Competitive Environment of Tesla: Porter’s Five Forces Model

1. Critically evaluate Tesla’s competitive environment. Does the company have a source of (sustainable) competitive advantage?

2. Based on an analysis of the internal environment, discuss the company’s capabilities, and core competencies. Does Tesla have any weaknesses that can impact its ability to compete in the future?

3. What are the trends and conditions in the external environment that have had / will have a dominant influence on the firm’s strategic actions?

4. What are the advantages of Tesla’s business level strategy? What are the risks?

5. As the company grows and expands internationally, what challenges is it likely to face? What recommendations can you make to reduce these potential risks?

In order to determine the competitive environment of Tesla, Porter five forces model will be used.

Threat of new entrants	·         Threat of new entrants is low or weak for Tesla. This is due to the reason that developing of electric vehicles involves huge cost. ·         Market of electric vehicles is still in the primary stage. Thus, it is not economical for the new entrants to invest in this sector in huge amount. ·         It is also important to be innovative in operating in this sector similar to the Tesla (Martin 2014). ·         Economies of scale will be high due to high cost of investment and low market potential.
Threats of substitutes	·         Threat of substitutes is moderate for Tesla. This is due to the reason that substitute car models of Tesla are fewer in numbers. ·         Small numbers of pure electric models are available in the market (Stringham, Miller and Clark 2015). ·         However, more car makers are introducing electric vehicles in the market.
Bargaining power of the suppliers	·         Bargaining power of the suppliers for Tesla is high due to the reason that similar to any other car makers, Tesla also source different car components. ·         However, suppliers are having less control on the forward integration of Tesla (Bierau et al. 2016). ·         Number of suppliers is also lower in the electric vehicle market.
Bargaining power of the buyers	·         Bargaining power of the buyers for Tesla is low to moderate. This is due to the reason that buyers are having low options in the market. ·         Switching cost is more due to the inferiority of the competing models of Tesla. ·         However, having indirect substitutes such as other forms of transportation is increasing the bargaining power of the customers.
Industry rivalry	·         Competitive rivalry is high due to the presence of the established car makers in this electric vehicle market. ·         Car makers are aggressive in pushing their products in the market (Moritz et al. 2015). ·         Disruptive innovation is required to stay ahead in the competition.

Currently, there are number of electric cars launed by different brands such as Nissan Leaf, Chevrolet Bolt and Toyota Prius. These cars are also attracting number of customers. However, the major competitive advantage for Tesla over these cars is their distance coverage and performance. These cars are not having the performance as Tesla. However, they are also developing their technologies and will launch more updated electric vehicles. Already Porsche and Volvo announced that they will launch high end electric cars. Thus, the competition for Tesla is about to increase.

Internal environment of Tesla

Strengths	·         Innovation and latest technologies (Soliman, 2013) ·         Positive brand recognition (Rossitor, 2014) ·         Distinctive product offering (Kim, Im & Slater, 2013)
Weaknesses	·         Limited reach of market (Vahlne & Johanson, 2017) ·         Higher quoted price of the car models (Davcik & Sharma, 2015) ·         Less access to the financial resources
Opportunities	·         Global market opportunities ·         Diversification (Kim et al., 2013)
Threats	·         Increase in competition ·         Price of the components

Core competencies of Tesla include the leadership of Elon Musk due to the fact that it is leadership approach of Elon Musk, which transformed Tesla in to a branded and renowned car maker in small period (Wowreczko, Kampker and Burggraf 2014). In addition, organizational value of them of protecting the environment is also creating distinctiveness in the competition. In terms of capabilities, Tesla is having the access to the latest and most updated technologies in developing electric power trains among the competition. Thus, they are maintaining the status of early mover in the market (Schulze, Paul MacDuffie and Taube 2015). The sole concentration of them in developing electric power train is helping them to develop more effectively than their competitors. On the other hand, the investment coming from Toyota, Panasonic and other firms is solidifying the financial capability of Tesla.

