Tesla’s Business Operational Activities— Analyzing Strategic Issues.
Analyzing these strategic issues using the PESTEL framework, focused differentiation strategy, Porter’s five forces model, and SWOT analysis.
An organizational process is a series of activities required to accomplish organizational goals. Similarly, business operations refer to the activities that must occur within an organization that enables them to make a profit and sustain business value. This report is focused on Tesla’s organizational processes and its business operations, it shows the strategic issues the company has experienced and the extent of impact those issues have made on the company’s structure, revenue, and overall business outlook. The objectives of this report are to critically analyze the issues faced, their strategic implications, and how they directly affect the stakeholders and investors.
Tesla, Inc is a company in the automotive and renewable energy industry. They are widely known for manufacturing and sales of vehicles powered by electricity, they also manufacture solar roofs, solar panels, and other renewable energy accessories. Recent information (Tesla, Inc — Wikipedia) shows that Tesla has become a very valuable company and named the world’s most valuable automaker with its current revenue at 18.76 billion USD as of March 2022. The company was founded in 2003, and they have over 650 retail outlets and service centers globally. In 2021 alone, the company sold 936,222 cars which would make for an 87% increase from the previous year. Recent reports (Macrotrends, 2022) have shown that Tesla’s revenue and gross profit have significantly grown year-on-year (YoY).
We can deduce from the values shown in Table 1.0 that there has been a steady increase in the company’s revenue and gross profits over the past 3 years. This level of sustained growth and productivity is based on the effectiveness of the company’s business operations. Tesla’s operational activities include but are not limited to; design and manufacturing, workforce management or human resource management, inventory organization, logistics, and supply chain management activities. These operational activities rely on the company’s strategies and help to define how the company achieves its immediate and future goals. In view of the fact that the nature of the automotive and renewable energy industry is always evolving, Tesla’s business operational activities must continually get better to ensure a competitive edge.
The possible limitations of this report are;
- The research methods used (Access to literature reviews and online materials): Mainly qualitative methods, information on ProQuest, and other online sources. No quantitative methods like surveys and interviews.
- The available time for compiling this report
Due to these limitations, this report will not include information outside the stated sources, like surveys, or interviews.
There are four sections of this report, it begins with an introductory section that provides background information about the topic, scope, and purpose of the report. The next section provides an outline of Tesla’s business operational activities and its strategic issues in recent years with respect to strategy alignment, analysis tools, models, and frameworks. The third section describes the impact of the strategic issues on all the stakeholders involved and the fourth section summarises all the preceding sections and provides conclusions.
The purpose of this report is as follows;
- Critically evaluate Tesla’s business operational activities.
- Apply tools and techniques to analyze the strategic issues that Tesla experiences.
- Access the impact of Tesla’s strategic issues on its stakeholders.
TESLA’s BUSINESS OPERATIONAL ACTIVITIES
According to Truong (2020), business operations can be defined as “the different daily activities that a company takes part in to increase its value and profit margins”. Business operations enable an organization to achieve its goals and also ensure proper alignment of all its plans and strategies. The business operational activities and strategic management processes are activities that need to be taken into consideration and carefully planned as the need arises, this is because aligning strategy amongst the levels within an organization is an important part of every organization. There are some challenges that can arise when trying to align strategy, these can include;
- Having different backgrounds and perspectives on how to execute plans and strategies.
- Influence from the larger group in the organization
There has to be a plan on how to manage these challenges that come with the strategic management process, eventually, the managers will need to critique the process and delivery methods to ensure efficiency.
The major operational activities that Tesla performs;
- Design and manufacturing activities
The activities involved in this sector are majorly around the design and manufacturing of the products for their end-users; vehicles powered by electricity, and other renewable energy accessories. Tesla is known to manage this rigorous aspect by developing an innovative mindset, which sets them apart from competitors. The company is widely known for the manufacturing of electric-powered vehicles before their other product offerings, and they have put organizational processes in place to ensure efficiency and performance, from the designs to the production of these vehicles in their factories, warehouses, and assembly stations.
Tesla thrives to maintain their level of quality for its end-users, so its products undergo thorough quality control, and enhancement strategies. They also invest in research and development to be able to preserve their high innovative standards. These continuous improvements in their products and also their organizational operations enable the company to uphold its standard for excellence. An example of this is that the employees who manage operations at Tesla repeatedly supervise and oversee quality assurance and they execute the needed improvements to their design and manufacturing processes. Also, a recent publication (Maverick, 2022) has shown that Tesla manufactures its primary car components. These actions in the examples given enhance the general quality of the product.
