). Tesla relies on the benefit of efficiency, control of product quality, production process, supply chain system, and reducing reliance on suppliers offered by vertical integration in its operations (Perkins, and Murmann, 2018). The company has integrated production of its battery units, electric motor, autonomous software, and central control systems.

Unlike vertical strategy, horizontal integration strategy exemplifies the aspect of reducing competitors through merging or buying them out aimed at increasing production. In overall, the strategy aids a company increase the market power, realising economies of scale, synergy in marketing, and reducing production cost (Pérez-Lara et al., 2020). Although the industry is relative new, its potential has attracted number of competitors both from traditional automobile sector and start-up. In future, Tesla will be forced to partner with others in the industry in order to maintain its competitive advantage. Fast charging industry demand constant innovation and adoption of change aligned to wither increasing threats. Hence, need for horizontal collaboration across its production process.

Future plans should incorporate outsourcing and developing strategic alliances with other partners in the industry. With maturity of the EVs technology that include battery packs, electric motor, and self-driving software, the company should consider collaborating with companies in this sectors as part of enhancing efficiency, steering innovation, and risk avoidance. Outsourcing will not only spread risks, it will enable streamlining production process by maintaining operational control and flexibility.

Task 4: Strategic Purpose - Ethics and Corporate Social Responsibility (CSR)

Tesla’s CSR Strategy

The CSR addresses some of the concerns of the stakeholders that include community, consumers, regulatory body, suppliers, and investors. The company being in the automobile and energy sectors, the two areas that have faced increased pressure from environmental activists, has emphasised the need for conservation measures. One approach taken include need to transition to clean and renewable energy sources. Tesla is a leading company in EVs and solar energy industries making it leaders in working towards environmental protection.

As part of expanding its CSR to benefit community, the company offered its supercharging network to be used by EVs manufactured by other automobile company (Charlton, 2021). The network that has, over the years, given the company a major competitive advantage will be accessible publicly hence removing the need by other manufacturers and governments to invest in developing the charging infrastructure. Additionally, the company allowed other firms to use its patented technology in development and manufacturer of EVs. Collectively, this is aimed at increasing demand and market share of EVs and related products.

Tesla prioritise on the safety of the consumers as well as value of product through regular software updates, high quality, reasonable pricing, and in-house repair networks. In addition to collaboration with Panasonic in manufacturing batteries, the company extending its supercharging networks is driven by focus of ensuring reliability, range, and convenience. In its part of addressing employees’ interests, the company perceive its workforce as essential element towards achieving its goals, business performance, and productivity. As such, it has instituted a high compensation packages, working conditions, and career opportunities. Tesla has worked collaboratively with governments globally to advance environmental conservation and sustainability toward attaining various protocols and international agreement on climate change. Building from this, one can argue that the company employs intersecting circles model as CSR strategy.

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Ethical Issues

Recently, the company has been embroiled in issues concerning the safety with its self-driving systems. In 2018, National Highway Traffic Safety Administration (NHTSA) opened investigation into accidents where Tesla on autopilot hit stopped emergency vehicles using flares and flashing lights (Rushe, 2021). Additionally, the company was also questioned on the frequency at which drivers were found asleep while using driving assistance system or being misused by drunk drivers. The question of how green are electric vehicles has been raised recently. Although EVs company take advantage of the use of electricity rather than fossil fuels know for greenhouse gases emission and contributor of climate change, most of the electricity particularly in the US, China, and developing nations is sourced from fossil fuel (Li, and Taghizadeh-Hesary, 2021). Hence, one can argue transference of environment pollution from automobile to electricity generation industry. Tesla need to address this concerns by investing support and resources into advancement electricity sources with least net greenhouse emission, for instance renewable sources and nuclear energy.

Conclusion

Based on findings, the company strategic approach has been built on going beyond providing solution to the problems faced but introducing new perspective and going against establishment. This is embodied on its mantra of becoming a leading electric car supported by innovative software, and providing high-performance. However, core to this success has been the company’s focus on designing in-house and streamlining its production process. Although questions of future sustainability through its production process have been raised, the company insists on adopting solar panels and storage systems then buying into EVs as a safest approach to limiting climate change.

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