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Strategic Analysis of Tesla Inc in 2021

Tesla Incorporation is a car company that specializes in electric car manufacture and
similar goods. The company has been making records ever since its founding in 2003. Tesla's
motto summarizes the company's goals in a single sentence. Tesla's mission is to accelerate the
world's transition to sustainable energy. They are doing this. The company has been praised for
producing top-notch, high-quality electric vehicles that are rocking the airwaves (Fisher &
McCabe, 2019). Tesla's subsidiary Solar City is also fully engaged in creating solutions that
could exploit the sun's power, such as batteries, charging stations, and even power walls.

The company is led by CEO Elon Musk, who owns a 21% stake in the company (Muegge
& Reid, 2017). Elon Musk by himself is an asset to the company (Muegge & Reid, 2017). His
following and ambitious goals have made him an internet star and a man who is loved by many.
The faith of his admirers is seemingly godly, and due to this, many people have chosen to make
their investments in Tesla, as will be seen. After its launch in 2003, it went into producing its
first car, the Tesla Roadster, in 2008, which was valued at $109,000. The company also made a
record as one of the fastest companies to go public, after only seven years of business. The firm
went IPO which made $225 million, starting with a share being sold at $17 (Perkins et al., 2018).
Today the company's market capitalization is $635 billion. This, in comparison to how far the
company has come, is quite amazing.

Analysis

Tesla's business model might have been what created the base for this ongoing success. It
has been known to the "iPhone" of the automotive industry. While starting the business model
approach by Tesla was oriented towards a niche differentiator (Fuertes et al, 2020). The company
specifically produced high priced low volume for the super- and ultra-rich. This particular phase
was supposed to create funds that would allow the next part of the plan. The second phase was to
produce mid-priced mid-volume for the moderately and pretty rich. They would then create
funds that would allow the company to take its modern-day model as the broad differentiator.
Today the company produces low-priced high-volume cars for the masses. The company has not
only a select number of supercars which are incredibly pricy (Muegge & Reid, 2017). It is also
able to make day-to-day work vehicles. These also come in variants that are determined by the
user's pocket. The products produced by Tesla are top-notch, fine-tuned cars that have even
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passed the safety ratings. It also concerns itself with creating more driving autonomy for its
vehicles in vision with an AI revolution of tomorrow (Teece, 2018). The whole setup of Tesla is
futuristic and sustainable, and its innovative and high-tech product design makes it admirable
and prices inelastic for many buyers (Teece, 2018).

This paper will delve into the company's strategy for the last few years to understand
what has made this company a leading automaker compared to its rivals, who have been in the
industry for decades. The comparison shall be made chiefly to American brands as they are
nearest applicable competition (Fisher & McCabe, 2019). It will also view the prospective future
that Tesla might hold and whether it would be good to hold on to one's common equity in the
company.

Analyzing the environment, Tesla has been conducting its operations in is the first step of
a clear-cut game in strategic management. The use of PEST analysis will be crucial in making a
summary of these factors (Teece, 2018). However, it is noteworthy to understand that Tesla is
sitting on the edge of an era where climate change is one of the security threats to humans, as
classified by the Security Council. Industrialization and the number of carbon fuels being burnt
daily are causing emissions that are destroying the environment (Fisher & McCabe, 2019). This
serves as an ecological factor to Tesla's growth. Many countries are creating and enacting new
policies for their citizens and systems to reduce their carbon footprint. The United Nations is also
pushing for this, which gives Tesla an advantage as it has been known to be in line with these
goals (Teece, 2018).

