Term Paper Sample:
Critically evaluate the value chain activities of Tesla in terms of marketing and operations management with the aim to identify how the company gains competitive advantage in the automotive industry.
Introduction
This report critically evaluates the value chain activities of Tesla in terms of marketing and operations management with the aim to identify how the company gains competitive advantage in the automotive industry. Value chain refers to the combination of internal and external activities that an organisation performs to create a product or service and deliver the same for the customer (Jones et al., 2019). The automotive industry is one of the world’s largest industries with a global market revenue of $2.8 trillion in 2022 (Statista, 2022). The industry, however, is faced with multiple challenges ranging from government regulations to tough competition, shortage of supply, criticism from climate activists, change in consumer needs and rising cost of production (Turnbull, 2017). In the midst of these challenges, it is essential to conduct a value chain analysis of Tesla Inc., so as to evaluate the efficiency of the existing value chain system with regard to marketing, operations management, revenue generation, and competitive advantage. This report therefore uses operations and marketing theories to analyse value creation in Tesla; as well as adopt business analytical tools (SWOT, Porter Five Forces, PESTLE and McKinsey 7S Framework) to analyse and identify the limits and possibilities for value creation opportunities in the automotive industry for Tesla. The report starts with a broad examination of Tesla as a case and then followed by a comprehensive market analysis and a value creation of the business.
The Case Study: Tesla, Inc.
The case study is Tesla, Inc., (formerly Tesla Motors Inc.,) an American company that operates in two major segments: (1) manufacturing and sales of electric car (2) production and installation of energy storage system. All other services offered by the company such as trade-in of used vehicles, public charging of electric cars, solar energy systems, In-App upgrades, etc fall under these two categories (, 2021). Historically, the company was formed in 2003 by Martin Eberhard and Marc Tarpenning with the motivation to produce electric cars was to show that driving electric vehicles didn’t need combustion engines, and that they could be better, quicker, and more fun to drive than gasoline automobiles (Chen and Perez, 2018). The adoption of the name was in memory of the Serbian-American inventor, Nikola Tesla. The initial funding of the company came from a variety of sources including PayPal cofounder Elon Musk who invested over $30 million to become the chairman of the company starting in 2004 (Braunfels, 2021). Although, Tarpenning left the company in 2008, it also marked the year for the release of the first line of electric vehicles, Roadster vehicles (Taffel, 2018).
In 2010, Musk took over as the chief executive officer (CEO) of Tesla Motors Inc. who raised $226 million for the company through an initial public offering (Bloomberg, 2010). Under Musk, moved from producing just the Roadster into manufacturing other electric car brands such as the Model S, Model 3 (Tesla’s bestselling car), and Model Y (Siddiqui et al., 2020). The company also built five Gigafactories (three in the US, one in China and one in Germany) to manufacture batteries and electric cars (Cooke, 2020). The revenue of the company also grew from $15 million in 2008 to 53,823 billion in 2022 (see appendices 1). This growth rate is exemplary and has caught the attention of scholars to study the value creation model of Tesla to remain competitive. The next section is dedicated to exploring literature and theories that best explain Tesla’s value chain within the context of business operations and marketing activities.
Theoretical Framework
The Analysis
In order to better understand the marketing and operations management of Tesla, this section analyses the internal and external business environment by using SWOT, PESTLE, 5 Forces, and 7P’s Marketing Mix.
PESTLE Analysis
The political, economic, social, technological, legal and environmental (PESTEL) factors that impact the operations of Tesla are given in Appendices 2. Under the Political Factor, Tesla faces both opportunities and threats. For instance, the US government gave $7,500 tax credit for individuals who bought electric cars. This became an opportunity for Tesla to sell its first 200,000 electric cars (Lambert, 2021). Furthermore, before going public, Tesla received a $465 million loan from the Department of Energy, and the state of Nevada loaned Tesla $1.3 billion (Morning Brew, 2021). Similarly, Tesla targets the US, Japanese, Australian, Chinese and European markets with high level of political stability. The political factors have, to a large extent worked in the benefit of Tesla’s marketing strategy as it integrates its marketing into sustainable development policies of target countries (Aybaly et al., 2017). The threats under the political factor relates to trade union activities, employment law, government regulations, trade wars, and inter-state conflicts (i.e between Russia and Ukraine) which may directly impact on the supply chain of Tesla (Widota, 2019).
