Tesla Australia’s Social Mission

2244 words (9 pages) Essay in Business

09/05/19 Business Reference this

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Overview:

Tesla Australia operates in the production of electric vehicles (EVs) and sustainable energy technology (Tesla, 2018a). Their customer-centric values are embodied by their unique business model, abandoning the traditional approach of franchising car dealership ‘middlemen’. Tesla instead sells and promotes their vehicles directly to the customer through Tesla-owned stores and showrooms. This allows Tesla to properly educate consumers on the benefits of EVs through Tesla specialists and ensure that customers “enjoy the experience… [and] look forward to returning” (Musk, 2012, para. 7). This is conducive to their vision “to accelerate the world’s transition to sustainable energy” (Tesla, 2018a, para. 1), as it allows Tesla to highlight environmental and performance advantages in transitioning from gasoline to electrical power. Traditional car dealerships would otherwise be reluctant to promote Tesla in light of their predominantly gasoline powered vehicle inventory.  

Tesla’s mission reflects this vision, as it aims to mass-produce an EV at a price that is accessible to the average consumer and at a higher quality of its gasoline powered counterparts. It appears that Tesla is indeed fulfilling this mission, through their progress from luxury vehicles, the Roadster and Model S, to the latest Model 3, an affordable, mass produced sedan (Tesla, 2018a). Furthermore, Tesla’s operations in sustainable energy technology have caused them to work with the South Australian government in renewable energy projects to further their vision. One such project is the installation of solar panels and batteries in South Australian homes that will contribute to the state’s entire power grid (Government of South Australia, 2018). As such, the core mission, vision and values of Tesla are visible within its operations in Australia.

Value Net Analysis – The Vehicle Industry:

Customers, suppliers, competitors, complementors:

The customer base of Tesla Australia currently consists of environmentally aware consumers who are searching for luxury, high quality cars at premium price points (Tesla, 2018a). Additionally, the Model 3, due to reach Australia in 2019, targets the premium small vehicle market (Tesla, 2018c).

As Tesla’s vehicles are manufactured within their Fremont factory, this would be Tesla Australia’s main supplier. The most important component of the vehicles, Lithium-Ion batteries, are provided by Panasonic (Steen, 2015). However, due to the absence of the manufacturing process and procurement in the context of Australia, suppliers are limited or only indirectly relevant.

Tesla’s competitors include all companies that manufacture small, premium passenger vehicles, such as the BMW 5 Series and Audi A6 (Steen, 2015). However, direct competitors would encompass Battery Electric Vehicles powered purely by electricity, such as the Nissan Leaf, Mitsubishi i-Miev and BMW i3 (Zero Carbon Australia, 2017).

The primary complementors to Tesla’s vehicles are solar energy systems, to generate electricity for charging in the home. This would include products like the Tesla Powerwall 2, which can lower household energy costs by 30%, reducing charging costs (Government of South Australia, 2018). Other complementary solar systems in Australia include the LG 310w and SunPower 327w (Solarbank, 2018).

PARTS:

The players certainly offer opportunities for co-operation to increase the overall size of the value net. Tesla has freed their patents, allowing competitors to access their research which will assist the global proliferation of EVs (Stringham, Miller & Clark, 2015). This will work to increase attention and customer demand in the EV market and will introduce new players into the value net.

Reduced fuel costs are one way that Tesla adds value to their EVs. Owners of Model S and X vehicles are offered free supercharging of up to 400 kWh per year, which equates to around 1600 km of driving (Tesla, 2018b). Tesla also addresses customer concerns regarding the resale value of EVs, by “guarantee[ing] a resale value pegged to similar BMW and Mercedes models” (Steen, 2015, p. 5). These methods work effectively to add value and gain customer loyalty. However, Tesla’s main method of adding value is through their superior technology. It assuaged the belief that EVs could not be powerful, as its Model S has a 0 to 100 km/h acceleration of 6 seconds, twice as fast as the Nissan Leaf and 10% faster than the gas-powered BMW 5 (Steen, 2015). Furthermore, it addressed ‘range anxiety’ – fears about the maximum possible distance travelled on a full charge – as its Model S and X boasted ranges of 350 km up to 500 km, in comparison to the Nissan Leaf and BMW i3’s ranges of 117km and 130km respectively (Zero Carbon Australia, 2017).

