Tesla's Struggles: A Look at Elon Musk's Business Challenges - Essay Sample

Introduction

Current and emerging trends in the realm of business have implicated business activities significantly. The automotive industry has not been an exception to this trend. Renowned founder and Chief Executive Officer (CEO) of Tesla Elon Musk has faced significant mishaps in his quest to establish one of the most innovative firms. From high liability claims on the products, high cost of the automotive, inability to manufacture in-house batteries, and stiff competition from close substitutes (Afonso, 2018, p. 3). In a bid to mitigate business setbacks, the CEO has heavily invested in Research and Development (Afonso, 2018, p. 3). It results from the firm's reliance on differentiation to boost sales. On 1st August 2016, Tesla's CEO stroke a deal to acquire Solar City for 2.8 billion dollars (Afonso, 2018, p. 3). Substantial long term financial investments necessitate in-depth analysis; thus, an evaluation of Tesla's internal factors, external factors, and strategic assessment is crucial.

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External Analysis

Opportunities

Market Expansion

With the implications of globalization and technological advancements, competition has stiffened in various realms of human civilization. The impact on the automotive industry has inflated exponentially (Mas, 2018, p. 2). It has resulted in firms expanding beyond their local borders to enhance profit generation and minimize the costs of production. Tesla boasts of an excellent opportunity to expand into third world countries in Asia and Africa Mas, 2018, p. 2). In Asia, the market for electric cars is yet to saturate, thus posing minimal competition. Latin America and Africa offer an opportunity to produce cost-effectively and elevate profit generation. On the whole, the company will boast of excellent financial resources that will increase its Research and Development sector.

More Affordable Car Models

At the launch of its first products, Tesla models were expensive compared to other car models in the industry. Innovation demands massive injections of financial resources. To breakeven, Tesla had to pass on much of the costs to consumers. With time, however, the company has been able to cut down the costs of operation significantly (Alghalith,2018, p. 41). It has translated to more affordable cars to foe their customers. Consider Tesla Model 3; regardless of its unique features, it is an affordable option for a majority of Tesla's market target (Alghalith,2018, p. 41).

Develop Technology for In-House Manufacture of Batteries

Tesla relies entirely on Panasonic to manufacture batteries for its cars(McCain,2019, p. 5). However, outsourcing such a crucial aspect of its business limits its ability to cut down the costs of production. With an in-house battery production, the company is sure to elevate its ability to produce even more automotive. In a recent interview Chief Executive Officer (CEO) Ellon Musk promised to deliver batteries with million-mile capabilities (McCain,2019, p. 5). It outperforms the current Tesla's battery per mileage that is ridiculously ahead of its competitors. Tesla has tasked Dalhousie University with researching on Lithium-Iron batteries with exceptional distance(McCain,2019, p. 5). In a report to The Journal of the Electrochemical Society led by physicist Jeff Dahn concurs that indeed 1 million mile batteries are a possibility(McCain,2019, p. 5).

Diversification

The automotive industry is of volatile nature that exposes the business to vast risks of losses (McCain, 2019, p. 5). As a result, Tesla should consider investing in different industries to cushion the implications that may result from changes in the industry. Besides, this would widen the opportunities for generating revenues for different business goals and objectives.

Threats

Elon Musk's Erratic and Impulsive Nature

Companies are expected to set forth reputable behaviors that enhance public perception to boost sales and ensure customer loyalty. Besides, firms should maintain a neutral image to conflicting crucial societal matters. However, Tesla's CEO has been unapologetic for his impulsive behavior. In a podcast with Joe Rogan, the CEO smoked weed, which sparked an antagonistic confrontation on twitter (Afonso, 2018, p. 6). Furthermore, Tesla's stock plummeted by 9 percent(Afonso, 2018, p. 6). Continuous reckless actions by Tesla's CEO may harm the business in the long run.

Competition

The industry faces stiff competition from alternative energy vehicles, self-driving automobiles, plug-ins, and hybrid cars. Renowned brands that compete extensively with Tesla include Mercedes, BMW, Audi, and Lexus. However, commercial brands such as Toyota, Ford, and GM have been significant competitors to Tesla's endeavors (Teece, 2018, p. 506). Their vehicles manufacturing strategies are affordable than Tesla's innovation, making them appeal to the vast majority of the public. Tesla remains determined to cash in on pricing their commodities to cater to the gross costs of production. It limits their abilities to expand and widen profit margins.

Product Defects

Tesla has been under scrutiny for manufacturing highly defective commodities. It gets attributed to the complexity of the innovative process involved in the manufacture of its products. Unfortunately, it tarnished Tesla's market reputation. As a result, most car buyers wary of losing their finances in the purchase of defective products. Furthermore, it has exacerbated liability claims in the company. Hence, their financial burden as a result of the lawsuits has skyrocketed, which diminishes the profits accrued.

