Tesla UK PESTLE, SWOT and Porter’s Five Analysis

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In this essay, an analysis of Tesla, Inc. will be conducted about the external marketing environment, the competitive environment and the SWOT of this company in the UK. Tesla, Inc. is an American company based in California and founded in 2003 with a revenue in 2016 of seven billions of dollars. This company designs, develops, manufactures and sells fully electric vehicles equipped with semi-autonomous driver assistants, and energy storage systems (Reuters.com, 2017). In the UK, this company has just sixteen stores and seven repair shops. The mission of Tesla is to accelerate the world´s transition to sustainable energy (Tesla.com, 2017). The strategy of the company is to produce luxury electric cars at the beginning and to use the profits to produce new generations of more affordable electric cars (Musk, 2006). Basically, Tesla currently offers three electric car models: Model X, Model S and Model 3, with a starting price of £77464, £64890 and £35000, respectively. Tesla also offers through its subsidiary company Solar City solar panels shaped like roof tiles, called Solar Roof; and rechargeable lithium-ion batteries for domestic solar power systems, although their market is very small. Furthermore, Tesla has also collaborated with other car companies such as Mercedes, Toyota or Smart to provide them electric car components. For this reason, Tesla is not only a B2C company but also a B2B company.

This essay will analyse the external marketing environment using the PESTLE analysis that takes into consideration political, economic, socio-cultural, technological, legal and environmental factors. As for the political issues the rise of populism in the last year is one of the most problematic issues. Events like the election of Donald Trump, the Brexit or the possible victory of Marine Le Pen in France create an atmosphere of political instability worldwide. The dominating uncertainty affects Tesla since the company is taking decisions to expand the business in the UK without knowing how the finance future will be. With regard to the economic factors the costs of new technologies related with renewable energies and batteries are lower now, what can help Tesla to offer more affordable prices. Apart from that, the Brexit has led to some economic instability that we can see in the depreciation of the pound. This incident forced Tesla to increase the prices of their products by 5% at the beginning of 2017 (The Telegraph, 2016). Besides, Brexit can help to create a fast trade deal with the USA (Watts, 2017) from which Tesla could greatly benefit as they produce their cars in the USA.

With reference to socio-cultural issues people are now more concerned about ecological issues and prefer to buy eco-friendly products, like the products of Tesla. Mintel (2016) report says that a 38% of drivers who do not currently own a car would be interested in buying an electric car in the future. In addition to that, the UK has a high level of income inequality compared to other developed countries (Jones, 2017), what at first should be beneficial because Tesla sells products for people with a high economic level. However, the plan of Tesla is to start producing more affordable cars that target the upper middle class. If in the future there is not enough economic equality, what creates the middle class, that will cause problems to the company. Environmental issues are a key element for Tesla since is the driving force that leads customers to buy their products. Every new related with global warming and environmental issues help Tesla to persuade potential customers to use electric cars. On top of that, the ecological awareness hinders the revenue of pollutant car companies, rivals of Tesla.

Technology is a crucial factor for this kind of companies, where innovative new technologies are essential. Since the products of Tesla fall within the scope of eco-friendly products, the company should be aware of all the advances in renewable energies and ecological technologies in order to implement them in their products. For instance, Elon Musk (2016) suggested in Twitter the use of crystal solar roofs for their cars in the future.

Regarding legal aspects, products of Tesla benefit from the £5,000 grants UK government gives to the customers who buy electric cars (Mintel, 2016). Besides, conferences and summits like the Paris Agreement of 2015 help companies like Tesla since governments are forced to promote eco-friendly products of companies like Tesla.

In order to discuss the competitive environment of the electric car this essay will use the five forces of porter analysis. This system analyses the major competitive forces to understand the competitive future of the industry. (Baines et al., 2014). The threat of new entrants in the industry is minuscule. In this industry, there is a considerable cost of brand development, an extremely high capital requirement and the need of a big economy of scale. However, there are strong companies like Apple that are going to possible enter in the autonomous electric car industry and for their distribution capacity and the position of their brand this would be dangerous for Tesla (Griffin, 2017). Regarding substitution, the threat is moderate. The only possible substitute for Tesla´s car would be public transport. However, this alternative is not always available since it is liable to timetables. Furthermore, it does not compete at the same level since the main benefit of public transport is its cheap cost, which is a thing that Tesla´s customers do not worry about generally as they belong to a high economic level.

When it comes to bargaining with customers their power is moderate. The switching costs are low: they can change their cars whenever they want or buy new ones from other brands. However, customers buy this kind of products just a few times in their life and the only substitute available is public transport, which does not adjust to the needs of these kind of consumer. With reference to suppliers their bargaining power is limited but still important. As Gorzelany said in Forbes (2014) the whole automotive industry is based on vertical integration but they still need to use suppliers. However, the vertical integration of Tesla is strong and they control the production of their batteries, the most important part of their cars. However, the power of the suppliers of other important parts of the car like the sensors, made by Bosch, is still strong.

