Globally, the auto industry is a significant economic and industrial force. It manufactures about 60 million cars and trucks annually and employs over 8 million individuals directly and many others indirectly (Wickham, 2017). Tesla Inc. is an American based auto company that plays a crucial role in transforming the world into sustainable energy. The report aims to analyze the present, and future actions, decisions, and strategies Tesla Inc. employs in entry to a foreign market, a case of China, and provide recommendations for future actions.

Tesla Inc. was selected due to its growth in the market and is one of the leading brands of electric cars. The Chinese market is strategically ideal for Tesla Inc. due to its large and attractive nature with huge potential. Tesla Inc. has also witnessed impressive growth in sales in the Chinese market. The report was generated utilizing selected secondary data to obtain the most reliable and recent sources. Albeit consulting data from Tesla Inc. annual reports, and publications of the Tesla Inc., U.S Security and Exchange Commission was utilized. It provided basic information on brief China business environment and applied in Porter’s Five Forces and value chain analysis to understand the industry and recommend strategies.

The findings from Porter’s Five Forces analysis indicate that competition is the crucial force impacting Tesla Inc.’s business and its operations. Other forces have moderate impacts on Tesla, Inc. Key strategies of curbing such forces revolve around, being service oriented rather than product-oriented, increasing switching costs to customers, understanding the key customer needs. It also includes strategies such as building a sustainable differentiation, rapidly innovating new products, and developing an efficient supply chain with numerous suppliers.

2. Scope, Topic, and Aim of the Report

2.1 Scope of Report

The automobile industry is a capital and knowledge-intensive industry that shapes the future mobility of cities and plays a crucial role in the social-economic development of the country (Vaz, Lezana, and Maldonado, 2017). However, the industry experiences low profitability, overcapacity, and expansion challenges, among others. This report seeks to present the current and future globalization actions, decisions, and strategies in the automobile industry. It specifically documents the foreign market entry mode and strategies. The data will be drawn from Tesla Inc. operations within China.

2.2 Aim of the Report

The report aims to analyze current and future entry mode strategies Tesla Inc. uses in international markets such as China and provide recommendations for future strategies and solutions to adapt to maintain its competitive advantages.

2.3 Topic of Report

TESLA Inc.’s present and future actions, decisions, or international strategy in China is the topic of this report. TESLA Inc. remains a relatively young company despite its advancement in terms of market adoption, global branding, and technological developments (Mangram, 2014). Presently there is limited literature on TESLA Inc. and the entire electric vehicle industry. The existing literature and analysis of TESLA Inc. focus majorly on the technological advancement of the company. As such, there is a gap relating to TESLA Inc. products, business, and marketing strategies. In response to these gaps, the topic analyzes TESLA’s unique international strategies, both present and prospective, and recommendations of expanding market opportunities in China.

3. Background of TESLA Inc

3.1 Overview of Tesla Inc

Tesla Inc. is an automobile company founded in 2003 and based at the Palo Alto, California, United States. The initial founders of the Tesla include Marc Terpening, Martin Eberhard, and co-founders such as Elon Musk, Ian Wright, and Straubel JB (Burns, Kumparak, and Escher, 2015). The current CEO, Elon Musk, owns about 22.5% shares (Baron, 2020). Tesla Inc. specializes in designing, developing, manufacturing, and selling electric vehicles and energy storage systems and installing, operating, and maintaining the energy and solar storage products (Reuters, 2020).

3.2 Reasons for Selecting Tesla Inc

One of the reasons for selecting Tesla Inc. was because of its crucial role in transforming the world into sustainable energy and its dominance in the electric vehicle industry. Tesla Inc. is growing in the market and is one of the leading brands of electric cars. At the end of 2016, Tesla Inc. sales were 185,000, making it the second-largest manufacturer of electric cars (Kamkoum, 2018). The growing sales of the vehicles indicate that the industry is transforming tremendously, and the brands ought to reconsider their product strategy and invest in safer and emission-free models. The Chinese market is strategically ideal for Tesla Inc. due to its large and attractive nature with huge potential (Pratap, 2019).

