Question

Perform a porters five force analysis on Tesla.

Answer 1

Threat of new entrants Bargaining power of suppliers Rivalry among existing competitors Bargaining power of buyers Threat of substitute products or services

Porter’s Five Forces Model (Source: Porter, M. E. (2008), “The five competitive forces that shape strategy,” Harvard Business Review)

Supplier power: The force is moderate. The Lotus is the main outsourcing company where it builds the Chassis at the Lotus factory in England, providing aselect partnership. Additionally, the AC propulsion drive train and patent license have been designing and building motors and power electronics using the technology from AC in which the Lithium Ion battery that is bought from other companies. As such, flexibility is ensured so that adopting new technologies is feasible. According to Tesla Motors, over 2,000 parts are outsourced globally from over 150 suppliers. This force works towards increasing the level of profitability in the industry.

Buyer power: The force is low. Since the Tesla is aextravagantpurchase, there is little to no bargaining power, which renders demand to be inelastic. Additionally, the capability of the consumer to gain profits from the seller is quite low. Further, the green market is evolving ever-quickly, however, buyer power then is limited due to lack of competition. There has been a definite increase in choices when shopping for and buying electric vehicles. With an all-electric vehicle, clients can be expected to spend less on gas, in comparison to the Chevy Volt and other hybrids that must use both electric and gas. While there is a demand for the Tesla product, there Tesla definitely needs to enhance its product and brand visibility.This force works towards increasing the level of profitability in the industry (teslamotors.com/features).

Competitive rivalry: The force is high. According to Erickson (2012), Tesla’s central competitive lead is its low pricing because of its battery pack, which the enables Tesla to sell its Model S at a relatively reasonable price. Another cost advantage of Tesla over other green vehicles is in its propensity to “apply commoditized small cylindrical lithium cells to a car via proprietary thermal/power management”; the Tesla is a green vehicle, which decreases the depletion of petroleum, utilizes renewable energy resources, offers decreased emissions, and is fuel-efficient(Erickson, 2012). Included in the green vehicle category are: electric vehicles, flexible-fuel vehicles, hydrogen vehicles, and hybrid vehicles. Legitimate rivals include (but not limited to): the Toyota Yaris and Echo; the Honda Fit; the Volkswagen Golf; the Nissan Versa; the Ford Focus, Escape, and Fiesta; and the Chevy Aveo and Cobalt. With all these models, according to Tesla Motors, both the Tesla Roadster and the Tesla Model S outperform in battery life, range, and speed, but are much higher in price at almost double the competitors’ costs.This force works towards increasing the level of profitability in the industry.

Threat of substitution: The force is moderate. There is no uncontaminatedancillary, however, for an all-electric sportyvehicle. Still, there are other options, which is the reasoning behind the ranking of moderate. These options include: hybrids, flex fuel, hydrogen, diesel, compressed natural gas, and mass transportation.This force works towards increasing the level of profitability in the industry.

Threat of new entry: The force is high. Specifically, there are many areas to consider within this forces, including: economies of scale, regulation issues, technological innovations, brand loyalty, and infrastructure. The demand for EV vehicles is growing daily, with plans for development potentially in the works even now with established luxury vehicles like Lexus, Audi, and BMW attempting to expand into the EV market.This force works towards decreasing the level of profitability in the industry.

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