An Analysis Of Tesla'S Ability To Sustain A Competitive Advantage   

Competitive advantage occurs when a company's profitability is greater than the average profitability of all companies in its industry (Hill, Schilling & Jones, 2016). Tesla's primary industry is its Automotive fleet with sales at $8. 53 billion and $1. 11 billion from leasing (P. Villanueva-Rey, 2018). In comparison, the Energy Storage fleet rakes in a minimal $1. 12 billion (P. Villanueva-Rey, 2018). Tesla strives to diversify the automotive industry in hopes to decrease the impact of our carbon footprint. This vision is the basis of their competitive advantage.

They are appealing to an untapped market of environmentalists, eco-friendly consumers and those who want to reduce maintenance and repair costs of their vehicles. Tesla specializes in electric vehicles and strives to make them as energy-efficient as possible. The industry of electric vehicles is increasingly competitive because current automotive manufacturers are restructuring their business strategy and reinventing their products to keep up with technological advancements. Companies such as Mercedes Benz, BMW and Chevy are slowly moving toward lines of electric vehicles, while the product line of electric vehicles was Tesla's starting point (P. Villanueva-Rey, 2018). This gives Tesla an enormous advantage because they are well versed in the requirements of creating, maintaining and upgrading electric vehicles. Tesla owns technological capital that is unique to its electric vehicles such as the autonomous driving features and software updates for all Tesla vehicles without purchasing a new car. This is rare to see from other automotive manufacturers. Commonly, manufacturers like Ford, BMW and Chevy come out with new versions of current models yearly (P. Villanueva-Rey, 2018). Tesla will be updating the software of their vehicles like Apple Inc. sends out updates to their products. No new purchase is required and they are constantly working to improve the quality of their electric vehicles. This feature provides convenience to consumers as well as creates efficiency for Tesla by decreasing the number of human capital that it would take to update each vehicle in person. Tesla's business strategy and product innovation are built around efficiency.

Tesla focuses on the aesthetics and technical performance of powertrain components as well as the electronics and software used in their vehicles. Using only an electric powertrain enables Tesla to create more energy-efficient vehicles that are mechanically simpler than the currently available hybrid or internal combustion engine vehicle (Tesla, Inc. ). Tesla's are created to be aerodynamic which reduces mass to run smoother. This also reduces the cost of resources needed for production, as well as giving customers an affordable, sleek, and luxurious vehicle. According to the United States Department of Energy Tesla has manufactured vehicles at ATVM-supported facilities that are estimated to save 5,870,000 gallons of gasoline and prevent 52,000 metric tons of carbon dioxide emissions annually, which pushes the significance of Tesla's battery performance (United States Department of Energy, 2010). Tesla's battery range significantly exceeds those of any other commercial electric vehicle available.

Also, Tesla's vehicles incorporate proprietary onboard charging systems, permitting recharging from almost any available electrical outlet, and also offers fast charging capability from their Supercharger networks (Tesla, Inc. ). The longevity of the battery allows for an average of 370-520 miles as well as 15-minute supercharging which allows for an additional 134 miles (Tesla, Inc. ). Unlike other electric and hybrid vehicles, Tesla created Dual Motor powertrain. Dual Motor powertrain vehicles use two electric motors to provide greater efficiency and performance. Tesla's Dual Motor powertrain digitally and independently controls torque to the front and rear wheels (Tesla, Inc. ). The almost instantaneous response of the motors, combined with low centers of gravity, provides drivers with controlled performance and increased traction control (P. Villanueva-Rey, 2018). This imperative component assists in building Tesla's competitive advantage and distinctive competencies by reducing the uncertainty that consumers may possess about electric and autonomous vehicles. This information portrays Tesla's immense impact on the automotive industry. Tesla created the opportunity to restructure and rebrand the image of the automotive industry which affects the life cycle of the industry. It brings the automotive industry from the maturity stage, back to the introduction stage. While Tesla has already begun to make a profit in this stage, new competitors will start with slow sales and little profit which is an advantage for Tesla. To keep this advantage, Tesla must rely on tools such as the competitive forces model, the lean six sigma practice and an intensive growth strategy.

The competitive forces model was developed by Harvard's Michael E. Porter in 1979 (Hill, Schilling & Jones, 2016). Porter states that 'A healthy industry structure should be as much a competitive concern to strategists as their company's own position' (Hill, Schilling & Jones, 2016). The five forces model analyzes specific factors that determine whether or not a business can be profitable, based on other businesses in the industry. The five forces consist of 'the risk of entry by potential competitors', 'the intensity of rivalry among established companies within an industry', 'the bargaining power of buyers', 'the bargaining power of suppliers', and 'the closeness of substitutes to an industry's products' (Hill, Schilling & Jones, 2016). Tesla uses this model to evaluate its industry's health and by conducting analysis using this model, it allows Tesla to make imperative decisions concerning the innovation of new and current products. For example, the American University's Made in America Auto Index states, 'Tesla's Model 3 will have 95% of its parts manufactured in the United States; Tesla is not only manufacturing these parts in the United States, but Tesla is manufacturing these parts in-house. ' These auto parts include but are not limited to seat production and battery production. This decision could not have been made without evaluating Porter's five forces and analyzing how the outcome of this decision would affect Tesla's status in the automotive industry. Tesla also follows the lean six sigma practice to improve its efficiency among all of its sectors of production. Lean Six Sigma is a fact-based, data-driven philosophy of improvement that values defect prevention over defect detection (Musk, E. 2016). The main purpose of this practice is to drive customer satisfaction while promoting the use of workflow which propels competitive advantage. Lastly, Tesla Inc. uses market development as a third level intensive growth strategy (Rowland C. 2018). This strategy involves entering new markets to generate more sales and grow the global business (Rowland C. 2018). Tesla gradually expands its market reach worldwide by establishing new offices and facilities. At present, Tesla sells in only a handful of countries, but further international expansion is expected. This intensive strategy supports Tesla's mission and vision statements, which highlights global leadership in the automotive industry, with energy solutions for transportation.

