Tesla is an American based energy company specializes in electric vehicles for providing environment-friendly and highest quality cars for the customers. The company is known for its exceptional innovation in the field of electric cars that have changed the shape of the electric car industry. The company is continuously growing and setting different benchmarks for highly valuable and environmentally friendly energy products and electric cars. Porter’s five forces analysis of Tesla is conducted to understand the industry-level micro external environment for the company which would be aiding the company to develop future strategies.
Competitive Rivalry
The competition in the electric car segment is low as there are not a high number of competitors competing in the industry. From the perspective of Tesla, the competition is further low as the number of companies developing and producing high-end electric cars are less in number. Tesla is specialized in the high-end electric segment while other premium car brands are just offering one or a few versions of their electric cars (Wagner, 2019). The major competitors of Tesla include Chevrolet, Hyundai, and Volkswagen which are at a far distance from Tesla’s cars in terms of luxury and innovation in technology. The electric car market is wide open for the new entrants to enter and still, it only occupies 1.8 percent of the total global market share showing promising potential for long term growth and success (EEI, 2019).
Bargaining Power of Suppliers
The bargaining power of the suppliers is low because the companies in the electric car segment rely majorly on their technological capabilities and innovation. The major part of Tesla’s car is the batteries and the engine which are manufactured by the company reducing the dependence on the suppliers. From the perspective of suppliers, there are very few buyers of their supplies as the number of electric car manufacturers is low (Chocteau et al., 2011). Both of the factors contribute towards the strength of companies for bargaining leading to the low bargaining power of the suppliers.
Bargaining Power of Buyers
The bargaining power of buyers is low because of the low competition in the market. The product offers a high innovation with promising value to the customers which leaves little room for the buyers to dominate the bargaining. It is important to note that the buyers do not have many options to choose from which puts the companies on the dominant side for bargaining the terms. The switching cost of the customers is high which further decreases the bargaining power of buyers for the electric car segment at a global level.
Threat of Substitutes
The threat of substitutes for the electric car industry is moderate as the substitute for different types of cars is continuously evolving. The electric car itself a substitute for gasoline and fossil fuel-based cars and the production of biofuels for converting fossil fuel cars into biofuel cars is a threat for electric vehicles as well. The biofuels are highly friendly for the environment which provides a good substitute for electric cars. China is making an ambition to turn its vehicles into biofuels by 50 percent till 2050 which shows a big threat to the electric car segment (Thomas, 2009). Keeping in view the probable substitute of the biofuels, in the long run, the threat of substitutes is high.
The Threat of New Entrants
The electric car production requires a high level of investment, technology, innovation, and expert workforce. It is not an easy task to invest and start the production of electric cars because of the involvement of different high-level technology. It is also costly to construct the manufacturing plant and involve in the whole production process of the electric car. The hurdles are not limited to technology and capital but the expertise required for the production of an electric car is high which is current scare at a global level making it further difficult for the companies to enter. From one aspect, the industry is highly promising for the entrants which is the gap in the industry as only 1.8 percent of the global cars are turned into electric cars showing a high potential for this market.
References
Chocteau, V., Drake, D., Kleindorfer, P. R., Orsato, R., & Roset, A. (2011). Collaborative innovation for sustainable fleet operations: The electric vehicle adoption decision.
EEI. (2019). Electric Vehicle Sales: Facts & Figures. Available at: https://www.eei.org/issuesandpolicy/electrictransportation/Documents/FINAL_EV_Sales_Update_April2019.pdf
Thomas, C. S. (2009). Transportation options in a carbon-constrained world: Hybrids, plug-in hybrids, biofuels, fuel cell electric vehicles, and battery electric vehicles. International Journal of hydrogen energy, 34(23), 9279-9296.
Wagner, I. (2019). Tesla- Statistics and Facts. Statista. Available at: https://www.statista.com/topics/2086/tesla/