Tesla Motors is an automobile and technology company founded by Elon Musk in 2003. The company works to revolutionize the car industry. This is the through the provision of battery technology aimed at changing the worlds basic energy infrastructure. Even though Tesla is a new entry into the automotive industry, the founders have worked extra hard to ensure that they have made progress in the last few years. For example, by 2015, the company was already valued at $35 billion, whereas Fiat Chrysler which has been in the business longer and had higher values automobiles was estimated at $20.5 billion.
Porters Five Force Analysis
Competitive rivalry (Strong force)
The automobile industry has highly competitive because of the high aggressiveness of the companies already existed in the industry, the lower number of the firm in the sector leading to an existing monopoly by most, as well as the low switching costs available. Even though the companies in the industry may be few, they are quite aggressive as displayed in how their products are promoted and innovated. This strengthens their effects a competition for the Tesla. All these factors make competitive rivalry the highest ranked force for strategic consideration for Tesla.
Customers bargaining power (Moderate force)
One of the factors that affect Tesla is the bargaining power of the customers as reflected by the low switching costs offered by other car providers that may include 0% financing. Another challenge for Tesla is the fact that there is a little volume of purchases since most customers only require one vehicle thus reducing Teslas influence on them. This is therefore considered a second-level or moderate strategic priority for Tesla.
Suppliers bargaining power (Moderate force)
The providers bargaining power is categorized as a secondary strategic priority. This is because they have some control over the sales and distribution of Teslas products. Most are moderate in size, thus their influence on the market may not be as strong. Finally, their level of supply is a factor that affects Tesla even though to a limited degree.
Threat of substitution (moderate force)
An average force that may influence Tesla is the availability of substitute products for consumers such as public transportation. However, there is a chance that these substitutes may not satisfy the customers practical needs or are moderately available and this will draw them towards Tesla products.
Threat of entrants (weak force) new
One of the external factors that affect Tesla even though minimally is the threat of new entrants into the automobile industry. However, since they have built quite a strong brand due to the massive investment in brand development, this threat is a minor strategic concern.
Value: Regarding Teslas sustained competitive advantage, one of the hugest internal factors that can be seen is its tremendous value. Most of the products from Tesla are designed in such a manner that they solve a problem experienced by man. For example, the companys venture in alternative power generation options is to reduce dependence on fossil fuels. The company produces clean products through the use of advanced technologies and help resolve demand challenges by making them affordable for the entire world.
Rarity: The Company has patented most of the technology they use and have a huge research and development section to ensure that the products they innovate are rare and that the advantage they have in technology can be satisfied regarding rarity.
Imitability: Tesla prides itself in excellent research and development capabilities, unique technology, better positioning and manufacturing strength in the energy and alternative vehicle industry making it difficult to imitate.
Organization: The Company is capable of soaring to new heights as a result of the strong leadership, good organizational practices and culture to ensure they have a competitive advantage in the alternative energy segment.
Teslas current strategy since inception was to build a sports car that would then be sold to provide money that would be used in the development of an affordable car. The affordable car proceeds would then be channeled into the elaboration of a more affordable car. This will go on as the company works to provide zero emission electric power generation options. This business model is quite different from that of the leading automakers such as General Motors since most of them work to produce a larger number of vehicles in accordance with demand and the trends in the markets. Their major goal is the profits they are going to gain from the sales of the automobiles. The internal combustion engine is likely to lose its dominant position in the future because more automotive companies are moving towards the going green agenda.
In the market for plug-in electric vehicles, Tesla has more patents that increase their dominance in the industry. They have worked to produce more of this type of vehicles, but since they are a small company, other established automakers have begun to overtake it in the production of these vehicles since they would also like to buy into the going green agenda. Factors that are critical in setting a new industry standard includes the bargaining power of suppliers bargaining power of the consumers, the availability of raw materials, as well as the acceptance of the product in the market.
Teslas rationale of their strategy is to provide a car that is affordable to a majority of the population in a country while at the same time reducing emissions to preserve the environment. This represents an optimal response to Teslas strengths and weaknesses such as the low-interest loan provided to them by the United States Department of Energy as well as the enormous faith their customers have in them.
Teslas decision to make their patents available to other companies came as a surprise as most thought that this was their competitive advantage. This decision reduces the value and rarity of the company as more people can produce a replica of the products that Tesla has exclusively produced over time.
I would buy Teslas shares because even despite opening up their patents that are not their only advantage. They have worked from the ground up and in such a short amount of time have built a brand.
The Tesla is currently among the most highly ranked automobile companies worldwide but to succeed they need to make a few more changes. First, they need to invest more in research and development to continue to produce unique products. Secondly, Tesla should consider partnering with another established company in the production of battery packages to improve their standards and gather more customers.
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