Final Capstone Project

Tesla’s growth based on Evolution History

Tesla Motors started as a medium motor vehicle manufacturing company and it has evolved over the years to become the current giant brand with global recognition. During foundation years, the company could record as little as 4% growth rate but over the years the growth rate has significantly increased to the current growth rate of over 107 percent. The growth rate has been as a result of increasing revenue generation which was at 226.48 percent in the second quarter of 2019. According to Singh, (2019) this is the best revenue rise in auto manufacturers industry. In the 2018 fiscal year, Tesla’s annual revenue increased from $15million in 2008 to $21billion by 2019.

There are speculations that Tesla Motors could continue this trend over the next decade due to the different growth and expansion tactics in place until Tesla manages to attain its mission of fully transitioning to sustainable energy. Tesla management has a great vision of expanding its product portfolio to include trucks, solar, storage, and automobiles (Dzialo, 2018). Additionally, on a higher level; Tesla intends to manufacture more affordable cars to meet diverse market demand and also boost company’s profitability levels. In overall, Tesla is considered as one of the most promising avenue for investment trusts comprised of substantial risks and lucrative rewards.

Advantages and Disadvantages of Vertical Integration versus Outsourcing

Michael Porter’s Diamond Model is a framework that clearly explains why specific industries engage in international competition while others avoid such competition. Four major attributes are the major determinants of the national competitive advantage; factor conditions; demand conditions; related and supporting industries; and firm strategy, structure, and rivalry. The application of the model helps a business to understand whether joining international market is the best option to consider or not. Additionally, the model empowers companies to understand whether or not when entering international market, the company should make use of vertical integration or outsourcing (Carayannis, & Wang, 2012). It is important to note that vertical integration is a situation where a company controls and owns suppliers, distributors, and retail locations thereby controlling the value of the supply chain in place. On the other hand, outsourcing is a situation where the company seeks private operators to offer retailing, supplying, and distribution services. With outsourcing, the company does not have control of the supply chain as well as its value (Vuković, Jovanović, & Đukić, 2012). The reason why companies are able to make the decision of whether to embrace vertical integration or the outsourcing option is because the model is able to identify the advantages and disadvantages of each.

The factors conditions are situations in a country that has a direct impact on the production for instance infrastructure and knowledge. Tesla has the option of joining international market using the vertical integration or outsourcing and using this key determinant, vertical integration can be advantageous in the sense that it can enable the company to take control of available infrastructure and knowledge. For instance, the company will directly seek for employees to deal with, select the quality of raw materials to use, and also select suppliers and the desired supply chain. Nevertheless, the use of vertical integration would be costly for the company and more so, it would be easy to make wrong decisions (Carayannis, & Wang, 2012). On the other hand, outsourcing would be advantageous in the sense that it would grant the company a chance to understand the infrastructure and quality of knowledge in place. This is to mean the company would have slim chances of making errors. Outsourcing has a disadvantage since it would deny the company a chance to make important decisions like the quality of raw materials and supply system to be embraced.

Related and supporting industries are the second determinant under the model that shows the present suppliers and other companies that can support successful establishment and existence of the upcoming company. Using this determinant, Tesla can make a decision of whether to be in control or outsource. For instance, vertical integration would be good for the company in the sense that the company would get to the ground and identify suppliers to deal with and supportive innovative companies to deal with. Nevertheless, vertical integration can demand a lot of time and resources from Tesla to push through in the international market competitively. Considering the outsourcing, it would be cheap for Tesla to deal with individuals aware of the market in terms of supplies and supporting industries. Outsourcing would hence enable Tesla to establish and penetrate the market with ease. The challenge is that outsourcing would limit the company on the amount of contribution in the establishment process

The demand conditions focuses on identifying the various reasons that makes a market successful, the nature and size of the market, and how economies of scale interact with the size of the market. It is important for Tesla to have such information since it is useful in determining the strategy to join the international market using (Ruiz-Pava, & Forero-Pineda, 2018). The demand conditions would influence the company in the case vertical integration is used positively because Tesla could be free to select the specific area the company feels there is potential. It is a strategy that would allow the company to research about the target market and get to understand the market properly. Nevertheless, vertical integration application can be costly and time demanding. On the other hand, outsourcing would be simple and lead to direct solutions since the outsourced parties are experienced with the market. It would be safer to outsource because the company would be saved from making wrong decisions. It is also important to note the application of outsourcing would deny Tesla the chance to apply creativity and innovation which is major company strength.

