Porter’s Five Forces analytical framework developed by Michael Porter (1979) represents five individual forces that shape an overall extent of competition in the industry. Tesla Porter’s Five Forces Analysis below contains the application of these factors to analyse the competitive environment for the alternative fuel vehicles manufacturer.
The threat of new entrants into alternative fuel vehicles manufacturing industry is moderate. One of the major challenges for electric vehicles is the bargain or compromise between their performance and cost. On one hand, almost all major automakers such as General Motors, Ford, Toyota, BMW and others have built electric cars that are not very expensive, but performance of these cars are compromised. Specifically, electric cars were known for being slower compared to traditional cars and their batteries did not last for long.
On the other hand, Tesla has been able to develop its Model S, Model X and Model 3 cars that are fully electric and boasts with advanced technical characteristics such as high speed and long milage in a single charge. However, such fully electric advanced vehicles are technically challenging and expensive to produce. These are main reasons Tesla has not been able to become profitable up to date. Any potential new market entrant is going to face the same set of challenges as General Motors, Ford, Toyota as well as Tesla. Taking into account the fact that established market players are yet to find solutions to these challenges, it can be argued that unless they find innovative solutions, the new market entrants are going to be overwhelmed by the same set of issues as well.
Moreover, established market players benefit from economies of scale to a great extent and this benefit is not available for new market entrants, at least for the first few years of their operations. Massive capital requirements can be mentioned as another significant barrier for new market entrants into electric vehicles industry. At the same time, it is important to note that the decision by Tesla to waive its patent rights and to make its processes and innovations an open source available to others, increases the threat of new entrants.
Bargaining power of buyers in electric vehicles industry is significant. There are no costs for customers to switch from Tesla’s Model 3 to another electric vehicle such as Jaguar’s I-Pace, Porsche’s Mission E-Cross, or Audi’s E-Tron Quattro. The absence of switching costs increases buyer bargaining power to a considerable extent.
Price sensitivity is another important factor that can affect buyer bargaining power. With the increasing range of electric vehicles from various established and new automobile companies, customers may notice that Tesla prices are actually very expensive. Accordingly, by choosing alternatives, buyers may exercise their bargaining power to make Tesla reconsider its prices.
Additional range of factors that affect bargaining powers of Tesla customers include buyer’s ability to go for substitute products and services and the extent of product differentiation between various electric vehicles manufacturers.
Rivalry among existing firms in electric vehicles industry has become highly intensive. Although Tesla is the most recognizable brand for electric vehicles, all major automobile companies have also announced their plans to increase their focus in this segment. For example, GM, BMW, Volkswagen, Porsche, Jaguar, Nissan, and Mercedes-Benz have all announced plans for committing billions to the development of mass market electric vehicles. Some are already available for customers such as the Chevrolet Bolt and Nissan Leaf, and many more are set to hit the market within the next 12-24 months.
The extent of competition in energy storage products and solar energy systems is also intensifying. In the global market of energy products Tesla competes with AES Energy Storage, Siemens, LG Chem and Samsung among others. In solar energy, on the other hand Tesla competes with Vivint Solar Inc., Sunrun Inc., Trinity Solar, SunPower Corporation, and many smaller local solar companies in the residential solar energy system installation market.
Tesla Inc. Report contains a full analysis of Tesla Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Tesla. Moreover, the report contains analyses of Tesla leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Tesla marketing strategy, ecosystem and addresses issues of corporate social responsibility.
 Giaquinto, J. (2018) “Tesla: A Classic Case of Building Economies of Scale to Achieve Profitability” NASDAQ, Available at: https://www.nasdaq.com/article/tesla-a-classic-case-of-building-economies-of-scale-to-achieve-profitability-cm965367