PESTLE Analysis of Tesla

3925 words (16 pages) Business Assignment

23rd Oct 2020 Business Assignment Reference this

Tags: Business AssignmentsPESTELExternal AnalysisBusinessTesla

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Tesla is an automotive company that has a specialization in electric cars. They are based in Paolo, California and were founded in 2003 by a group of engineers including Elon Musk that had a goal to prove that electric cars can be better, quicker, and more efficient in comparison to gasoline cars. Tesla However, is not limited to building electric cars. The company also produces storage products and products that are environmentally efficient. The company believes in a move toward a zero-emission future instead of the current reliance on fossil fuels  that is destroying the planet. In 2008, the company showed the world their battery technology and electric power by releasing their first all-electric sedan called Model S (Tesla, 2019).

The Model S was able to combine safety, performance, and efficiency that reshaped the worlds expectations of the 21st century car. Tesla soon after expanded its product line with their Model X. Their Model X became the safest, quickest, and most capable sport vehicle in history that holds a 5 -star rating across every category from the National Highway Traffic Safety Administration.  Tesla also has a Model 3, that the company began producing which is a lower priced vehicle the company began producing in 2017 (Tesla, 2019).

All Tesla products are manufactured in Fremont, California. To achieve their goal of having the safest factories in the world. Tesla takes a proactive approach to safety by implementing multi-day training programs that all employees are required to participate in. Tesla additionally, continues to provide daily on-the-job training which highly influent on the company’s safety rate continuous improvement (Tesla, 2019).

Tesla has also been responsible for the first autonomous technology. The release of autopilot in 2015 many other companies such as Audi, Mercedes-Benz S-class, Nissan, Cadillac and other have started to incorporate autonomy. Making it an end goal for all cars (Hawkings, 2017). Hands-free will soon become the standard in most vehicles and experts theorize that in 2020 there will be huge increases in autonomous and semi-autonomous cars.

While Tesla appears to be a very successful and innovative company a SWOT analysis can provide a deeper insight as to what strength, weaknesses, opportunities, and threats the company faces that can ultimately lead to greater success or even the company’s demise.

It is evident that Tesla is considered a very successful company. This success can be attributed to the numerous strengths or advantages Tesla possess. These include the niche or specific section of the market that Tesla has selected to target. This was accomplished by being the first to sell automated cars. They were able to not only succeed on the sales of greener cars but, were able to accomplish their greater vision of revolutionizing the driving experience.  Additionally, Tesla has not only a focus on electric cars but, have established a recognizable brand name (Bhasin, 2019). Tesla has also been able to develop and use cutting edge technology that has allowed them to create their innovative products. Furthermore, the company also has been granted government funding. They are able to obtain billions of dollars for energy management projects under the US Department of energy (Bhasin, 2019).

The company also however suffers from many weaknesses. One of these weaknesses is that Tesla has acquired major debt. Despite government funding Tesla has spent a great portion of its funding towards research and development. Additionally, the company has expanded greatly over the past few years causing even greater debt (Bhasin, 2019). Their limited profits and huge debt could lead to difficulty in repaying loans resulting in more net loss in the future. Furthermore, the company only has one manufacturing plant that has a capacity of 500,000. Making the company limited to this figure and unable to target higher volumes. Additionally, many customers are apprehensive about purchasing these highly expensive futuristic products (Bhasin, 2019).

Opportunities for the company are that there is a preference for new technology. New technologies such as green vehicles could help show consumers that newer and greener technology is a good investment. Moreover, Tesla has started to expand to parts of western and northern Europe. Along with parts of Asia including China. There are also government incentives associated with purchasing electric cars. (Saphir, 2016).  Tesla also purchased the rights from the company Solar city. This will increase the company’s capabilities in energy storage (Saphir, 2016). Moreover, analysts say that by 2040 54% of all cars sold on the planet will be electric. France’s minister claims that there will be a ban of all fossil fuel usage by 2040. Volvo has also claimed that they will stop the sale of all gas-only vehicles by 2019 (Hawkings, 2017). A future of mainly electric cars serves as a huge opportunity for Tesla. This is a result of Tesla already being a widely recognizable brand and leader in this type of technology.

Threats that are associated with Tesla include an increase in the price of raw material. This can negatively affect the company because materials such as graphite, steel, aluminum, and lithium are subject to global supply and demand. The costs of raw materials increasing causes pressure to increase the prices of Tesla products to make up for the loss in profits associated with the raw material price increase. Additionally, government regulations can delay production and sales (Saphir, 2016). Tesla may have also been too good at convincing his competition that electronification was the future. GM was able to release its Chevy Bolt months before Tesla’s Model 3 (Hawkings, 2017).

Examining Tesla under the Pestle Analysis allows for a more in-dept look at what political, economic, technological, environmental, and legal factors can also influence the company’s success. The politics that can affect business for Tesla include global trade agreements, government incentives, and an increased economy. Funding from the government can help tesla with its debt problem. The government also offers incentives to those who purchase electric cars by giving tax credits. Certain states such as Colorado offer tax credits of $5,000 or more (Frue, 2018). Moreover, trade agreements also serve as an opportunity for Tesla to expand internationally (Kissinger, 2019).