Globalization, in general, is another factor that is pushing Tesla's sales up day by day.
Trade deals being initiated by countries bringing them closer for mutual benefits are constantly
being made every day (Dzwigol, 2020). Tesla's business operations which have been spread
worldwide, mainly in Asia, the Eurozone, and America, need a way to integrate without heavy
tariffs and excise. As such, these factors are favoring Tesla's expansion (Perkins et al., 2018). An
example is the Gigafactory in Shanghai produces EVs for the American Market. Brexit by itself
is a significant breakthrough if it can be used by Tesla to its advantage. Setting up a base in
London to take advantage of the recent trade deals by the USA and Britain would be an excellent
move for Tesla's sales in that particular region. Tesla is also setting up a Gigafactory in Berlin,
pushing its vehicles into the European market (Muegge & Reid, 2017).
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The brand image Tesla has created for itself is also wreaking havoc. It has been known to
be a great car that serves people, and thus, its recent affordability makes those admiring the
futuristic touch go for it. For most people buying it, the price tag, even though higher than a
regular car, seems fair enough as the service offered is top-notch (Teece, 2018). This particular
factor gives Tesla a comparative advantage in the EV industry. It also reduces the amount of
marketing they have to do as the brand name sells through word of mouth. The following
analysis sums up several other factors.

Political  Governments' new incentives for electric vehicles.

 Political instability in cobalt-producing nations such as the
Democratic Republic of Congo makes nearly 58% of the
world Cobalt (Fisher & McCabe, 2019).
 New international trade deals such as USA-China, USA-UK.
Economic  Currency exchange rates. The different exchange rates give
Tesla an added income due to its international business
operations.
 Decreasing battery cost. The Panasonic batteries Tesla use
have been having a reduction in price due to increased
demand (Fisher & McCabe, 2019).
 Decreasing renewable energy costs.
Social  Increased popularity and trend of low carbon lifestyles
(Wang et al, 2021).
 Increased wealth per capita in developing countries, thus
affordability of these vehicles to masses.
 Awareness of climate change issues by people. Climate
change is receiving global attention and massive
sensitization (Wang et al, 2021)..
Technological  Automation in business. Tesla nearly entirely automizes its
assembly using robotics. This makes it cheaper and more
effective than human resources.
 Increasing adaptiveness for innovation and technological
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change. People are increasingly more perceptive to the idea

of change and futurism.

Figure 1.1 PEST analysis of Tesla.

Business and Corporate Strategies

1. Research and Development

From inception, it was clear that Tesla was not a company chasing immediate profits. The
company went for years and years in the red zone. However, what was more peculiar was the
company's investment each year in its research and development. Contrary to its competitors
making profits, Tesla was on a streak of increasing its annual R&D budget every single year
(Perkins et al., 2018). It did not matter whether the company made losses or not; it just improved
its budget. This innovation culture has today made Tesla an industry leader.

Figure 1.2 Tesla’s Research and Development budget per annum.

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The table below shows Tesla's constantly increasing budget for research and
development. Even though they saw the company was undergoing losses, investors still kept
their equity intact as they believed in the company's long game (Teece, 2018). Even though there
is significant competition from rising EV makers and current players who are divesting into the
EV industry, it is clear that Tesla is way ahead of them in this field.

Figure 1.3 Comparison of GM and Tesla ratio of R&D to revenue .

It is worth noting that what is measured between the two companies of Tesla and GM is
not the spending but the ratio of the R&D to the revenue the company makes (Perkins et al.,
2018). Looking at previous years, it is clear that Tesla is an industry leader in R&D but took a
dip in 2020 due to reduced sales affected by the global pandemic. However, soon enough, this
value will rise to keep up with this culture.

2. Production

Tesla has been having trouble with fulfilling its delivery needs to the market. Each time
Elon Musk sets a target goal of deliveries in the annual convention, most likely, it is not met. The
reason for this is because of the production standards of the company. Each part of the car is
carefully refined and prepared to the highest possible standards (Valikangas, 2018). Even though
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working in an assembly line, the employees are met with constant troubles and unrealistic
demands. However, the company has continued on its promise to increase its production capacity
and deliveries in a single year. To achieve this goal, however, has not been easy. It has taken the
company quite a toll in refining over and over its master production schedule and system of
production.

The company has also set up Giga factories with a large production capacity of nearly
5000/yr. The two Giga factories in operation are Shanghai, China, and the other in Freemont,
Nevada. The company has also increased in robotics capacity (Perkins et al., 2018). This meant a
large proportion of the work is done via machinery rather than a human resource, which is
slower and prone to error. However, the company has not yet fully settled on its goal. From its
recent publications, it is clear that it is increasing its number of factories with new ones
underway in Berlin and Texas, which will both have impeccable production facilities (Teece,
2018).