Valuable	·         The visionary power of Elon Musk is adding value for Tesla (Glauser & Holland, 2016). ·         Access to the latest and innovative technologies of Tesla is valuable due to the reason that Tesla is known for their innovative and one of kind technologies in the market.
Rarity	·         Leadership skills like Elon Musk in rare in the auto industry (Dobbs, 2016). ·         The technology in electric power train developed by Tesla is rare in nature (Hardman, Shiu and Steinberger-Wilckens 2015). This is helping them to stay ahead in the competition.
Imitability	·         Not many other CEO of different car brands can match the charisma of Elon Musk. ·         The innovation and technology of Tesla cannot get imitated by others (Johannsson et al. 2015).
Organizational capability	·         Elon Musk is having the capability of strategically and optimally utilizing the available resources (Marques, 2017). ·         Tesla is having the world largest lithium battery (Lu et al. 2013).

Thus it can be concluded that the capabilities of Tesla are mainly the access to the latest and innovative technologies. This can be considered as a capability due to the reason that the technology advancements of Tesla enable them to overcome the natural barriers faced by other carmakers in their electric vehicles (Stringham, Miller & Clark, 2015). For instance, Tesla first able to portray that electric vehicles can also have faster acceleration and more distance coverage. Moreover, another capability of Tesla is their access to larger financial resources due to the reason that manufacturing of automobile is having the requirement of huge investment. Thus, it is enabling Tesla to invest extensively in different sectors such as building up supercharger station. These stations can also be considered as their capabilities due to the reason that superchargers of Tesla are helping them to offer charging facilities also for their customers, which are not being offered by their competitors.

Threat of new entrants

Tesla is having several weaknesses in terms of their internal environment. One of their key weaknesses is the limited market reach. Still now, Tesla is mainly present in the United States with having negligible market presence in some other regions. Moreover, the products of them are also not widely available. Thus, this will have negative implication on their business potentiality due to the reason that customers will tend to go for other brands if they are not delivered in time. Having high price of the car models is also restricting the mass market to opt for Tesla. This will not help to increase the sales volume for Tesla and it will remain as niche car maker.

Valuable	·         Capability of attracting huge investments is also adding value to their operation (Mangram 2012). ·         Visionary leadership style of Elon Musk is also creating value for them. ·         Distinctiveness in product offerings is also creating value due to the reason that pure electric vehicles are having positive social and environmental demand in the current market scenario.
Rarity	·         Moreover, all the car makers are not having the visionary leadership of the Elon Musk.
Inimitability	·         Organizational value and culture of Tesla is also creating competitive advantages for Tesla. This also cannot get imitated.
Organizational capability	·         Having own technology in developing electric power train.

Currently, more government and regulatory authorities are coming up with regulations in curbing the emission from the vehicles. Already in some countries, diesel vehicles are getting banned due to excessive pollution. Thus, the more will be regulatory implications on the conventional gas powered vehicles, the more will be the potentiality of Tesla. Government of the United States is already offering huge incentives in buying electric vehicles, which is increasing the viability of the strategic actions of Tesla. However, it should also be noted that major economies in the world already suffering with pollution are targeting to electrifying their mainstream transportation (Barmore 2013). In that case, niche car maker branding of Tesla will not work and they should operate in the mass market with having cheaper and city friendly models.

Thus, the major opportunities for Tesla will be incentives in buying electric vehicles, government regulations and electrification of mainstream transportation. On the other hand, the major threats will be change in the regulations in more frequent manner.

Currently the strategic action of Tesla is similar to the tech giants. They are offering models with higher sticker price in order to gain the niche branding and to have enough resources to develop more affordable models. In present, the Model S is the least priced vehicle for Tesla but its price is still higher compared to the competition (Morrish, Miles and Deacon 2013). Thus, the economical environment is demanding affordable vehicles from Tesla. On the other hand, offering of much cheaper electric vehicles from the competing car makers will take away the existing market share from Tesla.

Thus, the major opportunities will be offering cheaper vehicles for mass market and in number of vehicle types. On the other hand the major threats will be the introduction of cheaper electric vehicles by other carmakers and more practical vehicles.

Threats of substitutes

In terms of the social environment, Tesla is having huge potentiality. In the current market scenario, customers are willing to have low emission vehicles, which will further motivate Tesla to develop their electric power trains and car models. In addition, customers will not sacrifice performance in exchange of eco-friendliness (Kihm and Trommer 2014). Thus, Tesla is offering electric vehicles, which are high on performance also. With the increase in the pollution globally, the strategic action of Tesla to market electric vehicles only will get justified. However, it should also be noted that Tesla should have to operate in the mass market in order to adhere with the current social trend.

