Tesla Inc. Five Force Analysis (Porter Model) and Recommendations - Panmore Institute (2023)

Tesla Inc. Five Force Analysis (Porter Model) and Recommendations - Panmore Institute (1)

Tesla Inc. (formerly Tesla Motors, Inc.) maintains its profitability through strategic actions that address the competitive challenges outlined in this five forces analysis of the global automotive business. Michael Porter developed the Five Forces Analysis model as a strategic management tool to understand the impact of external factors on companies and the competitive landscape of their industry environment. This Five Forces Analysis from Tesla examines the external factors that matter in the automotive and energy solutions industries and how these factors impact the company. As one of the largest players in the electric vehicle market, Tesla must effectively address such external factors in order to maintain its long-term competency and resilience in the face of competitive rivalry with automakers such as Honda Motor Company,General Motor Company,Ford Motor Company, VW,Toyota MotorCorporation, Nissan Motor Company and BMW (Bavarian Motor Works). The company must consider the nature and characteristics of such competition in the domestic and international electric car, battery and solar panel markets, as considered in this external analysis.

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Tesla Inc.'s success as an innovative electric vehicle manufacturer is based in part on its strategies to address the external factors surrounding the automotive industry and the energy storage and solutions market. This five forces analysis (Porter's model) shows that Tesla must prioritize competitive rivalry as the most important force in its multinational business environment. The pressure from substitutes, suppliers and buyers is also taken into account in this business analysis.

Summary and Recommendations: Porter's Five Forces Analysis of Tesla, Inc.

Companies in the international automotive environment are exposed to a variety of external factors, including the availability of raw materials and the technology-based competitiveness of companies. Tesla's resilience reflects its strategic effectiveness. This company analysis shows that the company can grow despite competitive challenges. However, Tesla must ensure that it addresses external factors according to the intensity of the forces affecting the business, as shown in this five forces analysis:

  1. Competitive rivalry or competition (strong force)
  2. Bargaining power of buyers or customers (moderate force)
  3. Bargaining power of suppliers (moderate force)
  4. Threat of Replacement or Substitution (Moderate Violence)
  5. Threat from new market participants or new entrants (weak force)
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recommendations. The results of this five forces analysis by Porter for Tesla, Inc. show that competition is the most important force affecting business. Therefore, the company must prioritize this force in its strategic formulation. One recommendation is to further strengthen Tesla's competitiveness: A stronger competitive advantage can be achieved through innovation and increased market presence. In terms of innovation, for example, the company can increase its investment in research and development (R&D) to outpace the innovation rate of its competitors in energy storage. With a view to increasing market presence, aggressive marketing campaigns supportTeslas Vision und Mission Statements. The other forces outlined in Porter's Five Forces Analysis also have significant intensities, but to a lesser degree when compared to competitive rivalry. Management initiatives must address these forces according to their intensity.

Competitive rivalry or competition with Tesla, Inc. (Strong force)

Tesla, Inc. operates in a highly competitive marketplace. This aspect of the Five Forces Analysis outlines the competitive impact on the automotive and energy solutions industry environment. In this case of Tesla, the external factors and their intensity responsible for the strong power of competitive rivalry are as follows:

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  • Small number of companies (weak force)
  • High aggressiveness of the companies (strong force)
  • Low switching costs (strong power)

Few companies are active in the automotive market. In Porter's Five Forces framework, this external factor limits the impact of competition on companies like Tesla, Inc. However, these companies are generally aggressive in innovating and promoting their products. For example, large automotive companies run aggressive marketing campaigns.Tesla's Marketing Mix or 4Pssometimes encounters such aggressiveness that increases the impact of competitors on the company. The low hurdles for customers to buy cars from other manufacturers (low switching costs) also strengthen competitiveness. This aspect of Tesla Inc.'s Five Forces Analysis points to competitive competition as a high-priority strategic management consideration in the automotive and energy solutions industry environment.

