Global Company Report: Tesla, Inc. Introduction: Summary of the Business and Its Industry

Tesla, Inc. was launched in 2003 in California as a niche market luxury carmaker that specialized in electric vehicles (EV). The Tesla Roadster was its first product. The Roadster was a high-end EV and not a mass market car. Today, Tesla offers the much more affordable Tesla Model 3, which is a mass-market EV designed for the common man. Its other products include the Tesla Model S and the Tesla Model X. Tesla sells its cars in North America, Europe and in Asia. It has recently obtained financing to build cars in China, where its vehicles are already being sold, and is currently poised to enter Japan’s market. Tesla’s focus on sustainability and its CEO Elon Musk’s use of social media has made Tesla a favorite among investors who view sustainability as the future and Musk’s innovative leadership as a major factor in Tesla’s growth. Baumgartner (2014) has shown that sustainability is a major factor in the corporate social responsibility policies of companies, and Tesla’s is vital to its success. Its vision for the future of technology and energy has made Tesla the leader in the EV market around the world.

Tesla is also involved in green energy through its SolarCity subsidiary. Tesla produces the Powerwall which is supposed to harness solar power for residential homes. By having this business, Tesla has shown to consumers and investors that it is serious about the green energy revolution. However, SolarCity is buried under a mountain of debt and Tesla’s purchase of SolarCity was questionable among many as the company was actually owned by a relative of Elon Musk’s. While green energy is the latest trend among tech companies, Tesla has been able to capitalize on the trend so far by merging green energy technology with luxury car manufacturing. However, competition is heating up in the industry, and Tesla will need to move more vehicles to keep ahead of competitors.

The industry overall is still heavily involved in producing cars that rely on fossil fuels. This means that Tesla is still very much a unique manufacturer. Nonetheless, the industry has taken notice of Tesla’s appeal among consumers. Hybrids have already come to market, but Tesla offers something different—a fully electric car—and companies have begun to design their own to compete with Tesla. Nissan, BMW, Jaguar, Audi, Ford, Infiniti and many others are working on EVs now.

Still the car industry overall may be in decline as recent reports indicate stagnant sales (Gardner, 2018). As Gardner (2018) notes, in many parts of the world borrowing is becoming more expensive as central banks raise interest rate levels, which means that taking out a loan to buy a new car is not as affordable as it once was. Rates are rising in the U.S. and in China, which is a major market for the auto industry. In order for Chinese consumers to buy new cars, they need good low-cost loans—and rising rates will put a damper on the auto market in China and kill the growth story there. As Ferris (2019) reports, auto sales in China have fallen for the first time in two decades with a 3% drop in sales in 2018, and there is likely to be an even further drop for 2019. This could mean that the industry overall is in for a world of hurt.

External Environment

PESTEL

Political factors include the current trade war between China and the U.S. as well as government tax incentives in North America and Europe that help to increase sales of EVs. The trade war could be detrimental to Tesla, as Tesla is based in America, though it does sell in China. China is looking to promote domestic brands over international ones, however, and this means Tesla faces significant pressure from China.

Economic factors include the loss of tax incentives in Europe and North America to get consumers to buy. Interest rates are also rising in North America and in China where Tesla needs to see sales improve. The higher rates go, the lower sales will go as buyers judge rates too costly to purchase a new car.

Social factors include Tesla’s ability to promote itself under the direction of Elon Musk, who has enjoyed celebrity and cult-status thanks to his vision, charm and personality. However, lately he has seemed...

Society is still in love with green energy all over the world and this is in Telsa’s favor.
Technological factors include the fact that Tesla is no longer in possession of unique resources when it comes to the EV. Other manufacturers are developing batteries and technology that can give their cars as much torque and distance as the Tesla. Technological competition is thus going to be stiff going forward.

Environmental factors include the fact that the world’s leaders want to turn to green energy thanks to the Paris Accord. EVs are thus likely to have a long life and a bigger market in the coming years. This bodes well for Tesla as its focus is on sustainable, renewable energy.

Legal factors include the fact that Tesla’s CEO is unable to stay out of trouble with the SEC. The company is also being investigated in the U.S. for several deadly crashes (Reuters, 2019). This means Tesla could end up being forced to do a large scale recall in North America and could be sued by consumers for selling a dangerous vehicle.

In terms of threats and opportunities, there are several for Tesla. Competitors are heating up and entering the EV market. However, Tesla still has brand appeal and technological superiority. It needs to find a way to leverage its brand appeal and buy time with consumers and investors to fix what is wrong with the Model 3 so as to stay ahead of the pack. Tesla does not need to dominate in Asia for this strategy...…diversify in terms of geographic markets, but the Japanese do not show much interest in the Model 3 (there is little demand for it there) and the Chinese have their own national EV maker. Plus, the trade war between China and the U.S. is not going to be in Tesla’s benefit.

Future Recommendations

Tesla needs to overhaul its corporate strategy and abandon for now its vertical integration plans. It needs to begin outsourcing jobs and cutting costs. While it has prided itself on being the only wholly American car producer in the world, that goal is not a viable way forward. While geographical diversification may sound like a good corporate strategy, it does not align with its internal capabilities at this point: Tesla is out of cash and notes are coming due. It is going to have to shrink just to stay solvent. It should abandon China for the time being—especially as the auto market in China is in decline with rates rising there. No manufacturers are going to prosper in China for the time being, and that means Tesla can refocus on Europe and North America.

If Tesla were to be outstripped by a competitor like the Nissan LEAF or the Chevy Volt/Bolt or the BMW i3, its brand image would become seriously tarnished. Tesla is respected because it is considered a leader in the EV market and that means it has to maintain its position as the leader no matter what. In 2015, it was only beating Nissan by a few thousand vehicles in sales, and if it is not careful, it will stop being a leader. Tesla needs to focus on rebuilding its image in Europe and North America by getting an improved Model 3 to market. Rates are still low in Europe, which means people will be more willing to buy there, so Tesla should double down in Europe before manufacturers like BMW and Audi cut into market share. In order to succeed, Tesla needs to renew its commitment to the Model 3 production, improve the design and engineering so that it is more reliable in all weather climates, and get these cars to market. Tesla has to manage its brand just as much as it manages its innovative scale of products. The problems with the Model 3 that caused Consumer Reports to drop the car from its recommendations have to be fixed so that Tesla can stay competitive in the market as newer EVs from other companies come on line. Tesla needs to ramp up sales in Europe and secure market share there before competitors take over.

Musk must be replaced as CEO. He was initially the visionary—but today he is a liability. He routinely over-promises to the point where consumers and investors now no longer can expect anything he says to be true or even possible. To compete in the coming EV market, Tesla needs a CEO who knows how to run a business. That is not Musk and the recent events over the past…