The economic factor refers to the economic conditions in the external environments that affect the marketing and operations of Tesla. These conditions include growth of the electric automobile market, exchange rates, disposable income, change in national GDP, access to credit facilities and interest rates. The opportunities for Tesla since 2008 have been the decrease in the cost of the raw materials that are used. The decreased price of batteries in particular is beneficial to the organisation since it allows for greater profit margins. The more people buy Tesla electric vehicles, the more likely it is that the prices of the resources they use will go down (Ding et al., 2019). Moreover, the Tesla’s sales for electric cars have risen due to shift towards gas-free vehicles. As depicted in appendices 2, Tesla delivered about 76,000 units in 2016 but increased to over 935,000 in 2021. This increase meant more profit and decrease in the cost of production. For instance, the Tesla Roadster cost $109,000 in 2008 but the latest Tesla Model 3 cost $46,990 (Tesla Inc., 2022). Nevertheless, the expansion of Tesla is contingent on the economy of the target country. The firm will benefit in two different ways in the long run from the production of reasonably priced autos that are within the financial grasp of average people. Tesla’s expansion is helped by the declining cost of renewable energy sources; nonetheless, economic uncertainty remains one of the company’s greatest problems.
The social factors are conditions that affect the adoption of Tesla cars by the populace. These include wealth distribution, change in people’s lifestyle, cultural development, social classes, spending habit. The social conditions and trends affect a firm’s macro-environment through the stakeholders which involves the investors, customers, and employees (Ferraro and Beunza, 2019). The opportunity for Tesla in this regard is the adoption of low-carbon lifestyle of the target markets and the high preference for green-renewable energy. The threats outlook is the dynamic consumer behaviour which may switch to a better competitor that offers better value, is more environmentally friendly and is cheaper than Tesla cars.
The technological factors are conditions that affect the marketing and operations of Tesla including product development, communicating with the customer, service centres, flexibility of delivery process and understandng consumer behaviour through big data (Fosher, 2018). Tesla benefits from the technological factor considering that it leads the market in innovation of battery, long distance travelling of electric cars, mass production of EVs, factory-to-customer delivery, etc. The threat lies with technological change in the production process which may affect the current design of product or regulations against the full deployment of robots in Tesla’s Gigafactories (Cooke, 2020).
The legal factors are jurisdictional related conditions that affects the operations of Tesla especially in the areas of digital marketing, research and development, consumer protection, patenting, energy consumption, dealership agreements, sales regulation and labour relations. The opportunities for Tesla in this regard cover the international patent protection for its products but also faces the threat of restrictions on direct car sales by Tesla in many states.
The environmental factors are ecological conditions that affects the brand image and promotion of Tesla’s electric vehicles. The Paris Climate Agreement where governments agree to reduce and mitigate against climate change presents both opportunities and threats to Tesla. The global resolutions and commitments in the Paris Agreement currently in favour of Tesla in its push for replacing traditional carbon emitting cars with electric cars (Doelman et al., 2019). However, the rise of climate activists against Gigafactories of Tesla claiming the project endangers local water supplies and wildlife may hunt the company’s brand image in the future (Newseu, 2020).
SWOT Analysis
Porter’s 5 Forces Analysis of Tesla
Porter’s Five Forces is a model of market analysis that was developed by Michael E. Porter in 1980 (Porter, 2017). It was designed to measure a company’s profitability in the face of competitive rivalry, supplier power, buyer power, threat of new entry, and threat of substitute. The application of Porter’s Five to Tesla was beneficial in that it brought to light the extremely competitive business climate in which Tesla operates as well as the requirement for the firm to reinvent its marketing and operations management. The one-dimensional structure of this analytical model is one of its major flaws, and its primary value is in the provision of just the most general information possible on the dangers that face the firm (Bruijl, 2018).
