Porters Five Forces Analysis – Tesla & EV Market (658)

Porters Five Forces Analysis – Tesla & EV Market (658)

1. Threats posed by new entrants - Low

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  Currently not many companies competing in fully electric vehicle category as in automobile industry (Patterson, 2011).
  

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  High barriers of entry such as manufacturing facilities require significant investment.
  
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  Government regulations for safety, emissions and other requirements must be satisfied. Targets proposed for 2020 are different depending on the country and region and type of emissions, the “U.S. has set the toughest standard for emissions of nitrogen oxides (NOx), and Europe is more aggressive on standard emissions of carbon dioxide than the U.S. and China (Mosquet et al, 2011).
  
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  Brand equity and consumer loyalty for established manufacturers with large market shares is high.
  
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  Consumers switching costs to electric vehicles are high, since electric vehicle industry is developing and an innovation for consumers; and a new electric vehicle is less affordable than other new automobiles.
  

1. Power of suppliers – Low

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  Tesla Gigafactory currently in production to sustain organic battery production in place of supplier dependency; reduce cost and accelerate innovation. (Musk, 2014). Tesla’s engineering is proprietary making not available substitutes for components, such as power trains, instead is supplying Toyota and Daimler with power train programs (Musk, 2014). Firm major investment is on mechanical, electrical and software R&D.
  

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  There are not readily many available suppliers substitutes for charging devices.
  
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  U.S. auto unions historically wielded significant strength, but their influence is being reduced lately due to shift from Detroit manufacturing (Snavely, 2014) and since Tesla is much likely to a Silicon Valley company, where workers work without union representation (Baker, 2014).
  
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  Smaller supplier firms who now supply newer technology components not covered by auto unions.
  

1. Power of buyers – Medium

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  Luxury electric car price is high, generally consumers purchase 1-2 vehicles, but with current market prices for electric vehicles, the buyer power is low since they cannot buy 2 or more vehicles of this kind.
  
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  Quantity and supply. Currently there are 3 luxury and sport all-electric vehicles brands in available to choose from, and 9 plug-in hybrid electric vehicles (PHEV) brands as shown in Appendix 3. Competitors on clean technology are increasing thus increasing the industry products.
  
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  Consistent sales, discounts and financing programs to entice consumers to purchase.
  
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  Government is providing incentives, such as tax credits, rebates, free parking, among others; or buying and owning a Tesla electric vehicle worldwide program in accordance with local regulation.[Tes141]
  

1. Product substitutes – Moderate

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  Green movement to bicycles such as implementation of bike share programs² and other major urban environments reduces need for vehicle.
  
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  Green movement to green public transit such as natural gas buses also removing consumers from automotive market.
  
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  Reduced consumer credit means less are purchasing even if wanted.
  
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  More efficient hybrids and clean burning turbo-diesels entering market.
  
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  Motorcycles.
  
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  Rideshare, car and van pools.
  
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  Zipcar and other car rental options by the day.
  
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  Cars are selling less, yet people are still moving from point a to point b.
  

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  Buyers’ cost of switching to a non-gasoline means of transportation and motorcycles is low (Clean Technica, n.a.). Even to acquire a non sport EV such as: Nissan Leaf, Ford Focus Electric, Toyota RAV4 EV, Smart fortwo electric drive.
  

1. Intensity of rivalry among competitors - Moderate

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  Intense rivalry³, given limited consumer market and number of manufacturers in the market space.
  
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  Consistent advertising, comparison marketing and sales to entice consumers to purchase and choose over other brands.
  
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  Defensive positions with many cutbacks, reduced production and recent financial bailouts from the government.
  
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  12 major brands with sub-brands that move upwards of 50 in the US, hundreds worldwide. Competitors are roughly of the same size. Mainly competitors are: BMW i3, Mercedes Benz SLS Electric.
  
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  Electronic Vehicle industry growth yet is slow.
  

4. Core Competencies (395)

Tesla possesses something that all of the other auto manufactures do not, the lack of legacy. Where existing manufacturers currently build and deliver a full menu of gasoline and diesel cars, trucks, minivans and SUV’s all with varying option packages, price points and discounts, electric vehicles and hybrids make up just a small segment portion of their entire product offering. They are forced to continue making investments in their traditional combustion engine product lines to continue fulfilling their demand base, leaving little room to innovate in this new electric vehicle market. Even as they begin to do so, it only begins to erode their existing consumer base for gasoline and diesel vehicles. Rather than market share expansion, they only alter their current positions composition.

5. SWOT (851)

   1. Strengths

From Tesla Motors inception, the company has been focused on a vehicle for specific market; a car with distinctive technology designed for people who wanted an outstanding appearance, quality construction and economical. (Hartung, 2012). This made Tesla to become the first automaker to entry on the electric sports vehicle without any of the traditional trade-offs that others were facing due to no legacy within their brand. These are significant highlighted strengths of the company.

To comply with attributes listed above Tesla Motors does completely assembly its cars in-house, from its design to its total assembly. Tesla workers, entrepreneurs and engineers, having Silicon Valley mindset: entrepreneurship and technology driven (Yohn, 2013); build up the car from lightweight components assembled by robots (total 160) and about 3,000 workers working aside to install all the components of it (Lavrinc, 2013). This varies greatly from the existing US Detroit mindset of massive production lines like Henry Ford and the Model T, where efficiency was gained through production optimization. Tesla gets advantages of this technology for speed, precision and cleanliness, strength versus its competitors. This drives to have high production and Research and Development costs, but as soon as it can continue to produce a better car that meets customer’s needs at a fraction of the main sport ones (Ferrari, Porsche Panamera, Audi 8, BMW 7 to mention few), it will continue to be a premium brand value proposition.

All these, makes possible a higher customer experience and performance, for example the Model S 85-kWh lithium-ion battery gives around 200 miles before needing a recharge; while competitors Ford Focus Electric and Nissan Leaf can give around 80 miles (Consumer Reports Magazine, 2014). For this kind of attributes and others, Tesla Model S was rated 99 out of 100 in 2013 according to the Consumer Reports, an expert, independent, non-profit magazine and website organization that performs consumer annual reports.

2. Weakness

3. Opportunities

4. Threats

6. 
   
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