Lastly, strategy, structure, and rivalry are also key determinants in the model and they are related with the manner in which the company is managed, organized, set goals and objectives, quality of leadership and culture, and the amount of rivalry that exists in regards to the company culture. According to Ruiz-Pava, & Forero-Pineda, (2018); the factor under the model allows the company to have an intensive internal review so as to make the necessary changes that would sustain international level of competition. Focusing on this factor, application of vertical integration would be more beneficial as compared to outsourcing. This is because the company is familiar with its internal environment and hence resolving internal challenges using a manner the company is in control can yield better results as compared to when outsourcing is done. The more reason is that outsiders would have to take time first to learn and understand the company which will take time and also get costly for the company before reliable results are given (Ruiz-Pava, & Forero-Pineda, 2018). All the same, the fact that outsourcing can be idea as it would bring on board a group of fresh minds that would come with creative and innovative ideas that can help the company handle weaknesses cannot be overlooked.

BCG Growth-Share Matrix

The Boston Consulting Group (BCG) growth-share matrix is a framework applied in the evaluation of a company’s strategic position, brand portfolio, and potential. Using the framework, a business portfolio is classified into four groups based on relative market share (competitive position) and the growth rate of the industry (industry attractiveness). The two categories are fundamental in demonstrating the profitability levels of the company as well as revealing the amount of cash required to support the business. BCG analysis must be conducted for the purpose of identifying the units, which the firm should invest in and the brands that should be diversified.

Tesla Motors is a major designer, producer, and seller of environment-friendly electric motors and the good thing is that the products ranks equally in terms of performance with the best in the market. One would hence wonder why the company's profits and revenue are growing, but the cash flow remains low not ignoring the fact that the primary strategy is to invest. With this in mind, it is critical to deploy the environmental scanning which is imperative in helping firms understand their internal capabilities and strengths. According to Ruiz-Pava, & Forero-Pineda, (2018) the internal factors analysis shows that Tesla has the following strengths; excellent calibers, growth oriented, innovation, quality leadership, and an active research and development team.

Focusing on strengths, the company CEO acknowledges the fact that the company hires only the best minds in the market. It is for this reason the company has a strong technical expertise especially in the electric transmissions field which is one of the most valued asset and area. According to Vuković, Jovanović, & Đukić, (2012) the management has collaboratively worked towards developing a reliable management team. The quality of management has played an important role in establishing and implementing a quality culture, effective training and development program and system, compensation package, and policies. It is the proper setting of the internal environment that has made it possible for the company to further design and supplies the market with unique cars and still shows the ability to develop superior vehicle models.

Recommendation

It is evident Tesla Motors is operating in a highly competitive environment and it requires the company to work smartly in order to remain relevant. There are many other companies that are trying making use of different strategies to attain the desired market niche. For Tesla to remain on top of competition it is highly recommendable for the management to embrace the innovative market strategies. The strategy would work effectively since it would grant Tesla a chance to make use of available creativity and innovative strengths to venture into new markets and diversify the products. The innovative market strategy would also place the company in a better position to work on its weaknesses while constantly embracing market changes that are inevitable and this makes the strategy will make the company remain afloat.

Main changes

There are three important changes that the Tesla Company management should embrace in the decision making style area, planning structure, and success measures. On the decision making style, the management ought to make changes on the manner in which decisions are made. The company should embrace the idea of engaging a high number of workers and professionals in the area the decision is affecting for the purpose of making sure the decisions are exceptional and meant to take the company to a higher level (Vuković, Jovanović, & Đukić, 2012). On the planning structure, the company should make changes and expand on the planning structure in place to make sure it is accommodative and diverse planning ideas are harvested before action is taken. This is important because the planning process and procedure is sensitive. Caution should be taken to ensure that only right planning moves are done as this would help the company in moving towards the right decision.

Lastly on success measures, it is important for the company to have a consistent technological means of measuring success. By so doing, any success attained would be noted and taken seriously so that the company can always be sure of the milestones being attained. Short-termed measured success would help the company to detect when things are not working as expected and make the right changes on time. As a matter of reality, it is a change that would empower the company to put in place objectives and goals that are practical and realistic. Moreover, when success is measured every so often, the company will have a professional way of identifying performers and rewarding them as well as those underperforming and taking them through training and development.

References

Carayannis, E. G., & Wang, V. W. L. (2012). Competitiveness model—a double diamond. Journal of the Knowledge Economy, 3(3), 280-293.

Dzialo, B. (2018). Charging down the Road: A Historical Analysis of the American Auto Industry and Tesla Inc

Ruiz-Pava, G., & Forero-Pineda, C. (2018). Internal and external search strategies of innovative firms: the role of the target market. Journal of Knowledge Management.