Bargaining power of Tesla's customers/buyers (moderate strength)

The influence of customers on companies and the environment of the automotive, battery and solar module industry is considered in this aspect of the five forces analysis. Tesla's customers are a direct factor in driving the company's revenue. The following external factors and their intensities maintain customers' moderate bargaining power over the company:

  • Low switching costs (strong power)
  • Moderate spare availability (moderate force)
  • Low purchase volume (weak force)

Low switching costs reduce the barriers for Tesla customers to buy cars from other suppliers. In the context of Porter's five forces analysis, this external factor exerts a powerful force against the company and other players in the automotive environment. In many cases, however, the availability of substitutes is only moderate, which limits the bargaining power of customers vis-à-vis Tesla Inc. For example, many customers in suburban areas have limited access to public transportation, making it more convenient to drive their own car. In addition, the low purchasing volume (each customer buys and keeps only one or a few cars) reduces the influence of customers on Tesla. Thus, the intensity of the external factors in this aspect of the Five Forces Analysis reflects the bargaining power of customers as a moderate force and a secondary management priority. This prioritization is reflected inTesla Inc Generic Strategy and Intensive Strategies.

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Bargaining power of Tesla suppliers (moderate strength)

Tesla Inc.'s business depends on the reliability of suppliers. This aspect of the Five Forces Analysis shows how suppliers are shaping the industry environment by influencing the availability of materials that businesses need. The intensity of the external factors that create the moderate power of Tesla's supplier bargaining power are as follows:

  • Moderate forward integration (moderate force)
  • Moderate size of suppliers (moderate strength)
  • Moderate level of supply (moderate force)

Tesla Inc.'s suppliers have a low level of forward integration. This external factor relates to suppliers' limited control over the distribution and sale of their products. For example, some suppliers use third parties to sell their materials to Tesla, while others do business directly with the company. In Porter's five forces analysis, this external factor exerts a moderate force on the company. Furthermore, most of these suppliers are medium-sized and therefore have limited impact on the automotive environment. Another external factor is moderate supply, which allows suppliers to influence Tesla, but only to a limited extent. This aspect of this Porter Five Forces Analysis by Tesla Inc. points to supplier bargaining power as a secondary strategic management priority.

Threat of Substitutes or Substitutes (Moderate Force)

Tesla, Inc. is witnessing the impact of substitute materials on the automotive and energy solutions industry environment. In this aspect of the five forces analysis, the intensities of the external factors that lead to the moderate strength of the substitution threat against the company are considered as follows:

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  • Low switching costs (strong power)
  • Moderate spare availability (moderate force)
  • Moderate Substitute Performance (Moderate Power)

As highlighted in the other aspects of this Five Forces Analysis by Porter of Tesla Inc., low switching costs enable competition. In this external analysis case, the low switching costs allow substitutes such as public transport to easily attract customers. This external factor is having a major impact on Tesla's industry environment. However, the moderate availability of substitutes limits this influence of the suppliers. For example, customers have only a moderate and limited number of substitute options on the market. In comparison, many substitutes have only a moderate level of performance to meet the practical needs of customers. Public transport, for example, is not as versatile as a private car. This condition further limits the power of the replacement forces against Tesla. In this aspect of Tesla, Inc.'s five forces analysis, the external factors point to the threat of substitution as a secondary management consideration in the company's strategies.

Rookie or Rookie Threat (weak power)

New entrants are new companies that impact the industry environment and drive the performance of companies like Tesla Inc. This aspect of the five forces analysis identifies the intensity of the external factors generating the weak force of the new entrant threat as follows:

  • High cost of brand development (weak force)
  • High cost of doing business (weak power)
  • High economies of scale (weak force)

It's difficult to compete with Tesla's business, especially given the high cost of branding and Elon Musk's popularity. For example, it is difficult for newcomers to compete with the company's strong brand, which is one of the strengths described inSWOT-Analyse von Tesla Inc. This external factor is a barrier to entry in the context of Porter's Five Forces Analysis. In addition, automobile manufacturing is associated with high costs, which are a barrier to new businesses. Established players like Tesla also benefit from increasing economies of scale, which newcomers can only achieve once a production threshold has been exceeded. Based on the external factors in this aspect of the Five Forces Analysis, the threat of new market entrants is only a secondary strategic management concern in the Tesla Inc. industry environment.

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