Competitive rivalry implies that Tesla is faced with strong competition in the electric vehicle industry especially from Volkswagen, Hyundai and Chinese manufacturers BYD. Although, Toyota is not a major competitor to Tesla in the EV segment, the push for hybrid cars by Toyota offers alternative for customers to buy hybrid cars in place of EV. However, Tesla currently has an advantage over its competitors due to its emphasis on innovation and integrated services, as well as its global network of charging stations. It also responds to competition through an improved supply chain, a vertical integration, and a dedication to continuous improvement to decrease operating expenses and increase its earnings (Lin et al., 2022).
As seen in appendices 6, the potential for new entrants is a low force. Building and developing an EV brand costs a lot of money since it requires using technology that is both very original and very advanced.
7-S Framework Analysis of Tesla
The McKinsey 7S Framework is linked to the research activities of McKinsey & Company in the 1980s (Kukkamalla et al., 2020). It is used to assess the productivity and/or performance of a corporation using seven essential elements namely strategy, structure, systems, shared value, skills, style and staff (Cox et al., 2019). The 7s framework may be broken down into two distinct categories: the hard and soft elements (see appendices 7). Strategy, structure, and systems are all hard elements while the soft element comprises values, skills, style, and staff. According to the McKinsey 7s model, an organization’s effectiveness can be improved if the hard and soft elements are well managed under a flat
Under the hard elements, Tesla’s approach to business is predicated on a concentration on electric vehicles, which is motivated by the company’s objective to hasten the transition to renewable energy sources throughout the world. The business strategy of product differentiation is one that is pursued by the producer of alternative fuel cars. Performance, design, and environmentally responsible manufacturing are the three pillars around which Tesla bases its differentiation for its automobiles and energy products. In addition, the control of distribution, which Tesla achieves through the operation of company-run stores and galleries located in shopping centers and other locations, is at the center of Tesla’s business plan.
In terms of systems, Tesla’s chances of achieving sustainable development over the long run depend on a diverse set of different infrastructures. The personnel recruitment and selection system, the customer relationship management system, and the knowledge management system are crucial to the growth of the company. Tesla, however is working to make the factories become a stand-alone brand which implies a production system that is tied directly to the consumer experience (Husain et al., 2022).
Shared Value of the company includes creating products are driven by clean energy, creative designs, trust, quality and speed. The corporate culture of innovation in all its products. The skills promoted by Tesla is mostly found in the recruitment of employees which is based on skill and not necessarily certification. There are well defined tasks for all employees. There is emphasis on knowledge transfer across all plants. The style of leadership is transactional leadership, style to motivate employees, engage the suppliers and other stakeholders. The staff, although 110,000 have sufficient training and knowledge development.
Based on the outcome of the 7s framework analysis, it was observed that Tesla employed a dynamic organizational model in its leadership structure. This enable the company to provide strategic leadership to the organisation in complex situations. However, the analysis of the 7s framework shows that the organisation is insufficient in providing information about the external environment as it ignores the roles of the external forces in shaping the marketing and organisational management of Tesla (Widiantoro et al., 2020)
Creation of Value
Conclusion
The value chain analysis of Tesla indicates the company adopts a market-oriented approach in its operations strategy. This approach is useful in the creating value for the stakeholders especially the customers, shareholders, the governments and the employees. However, the company faces a number of threats (as indicated in the SWOT, Porter Five Forces, PESTLE and McKinsey 7S Framework) which should be addressed to sustain its competitive edge.
Recommendations
In order to prevent future problems in the operations management, this research proposes that the Lean Management strategy of Tesla should be improved upon to reflect changes in the external market environment as observed in the different marketing analyses. Moreover, based on the Value Chain Analysis, it is proposed that Tesla should source for premium-quality raw materials, with the aim of pursuing cost differentiation and gain traction of other customer segments. The study also suggests that Tesla should improve upon its corporate social responsibility as a method of providing value for the broader public and not only its consumers. Finally, Tesla should improve upon its supply chain methods to cut expenses, as well as negotiating better agreements with suppliers while supplying high-quality items at competitive pricing in the best interest of the shareholders and the consumers.
References