3.3 Market Share

As of 2016, Tesla Inc. had about 3100 chargers, and currently, it has over 14,000 chargers across the globe (Wagner, 2020). The company has 438 motors stores and about 100 service centers across the globe in over 29 countries (Wagner, 2020). According to the Chinese Passengers Car Association, the number of entire electric car sales dropped to 67,000 units in June. In the same period, Tesla Inc. sales grew and accounted for 23% of market share (Shen, 2020). Tesla Inc. sold 14,954 vehicles in China in June 2019, representing a 35% growth month-on-month (Clean Technica, 2020)

Fig.1 Tesla vs. BMW, Jaguar, Porsche — Worldwide Sales, Source: (Clean Technica, 2020)

Fig. 2 Source; (Clean Technica, 2020)

3.4 Mission, Vision, and Objective

Tesla Inc.’s mission statement is “to accelerate the world’s transition to sustainable energy and transportation” (Edmund, 2016). Its vision is to design, manufacture, sell, install, and service the globe’s best electric vehicles, energy storage, and solar system technologies allowing customers to sustainably generate, store, or consume energy. Tesla Inc.’s objective is to manufacture and sell zero-emission electric sports cars and utilize the profits to manufacture and sell affordable family vehicles (Furr and Dyer, 2020).

3.5 Significance of Auto Industry

Globally, the auto industry is a significant economic and industrial force. It manufactures about 60 million cars and trucks annually and employs over 8 million individuals directly and many others indirectly (Wickham, 2017). As of 2018, the auto industry contributed 2.7% ($ 545.4 billion) of GDP in the United States (Amadeo, 2019). The auto industry is one of the key pillars of the Chinese economy. Between the years 2000 and 2010, China’s auto market grew more than ten times from a million to tens of millions. During this period, China’s GDP grew four times to 41 trillion yuan. In the year 2010, China surpassed the United States and became the globe’s production and sales nation (Wong, 2020).

4. Data Collection Sources and Analytical Methods

4.1 Sources of Secondary Data

The data was obtained from secondary data of the following sources

Source	Justification
Tesla Inc.	Tesla Inc.’s annual reports provide detailed and comprehensive information about stakeholders. The reports present current details about the organization’s strategic plans, objectives, financial performances, and development.
The United States Securities And Exchange Commission	U.S. Securities and Exchange Commission offers a platform for gathering annual information of most company’s security exchanges (USAgov, 2020).
Statista	The source provides data in the form of polls, surveys, and statistics covering various companies, industries, and markets to the external environment. The data on Tesla’s sales figures, global market share, and was obtained from this source.
Other sources include Harvard Business Reviews, Scholarly articles, and leading News articles	The sources provide a detailed analysis of the Tesla Inc. international business strategy, the challenges and provide recommendation strategies.

Table 1; Source: Developed by the Author for this work for secondary sources utilized.

4.2 Analytical Techniques

The techniques utilized in the analysis of Tesla Inc.’s internationalization actions, decisions, or strategies in China include Porter’s five forces and value chain analysis.

4.2.1 Porter Five Forces Analysis

Porter’s five forces analysis is a crucial strategic management tool for comprehending and analyzing the levels of profitability in a certain industry. Tesla Inc. managers can utilize this Porter Five Force analysis to comprehend how the five forces impact the profitability of the company and come up with strategies for enhancing its long term profitability as wcompetitive advantage in auto manufactures in China (Grebenshchikova and Yakushev, 2017). Tesla Inc. strategists can gain real pictures, identify game changing trends, and act swiftly to capitalize on an emerging opportunity.

4.2.2 Value Chain Analysis

Value chain analysis is a crucial analytical technique. It is important in this analytic report as it facilitates the identification of business activities that can generate competitive advantage and create value for electric auto manufacturers such as Tesla Inc. (Downes and Nunes, 2017).

5. Findings

5.1 China Business Environment

5.1.1. Political Environment

Although China’s political environment has recently shown positive development, political corruption, and lack of freedom remain the major challenges (Satryo, 2018). These issues reinforce social inequality and pose significant threats to market stability.

5.2.2. Economic Environment

China is the second-largest economy in the world, the largest exporter, and largest exchange reserve globally (Textor, 2020). It has a population of about 1.4 billion people. It has the most diversified economy with the largest electric vehicle market globally. China has significant challenges such as debt load, overcapacity on the manufacturing industry, and reliance in the agriculture sector.