- Workforce management or human resource management activities
The workforce at Tesla is currently over 100,000 (Macrotrends, 2022), these employees are the labor force that contributes largely to the success of the company. It is known that the level of work being done at Tesla needs a high-quality crop of employees, when employees perform optimally or poorly it directly affects the company. To attract quality talent to its workforce, Tesla has a remuneration plan that is considered competitive in the industry. The company also provides consistent opportunities for learning and development for employees. As described in an article (Libertymind, 2021), Tesla’s company culture encourages its workforce to be highly creative, and innovative. Constantly looking for new and improved ways to develop the company to give it a competitive advantage in the industry.
- Inventory organization activities
This area focuses on Tesla’s inventory management and how it helps the company properly manage risks. Tesla thrives on innovation and information technology and they have been able to develop a special system that deals with data control and inventory management. The company maintains an inventory that is small, having a small inventory enables them to reduce the likelihood of overproduction. According to Finbox (2022), Tesla operates with the First-In-First-Out/Last-In-First-Out inventory methods. Tesla would rather have their proposed customers on the waitlist for extended periods than discontinue this inventory style. There is limited information on the effect on demand from their customers because of this inventory style, and how it affects profitability. There is also insufficient information on the impact of the long waiting periods on demand, that is, customers dropping off the waitlist.
On the other hand, this inventory style has major advantages, Tesla minimizes the risk of having their resources being held up, and this risk usually emerges when companies have surplus inventory. Another good advantage of this inventory style is the extra personalized experience that comes with each order. (Shilovitsky, 2022)
- Logistics and Supply chain management activities.
Logistics and supply chain management activities are those activities that center on the appropriate production and supply of Tesla’s products and services to its customers. This set of activities at Tesla contributes to its production efforts. A recent report (Selfert and Markoff, 2022) explains that Tesla was able to overcome a major supply chain problem that caused production limitations for other companies and even caused a full halt of production activities within those companies in their industry. This was because while its competitors depended on external suppliers, Tesla created their own. Tesla was able to overcome this scarcity issue by preemptively producing their own chips for their vehicles. Before now, Tesla had managed the supply chain management for their batteries by building a factory for battery production, but most recently they built their own chip and were able to survive the chip shortage that hit the industry in 2021. This feat cost the company a lot of financial resources but it also gave them more control and management over their own production and supply. Another point to note is that Tesla caters to a small range of vehicles, currently numbered at 4, while other companies within their industry have a lot of models to cater to.
ANALYSING TESLA’s STRATEGIC ISSUES
In this section, we will be evaluating the strategic procedures that Tesla uses to control and manage their external and internal challenges.
Using the Pestel Framework to analyze Tesla’s strategic issues
The PESTEL (Political, Economical, Socio-cultural, Technological, Environmental, Legal) framework is an analysis tool that accesses the impact of a macro-environment on a company. The macro-environment that Tesla is concerned with are the automobile sector and renewable energy sectors, these sectors mentioned have external elements that impact the business. The success of Tesla’s business is a direct result of the extent to which the company controls and manages external elements in its business environment, the company adapts to new strategic plans as the environment evolves. Tesla’s revenue and profits have been on a steady rise even with strong competitors (Macrotrends, 2022). There are various factors that affect business, and strategic management processes are meant to satisfy each of these elements. When Organizations seek out these factors and find ways to manage them, they are set for success. The factors in the PESTEL analysis are as follows;
- Political factors
This factor shows how politics and government policies can affect a business environment. This is one of the most important factors to consider because governmental policies can either limit or support your company and the industry, and this can affect revenue. As it relates to Tesla, this factor benefits the company greatly in terms of favorable trade policies, monetary support from the government, and reliable political figures in most of the areas where they have a large market share. There are open opportunities for Tesla to boost its financial status due to support and incentives from governmental bodies. Tesla is able to spread and enter new markets because of some political factors that assist in creating agreements for expansion. As mentioned earlier, political stability within the regions where they do business makes their situation more advantageous. In general, these political factors benefit Tesla and its operations, in turn, its total revenue.
- Economical factors
The economic factor focuses on the economic state of the industry or macro-environment and how it affects the company; this is a relevant factor because it assesses dimensions like currency/exchange rate, credit availability, income level, growth of the market, etc. These dimensions further examine factors like pricing strategies, demand rate, etc. This economic factor affects the overall business. In Tesla’s case the low cost of batteries and renewable energy accessories is seen as a good opportunity, this means that the products made with these low-cost materials are more affordable, which directly affects the demand rate. Tesla also benefits from their renewable energy products and services as it has become a more acceptable way of energy production and consumption globally which also affects acceptability and in turn demand rate and increased market share. On the other hand, issues with global economic instabilities within the industry generally, pose a threat to Tesla’s economic operations and management.
