INDIVIDUAL ASSIGNMENT STRATEGIC MANAGEMENT

A LOOK INTO TESLA’S STRATEGIC SITUATION

IRENE ÁLVAREZ GIL

13/11/2023

Profesor Paola Zanella

BACHELOR IN BUSINESS ADMINISTRATION

INDEX

1. Strategic situation

2. Critical analysis
a. Environmental uncertainty
b. Competition strategy
c. Principle of mutual influence
d. Sustainable competitive advantage
e. Differentiation strategic advantage in a dynamic industry

3. References
 1. Strategic situation

Tesla, the American electric vehicle company known for its innovation in the EV industry and
sustainable energy solutions, is facing several critical strategic issues. According to the article
“Investors conclude that Tesla is a carmaker, not a tech firm” from The Economist, its
involvement in the technological industry is now being perceived as a normal car manufacturer
company, resulting in an increased uncertainty for what is to come.

Its market value rocketed in comparison to other vehicle companies, gaining significant
reputation in the automotive industry. Despite this, due to fears of Elon Musk not achieving his
promises on Tesla’s growth projection, its value dropped 71%, an impressive amount compared
to its technological colleagues. Demand for its electric vehicles is being threatened as Tesla is
facing many challenges related to delivery expectations and production.

In addition to this, increased competition from both well-known automakers and new entrants
is making Tesla’s “exclusivity” less attractive for buyers, as substitutes offer more affordable
options. Its whole image and reputation are also being damaged by Elon’s Musk argument on
Twitter, intensifying the problem.

Although Tesla is currently facing these challenges, it is still one of the top leaders in the
industry, as it continues expanding its business and production and designing new models. At
this moment, the possible point of inflection is the enterprise’s ability on tackling competition
and adjusting its strategy to reach its objectives and perseverance as a technological front
runner.

2. Critical analysis

On January 3rd of this year, Tesla’s public revelation of a loss in demand, reflected by an
increased “gap between production and deliveries” caused on that same day, a loss of 12% of
its value. This made experts, analysts, and investors reconsider Tesla’s position in the market as
one of the “big techs”, rather than just a simple car manufacturer, who is actually facing typical
problems of these companies.

Environmental uncertainty

After having had its supply chain interrupted due to the pandemic, it seems this is not the end
of problems coming for Tesla. Its factory in Shanghai has been shut down since virus has
reappeared, causing production to stop.

Furthermore, the industry is changing constantly, intensifying competition for Tesla. To align
with green practices and sustainability, both
established car manufacturers and new entrants in
the electric vehicle industry are following Tesla’s
path. For instance, Volkswagen’s id.7, directly
competes with Tesla’s new Model 3 saloon,
reflecting the industry’s transformation.
In summary, factors such as the pandemic, appearance of new market entrants and shifts in
consumers’ preferences reflect a high degree of environmental uncertainty for Tesla.

Competition strategy

Tesla could be associated to a non-price competition strategy. It focuses on creating high-

quality vehicles with advanced technology. This is directly reflected onto its elevated prices.
However, customers accept it because they have an exclusive perception of the brand; for
them, its high prices are understandable and related to the premium brand and the company’s
innovation.

Nevertheless, with new competitors entering the market, and substitutes appearing, Tesla’s
strategy will have to adapt to its environment. Consumer’s preferences are shifting to these
more affordable alternatives, demonstrating that “EV manufacturers should also consider how
to maximise their technology strategy by, for example, quickly bringing a high-quality but low-
cost service to the market”, adjusting their methods to remain competitive, as said in
International Data Corporation’s report.

Principle of mutual influence

As we can see, there exists a relationship of mutual influence between the firm and its
environment. Initially Tesla, as a pioneer of electric technology, influenced existing
manufacturers and new entrants to participate in the industry. However, this influence has now
made the environment change, increasing competition for Tesla. This reflects the
interconnection between the external environment and the enterprise’s actions, having to keep
in mind constant changes as consequence, directly or indirectly, of a firm’s strategy and its
decision-making.

Sustainable competitive advantage

After looking in depth at Tesla’s competitive strategy, we can analyse the company’s resources
and capabilities relating them to the concept of the VRIO Framework.

In Tesla’s context:

- Value: the company initially created a significant competitive advantage by offering the
innovative idea of EV. This was a unique value proposition that allowed Tesla to
position themselves as a pioneer.
- Rarity: when Tesla’s first EV launched, its complex technology was rare and unique.
This, reinforced with the company’s strong brand image, made them differentiate from
other possible competitors.
- Imitability: its early innovation and rapidness in the industry made it difficult for
competitors to imitate immediately, or at least in a short-term period.

However, as this industry leader inspired more and more companies, competitors arose,
causing Tesla’s unique position to start disappearing in a matter of months. No longer the
exclusive source of EVs, Tesla’s once distinctive value is being lost. Substitutes already offer
similar technology, show strong brand images, and follow an extensive business model, and
are, more importantly, succeeding in the market. Consequently, Tesla’s initial position of
leadership has been impacted and is at risk; it struggles to maintain a sustainable competitive
advantage.

Differentiation strategic advantage in a dynamic industry

Tesla has gained an industry-wide differentiation advantage by offering high-quality electric

vehicles with unique features and advanced technology. However, risks that appear from
following this strategy are imitation from competitors and pricing pressures.

To address these issues and sustain a competitive advantage, Tesla is already implementing
some strategic actions:

Tesla’s commitment to innovation is evident in its introduction of advanced battery technology.

This has allowed to improve efficiency, lengthen its life, and reduce production costs. The
company’s leadership in another sector reflects its expanded capabilities and supports its
differentiation strategy. Lastly, the introduction of the Cybertruck (an electric truck) represents
its product line expansion.

Moreover, they are actively improving their awareness on customer preferences with the goal
of offering more affordable options, reflecting a strong commitment to increased customer
engagement.

These are some examples of how Tesla is readdressing its strategy to adapt to new
circumstances, with the final aim of maintaining its competitive position, and ensuring growth
in such a fast-evolving industry.

3. References

Cabral, A. R. (2023, September 2). Electric vehicle makers to face intense competition, report
warns. The National.
https://www.thenationalnews.com/business/technology/2023/09/02/electric-vehicle-makers-
to-face-intense-competition-report-warns/

Dutta, A. (2023, August 7). A deep dive into Tesla business strategy. Feedough.
https://www.feedough.com/tesla-business-strategy-and-business-model/

Overview, I. (2023, June 22). Tesla: competitive advantages, favorable valuation. Seeking Alpha.
https://seekingalpha.com/article/4589277-tesla-competitive-advantages-favorable-stock-
valuation

The Economist. (2023, August 4). Investors conclude that Tesla is a carmaker, not a tech firm.
The Economist. https://www.economist.com/business/2023/01/04/investors-conclude-that-
tesla-is-a-carmaker-not-a-tech-firm