The current report is developed to analyze the strategic development of Tesla merger with Solar City. It provides comprehensive insights into the planning of the Tesla Company in collaborating with Solar City to manufacture more advanced solar driver energy sources. The concept of globalization has taken the business into a more competitive environment where strategic thinking and sustainable implementation of practices have become necessary. Generally, a corporate strategy includes various elements like planning, commitments, decisions, and actions for attaining strategic competitiveness and projected returns (Almuzel, 2018). Tesla follows a global standard of strategic management because of the high demand for reducing vehicle costs and low pressures for local responsiveness (Song, 2019). In its strategic development, Tesla has various advancements in business establishment and several challenges to meet (Siriwardane, 2018).
One of the challenges is the industry Tesla functions in, which is based on car manufacturing. The study of Stringham, Miller, and Clark (2015), notes that in the car industry, it is almost impossible for new entrants to innovate and establish a customer base, as consumer trust requires years of work and dedication. Although Elon Musk, CEO of Tesla, accepts that Tesla is not only a car-manufacturing firm, he imagines this company as a future innovation-based firm that targets to approach the energy-manufacturing sector. Such as its collaboration with Solar City, which is named the "Tesla merger with Solar City". The following report starts with the strategic business analysis of Tesla itself to evaluate its purpose of merging with Solar city company.
Among the automobile industry, Tesla has emerged as one of the most discussed and analyzed companies with a significant impact on the industry's economic development (Boggild, 2016). To understand the strategic management of the company, a SWOT analysis is performed below:
Tesla employs in competitive industries and is one prominent example of such companies, which is remarkably successful due to its diversity and innovation in technology (Alghalith, 2018).
Tesla's sales increase marks it as the leading automotive company delivering 367500 vehicles. The unparalleled advancement of luxury and innovation has brought the company to new levels of success, leaving behind exclusive companies like BMW and Mercedes.
Another strength of Tesla is that it is the best company with the finest electric cars (Mayfield, 2018). When compared by the range, Tesla’s cars cover the best and maximum distance, i.e. 600 kilometres on one time charged battery (Song, 2019).
One of Tesla's weaknesses is the high-quality standards of innovation that may turn the production procedure into high risk (Yang, 2017).
Additionally, the process of launching, manufacturing, and producing delays affect the launch of their new vehicles making the competitive edgeless ratio.
Another weakness is the issue of supply and demand, as due to complex experiments and procedures, the company faces an unbalance system of meeting the required production (Liang, 2017).
The primary reason for decreased production is the limited availability of batteries. The shortage of charging supply affects sales resulting in the company's reputation being at risk (Liu and Meng, 2017).
The most reasonable opportunity for Tesla to gain potential benefits is expanding its sales in the Asian market (Tehseen, 2018). Asia is an untapped market for electric and innovative automobiles, and Tesla can avail the chase nice to prove its efficiency and exceptional production of electric cars.
Another opportunity that can benefit Tesla is the affordability of electric cars (Cheong, 2016). The company can expand its audience market by launching Model 3, which is an affordable version of Model S.
A big game-changer for Tesla can be the introduction of in-house technology for battery production. The company aims to develop its battery cells to increase manufacturing costs and reduce production costs (Liu, 2017).
Despite Tesla’s assurance of premium quality and exceptional production standards, the company has the most significant threat of product liability claims (Liu and Meng, 2017). Even though the company had launched various autopilot vehicles to address liability concerns, none were successful in case of car accidents.
Another emerging threat for the company is the extensive competition from alternative vehicles and self-driven technology (Cheong, 2016). Most of the automobile companies that belong to the luxury class, including Mercedes, BMW, and the economy class Toyota and Ford, are in line to give tough competition for future technology in electric cars.
Apart from this, the unsustainable confidence and increased disbelief affect the company overall (Ferreira, 2019). The deficiencies and product defects cause distress among users, which may impact business development in the long run.
The global automotive industry is worth over 5 trillion dollars and is projected to grow to almost 9 trillion dollars’ worth of businesses in the next ten years (Statista, 2020). The GDP of several countries and even the global economy depend on the trillions generated from the automotive industry. Therefore, any shifts in politics or economy worldwide affect the automotive industry in one way or another. This, in turn, affects Tesla's business in terms of affordability and feasibility for a buyer. The PESTLE analysis of the global automotive industry is given as follows:
Currently, the most prominent factor affecting the global automotive industry is the looming prospect of a deal or no-deal Brexit. According to one estimate, Brexit will have seismic effects worldwide, costing over 50 billion euros to the automotive industry (France-Presse, 2019). This massive number will affect not only old businesses but also American-based brands like Tesla that are planning on expanding in the European market. Although, innovative measures to fill the gap left by Brexit in the automotive industry can turn this into an opportunity
The trade war between USA and China is bound to have global repercussions for several industries, including the global automotive. China is considered the biggest market for car sales worldwide; however, the ongoing trade war has resulted in increased prices and decreased demand (Reuters, 2019). The reduced demand is directly related to the trade war; therefore, as long as it lasts, it will negatively affect the automotive industry.
