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Tesla External Environment

Essay by   •  December 3, 2018  •  Research Paper  •  4,620 Words (19 Pages)  •  26 Views

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3.1 External environment

Within the external environment. There are three interrelated subcategories consist of factors in the remote environment, factors in the industry environment, and factors in the industry environment. The three major components play heavily into the decision-making process in formulating and designing the firm’s competitive strategy. [1]

  1. Factors in the remote environment:
  1. Economic factors

• With the advance in technology, the renewable power generation cost in decreasing consistently. By 2020, the cost of renewable energy technology will be closely matched with fossil fuels. The best project practice is spreading across the international landscape which helps minimizes the project risks. Hence, the renewable energy cost is getting more competitive over time. The price of the battery powering electrical cars is declining at a sharp rate due to battery mass production. This also shows that many companies are recognized the demand for electric vehicles as Mr. Frith refers to as “a tipping point in the adoption of EVs”.

• The economy is showing many positive sides. According to the Bureau of the economy, more money will be added to the disposable income. The weekly filing for the unemployment rate is at its lowest since 1969. The inflation rate and interest rate is low. However, with the new change in the new government, there are many underline risks to the recent economy[2].

  1. Social factors

• In the age of information, many customers are deciding based on the information collected about the product rather than convenient/psychological purchased. With go-green trend go global, customers demand renewable energy is rising as there are a “45% increase in the number of customers and a 19% increase in the number of sales from 2015”[3].

• The social movement of fighting against the negative effect of climate change is showing a huge social impact. One of those is the customer’s movement of changing shopping habit for the lower-carbon product in order to reduce the carbon footprint associated with the product. Despite the increase in price for lower-carbon products, customers are more 56% likely to show loyalty toward the brand[4]

• More Americans show the intention of purchasing electric vehicles. Often customers would cite reliability and fuel efficient as the selling point for the product. Environmental benefit and long-term benefit also cited to the be motivational factors[5].

  1. Political factors  

• The government offers incentives at the Federal level and state level for any purchases of electric vehicles. At the Federal level, the tax credit is given with the rage from $2,500 up to $7,500 for people who purchase the product. At the State level, the incentives can vary from weight, lane or inspection exemption to tax credit[6].

• The major markets where electric vehicles are being marketed and sold have political stability. This is the major component for any product especially automobiles.

• The new administration does not favor renewable energy as they are proposing for a 72% cut on wind and solar energy. The purpose is to “seeks to boost production and exports of oil, natural gas, and coal[7].” This can post a threat for electric car companies as they are also considering talking away the market share from oil and gas companies.

  1. Technological

• Started from 2007, the technology has gone far, further than we could ever imagine. With the high rate of advancing in technology. This can be seen as the opportunity and the treat for the company.

• The use of automation in business manufacturing and the use of AI are increasing rapidly. With the new mindset of having the man-machine teamwork rather than using the machine as a tool has helped businesses increase their efficiency, productivity and quality consistency[8]. Hence, an opportunity for the electric company to utilize this technological advantage.

• Online mobiles use has seen a sharp increase in uses for multi-purposes including purchases and monitoring. The new report indicates that “78% of people had made a purchase by mobile in an app or site[9]”. This is an opportunity for the company to integrate the system Mobily enhancing the user experiences.  

  1. Ecological

• Climate change is becoming the central focus of many businesses. The public concern of climate change is at its all-time high. In order to adapt to this, many businesses have changed their processes and plan to be eco-friendlier[10]. As for Tesla, this is an opportunity for the company to thrive. The focus on energy-efficient and green energy have embedded in the core of the company mission. Hence, this is the chance to enhance public views, customers loyalty, and customer’s switch value.

• The government is raising the standard for waste disposal in the effort of reducing carbon waste and toxic waste harming the people and the environment in long-term. Many new standards have been proposed and passed through[11]. This is an opportunity for the company to again address the public concern and disclose a more efficient, clean way to reduce, reuse or recycle in the process.  

• Environmental programs and environmental education program is expanding. They are ranged from public transportation guide to energy management and green purchasing. These programs are seeking to raise awareness of the environment; therefore, hope to improve the environment.  

  1. Factors in the industry environment
  1. The five Porter’s forces analysis

Competitive Rivalry

Buyer Power

Supplier Power

Substitute products

New Entrants

- There is a defined number of companies competing in the automotive industry

- With a high budget, the competitors are fierce. Recent investment from Saudi Arabia to Lucid shows the desire to enter a growing market[12].  

- With the variety of companies skewing the offer to each customer, the switching cost is low

- Switching cost is low

- Gasoline automotive, different options of transportation gave customers a lot of choices. – High buyer’s volume but the very low rate of product delivered.

Price Sensitivity:

-high brand awareness, good brand reputation

-high quality/consistency product

-expensive compared to similar products[13] in the market.

- Have a fair degree of forwarding integration. With a detailed plan, Tesla was able to make the company be almost 70% “vertical integrated[14].”  

- Other competitors are medium to small sizes have less of an influence on the company.

-  Switch cost is low

- In term of fuel replacement, there are traditional gasoline cars

- In term of performance and style, there are a variety of option on the market

- In term of price, there is a hybrid car market competing directly with the firm

- In term of the electric car, many big players are joining the market

- There is a high cost for brand image and brand reputation

- Intensive capital required in the car industry

- Effectively implementing the plan to build the economies of scale resulting in a profit[15]

- Highly innovating the product and redefine the standard[16]

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