To bolster their production, even more, the company has taken the step of producing most
of the car's key components (Fuertes et al, 2020). It has also secured supply-chain deals with
Lithium suppliers from China and Australia who guarantee a continued supply stream. The graph
below shows the increasing number of subsequent deliveries the company has been making for
the last five years.
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Figure 1.4 Tesla vehicle deliveries per annum.

3. Human Resources

The question of human resources at Tesla has been quite a social trend of late. There is
the question of whether it is right or wrong to exceed the limits of one's working capabilities.
Tesla has been on a roll of making employees work up to 100 hours a week while the normal
stands at roughly 40hrs a week (Perkins et al., 2018). Tesla has been hiring the best and brightest
people all across the planet who are willing to give in to the exact cause they are working on.
This is embedded in their company mission. However, the company has also seen a high
turnover rate of nearly 41%. Compared to other companies, this is relatively high (Perkins et al.,
2018).

Tesla is trying to create an organizational culture where pushing people to their creative
limits and boundaries makes them more innovative. The CEO has on many accounts publicized
that the company is willing to work with those who believe they could meet the threshold and
hinders no one from leaving (Valikangas, 2018). However, it also compensates its employees
quite highly, with wages above the bar for most employees. However, this set of bright minds
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can be reflected in the company's record books as every single year, the company's production
keeps rising, and the balance sheet keeps extending to the green side.

4. Other strategies.

These three were the main strategies Tesla used in its operations; however, there are few
minor ones worth discussing. Total Quality Management is a practice perfected by Tesla.
Production of an ultra-type, perfectionist car is its utmost and essential duty. There is a need for
refined products which are over the edge without mistakes (Fisher & McCabe, 2019). Part of this
has dragged the company into its production, but it has worked out as a good strategy for a long
time. However, the company has tried to balance out the productivity rate without affecting the
quality of production (Valikangas, 2018). Due to this, a set number of set of steps have been
taken. Increasing automation and the number of Giga factories is only part of the start (Kauerhof,
2017). The company has tried to reduce its supply of parts and manufacture these components on
its own. This, however, increases the production cost but ensures the quality standard they expect
is maintained (Dzwigol, 2020). The company has also tried making uniform some of the parts to
avoid variation in the production line. An example of this is the batteries the company will use.
However, a significant rise in administrative costs is witnessed, but the quality of the product
remains top-notch (Teece, 2018).

The company has also taken up marketing to increase the orders it receives. A good
example is through the use of Elon's fan base of nearly 17 million on Twitter (Muegge & Reid,
2017). He regularly tweets random comments that put Tesla on edge over other companies using
witty and satirical humor. The company is also producing toy cars for kids, which is a long-term
strategy of getting the next generation of target customers (Teece, 2018). It has also increased the
number of charging stations across the country and has significantly increased its marketing
budget. All these activities work in unison to create an overall strategy to get the company to a
benchmark of a trillion dollars (Kauerhof, 2017).

Evaluating the Strategic Management

In terms of success, the company has gone a long way in achieving it. One cannot say
that Tesla has reached the peak of its capabilities. The company is yet to grow. However, there is
significant proof that the strategies that have been put in place have been favorable to the
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company and have seen fruitfulness. The company stock price today is $659, and shareholders
now have a market cap of nearly $700 billion. The company has also increased in production
capabilities and now has surpassed the 500000-production mark. The balance sheet of the
company and the income statement also show significant growth.

The table below shows the increased number of deliveries since 2013.

2013 22,442
2014 31,655
2015 50,517
2016 76,243
2017 103,091
2018 245,491
2019 367,656
2020 499,535

Table 1.1 Deliveries made by Tesla.

The table shows the company's annual revenue, which has been growing significantly
over the years. From merely 15 million dollars to a turnover of over $31.54 billion. However, it
is vital to note that the last three years are where the shift came about. This shows that the
strategy the company took up is working in its favor.