5.1.3. Legal Environment

High discrimination practices against some industries and preferential treatment against others. It has forced technology transfer, poor intellectual property rights, lacks an independent judiciary, selective regulatory enforcement, and discriminatory practices (Imran et al., 2018). Recently, the Chinese government announced the elimination of 50:50 electric vehicle market legislation enabling companies such as Tesla to completely own the business without joint ventures with local firms.

5.2 Porter Five Forces Results and Interpretation

5.2.1 Threat of New Entrants or Entry

The threat of new entrants or new entrants into the fuel vehicle industry is moderate. The key issue with an electric vehicle is a compromise between the costs and their performance. Major auto manufacturers such as BMW, Audi, Ford, General Motors, and Toyota have built less expensive electric vehicles; however, they compromised their performances (Siddiqui, 2020). Tesla Inc., on the other hand, has come up with Model 3, Model X, and Model S electric cars with higher speed and longer battery mileage (Salman, 2019). Also, the established market players enjoy the benefits accruing from economies of scale, which is not available for new entrants. However, Tesla Inc.’s decisions to wave patent rights and make its innovation and processes an open source available increases the risks of new entrants to the market (Tesla Inc., 2019).

5.2.2. Buyers Bargaining Power

There is significant buyer’s bargaining power in the electric vehicle industry. There are no attached costs for customers shifting from Tesla’s Model S to other electric models such as Audi’s E-Tron Quattro and Porsche’s Mission E-Cross. Lack of switching costs escalates the buyer bargaining power significantly (Kissinger, 2019). Another key factor affecting buyer bargaining power is price sensitivity. As the number of electric vehicles increases from the new and existing auto manufacturers, customers may realize Tesla’s prices are very high. As such, buyers can exercise their bargaining power by choosing alternatives, thus making Tesla Inc. reconsider their prices (Tesla Inc., 2019).

5.2.3. Rivalry

The rivalry between existing firms in the electric vehicle industry is intensive. Despite Tesla’s brand being most recognized, other auto manufacturers such as Nissan, Porsche, Jaguar, BMW, and General Motors have put plans in place to enhance their brand recognition (Tesla Inc., 2018). These manufacturers announced their plans for investing billions towards the development of mass electric vehicles. Currently, some of the brands like Nissan Leaf and Chevrolet Bolt are already available in the market, and many others are set to flood the market within the next 1 to 2 years (Eisenstein, 2019). The competition in solar energy and energy storage products is increasing.

5.2.4. Suppliers Bargaining Power

The suppliers’ bargaining power for Tesla Inc. is moderate. The company depends on the supplier’s reliability. Tesla Inc. suppliers have a low level of integration, meaning that the suppliers have little control over the sale and distribution of Tesla products (Tesla Inc., 2019). The external factors responsible for Tesla’s moderate supplier’s bargaining power include moderate supply level, moderate size of suppliers, and moderate forward integration (Salman, 2019). Analysis of this aspect of Porter’s Five Forces shows that suppliers’ bargaining power is a secondary strategic management priority.

5.2.5. Threat of Substitutes

Tesla Inc. experiences moderate threats of substitutes in energy solutions and the auto industry. Some of the external factors that drive such a threat include a moderate performance of substitute and substitute availability as well as low switching costs. Low switching costs attract competition (Cheong, Song, and Hu, 2016). As a result of low switching costs, substitutes such as public transportation are easily luring customers. Analysis of this component of Porter Five Forces in Tesla Inc. case shows that the threat of substitutes is a secondary strategic management consideration the organization should consider in its internationalization strategies.

5.3 Value Chain Results and Interpretation

Fig.3

5.3.1. Tesla Inbound Logistics

The inbound activities in Tesla incorporate the reception and storage of raw materials for building solar panels, storage systems, and electric vehicles. The company utilizes a range of limited resources such as copper, nickel, lithium, cobalt, steel, and aluminum. Today, highly advanced inbound logistics are not a chief source of value creation for auto manufacturers. Tesla Inc. usually operates on a build-to-order basis, implying that supply bottlenecks can lead to headaches (Tesla Inc. 2018). Analysis of Tesla’s inbound logistics shows that Tesla Inc. should focus on establishing a durable strategic relationship with suppliers.

