Internal Analysis of Tesla
Tesla major competency is its improvement of motors (solar energy inverter and battery pack technologies). The safety design and powertrain technology in Tesla EVs, including the distribution channels, are more of Tesla’s core competencies outsourced to competitors.
Tesla’s main source of revenue is not only sale of EVs. In 2020, the company’s performance on the stock market showed a 743% increase and a market value as high as those of the world’s twelve largest car producers combined. Tesla was recently rated fifth on S&P 500 list of largest companies. As at January 2021, the U.S. automaker was worth a staggering $700bn mainly from selling credits, not just EVs. The greenhouse-gas emissions credit system implemented by the U.S. Environmental Protection Agency and National Highway Traffic Safety Administration—adopted in California and more than 10 states to control pollution—provides credits when an automaker sells zero emission vehicles (e.g. battery electric, hydrogen fuel cell electric cars, and transitional zero emission vehicles like hybrids). The U.S. regulatory credit program requires a certain percentage of annual sales to come from selling zero-emissions vehicles. Toyota, Honda, GM, and Fiat Chrysler have agreements to buy federal credits from Tesla (Mangram, 2012; Weiss, 2014).
Figure 2: Tesla’s Vehicle Sales 2016-2019
Source: Tesla/Clean Technica (2020)
Tesla’s main source of competitive advantage is the battery supply chain it is building for itself (and some competitors). The automaker recently acquired patents for a battery that’s not only more energy-efficient but can be produced at a lower cost. Another source of competitive advantage is Tesla’s convenient network of fast-charging stations. To ease the stress of pay-per-use charging method adopted by competitors, Tesla adds the charging cost of vehicles to relieve owners/drivers of some psychological stress—and provide a lifetime of free supercharging (Simpson & Taylor, 2013).
The decreasing cost of batteries is a significant external economic factor for the electric car producer. According to a 2021 Energy Financial Report from Bloomberg, current market price of lithium-ion (per kilowatt-hour) is $137, but the price is expected to drop as low as $100 per kWh by 2023 (Kharaya, 2021). This expected fall in battery costs will certainly increase the global appeal of EVs—with positive implications for Tesla’s business.
Tesla’s ambitious rollout of the best-selling Model 3 in 2017 started at a time when countries (China, U.K., India, France, Norway and others) were banning use of fossil fuel. Electric vehicle manufacturers thus scrambled to identify and monopolize reliable sources of materials used in lithium-based batteries. Cobalt is one of the major component in Tesla’s current batteries and it is mainly sourced from Congo DR While poor mining of Cobalt threatens the viability of Tesla’s supply chain and Musk’s mission to establish a mass market EVs, the company has been criticized for signing production agreement with Congo DR—a country with high supply chain risks (bloody conflicts, corruption and child labour (Gillespie, 2007).
Figure 3: Best American EVs Manufacturers
Source: Statistica (2020)
Tesla’s sources of competitive advantage are its strong capital base, relationship with global investors, and the spending power of consumers. Tesla maximizes these identified strengths with an effective use of research on consumer behaviours that lead to value creation and strategic business solutions (Freeman, 1984; Mangram, 2012). In the United States, growth rates are relatively slow but that hasn’t stopped people from buying expensive cars on credit or ‘trade deals’ such as 0% financing (Gillespie, 2007; Jeremy, 2020). According to Pohl and Tolhurst (2010), most Americans support governmental policies enacted to increase loans (from taxpayers’ money) granted to companies working on sustainable energy, and despite recurring issues of failed projects, a large segment of Americans are still supportive of plans to create a sustainable economy—a reason why ‘going green’ has become a very popular term these days (Kotter, 2012; Crane & Matten, 2016).