Among the social factors, the advent of car-hailing, ride-sharing, and renting applications has changed social patterns. Thomas (2019) highlights that with the rise of companies like Uber, conventional car manufacturers have failed to offer lower travel and maintenance costs. Such social factors, however, depend entirely on the companies or the industry's innovation, as they can be turned into an opportunity.
This aspect provides an excellent opportunity for car manufacturers to innovate and grow their businesses. The field of AI and driverless cars is an unprecedented technology that can attract consumers and generate a high amount of revenue (Eliot, 2019).
The study of Brenner and Herrmann (2018) has discussed that the automotive industry is subjected to continuous legal changes in the form of patent laws, copyright laws, safety procedures, and the legal woes of competition. In such an environment, car manufacturers must be proactive in keeping up with the changing laws, especially with the introduction of driverless cars and ride-hailing options.
It is now widely accepted that the automotive industry and cars are one of the most significant sources of air pollution on the planet and have the most significant carbon footprint (Pervaiz et al., 2016). This exposes the industry to major criticism, which affects the brand image, and any environmental laws directly affect this industry.
Unpredictable Brexit conundrum, deal or no-deal scenario – Opportunity
The US-China trade war and fall in global economy – Threat
Rise of ride-hailing applications like Uber that offer lower costs – Opportunity
AI and self-driving technology in the automotive industry – Opportunity
High rate of pollution and changing legislation for sustainability – Threat
Continuous flux in the legislative framework for car manufacturers, with AI, Uber, environmental laws, etc. – Threat
The global automotive industry is composed of multibillion-dollar brands that have globalized into the market of other countries. To understand the strategic approach of the industry, Porter’s Five Forces have been applied globally. It is given as follows:
Whether luxury cars are used for daily necessities, the competition in the automotive industry is based on intense rivalry. Yoffie (2019) notes that with highly loyal customers and a market that has matured, brands likely overlap and compete for buyers. Most brands aggressively invest in research, development, and innovation to stand out from the crowd, which is the only to get a competitive advantage over others.
In the automotive industry, consumers usually do not have any bargaining power. Although, when sales are carried out between government agencies for larger fleets, the prices can be lowered based on the demand (Akpinar and Vincze, 2016). Another aspect is that technological advancement has led to a wide variety of available products in the market at competitively low prices; therefore, buyers can be termed to have moderate bargaining power.
The foremost reason for the low bargaining power of suppliers is the abundance of raw materials in the automotive industry (Akpinar and Vincze, 2016). This allows car manufacturers to switch suppliers and avoid dependence on a single supplier. This has also resulted in the absence of a single powerful entity among the automotive suppliers, as most are smaller entities.
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As stated by Yoffie (2019), customers in the car manufacturing industry are extremely loyal; therefore, the chances of opting for a substitute are closer to zero. The presence of ride-sharing substitutes like Uber can threaten the automotive industry (Thomas, 2019). However, this threat can be overcome with innovation and offering lower travel and maintenance costs.
The cost of setting up a car manufacturing industry is exceptionally high. This leads several investors to invest in an existing brand rather than a new one (Rübmann et al., 2015). Furthermore, the level of competition in the industry is another factor that forces stakeholders to refrain from entering the market.
Ongoing US-China Trade War
Environmental Damage and Carbon Footprint of the Car Industry
Legislative Changes in the Environmental, Ownership and Patent Laws.
Ambiguity Between Deal or No-Deal Brexit
Market-Based on High Rivalry with a Loyal Customer Base
The advent of technology like AI and Driver-Less cars
Across the world, Tesla has managed to open more than 50 stores and a Gigafactory for manufacturing batteries – Strength.
In a short time, Tesla has managed to make ground in Canada, Australia, and New Zealand markets with various investors like Google and Daimler – Strength.
Innovation – The key element of success for Tesla is its innovation that stands out in the competitive business market – Strength
Reputational – Recently, Tesla’s reputation has taken a hit due to delays in production and failed operations – Weakness
Research & Development - The company focuses highly on the R&D department, through which the team highlights improvements and advancements – Strength
Tesla has leased various other warehouses in different corners of the world, including America, Asia, and Europe.
High-quality products are manufactured due to the expertise offered by executives and leaders.
The leading manufacturing network of Tesla is based in Gigafactory, Nevada. Tesla ships its electric vehicles to stores in the US and 29 countries worldwide.
Consumer complaints about delayed delivery of products
The operations of Tesla are based on the automotive segment and energy generation while storing the capacity of solar energy as well.
Collaboration with Daimler and Toyota will help Tesla increase operations
Marketing & Sales
The company usually uses its website and other digital sources for marketing and promotions.
Tesla has the strategy of customizing each order on the client’s demand. This is a great marketing technique, but it results in fewer sales.
Tesla offers after-sale services to its customers through a wide network of retail stores and service stations in various countries.
The customer service of Tesla is not entirely favourable for customers.