Some economic factors include decreasing renewable resources costs and economic stability issues. Additionally, sales for electric cars have risen globally. An increased economy and a decrease in the price of batteries allows for Tesla to create more cost-efficient vehicles (Frue, 2018).  A decrease in the cost of renewable resources allows for Tesla to make their products more attractive to those interested in environmentally friendly options. This with a decrease in battery costs helps to increase their profit margin (Kissinger, 2019).

The sociocultural factors that can affect Tesla’s business include the increasing popularity of low carbon lifestyles, and the increasing preference of renewable energy. An increase in the preference for renewable energy or less carbon usage has significantly affected the demand for the company’s products. The technological factors that affect Tesla includes the increasing rate of automation in the business and the increase in the rate of technological change (Kissinger, 2019). The rate of technological change can significantly affect Tesla. This is because the company relies heavily on it.

While constant creations and technological developments can be threatening. Tesla spends most of its funding on research and development and should be able to keep up with new innovations. The environmental factors include climate change and expanding environmental programs. Climate change is a serious concern of many individuals. This creates an opportunity for Tesla to promote its environmentally friendly products.  Environmental programs also spread awareness of the impact continuous use of fossil fuels has on the environment. Environmental concern offers Tesla numerous opportunities for growth.  The legal factors are expanding the international patent, energy consumption regulations, and other regulations that exist in the U.S (Kissinger, 2019). These legal factors could delay the growth of the company.

Tesla is also disrupter and has changed the industry greatly. They have begun to utilize direct sales through company-owned galleries and showrooms instead of through franchised dealerships. This creates a better customer buying experience since customers can speak directly with Tesla employed staff.  The company has also created its own network of Supercharger stations. These stations allow drivers to fully charge their Tesla’s in 30 minutes for free. These stations were built in hope to increase the adoption rate of electric cars (Zucchi, 2018).

Tesla is forcing the auto industry to change by adopting very technologically advanced new features. One of these features is the ability to update vehicle software over the air (OTA). This method is very similar to the simple process of updating an iPhone. However, the company also struggles with meeting deadlines and has constant issues with delivery. Regardless of this Tesla was still able to popularize the electric car. The electric car was originally invented by a Scottish inventor named Robert Anderson. Tesla, however, was able to market the product in an innovative way creating and marketing their product as the first luxury electric car. Even with their creative marketing tesla still experiences issues with the auto industry. This is mainly because the auto industry tends to adapt slowly to change. (Patrick, 2018). Additionally, people are resisting the technology that tesla uses. Their AI technology that allows for autonomous cars in particular face the most resistance. This resistance can be attributed to many causes. One of these includes lack of clarity of what to expect (Ian Palmer, 2017). Tesla should release more informative presentations on the safety and how exactly autonomous cars operate.

Another way to analyze the company and look deeper into how it is organized is through the 7-S model. The 7-S Model is an organizational structure that promotes effectiveness. The 7-S Model uses 7 internal factors that need to be realigned and reinforced. It was developed by Tom Peters and Robert Waterman. The 7-S Model is comprised of Hard Elements and Soft elements.  The hard elements are Strategy, Structure, and Systems. While the soft elements are Shared Values, Skills, Style, and Staff. The hard elements are easier to identify, and management is able to influence these issues directly. The soft elements are harder to identify and influenced by the culture of the company. The Structure is represented by the company’s organization. The systems are comprised of daily activities and procedures achieved by staff. The shared values are the organizations core values that are shown through the corporate culture. The style is mainly influenced by the type of leadership in the organization.  The staff is comprised of the employees and the skills are competencies of the organization’s employees (Mind Tools Content Team, 2016).

The first S of the 7-s Model (strategy) is shown through Tesla by how the organization plans for obtaining a competitive edge.  It is also represented by Tesla’s focus on their mission to “accelerate the world’s transition to sustainable energy” by making electric cars. The structure of Tesla is hard to define since the company has no specific organizational chart or public list of senior leaders for this organization. There is a range of systems that are integral for the company’s growth. This includes employee recruitment, and selection system, customer relationship management system, business intelligence system., and the knowledge system (Research Methology, 2018).  The shared values of the company include the belief of sustainability through innovation and global sustainability. Many employees feel that the fast-paced nature of being the forefront of technology is what makes them work there. Many people enjoy being stimulated and are engaged by constant new challenges.

Moreover, those who believe in global sustainability feel rewarded by being a part of the environmental inventiveness. Constant reminders about these goals is also rewarding to employees. Tesla’s leadership style is characterized as transformational and disruptive. He is not content with doing what everyone else is doing. Elon musk has set a new standard for the automotive industry. Additionally, Elon musk is constantly questioning himself and seeking to improve (Liza, 2019). The staff of tesla undergoes constant training so that they are skilled enough to be able to perform their jobs as effectively as possible. Their jobs also constantly challenge them and requires the staff to constantly be able to adapt to change.

