Tesla Firm’s Competitive Advantage

Introduction

The best strategic approach to a company’s competitive advantage is accomplished through differentiation, low cost, and response (Grant, 2018). Competitive advantage enabled companies to stay ahead of their competitors. Through product differentiations, the company makes sure that the products they produce and offer to their customers are uniquely customized to meet the customer’s demand. Low cost entails producing the highest value possible at an effective cost of production; that way, the customer gets highly valued products at fair costs. Lastly, response entails how a company responds to external sources of change. A company should be flexible enough to accommodate external and internal changes and look for opportunities to excel in these changes. A company can create and sustain a competitive advantage over its rivals through this approach. Therefore, this paper will analyze the competitive advantages of Tesla and what makes the company the success it is today. It will also establish measures Tesla uses or needs to use to sustain its competitive advantage in the future.

Tesla Inc. is an American Automotive and clean energy company headquartered in Texas. Tesla is involved with designing and manufacturing electric cars and clean energy sources such as batteries and solar panels (Tesla.com, 2023). Silicon Valley entrepreneurs incorporated Tesla Inc., Martin Eberhard, and Marc Tarppening, in 2003 as Tesla Motors, with the first vehicle produced being Tesla Roadster. The current car the company developed is a Model 3. The company’s main aim was to show that electric and clean energy (solar/batteries) vehicles are better than petroleum products powered vehicles. Tesla is led by Elon Musk, the CEO who took over in 2008. According to Musk, the company’s mission is to accelerate the transition to sustainable energy vehicles worldwide through the mass production of affordable electric and solar-powered vehicles. Tesla Inc. has highly invested in research and development to lower the costs of its batteries and products to make its mission true.

Tesla’s products are one of the safest, beginning from their vehicles which are the safest on the road due to the company’s continuous update of the products, regularly adding new features that improve their performance over time. Tesla took a unique turn in establishing itself since the company was formed. The company has ventured into a unique approach to its competitiveness by making unique electric vehicles and clean energy products that create the demand for their products rather than having moderate vehicles that they could produce in masses and market. Tesla’s competitive advantage has allowed the company to become one of the most successful automotive company’s not in America but worldwide. The company’s products, especially the cars, have been coveted by consumers worldwide, and its stock is one of the most valuable stocks in the market. According to Musk, all of Tesla’s success and competitive advantage have been promoted by the company’s strategic plan, mission, vision, objectives, and goals. By the way, Tesla has positioned itself; its competitive advantage will likely continue to grow, fueling its success in years to come.

Porter’s strategy for competitiveness is creating power by being different. Tesla Inc. makes itself different from other automotive companies by heavily investing in research and development to come up with new ideas and innovative ways to produce sustainable energy-powered products. Tesla’s success can be attributed to its ability to gauge continuous innovation and produce new products and solutions to existing problems. The idea of fully automating transportation, sharing vehicles, and automated logistics is becoming popular in the automotive industry. As a result, Tesla is looking forward to the production of electric cars with no traction control shutter, no wheel spin, and no driveline shutter, enabling the company to produce sustainable energy-powered vehicles that are environmentally friendly. The company enjoys the advantage of being a disruptor due to the power gained by its brand, an excellent growth profile, direct-selling models, and a well-established battery supply alongside its supercharger network.

Tesla’s car model is superior to its competitors because it is more consumer-friendly and has incorporated efficient tools that make it unique, allowing it to capture the profits made by mass production and marketing of the competitors’ cars. Tesla produces fewer products with high returns due to customization and cost-effective manufacturing. Tesla cars reduce the consumption of gas and mechanic visits and have excellent road safety measures. Tesla spearheaded the future of automobiles and established the path to sustainable energy-powered vehicles with its cost-effective vehicle and batteries.