Thus, the major opportunities will be social inclination towards lower emitting vehicles and increase in the global pollution, which will increase the sales of Tesla. On the other hand, major threats include change in the market trend and preferences and lack of lower end vehicles by Tesla.

Environment is having the most dominant position on the strategic action of Tesla. This is due to the reason that the organizational value and the approach of them are centered with environment and climate (Zivin, Kotchen and Mansur 2014). Their key vision is to change the existing approach of transportation. In addition, the more will be the degradation of the environment, the more will be the business potentiality of Tesla. In this case also, it is the strategic action of producing affordable models will enable Tesla to fulfill their vision. However, emergence of any pollutants from the Tesla cars may lead to negative brand value in the market.

Thus, the major opportunities for Tesla are increase in the business potentiality for them and more use of alternative fuels. On the other hand, the major threats are chance of pollution from the Tesla cars also and emergence of more updated technology in the market.

The business level strategy of Tesla involves differentiation and niche marketing strategies. Though, Tesla is gaining huge competitive advantages from their existing business level strategies, but there are various risks also being associated with it. One of the major advantages of initiation of differentiation strategy by Tesla is creating distinctive image in the market and having unique market position among the competitors. Tesla is making cars similar to other car makers, but still they are having unique approach in terms of the car features, distribution channel and organizational value. This is helping them to stay distinctive from the competition (Birk 2015).

Bargaining power of the suppliers

Major competitors of Tesla are positioning their electric vehicles as another portfolio of their conventional vehicles. Thus, they are not gaining brand value for their electric vehicles. For instance, Chevrolet is more famous for Camaro and Corvette rather than for Bolt. However, Tesla is only known for their electric vehicles, which is creating the perception of best electric vehicle manufacturer in the world. Moreover, Tesla supplies the battery pack to other carmakers. Thus, Tesla is having the advantage of backward integration of own. It is also creating the image that Tesla is the leader in alternative vehicle technology.

However, there are various risks also being associated with these strategies. One of the major risks for Tesla is the limitation of the sales volume. Having the niche marketing and differentiated models with higher price is limiting their products among the higher end customers only. This will not enhance the brand and market value of Tesla and they will not able to compete with the already established global car brands in the long term (Bohnsack, Pinkse and Kolk 2014). Furthermore, it will also prompt the potential customers to look out for other car brands with having affordable electric car models. In between this, Tesla will lose out in the competition. Not initiating the cost leadership strategy will restrict Tesla from having economies of scale in their production process. These all will reduce the viability of the business model of Tesla in the future.

In expanding globally, the major challenge that will be faced by Tesla is the available infrastructure for the electric vehicles. This is due to the reason that electric vehicles will require charge points, which are still not extensively available in the developing and least developed countries. Thus, the global reach for Tesla will be limited. In addition, the performance centric cars will get preferred in every region around the world (Abdulsater et al. 2014). Countries such as India are much congested and they will require smaller and affordable cars over the performance cars. Entering in the global market will also force Tesla to adhere to the different rules and regulations in foreign investments. This will be a challenge for them. Currently, Tesla is not having their facility outside US. Thus, it will be difficult for them to meet the global demand from a single facility. Without having the facilities in other countries, Tesla will have to pay huge sum for tariffs, which will further increase the price of their cars. Thus, increase in cost and limitation in production from the single facility will restrict the growth of Tesla in the global market.

Bargaining power of the buyers

It is recommended that Tesla should come up with more diverse product offerings in order to suit with different regional preferences and requirements. Tesla should have city cars in their stable in order to target the developing economies. It is also recommended that Tesla should discuss with the governments in developing the infrastructure for electric transportation and communicate them with the probable advantages from it. This will help Tesla to have favorable infrastructure for their business. It is also recommended that Tesla should have their production facilities in the developing markets such as China and India in order to leverage the lower of cost of production in these countries. This will help Tesla to cater the Asian market and reduce their price of the cars to a large extent. Tesla can opt for joint venture with other car makers in order to leverage on their facilities and resources to cater to the global customers. It will reduce their limitation of capabilities and resources.

Tesla can also initiate licensing mode of entry by appointing manufacturer in the domestic target market. This manufacturer will produce the Tesla vehicles with license from Tesla. This will regulate the risk and cost for Tesla and they will have minimal responsibility for their host country operation.

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