2008 $15 million

2009 $112 million
2010 $117 million
2011 $204 million
2012 $413 million
2013 $2.01 billion
2014 $3.2 billion
2015 $4.05 billion
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2016 $7 billion
2017 $11.76 billion
2018 $21.46 billion
2019 $24.58 billion
2020 $31.54 billion

Table 1.2 Annual revenue of Tesla.

The sales the company has been making also show that it is the most preferred electric
vehicle globally. It nearly surpasses its second competitor, which is Volkswagen, by a double
effect. The table below shows the sales made by the top ten largest EV companies in the world in
the financial year ending 31st December 2020 (Fisher & McCabe, 2019).

Tesla 499,535
Volkswagen 220,220
BYD 179,211
SGMW 170,825
BMW 163,521
Mercedes 145,865
Renault 124,451
Volvo 112,993
Audi 108,367
SAIC 101,385

Table 1.3 Sales per annum of EVs.

This shows the achievements the company has made. It is interesting to note that Tesla
has beaten local producers upon its expansion in the Chinese and the Euro markets. The sales
rose in China rose due to the Giga factory set up in the country due to the publicity created. Thus
the three-year period of input by Tesla has shown its fruits (Valikangas, 2018). The company
seems not to stop and is making more plans for bigger and better expansion.
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The figure below shows the five-year price change of Tesla securities. From the figure, it
is clear that most of the shift is right-skewed and took place in the 2020 financial period. This
culminated in making Tesla's CEO Elon Must the second richest man on the planet after his
competitor Jeff Bezos.

Figure 1.5 Stock prices for Tesla last five years.

Summary

From the statistics, it is clear that the strategic goals set up by Tesla paid off. However, as
seen from this analysis, Tesla has a long-term vision. Even though its revenue might be
insignificant compared to other automobile companies, the world is changing, and Tesla is
changing at a pace that resonates with that. Slowly, it has crept up to be an industry leader and
even rated an A investment by Standard and Poor. Making a critical evaluation of Tesla as a
whole, my standpoint would be that the company's strategic management and corporate
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governance have led to its increased success. However, other metrics come into place
significantly while making fundamental analysis. Tesla is heavily funded by equity, which puts
the company in a dangerous position. Even though investors have faith in it, its management
must keep on making wins to put the company on the leaderboard. If investors lose faith in the
company, it is bound to fail and maybe even result in bankruptcy. As such, much stake is upon
Tesla's envision. Its strategic management has worked so far but seeing what the company holds
for the future is also necessary for renewed strength.

There is room for growth for Tesla. A recommendation would be divesting its operations
across the globe and reducing its prices even more. People feel the need to associate with such a
luxury brand; thus, with ultimate market calculations, Tesla can balance between the vehicle
produced quality and the price range to increase its output into that particular market. So far, the
company has witnessed 1.3 million vehicle sales since its inception, but these numbers could go
higher. More is needed in terms of strategy and diversification and will be provided by
Governments and even international bodies as long as the goal remains clear—renewable energy,
sustainability, and preventing climatic catastrophes.
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management. Academy of Strategic Management Journal, 19(4), 1-8.

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Appendices

More information is collected from the following websites:

https://finance.yahoo.com/quote/TSLA?p=TSLA

https://www.tesla.com/about

https://www.statista.com/statistics/502208/tesla-quarterly-vehicle-deliveries/

https://electrek.co/2021/01/12/tesla-factory-locations-where-they-are-and-could-soon-be/

https://alecfurrier.medium.com/tesla-business-model-strategic-analysis-c7d00bdc0339

https://backlinko.com/tesla-stats

https://www.google.com/search?
q=tesla+stock&oq=tesla+stock&aqs=chrome..69i57j0l4j69i60j69i61l2.5828j1j7&sourceid=chro
me&ie=UTF-8

https://ir.tesla.com/press

https://ir.tesla.com/press-release/tesla-q1-2021-vehicle-production-deliveries

https://www.researchgate.net/publication/272352897_Strategic_Management