Industry Analysis:

External Analysis- Porter’s five forces

Analysis of Porter’s five forces of competition enables a company to assess the opportunities and threats that determine its competitive position. Analysis of Tesla’s five forces provides insights into the company’s strength and competitiveness in the present and its ability to sustain or improve that position. The automotive industry today is becoming more and more competitive compared to the past. As its nature, the industry is dynamic and has its unique challenges. Tesla can be described as successful in the industry, with its achievements speaking highly about its strategy and effectiveness. The five forces of Tesla are as follows;

1. Competition in the industry- strong force.

Therefore, there is a high level of competition in the automotive industry, a strong force of competition. The competition between the automotive firms is vigorous and way beyond just profits. Firms are striving to exist and sustain their competitiveness to avoid failing. Some of the external forces that result in the high level of competition in the automotive industry which affects Tesla include;

• Number of competitors – weak force.
• Aggressive competitors in the industry- strong force
• Low buyer’s switching cost – strong force.

Tesla deals with this intensive competition through;

• Engaging in research and development and innovation that promote its advantage over competitors.
• Improve the company’s supply chain, vertical integration, and commitment to its mission and vision of providing customers with cost and environmentally-friendly cars and products.
• Tesla engages in aggressive product promotion in the media, which enables it to promote its competitiveness.

2. Threats of new entrants- the weak force

Easy access and entrance to an industry reduce any above profit for the companies involved. New entrants affect the performance of Tesla (although it is almost impossible to enter the market due to the high cost of establishing a new brand to compete with the existing ones). Other issues that may influence this weak force are operation cost and high economies of scale, all of which are weak forces.

3. Supplier’s bargaining power- moderate force

For an automotive company to succeed, it requires supplies from different people)ventures. Tesla relies on suppliers to get most of its materials which call for a smooth supply line for smooth operations. Therefore, the suppliers influence the business through; forward integration, Relying on multiple suppliers, and having moderate supplies since the company produces products on demand. This makes the forces moderate.

4. Customers’ bargaining power – moderate force

The bargaining power of buyers in electric cars is a moderate force. Tesla’s customers have a moderate influence over the company, influencing its production of high-quality and cost-effective products. The customer’s bargaining power influenced Tesla in the following ways; low switching cost meaning the customers can switch products at any time without additional costs hence a strong force; availability of substitutes for Tesla’s electric cars is limited, moderate force and lastly, low volumes of purchase due to the cost of the products hence a weak force.

5. The threat of substitute products- moderate force.

The automotive industry has both electric and petroleum-powered vehicles. Therefore it is easier for a buyer to substitute one product for another, a factor that moderately affects Tesla Inc. The moderate force of product substitution threat is contributed by; low switching costs and competition between competitors, a moderate number of substitute availability, and moderate performance of the substitutes.

Internal Analysis 

Resources, Capabilities, Competencies, and Value Chain

The internal analysis of Tesla will first be determined by the company’s core competencies which will properly underline the strategies of the company. They include;

Resources- Tesla’s key resources are its human capital and intellectual property. Since its foundation, Tesla has utilized its human capital and fostered substantial creativity and innovation among its employees, which is why one of Tesla’s key resources is intellectual property. One of Tesla’s intellectual properties is its electric power train and battery pack technology. This strategic factor is one of the company’s most valuable and rare components that help it stand out against its competitors. It is almost impossible for any company to imitate this capability as it requires high technical expertise and is expensive. Tesla acquires value by selling vehicles made using its unique technology and being able to sell their powertrain to other manufacturers. Therefore, the core capabilities of Tesla contribute to its sustainability in the industry. Tesla has maintained a certain standard when recruiting and hiring its employees to bring maximum value to the business. Additionally, the company keeps a healthy relationship with its investors and key board members, who enable it to keep a strong financial resource.

Competencies- like its core capabilities, Tesla draws its key competencies from the company’s intellectual property. This has made it easy for the company to produce and bring more technologies into the industry, for instance, improving its motor as more research and development is done to establish ways to achieve its mission cost-effectively. One of the core competencies of Tesla is the ever-improving motor battery and inverter. The company also gains its competitiveness from the power train technology and another level of design and manufacturing of its vehicles. Currently, Tesla has drawn over 400 patents(some are pending) revolving around the power train and batteries, the most important aspects of the electric vehicle.