The added values of competing EVs also include reduced running costs over gas powered cars, as they have less moving parts, reducing servicing costs. Electricity is also significantly cheaper than liquid fossil fuels, reducing fuel costs by up to 75% (Zero Carbon Australia, 2017). EVs also have the added benefit of reduced emissions, as a full transition to electric vehicles would lessen Australia’s greenhouse emissions by 6% (Zero Carbon Australia, 2017).

The main ‘rules’ of relevance to the electric vehicle industry are governmental. There are various incentives to purchase EVs that are beneficial ‘rules’ for Tesla Australia, such as registration and stamp duty discounts (Barton & Schütte, 2016). However, these are minimal, up to values of $660 in Queensland, NSW and Victoria, while stamp duty on EVs has been fully removed in the ACT (ClimateWorks, 2017). Luxury car taxes are also discounted for EVs, applicable to both the Model S and Model X (Barton & Schütte, 2016).

Tesla Australia may also be able to encourage the introduction of light vehicle emissions standards, as they are currently in consideration and is prevalent in most other developed countries. This ‘rule’ would force vehicles in Australia to be fuel efficient, increasing the significance of the EV value net as competitors strive to develop low emission vehicles (Barton & Schütte, 2016).

The vehicle industry is highly competitive in Australia while the EV industry is relatively minor, and the tactics of competitors involve competition on “price, quality and branding” (Thomson, 2017, p.6). Customer perceptions mainly focus on price for small passenger vehicles (Thomson, 2017). Tesla Australia’s tactics in expanding the EV industry are centred around differentiation and highlighting superior EV technology. They attempt to shift consumer perspectives on the industry, as their showroom employees are trained to promote the benefits of EV technology in general (Musk, 2012). Not only is this transparent to customers, but along with its open patents, it also attempts to change the lack of cooperation amongst the Australian automotive industry.

The scope of the EV industry is currently small. From the product offering of Tesla and its competitors as discussed above, EVs in Australia are limited to small passenger vehicles. However, Tesla wishes to expand the EV industry, and is venturing into larger, commercial projects such as the Tesla Semi truck (Tesla, 2018a). There are also certain benefits in Tesla’s plans to link the EV industry to the renewable energy value net, as they are already direct complementors to Tesla’s vehicles (Tesla, 2018a). Solar systems provide reciprocal added value to Tesla’s vehicles – they reduce charging costs for EVs whilst the EV makes investment in the solar system more worthwhile. By possibly forming a package deal with the numerous solar system providers in Australia (Solarbank, 2018), Tesla could increase the scope of the EV industry and encourage value net growth.

Critiques:

The main issue with the value net framework relevant to Tesla Australia is its focus on allocentrism. While Tesla is currently working to increase the value of the EV industry in Australia, this may only work positively in the short run. It will be detrimental if other firms who join the ‘game’ in the future approach business egocentrically, which may reduce Tesla’s market share. This is a key shortcoming in the ideas presented by the value net (Hitchcock, 2018).

Role of Tesla in Society:

An examination of Tesla’s operations in Australia reveals features of the Creating Shared Value (CSV) framework. Tesla simultaneously generates societal and economic growth through the following methods of creating shared value, as postulated by Porter and Kramer (2011):

Reconceiving Products and Markets

In spurring the advent of the EV, Tesla has reimagined the market to capture both social and economic benefits. As highlighted in their vision, the environmental benefit of Tesla’s vehicles is immediately evident through reduced greenhouse emissions – in 2014, the average EV in Australia produced 0.16 Kg of CO2 equivalent per km, whereas the average gas-powered vehicle produced 0.19 Kg per km (Riesz, 2014). The disparity between these figures will increase as Australia inevitably adopts further sources of renewable energy in its electricity generation (Riesz, 2014). This has, in turn, allowed Tesla to remain unique within a largely homogeneous industry, creating a selling point (Stringham et al., 2015).

Redefining Productivity in the Value Chain

Tesla have also reimagined the operations of a typical car manufacturer, maintaining Tesla-owned dealerships in favour of franchised dealerships. By paying their showroom employees fixed salaries rather than commissions (Steen, 2015), this allows employees to properly promote the advantages and unique features of EVs, instead of focusing on the “high-volume sales” (Federal Trade Commission, 2016, p. 90) mindset of commissioned salespeople. This trait serves to further the transition to a sustainable future by educating consumers on the benefits of Tesla’s technology, as well as EVs in general (Musk, 2012). Tesla has created shared value by both positively redefining their employee productivity and increasing customer experience and awareness.

