Building on the SCP model, Michael Porter developed the highly influential five forces model. Porter’s model identifies five key competitive forces that managers need to consider when analysing the industry environment and formulating strategy: Porter‘s 5 competitive forces model is starting point for strategic analysis that is used for assessing the attractiveness of an industry (Johnson,et al , 2008) and discovering a desirable strategic innovation that improve the industry and company profitability (Wit and Meyer,2005) The threats to new entrants:
The threat from new entrants is very high. Entering the electric automotive industry in 2003, Tesla itself faced the challenges of being the new entrant into the market having numerous financial troubles that required high capital investments, building the brand and distributions channels. However, for established manufacturers with considerable economic power to enter this market is relatively low due to their capabilities and governmental program support for developing electric vehicle (Shirouzu, 2011). There is a relatively low barrier to entry due to the higher demand for environmental friendly vehicles and with other outlets for available technology for lithium-ion batteries, it is a level of playing field where any company can replicate (Shirouzu,2011). This is an external threat that Tesla faces because this technology is easy to imitate by competitors.
The bargaining power of Buyers
Overall bargaining power of buyers is modest. According to Tesla Annual Report (2014), they rely on their relationship with Daimler and Toyota (Brown, 2013). The partnership is very important for Tesla, because supplying these companies constitutes the high share of their profit and thus, they cannot lose them, making their power considerably high. However, they also sell their cars to individual customers, and many government incentives give potential customers tax credit deduction (Ministry of Transportation, 2010). These programs stimulate the demand of electric cars that makes bargaining power low.
Threat of Substitution
The threat of substitutes is considerably law in automotive industry, because there are only few choices in the substitution of car. One of the substitutes can be walking or biking that is very inconvenience for long distances. Moreover, mass transportation such as trains, buses, and subways are substitutes that are suitable for local and distant travelling (Dutch, 2008). However, many people prefer to have their own car that is more convenient.
The Bargaining Power of Suppliers
The power of suppliers is very high due to the fact that company is highly dependent on these suppliers and any problems with components delivering will result in production disruption that negatively reflects on company image. This is due to purchasing components from over 200 suppliers over the world. Despite of building close relationships with main suppliers such as Panasonic (Tesla Motors, 2014), working together on the development of new battery cell and replacing Lotus supplier ‘s chassis with manufacturing by themselves (Tesla Motors, 2014), many suppliers stay single sources of components used in their cars (Harryson and Keller, 2013)
The Intensity of Rivalry in the Industry
The rivalry in the whole automotive industry is very competitive. However, within electrical vehicle market in which Tesla position itself, the rivalry is modest because of small number of competitors in the face of 18 different current models, the main of which are Nissan Leaf Ford Focus BEV and Chevrolet Volt (Insideevs.com, 2014). However, this market is very attractive and expanding fast, therefore more companies, including BMW, Audi and Volkswagen, has entered it recently with their plug-in models (White, 2013). In addition, every company is trying to create their niche, developing many alternatives in term of environmentally friendly cars, including hybrids, small performance turbo diesels and biodiesel cars. Thus, in future, the rivalry will be more intensive and companies will need to keep innovative, improving and making better cars.
Brown, N. (2013). Daimler Wants Increased Cooperation With Tesla Motors. [online] CleanTechnical. Available at: http://cleantechnica.com/2013/11/07/daimler-wants-increased-cooperation-tesla-motors/ [Accessed 6 April. 2014 Harryson, S. and Keller, S. (2014). Tesla Motors Case II: From Technology Start up to Commercialization Vehicle.CIEL.
[online] Available at: http://ciel-lab.dk/wp-content/uploads/2013/04/Case_Tesla-Motors-Part-II.pdf [Accessed 1 April. 2014] Insideevs.com, (2014). February 2014 Plug-In Electric Vehicle Sales Report Card | Inside EVs. [online] Available at: http://insideevs.com/february-2014-plug-in-electric-vehicle-sales-report-card/ [Accessed 3 April. 2014] Ministry of Transportation, (2010). Newsroom : Ontario Paves The Way For Electric Vehicles. [online] Available at: http://news.ontario.ca/mto/en/2010/06/ontario-paves-the-way-for-electric-vehicles.html [Accessed 4 April. 2014] Tesla Motors, (2014). About Tesla | Tesla Motors. [online] Available at: http://www.teslamotors.com/about [Accessed 20 April. 2014 Wit, B. and Meyer, R. (2005).Strategy synthesis. 3rd ed. London: Thomson Learning.
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