- Socio-cultural factors
The socio-cultural factor affects the alignment of the business with the social conditions of the end-users and/or other stakeholders. There are some socio-cultural factors that affect Tesla’s business environment like the distribution of wealth, increased acceptance, and preference for a low to zero carbon emission lifestyle of their end-users and stakeholders. The distribution of wealth has improved in emerging markets, especially in regions where Tesla thrives, this creates an opportunity for more prospective customers to demand their products. Also, the increased acceptance and preference for renewable energy products amongst the general public are also a good opportunity for Tesla’s products and services which directly improves the demand rate. Ultimately, Tesla can thrive globally because of these socio-cultural factors.
- Technological factors
The technological factors within the PESTEL framework analyze how technology affects the industry or macro-environment. Innovation within Tesla’s renewable energy and automobile business majorly depends on obtainable and accessible technologies. The technological factors that affect their business environment include but are not limited to;
- The increased acceptance and use of internet services on automobile products and services
- The improved rate of new and evolving technologies globally
- The increased rate of automation in recent products and services
These factors all show a good business opportunity for Tesla because they are a forward-thinking and innovative company that uses technology to its advantage, to create custom experiences for its end-users through its products and services. However, there is a downside to how these increased rates of evolving technologies affect Tesla, in many cases, it makes the old technology outdated and can no longer be of good use.
- Environmental factors
The environmental factors involve the impact of the natural environment on the business environment. They also include regulations around energy production and consumption, pollution and environmental protection laws, etc. These factors affect the accessibility and usage of the materials in the manufacturing procedures or processes. Tesla’s products and services encourage environmental factors like climate change and alignment with pollution and environmental protection laws. Their products — electric vehicles, solar roofs, panels, and batteries are all considered low-carbon, environmental-friendly, and non-polluting products. Due to this fact, there is a major growth opportunity for Tesla due to the category and type of product they manufacture.
- Legal factors
Legal factors can be similar to political factors in that they both consider regulations. These legal factors detect the various law and legal systems that impact the growth of the company. With new expansions internationally and the category of products they manufacture, Tesla will be required to adjust and align their internal policies and regulations with the new environment, abiding by the laws and rules alike. An example is the prohibition and limitation of business-to-consumer sales in some parts of the world. These legal constraints can also refer to things like taxation, law, legal systems, etc, and they affect how their business should operate within that environment. Laws affecting human resource management are also included as legal factors.
The points made in this section, using PESTEL(Political, Economical, Socio-cultural, Technological, Environmental, Legal) analysis, go to show that these factors impact Tesla’s profitability and growth potential. It shows the many opportunities and also some limitations in the industry and overall market.
Using Bowman’s Strategy Clock to analyze Tesla’s strategic issues
Bowman’s clock is an analysis tool or framework that aids strategy based on price and perceived value. It defines the positioning of a company and can be used to strategically place a company to ensure competitive advantage.
Tesla’s strategic position on the Bowman’s clock is Focused Differentiation. This strategy refers to a situation where the company attaches a high price and a high value to its products and services to attract and maintain a certain customer demographic, this is also used to maintain the profit margin of the company. The customer target market for Tesla is people who can afford luxury and care about low-carbon emission products. The company may not be able to participate on a low-cost basis because the materials and resources used for the production process are majorly high-value resources.
This focused differentiation strategy gives Tesla a huge competitive advantage.
Using Porter’s Five Forces Model to analyze Tesla’s strategic issues
This Porter’s five forces model is used to estimate the structure of an industry, and to understand the forces that enable the company to recognize the possible profitability of an industry. (Wit and Meyer, 2005)
Porter’s five forces are as follows;
- The threat of entry
Tesla experiences several difficulties at the point of entry, some were around the high-priced cost of business operations, the development of the company’s brand, and cost reductions by other large organizations. These issues experienced were mostly financial because the product and services that Tesla provides need adequate investments and funds for production and also for sales, marketing, and distribution efforts. Organizations like Toyota are already large corporations with ample access to financial resources and capabilities to thrive in the market and this threat will be low to moderate for such established corporations, unlike Tesla (Shirouzu, 2011).
- The threat of substitutes
The threat of substitution is low for Tesla because the other substitutes are not in the same category as electric cars or renewable energy products, they are mostly gasoline-powered vehicles or generators. Also, there are other means of transportation but they may not be private, like buses, trains, etc. (Dutch, 2008). Some people have a preference for personal vehicles for privacy and convenience reasons.
On the other hand, the substitutes in the electric and renewable energy sectors are very limited so there is still a low to moderate chance for substitution from Tesla customers.
- The power of buyers
Tesla’s buyers are directly connected to the growth of the company’s revenue and the force here is moderate because the target market has access to available credit systems and some government support in addition to that, those groups of people may not require assistance but they are available assistance options if and when needed. This makes the demand for Tesla’s vehicles moderate. The power of the buyers, in this case, is low because of low switching costs and decreased difficulty to substitute the product.