Enabling Local Cluster Development

In order for Tesla’s vehicles to succeed, relevant infrastructure such as charging stations must be developed (Stringham et al., 2015). Tesla has built thirteen ‘Supercharger’ stations, for rapid charging, and numerous destination chargers around Australia, filling in the lacking infrastructure (Tesla, 2018b). While this provides Tesla with access to the Australian market, it also encourages the development and introduction of other EVs into Australia. In developing Australia’s EV market, Tesla will profit economically and also serve to combat the environmental detriments of gas powered cars.

Critiques:

While it appears that Tesla’s social mission is integrated within their business model, reflecting CSV attributes, the lack of a concrete definition of CSV is problematic. There is an unclear boundary between Social Entrepreneurship, CSV and Corporate Social Responsibility (CSR). As described by Porter and Kramer (2011), Social Entrepreneurship should also target a social problem through the creation of shared value. Furthermore, CSV’s main differentiation from CSR is based on the false premise that CSR is separate from business strategy and is only for improving the business’ image (Crane, Palazzo, Spence & Matten, 2014). Greenwashing is also an issue, as Tesla’s cars are currently not as environmentally friendly as they promote – much of Australia’s electricity is not produced by renewable sources (Crane et al., 2014). Nevertheless, Tesla most closely abides by the methods of creating shared value as defined by Porter and Kramer.

References

  • Barton, B., & Schütte, P. (2016) Electric vehicle law and policy: A comparative analysis. Journal of Energy & Natural Resources Law, 35(2), 147-24. doi:10.1080/02646811.2017.1262087
  • ClimateWorks. (2017). The state of electric vehicles in Australia. Retrieved from https://climateworksaustralia.org/sites/default/files/documents/publications/state_of_evs_final.pdf.
  • Crane, A., Palazzo, G., Spence, L. J., & Matten, D. (2014). Contesting the value of “creating shared value.”. California Management Review, 56(2), 130.
  • Federal Trade Commission (2016). Auto Distribution: Current Issues and Future Trends. Retrieved from https://www.ftc.gov/system/files/documents/public_events/895193/auto_distribution_transcript.pdf
  • Government of South Australia. (2018). South Australia’s virtual power plant. Retrieved from http://ourenergyplan.sa.gov.au/virtual-power-plant.
  • Hitchcock, S. (2018). BUSS1000 Future of business, lecture 4, week 4: External analysis [Lecture PowerPoint slides]. Retrieved from https://canvas.sydney.edu.au/courses/4783/files/1827420/download?wrap=1
  • Musk, E. (2012). The Tesla approach to distributing and servicing cars. Retrieved from https:// www.tesla.com/en_AU/blog/Tesla-approach-distributing-and-servicing-cars.
  • Porter, M. E. & Kramer, M. R. (2011). Creating shared value. Harvard Business Review, Vol. 89 (no. 1/2).
  • Riesz, J. (2014). Electric vehicles – Integration and impacts. [Lecture PowerPoint Slides]Retrieved from http://ceem.unsw.edu.au/sites/default/files/event/documents/API%20Summer%20School%20-%20Electric%20Vehicles%20-%202015-02-12.pdf
  • Solarbank (2018), Solar Panels Sydney – Comparison of Options. Retrieved from https://www.solarbank.com.au/solar-panels-sydney-comparison/
  • Steen, E. V. D. (2015). Tesla Motors. Retrieved from: https://services.hbsp.harvard.edu/services/proxy/content/61922340/61922346/b3aa52e92be8ddac3cf04efb6e59fff6
  • Stringham, E. P., Miller, J. K., & Clark, J. R. (2015). Overcoming barriers to entry in an established industry: Tesla motors. California Management Review, 57(4), 85-103. 10.1525/cmr.2015.57.4.85
  • Tesla. (2018a). About Tesla. Retrieved from https://www.tesla.com/en_AU/about.
  • Tesla. (2018b). Charge on the Road. Retrieved from https://www.tesla.com/en_AU/supercharger.
  • Tesla. (2018c). Model 3. Retrieved from https://www.tesla.com/en_AU/model3.
  • Thomson, J. (2017). Automotive Industry in Australia. IBISWorld Industry Report X0014. Retrieved from IBISWorld database.
  • Zero Carbon Australia. (2017). Electric Vehicles. Retrieved from http://media.bze.org.au/ev/bze_ev_report.pdf

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