V: Value creating potential
O: Organisation support
A: Outstanding Value and Performance
B: Valuable but not vital source of advantage
C: Beneficial but less significant
D: Unlikely to be sustainable
Management & Leadership
JB Straubel is the co-founder and CTO of Tesla, a skilled professional. The company also includes veterans from the industry in positions like VP, VP Powertrain, and VP Supply Chain. The combination of expert experiences offers great value and advantages to the company (Borén, 2017).
Tesla's exclusive opportunity for its customers to customize their vehicles is beneficial, although it results in late delivery complaints.
Advanced Manufacturing Plant
One of the world’s best elite car manufacturers is Tesla’s factory, which owns around 5.3 million square feet of space for assembling and management.
The company owns an extensive network of stations for Super Charging worldwide. It helps the customers charge their vehicles (Robèrt, 2017).
To maintain strategic coalitions, Tesla has established strategic alliances with different OEM alliances: Toyota and Daimler.
Applying the value chain analysis and VRIO model to the manufacturing capability of Tesla has helped identify several distinctive competencies of the company. The most significant of all distinctive advantages is the efficiency of operations done as outbound logistics. The operations offer flexibility in the manufacturing system, and collaborations have further improved operations. The option of customization is another operational feature in outbound logistics that is valuable for the customers and harder to imitate. The evidence of this is given on the official website of Tesla, which provides a catalogue of models to pick the latest designs and technology (Tesla, 2020). This trait is rare in the automobile industry, as most customization options are for luxury vehicles (Fettermann, Echeveste, and Tortorella, 2017).
Outbound Logistics that Offer Services of Customisation
Advanced Services in Manufacturing with Latest Technology in Assembling and manufacturing
Operational Mergers with Toyota and SolarCity that allows innovation and Generate Revenue
Delivery and Launch Delays Because of the Feature of Production-On-Demand
Failed Operations and Broken Promises on New Models and Technology
The Consequent Fall in Reputation Due to the Failed Operations
In 2016, Tesla announced the creative idea of gaining electricity generation by acquiring SolarCity, a solar panel producer. The company merged and offered $2.6 billion in an all-stock offer. The CEO of Tesla, Elon Musk, efficiently accepted the offer as the merger would provide massive income outflows for the company's development. Tesla, an eco-friendly company, emphasized the vision of storing energy and promoting a green economy (Cheong, 2016). However, the experts from Wall Street were concerned that this merger may not be practically successful and may trouble the company with heavy debt. The criticism of Musk using this offer for personal advantage also speculated concerns in the business environment.
Since the acquisition of SolarCity by Tesla was made in 2016, the figures from 2017 and 2018 will be utilized to uncover the change concerning its monetary well-being, benefit, and income. Generally, it may be seen that by securing the offer, Tesla has increased 68% in sales. This is sensible since the product development has been extended. However, its gross edge reduced from 23% to 19% because the expense of production was amplified by 76.6% (NASDAQ, 2017). This ought to be upon SolarCity since it was liable for concerns concerning the expense and productivity of developing and introducing the products. As an innovation firm, R&D took a significant piece of working costs. It would be reasonable that the costs for improvement and research increased significantly since the two companies needed innovation to keep an upper hand in the market.
Production and Launch Delays
Tesla’s Falling Reputation
Outbound Logistics like customization
Advanced Services in Manufacturing with Latest Technology
US-China Trade War
Sustainability is at the core of the merger in the form of a green merger. However, operations need to be made more effective.
Advanced technology and innovative means in the operational strategy of the Tesla-SolarCity merger will make it successful.
Highly Competitive Market
AI and Driver-Less Cars
Products developed under the merger will help bring up customer perception and provide a competitive advantage over other players.
Offering an innovative product in changing political markets can still appeal to customers and increase sales.
The given case of the Tesla and SolarCity merger depicts a productive approach with the element of suitability applicable to Tesla (Mayfield, 2018). The strategy is suitable if revenue generation is where the production cost may have increased simultaneously. However, the suitability of SolarCity panels for power generation and the green economy are significant opportunities that meet the required strategy (Madson, 2020). Even though the worries of debt concerns and production costs increase, the concept will eventually be helpful for both companies to form an efficient and robust collaborative innovation.
Concerning the Acceptability of the proposed strategy, it may develop the element of risk in the context of innovation through solar panel energy. New stakeholders tend to invest in established productions (Kremer, 2020). Tesla may also face issues in gaining returns through merger productions and promotions. It is likely to take time for innovation to become a needful asset for a customer who wishes to spend more. In terms of the Power/Interest Matrix, the stakeholders in Tesla’s business ventures are noted. Based on the table, Tesla will have to be critical in getting key players on board with the merger, although customers and employees will be easier to satisfy.
Without an appropriate and feasible business model, this merger may not work out well in the future. Tesla does not focus much on its marketing strategy, which is a big concern for marketers and stakeholders (Molenaar, 2020). Initially, the practice of newly developed products will be a complex task that both companies must configure upright. In case of defects or damage, both companies have to configure upright. In terms of finances, the merger will have to succeed with its product for the smooth running of the merger.
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