Skills- To accomplish its mission and appease the company’s stakeholders, the company has placed its focus and goals on a higher standard that enables them to establish and sustain its competitive advantage position in the industry. The company’s mission acts as its long-term plan that would enhance the possibility of having sustainable energy vehicles at a cost-friendly price.

Value chain- Tesla Motors’ value chain is highly efficient as the company focuses on improving the environment by producing environmentally friendly vehicles powered by renewable energy sources that do not release poisonous gas into the atmosphere. Additionally, the company’s operation management is highly efficient and has created efficient cars. The company also developed an extensive technology portfolio to help in R& D that would help bring low-priced vehicles to the market. This technological advantage promotes both the current and future growth of the company, enhancing it to sustain its competitiveness.

VRIO analysis framework

This analysis shows that Tesla is equipped with substantial valuable resources that promote the current competitive advantage and are likely to sustain it in the future. Intellectual property, financial capabilities, and leadership are currently the company’s most influential resources and capabilities. However, the company needs to look into ways to make most of its attributes unique Incase they are imitated in the future so it can remain sustainable for a long time.

Competitive Strategy

Strategy is a firm’s theory on how to gain and control its competitive advantage. There are a few aspects to focus on regarding Tesla’s competitive Strategy. One is the company’s focus on innovation and technology. Tesla has promoted its brand as the leading seller of electric cars and clean energy technology. The company constantly invests in R&D to bring and improve new products. This strategy has enabled the company to stay ahead of the competition and sustain its competitive position. Secondly, Tesla focuses on its customers’ experience and satisfaction. Since the establishment of Tesla stores, the company has always tried to give the customers the best experience and ensure that they are satisfied with how they are served at these stores. Besides this, Tesla has also invested in online customer services to ensure that the customers are served with the utmost respect and get the help they need from the company’s representatives. Lastly, since entering the industry, all Tesla has done is build a great brand name. Its strong focus on marketing and branding has made the company one of the most recognized brands worldwide. The company has used media marketing strategies and appealing to the customers’ emotions to establish a strong connection with the brand, which has led to the build-up of loyal customers who are passionate about the brand.

Tesla can be said to have used the Blue market strategy to enter the automotive industry. It was gauged in a quest for the “uncontested market space”- the electric car market (Kim & Mauborgne, 2005). Throughout its life, Tesla has implemented many strategies to ensure its survival in the business. For instance, initially, the company entered the industry by selling expensive high-end vehicles targeted at rich people. “ Indeed, common to many blue ocean strategies is offering superior customer value through reconciling low price with differentiation.” (Grant, 2018). Since it was established as a profitable and successful business, the company began selling low-priced car models that would enable the company to gain market share and hence secure its competitiveness in the industry. Tesla needed to make a name for its brand and have its idea get widely accepted, and to do this, it had to enter the industry through the untapped market space by uniquely providing people with what they need- sustainable energy-powered vehicles- and then let the brand create its sustainability.

Conclusion

This report has helped illuminate some of the factors that could be the key to the sustainability of Tesla’s competitive advantage in the long run. Based on the report, Tesla Motors is in the right direction of competitive advantage. It has intellectual properties, financial capabilities, and sustainable leadership that could support its advantage in the future. However, there are issues the firm needs to deal with to avoid them becoming a threat to its sustainability in the future. This issues involve creating a concrete plan in Incase competitors imitate its manufacturing, stores, and supercharge network.

References

Grant, R. M. (2018). Contemporary Strategy Analysis, 10^th Edition. Wiley ISBN: 9781119495727.

Kimm, W. C & Mauborgne, R. (2005). Blue Ocean Strategy: How to Create Uncontested Market Space and Make The Competition Irrelevant. Harvard Business School Press, Boston.

Tesla.com. (2023). About Us. https://www.tesla.com/about