Porter's Five Analysis

Competitive Rivalry

Tesla perseveres stiff competition from rival firms in the market. Three aspects define competition in the automotive industry. First, the intensity of firms' aggressiveness is relatively high in the industry compared to others. Secondly, there are low switching costs for consumers, which further implicates the competitive pressure on the business. Thirdly, there are a few firms that lessen the stress to compete in the industry. Therefore, it is inevitable that the few firms in the industry pose relatively aggressive competitive strategies to command a large market. Although Tesla's four marketing mix are efficient to ensure it stays afloat, the force is still substantial. The low impediment for customers to switch to other closer substitutes further exacerbates the pressure on Tesla. Holistically, the pressure is highly implicative to Tesla's ventures.

Consumer's Bargaining Power

The force imposed by consumer's bargaining power is moderate for Tesla. Three key aspects define the bargaining power of consumers. First is a low switching cost to potential substitutes. Secondly, even though close alternatives are readily available, the number of firms in the industry is limited. Thirdly, the purchasing volume available to consumers is low. Although consumers can easily switch to rival firms, the amount purchased by a single consumer is insignificant to cripple the revenues of the firm. Thus besides, the potential firms to which the customers could switch to are few. It renders the probability of shifting to these firms relatively moderate on Tesla.

Supplier's Bargaining Power

Tesla's supplier's bargaining power is moderate. The force imposed results from three primary forces. First is the reasonable forward integration by suppliers. Second, the summative size of suppliers in the industry, which imposes a reasonable force (McCain, 2019, p. 4). The third is the level of supply, which poses a moderate effect on the company. Suppliers have a low power to distribute and sell products in the industry. For instance, Tesla has suppliers that avail products directly while others provide the products through a third party. Although the moderate supply level elevates the bargaining power of suppliers, it elevates to a limited extent.

Threats of Close Substitutes

Various factors implicate the net force of close substitutes for Tesla. Incorporating external influences results in a moderate net force. First is the low switching costs that deteriorate the firm's ability to maintain customer loyalty. Secondly, substitute availability is reasonable, which causes a resultant average effect. Close substitutes have a relatively average performance.

The Threat of New Entrants

Forces resulting from the entrance of new firms in the market are weak. Three key aspects that dictate the effect are diverse. First, the cost of allocating the necessary resources for business. Secondly, costs in conducting business in the industry. Lastly, economies of scale. The nature of the sector renders business operation on a small level impossible. It enables companies to enjoy economies of scale. The high financial obligations required to start and operate a business in the industry discourage entrants of new firms, hence a weak force.

Internal Analysis

Strengths

Industry's Top Employer

Tesla boasts of a competent workforce in the automotive industry. The firm is renowned for recruiting top-notch employees who are fresh out of college with zeal and energy. Tesla's cooperate strategy is built on innovation. Thus the working culture is innovative-based. In 2019, Forbes announced Tesla as the best employer of the year (Bouwer 2019, p. 3). Tesla also recognizes the shift in economic control from baby boomers to Millenials. As such, it offers an impeccable work-life balance to its employees. It motivates employees to strive for the company's set goals and objectives.

Control of the Electric Vehicle Sales Sector in the US

Statistics by Statista in 2019 indicated that Tesla leads in the production of electric cars in the US with a sales margin of 187,971 (Afonso, 2018, p. 1). Second is its closest competitor Chevrolet with a margin of 155, 477 sales (Afonso, 2018, p. 1). The US is the most developed economy worldwide by a considerable margin. Consumers in the country have high spending power and are enthusiastic about environmental conservation. Control of consumer market ensures a continuous and uninterrupted flow of revenues for day to day operations.

Top In-Class Electric Automobiles

Though other firms engage in the production of electric cars, Tesla boasts of top products in the market over the years. For instance, Tesla Model, in comparison to other respective models in the industry from other firms. The model was ahead in each of the terms of range. It includes its impeccable 600 km mileage after a single charge (Ahmad, and Khan 2019, p. 2). Opel Ampera, which came in second, managed a distance of 520 km in a single charge (Ahmad, and Khan 2019, p. 2).

Weaknesses

Exorbitant Pricing

As a new venture in the automotive industry, Tesla is struggling to manufacture affordable vehicles. Availing these products at the market price diminishes profit margins significantly. Consequently, it plummets the demand for their products by the target consumers (Afonso, 2018, p. 3). Though most consumers are willing to acquire the commodity, the financial obligation it imposes is unfathomable. Regardless the company is still striving to endear these products.

Excessive Spending

The current and emerging trends over the past decade have caused automotive firms to prioritize research and development over marketing. It enables them to produce top-notch products that stand out in the market. However, Tesla has overspent in the production sector. Despite the government's interventions, Tesla is still languishing in debt. For instance, the company summed up a total of 11.76 billion dollars in the form of revenue in 2017 (Song, 2019, p. 537). However, the company only managed an alarming 2.24 billion dollars as profit within the same period (Song, 2019, p. 537). The rest of the amount accounted for expenditure by the firm's...