- The power of suppliers
While Tesla is known for manufacturing some fundamental components of their products and services, they still depend largely on suppliers for a lot more product parts and components. There are challenges that come with having suppliers like quality control etc. In some cases, the suppliers can be unreliable and can directly cause a scarcity of resources and materials that the company needs.
- The extent of rivalry between competitors
Tesla belongs to the general auto industry first before the subs section of the electric vehicles industry. The general auto industry is a very competitive one as there are lots of options for potential customers to choose from depending on their preferences and budget. However, within the electric vehicle industry which can be referred to as the sub-section of the main one, the competition is moderate due to the size of the current competitors in that market. In recent years, there has been a rapid increase and emergence of more organizations in the electric vehicle market (Wood, 2022).
These new companies who have entered the market have different categories and versions of these vehicles, from biodiesel categories to hybrid. The rivalry can only get extreme and organizations will need to sustain their improvements and innovative processes to remain relevant.
Using SWOT Analysis to analyze Tesla’s strategic issues
SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. The internal factors are strengths and weaknesses and the external ones are opportunities and threats. These individual factors determine the kind of conditions and circumstances in which the company chooses to do business. These are outlined below as the SWOT analysis.
This factor refers to the strengths of the company, these strengths contribute largely to the overall success, performance, and growth of the company. They ensure that the business stays valuable and in turn, profitable. Tesla has some strengths that have been able to give them a competitive edge, these are;
i) They are highly creative and focused on innovation
ii) They are perceived as a reliable and quality brand
iii) They have adequate control and management over their manufacturing procedures
Due to their high innovativeness, they are always building new solutions that are profitable and their strong brand enables them a level of attraction to their target market and also helps them maintain their customers. Also, because they have adequate control over their manufacturing processes, they are able to minimize third-party participation.
These are factors that hinder the success or performance of the organization. They lessen the competitive edge and cause a decline in business growth. Dealing with these weaknesses through execution strategies and innovative solution is an essential part of business performance.
Some of the weaknesses are as follows;
i) Inadequate trade arenas
The only country that has Tesla’s adequate presence is the United States of America, all the other countries across the world have inadequate or no presence at all. This leads to untapped global trade arenas, especially with the recent global economic growth.
ii) Restricted supply chain
This is another weakness that hinders global expansion into markets other than the United States.
iii) Expensive pricing
In their industry and amongst other competitors, Tesla’s products are considered more costly than others. This limits their target market and clientele reach.
Opportunities are external determinants that affect the proposed success and growth of a company. As listed under weaknesses, Tesla’s greatest opportunities lie in global expansion, this is to accommodate new countries, and new markets, especially in countries that have little or no market presence. Tesla can also consider acquisition as a strategy to minimize the risks of entering new markets.
This is another external determinant that hinders growth and development. The threats limit the company from optimizing the core positive factors — Strengths and opportunities. Tesla has shown that they are a highly profitable and successful company with a steady increase in revenue but the following threads need to be attended to, to enable them to maintain relevance within its industry.
i) Regulations with vendors and dealerships
These limit direct sales between Tesla and consumers, introducing third-party dealers and vendors. This can be a threat as it affects sales and in turn, revenue.
ii) Unstable prices of some resources and raw materials for production
The cost of raw materials and some other resources used for production are continually increasing, these resources are important for production and will in turn affect pricing strategies. Having quality substitutes that may be cheaper or a change in supplier, can help with this threat.
iii) Strong competition
In the past few years, there have been several attempts from other organizations to produce electric vehicles and renewable energy products, so the competition has only become stronger in that area for Tesla.
This report has been able to give a general introduction to Tesla as a company, the products and services they offer, and its business operational activities stating facts and figures about its revenue and profits in the past few years. The report also evaluates the strategic business issues faced by the company using different lenses, tools, and techniques such as the PESTEL(Political, Economical, Socio-cultural, Technological, Environmental, Legal) framework, Bowman’s strategy clock, Porter’s five forces model, and SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis.
From our findings, we can observe that Tesla is a company that is successful and because of its constant improvements and innovation, it has become a top company in the industry. They prove the significance of environmental protection and they play their part with cutting-edge technologies. Their innovations have given rise to good substitutions for high-carbon-emitting vehicles and generators. The PESTEL analysis shows that Tesla has a lot of growth opportunities in the nearest future. However, the emergence of other competitors who manufacture electric vehicles has posed a threat to Tesla. With their focused differentiation strategy, they will be able to maintain a competitive advantage. From Porter’s five forces model, we can observe that some forces are weak, moderate and some are strong, the report recommends possible solutions to those forces that strongly affect business impact. Ultimately, as explained in the SWOT analysis, Tesla has the advantage and strengths to withstand the strategic issues that may arise but most importantly the company must carefully address its weakness and threats so that its competitive edge can be maintained and revenue improved.
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