This strategy also enables market development by creating unique products that attract customers when the company enters new markets (Rowland C. 2018). Based on the market development intensive strategy, a strategic objective is to grow Tesla Inc. 's multinational business by establishing alliances with other companies that make it easier to enter new markets. This strategic step is crucial because there is only so much automotive market share within the United States. Branching out globally ahead of your current and/or potential competitors will allow Tesla to establish brand recognition and loyalty. Tesla's ability to sustain a competitive advantage within the automotive and renewable energy industry can be proven to be arduous. This paper will be written by encompassing knowledge obtained from my finance and business strategy courses. This knowledge, along with reliable primary and secondary sources will allow me to translate how Tesla uses the competitive forces model and additional strategies to help sustain its competitive advantage. I have been dissecting Tesla's SEC 10-K report, American Auto Index and the United States Department of Energy's involvement with Tesla to assist me in giving Tesla recommendations that will improve their business strategy and minimize a negative financial impact from increasing competition. Finally, I plan on revealing the possible effects of Volkswagen's 2020 release of a fully electric vehicle fleet. Electric vehicles are projected to account for 7. 6 percent of the market in 2025, up from just 1. 2 percent in 2018 (J. P. Morgan, 2018). According to J. P. Morgan, automakers are preparing to phase out cars powered solely by internal combustion engines as governments look to tackle fuel emissions. The growth in electric vehicles and hybrid electric vehicles is climbing and by 2025, EVs and HEVs will account for an estimated 30% of all vehicle sales (J. P. Morgan, 2018). VW has created an electric vehicle with an anticipated top track speed of over 110 mph and DC Fast Charging to 80% battery power in just 30 minutes.

The ID. Crozz concept is expected to be released to dealerships by the end of 2020 (Volkswagen, 2019). The ID. Crozz is also expected to have an autonomous driving feature in pilot mode. This is an enormous threat to Tesla's competitive advantage because they are currently the only vehicle available with this feature. VW's and Tesla's are priced similarly so there is no cost to customers if they choose to switch. The production of new electric vehicles with a similar carbon body physique and technology has saturated this market sector tremendously. It is recommended that Tesla continues to innovate and develop their technology to stay ahead, as well as continue to legally insulate their intellectual property. This looming threat is something I expect to elaborate more on throughout the finalization of my paper. It is an important portrayal of what can happen to Tesla if they do not constantly work toward sustaining their competitive advantage. A majority of my research is in the final stage. I am working on developing the structure of my paper for the information to flow and create a clear picture of Tesla's ability to sustain competitive advantage. I also want people who don't know what competitive advantage is or how it works to be able to learn from this information because it is how a plethora of companies strive.

References

1. American Auto Index. (2019). Made in America Auto Index. Retrieved from the American University website: https://www. american. edu/kogod/research/autoindex/
2. Charles W. L. Hill, Melissa A. Schilling, Gareth R. Jones (2016). Strategic Management, Theory, 12thedition. Canada.
3. J. P. Morgan. (2018, October 10) Driving into 2025: The Future of Electric Vehicles Retrieved from the J. P. Morgan website: https://www. jpmorgan. com/global/research/electric-vehicles
4. Musk, E. (2016). Master Plan, Part Deux. Tesla, Inc. Retrieved from the Tesla Inc. website: https://www. tesla. com/blog/master-plan-part-deux
5. P. Villanueva-Rey (2018). Wiring in the automobile industry: Life cycle assessment of an innovative cable solution. Journal of cleaner production, Page: 237-246
6. Rowland C. (2018, June 24) Tesla, Inc. 's Generic Strategy & Intensive Growth Strategies (Analysis) Retrieved from the Paramore Institute website: http://panmoreinstitute/tesla-inc-generic-strategy-intensive-growth-strategies-analysis
7. Tesla, Inc. (n. d. ) United States Securities and Exchange Commission Form 10-k. Retrieved from https://www. sec. gov/Archives/edgar/data/1318605/000156459018002956/tsla-10k_20171231. htm#Item_1
8. United States Department of Energy. (2010). Tesla. Retrieved from the United States Department of Energy website: https://www. energy. gov/lpo/tesla