The competitive rivalry is the most intense force in the analysis (Mintel, 2016). Although because of the peculiarities of the industry there are few competitors, their technology innovation and promoting power is extremely high. It is worth to say that technology innovation is a key aspect in this kind of industries to survive since you need to offer the most advanced technology to please exigent customers.  Also, the fact that there are no impediments for customers to purchase products from other companies helps to strengthen the competitive rivalry.

This essay analyses hereunder the SWOT of Tesla to understand the strengths and weaknesses of the company, and to analyse what opportunities and threats the company need to be aware of. With regard to the strengths of Tesla the exceptional position of the brand is one of them (Tesla, 2013). The brand of Tesla is seen as one of the most disruptive and innovative companies in Silicon Valley mainly due to the figure of Eldon Musk, that is portrayed as a self-made technology entrepreneur by the press (The Economist, 2017). Furthermore, another strength of Tesla is the good quality and the reliability of the customers on their products. For instance, the range of their batteries is the biggest in the market (Stoll, 2016) and the autonomous driving system is one the most advanced that exists (Golson, 2017). At the same time, Tesla has a high control of their production and distribution, what makes them not to rely on other companies. For example, they have in Reno, Nevada, their own factory that produces lithium-ion batteries. This factory also produces batteries for other big companies in the car industry, such as Toyota or Mercedes (Muller, 2013). This gives Tesla the power of control other car companies as suppliers. Apart from that, Tesla is expanding its markets rapidly across the world and along with this expansion Tesla is additionally expanding its network of free chargers across the roads of all the world, what makes their cars more appealing to the customers.

Speaking of the weaknesses of Tesla, its presence in the market is especially limited. In the last report of Mintel (2016) about electric and hybrid cars the market share of the company was just 5.3% of the purchases realised in the UK. This can be related with the prices of their cars, that are just accessible for the economic elite, what is another weakness if the company pretend to target the great majority of the population. On top of that Tesla has been experienced problems with their production capacity since their current facilities are not enough to match the high demand of Model 3, that comes from its relatively low price (Forbes, 2016). Another high weakness of Tesla is the incredible amount of capital they need now until they have grown enough to seriously confront other car companies. Basically, they need cash to continue with their innovative business model, to expand their presence in other countries and build a profitable economy of scale, and to increase their production capacity in order to match the demand. Finally, another weakness that Tesla have to face is the range anxiety that their batteries produce to the customers and the fear of customers to autonomous driving systems, especially after the death of one person due to a mistake of Tesla´s autopilot (Boyle, 2017).

To conclude this essay, it is going to be analysed how Tesla should proceed in the future to ensure a successful outcome of the company. For that purpose, this essay will analyse the opportunities and threats that the company should exploit and avoid, respectively. Tesla should keep investing their money in innovation to produce cheaper and more efficient batteries, and to keep improving the auto-pilot system. They also should need to think about diversification to create other electric transports such as motorbikes, buses or vans, as they have started to do with trucks (Allan, 2017). Furthermore, they must take advantage of the raising awareness about global warming to link in the mind of the customer the fight against global warming with the purchase of Tesla´s products. Besides, Tesla should use their lead position in the electric car market since it is a market that is starting to grow. Using that position can help them to settle and continue leading the market in the future when the use of electric cars is more common. Moreover, they need to continue with the construction of strong supply chains that can meet the demand to confront the big old car companies that have strong distribution channels since many years ago worldwide. This way they will be able to sell in more markets and continue their expansion. Consequently, in these new markets they should remain developing of a vast network of superchargers that appeal to the customers and reduces their anxiety about the battery range.

Finally, Tesla should be aware of all the threats in order to elude them. The most important threat for Tesla is to be short of cash in the future in light of a lack of investments. The company needs to ensure some capital stock in case they need it in the future. Moreover, they need to be able to match the demand as they start to produce more affordable cars and the demand grows. In order to do this, as it has been previously said, the company must create strong distribution channels that allows them to create a profitable scale economy. Besides, they should create a safer auto-pilot if they want people and governments to trust on this technology in particular. Another important threat is the highly likely entrance of Apple in the industry of electric autonomous car industry. This brand can be a tough competitor because of its capital stock, distribution and production capacity and for being an innovation leader in the technology industry. Consequently, is very probable that the competition in the electric car industry will be much more aggressive and Tesla must be prepared for it.

Appendices

Appendix 1 – PESTLE analysis diagram

Appendix 1 – PESTLE analysis diagram

Appendix 2 – Porters Five Forces diagram

Appendix 3 – SWOT diagram

References

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Bibliography

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