5.3.2. Tesla Inc. Operations

Tesla Inc.’s vehicle assembly and manufacturing in the facilities occur in two segments, automotive and energy storage, and generation. The auto segment incorporates manufacturing, designing, development, and selling of electric cars. In 2017, Tesla Inc. produced 1764 Model 3 vehicles and 101, 420 Model X and S vehicles (Tesla Inc., 2017). The energy generation and storage sector comprise of designing, manufacturing, installation, and selling or leasing of solar energy systems, stationery energy products, and the electricity produced. Tesla Inc. deployed 523 MW of solar generation and 358 MWh of energy storage products (Tesla Inc. 2019). Analysis of the operations shows that the high integration of robots in Tesla Inc. manufacturing process is a key source of value creation,thus, the company’s strategies should focus on it.

5.3.3. Tesla Outbound Logistics

Tesla’s outbound logistics comprises of distribution and warehousing of solar panels, energy storage systems, and electric vehicles the company produces. The company shifts vehicles to its stores worldwide and make direct deliveries of electric cars to customers (Tesla Inc. 2019). Most of the customers prefer customization of their vehicles through online ordering and thus making the company keep a few inventories of cars for immediate sale. The main source of value creation is that Tesla Inc. does not deal with resellers or dealers. Tesla Inc. deals directly with the customers hence increasing the delivery time and curbing dealer costs that may increase the price. Analysis of Tesla outbound activities shows that dealing and delivering products directly to customers is very crucial, and the organization should focus on its strategies.

5.3.4. Tesla Inc. Marketing and Sales

Tesla, Inc. sales and marketing activities are unconventional. It relies heavily on its word of mouth, and the major source of value creation in enhancing its brand awareness lies in its ability to attract huge media coverage globally. Tesla Inc. sells the utilized cars which support the sales of new vehicles with a trade-in option for a customer (Tesla Inc. 2018). It sells its brand vehicles through third-party automobile auctions mostly on Company’s showrooms and in the company.

5.3.5 Tesla Inc. Services

Over the past few years, Tesla Inc. has had a couple of high profile complaints. Some of these include but not limited to lawsuits a customer took when Tesla Inc. did not answer emails or phone calls regarding servicing the car and waiting for about ten days for repairs when the company released Model X in 2016 (Tesla Inc., 2017). Tesla Inc. offers after-sale services at the service plus stations and centers owned by the company. From the analysis of Tesla Inc. services, it indicates that the company should prioritize the provision of services to ensure customer satisfaction.

6. Recommendations

The findings from Porter’s Five Forces analysis indicate that competition is the crucial force impacting Tesla Inc.’s business and its operations. The company should, therefore, concentrate on this force in the formulation of its business strategy. The organization should strengthen its competitiveness through the enhanced market presence and innovation (Cheong, Song, and Hu, 2016). For instance, in terms of market presence, Tesla Inc. should increase the utilization of aggressive marketing campaigns such as advertisements to support its mission and vision statements. The organizations initiative should address these forces based on their intensities as follows;

Porter’s Five Forces	Impact on Tesla Inc.	Recommendation
Competitive Rivalry	High	Tesla should increase its competitiveness by : · Building a sustainable differentiation. · Building scale to compete with others. · Collaborate with competitors to increase the market size(Cheong, Song and Hu, 2016).
Threat of Substitutes	Moderate	Tesla Inc. can deal with the threat of substitutes by: · Being service oriented rather than product-oriented. · Increasing switching costs to customers. · Understanding the key customer needs.
Bargaining Power of Buyers	Moderate	Tesla Inc. can deal with buyers bargaining power by: · Developing new products that will reduce the defection of existing customers to its competitors. · Innovating new products rapidly. · Building a large customer base to offer an opportunity to streamline its production and sales processes and limit buyers’ bargaining power.
Bargaining Power of Suppliers	Moderate	Tesla Inc. can curb suppliers bargaining power by: · Developing dedicated suppliers whose businesses rely upon the firm. · Experimenting product designs with numerous materials such that when the price of one material goes up, they will shift to the other. · Developing an efficient supply chain with numerous suppliers.
The Threat of New Entrants	Moderate	Tesla Inc. can curb the threat of new entrants by: · Innovating new services and products to attract new customers. · Building economies of scale to reduce the fixed cost per unit · Increasing investment in research and development and building capacities to reduce the opportunities for huge profits for new entrants and discourage them from operating in the industry (Sushkevich, 2018).

Table 2; Source: Developed by the Author for this work for Tesla Inc. recommendations.

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Table of Contents

1. Executive Summary