Change is constantly taking place in Tesla however recently a major change  influenced by external pressures has taken place within the company.  This involves the announcement of a new chair that was a result of legal affairs that CEO faced in 2018. Tesla’s CEO, Elon Musk, had gotten into trouble with the U.S Securities and Exchange Commission. On August 7th Elon Musk tweeted that he was considering making Tesla private at $420 a share. The SEC sued Elon Musk and accused the CEO of fraudulent actions that include making false and misleading statements to investors and manipulating the market.  The SEC also asked a judge to remove him as chairman of the company (Sullivan, 2018). This became a huge issue because it forced the company to find a new leader at a crucial time for the company. The company is currently trying hard to end its money-losing ways and improve production with the Model 3 electric car. Additionally, the company and Elon are inextricably connected. Without musk the company may be unable to maintain its brand strength and following. To many investors Elon Musk is not just the face or public leader of the company but he is the company.

Furthermore, Elon Musk has not nurtured anyone to succeed him. He has even denied hiring a qualified executive despite wanting to install a chief operating officer with financial and manufacturing expertise to speed up the production of the company’s model 3 sedan. He has failed to cultivate the next generation of managers and operators to assist in moving the company forward.  Contrastingly, Elon Musk’s other company, Space X, has a clear team of well qualified executives that are executing his vision.

Moreover, the current financial standing, production issues, and logistic and delivery problems could also affect the ability to find a new leader. However, a new leader could also force Tesla to focus on its core business of electric-vehicle production and sales which could be beneficial to the company . Under Elon Musk the company had a wide range of world-changing products. These included electric cars, solar roof tiles, and batteries for the home and solar panel installation. This caused a sense of inorganization within the company (Nathan Bomey, 2018). Focusing on the core products would allow for an increase in quality and production speed.

Fortunately for the company the suit was settled a few days after the accusation. It required Elon to pay a personal fee of $20 million, an additional $20 million by Tesla, and his resignation of chair. Elon Musk is banned from being chair for 3 years but, was still able to remain the CEO. The new chair, Robyn Denholm, is a Tesla board member and technology executive. She was also chief financial officer and head of strategy at Telstra, an Australian telecommunications company. This is the first time since 2004 that the company will experience a new leader. Elon musk since 2004 has held the title of chief product architect and has adopted Tesla to become more of an extension of himself. However, many agree that she is good choice for the chair. It is believed that she will be able to transform the board so that it is able to function more effectively and guide the CEO. Additionally, she provides extensive knowledge on automotive technology due to her experience working in Toyota Motor in Australia and serving the board of Swiss Robotics power and automation technology company.  She also has experience working in Sun Microsystems and Juniper Networks Inc (Stewart, 2018).

To ensure a smooth transition Elon will serve as a resource to Robyn and provide her with any support she needs as she fills her new role as chair. However, I do not feel this is sufficient enough. This is mainly because there was no clear successor. In order to have a successful transition there must be an adequate length of time to prepare to take on this role. The new chair should also meet with the faculty. Meeting with the faculty will allow for the new chair to get a sense of the current staff while simultaneously sharing her thoughts (Kelly, Five Ways to Ease the Transition for a New Chair , 2009). Further transitional steps include following established procedures instead of relying on oral traditions. This is important for building trust among the faculty. Robyn should also maintain a positive environment which will assist in creating a sense of stability. Moreover, acknowledging faculty members contributions and providing rewards when possible will also assist in obtaining a smooth transition (Kelly, SIx Ways To Ensure a Smooth Chair Transition, 2017).

A new chair may also be beneficial to the company since Tesla has seen many months of turbulence as a result of Elon’s tweet. It has caused the company’s stock to fluctuate, many investors have also called for more oversight of the CEO who also received additional negative media attention. The CEO appeared on The Joe Rogan Experience while smoking pot. He also called the SEC “Short- seller enrichment Commission” in another tweet after the settlement. Court documents also show that Elon Musk had originally named the share price $420 as a result of recently learning about the numbers significance with marijuana and thought his girlfriend would find it funny. For these reasons many agree that there should be an oversight of the CEO.

Another reason why Robyn Denholm could help the company massively is because of Her financial literacy. This extensive knowledge about finance could help Tesla manage its massive debt. She can likewise assist in improving many other aspects of the company. One of these include incorporating more diversity into the board. Tesla’s board originally only included 2 women and 7 men. Robyn has repeatedly spoken about the importance of diversity in business. She admitted that having people from different backgrounds assist in solving problems and taking advantage of opportunities. Moreover, Robyn could also assist in being more a mentor in the company that will help employees execute the company’s vison more effectively. Elon Musk has been accused of trying to do too much himself and micromanagement. An example of this is when Tesla Model 3 repeatedly missed targets. Musk became very adamant about personally overseeing the car production.

Although Robyn Denholm has not been the chair for long.  Her position as chair of the company has reportedly been operating successfully. Their stock has increased since 2018 and Elon has not been in any recent scandals. The company’s profits have also increased further proving adopting Roby Denholm as chair is beneficial to Tesla. Hopefully, with her help the company will continue to grow, overcome the auto industry’s resistance to change, and eventually achieve their mission of sustainability.

References

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