Tesla Motors Internal & External Strategic Analysis Case Study

Please make a Strategic Analysis

You should NOT make-up information or use information not included in the case.

DON’T copy from the internet and NO Plagiarism

Your strategic analysis should include the following:

External Analysis

• Use the PESTEL Framework to analyze the firm’s external environment (identify 2 factors at least and explain how they impact the industry)
• Use Porter’s 5 Forces to analyze the industry (identify at least two factors and explain how they impact the profitability of the industry)
• Identify at least one opportunity and one threat for the company

Internal Analysis

• Identify the firm’s core competency.
• Assess the shareholder value creation of the firm compared to a rival. Which firm has competitive advantage?
• Identify at least one strength and one weakness of the company

Strategy

• Based on the SWOT factors, provide one suggestion to the firm. Your recommendation should be based on one of the following:
  • How can the firm use internal strength to take advantage of external opportunities?
  • How can the firm use internal strength to reduce the likelihood and impact of external threats?
  • How can the firm overcome internal weaknesses that prevent the firm from taking advantage of external opportunities?
  • How can the firm overcome internal weaknesses that will make external threats a reality?

Here is the case:

“ALTHOUGH TESLA MOTORS has successfully entered the U.S. automotive market using innovative new technology, its continued success will depend on other firm and industry factors. While industry forces have been favorable for a long time in the U.S. automotive industry, recent dynamics have lowered the profit potential of competing in this industry and thus reduced its attractiveness. Now that Tesla Motors has demonstrated how new technology can be used to circumvent entry barriers, other new ventures may soon follow. There are also nontraditional competitors entering the electric vehicle market. Google, for example, has been working on a self-driving car, unveiling a prototype in 2015. Apple is also investing in an electric car under the code name “Titan.” None of these has the performance of a Tesla, but both are firms with established brands and credibility and significant financial resources.

One of the biggest PESTEL factors impacting the all-electric car market, however, is that the price for crude oil declined steeply from over $110 per barrel in the summer of 2014 to about $40 by spring 2015. With it, prices for a gallon of regular gas in the United States fell from over $4 in the summer of 2008 to less than $2 by 2015. With low gas prices, Americans prefer to buy large SUVs and trucks, which benefits GM, Ford, and Chrysler. In addition, several states are reducing or phasing out tax credits for alternative-fuel vehicles.

Another external industry force that Tesla Motors currently addresses is the bargaining power of suppliers. Lithium-ion battery packs are not only in short supply but also the single most-expensive component for Tesla’s electric engines. These critical inputs are supplied by only a few technology firms, including Panasonic in Japan. Given that these sources are few, the bargaining power of suppliers in the electric car segment is quite high, further limiting the industry’s profit potential. To mitigate the strong bargaining power of key suppliers, however, Tesla has committed to building a 980-acre facility near Reno, Nevada, to produce its own lithium-ion batteries to supply its automobile assembly plant in Fremont, California. The new battery plant is slated to begin production in 2017 and requires a $5 billion investment to place the plant near sources of lithium and power it with renewable energy.

Tesla addresses not only economic but also social and environmental challenges by offering electric vehicles. Tesla is not just in the business of selling cars. It is transforming the way we drive, and the company is delivering innovative new technologies to do so. While Tesla is not the only auto manufacturer that offers electric vehicles, it has created, and dominated, the market for luxury, long-range electric automobiles. This market is distinct from the one for less expensive electric vehicles, as well as the market for luxury gas-powered vehicles. Tesla has been growing at a rapid pace over the last few years, thanks in large part to the public’s excitement for its automobiles. Sales increased 27% in 2015, after jumping 59% in the prior year. The extraordinary growth has been driven by strong global demand for the Model S. Despite the robust sales growth, Tesla has reported negative free cash flows and earnings for nearly every year since its IPO. As a result, Tesla has been forced to raise more debt and sell more shares. As of March 31, 2016, Tesla had nearly $2.5 billion of long-term debt and capital leases on its balance sheet, or roughly 72% of total capital.

One of Tesla’s rivals is GM which in 2017 held 1447 million shares at the price of $37. Tesla’s share price closed at $322 in 2017 and they held 168 million shares.( shareholder value creation is calculated by multiplying the number of shares by the price of share)