Detailed Five Forces Analysis by Tesla Porter
1 Introduction
Porter's Five Forces of Competitive Position Analysis is a simple framework for assessing a company's competitive strength and position. It was developed by Michael E. Porter in 1979. For example,The Five Forces by Tesla PorterThe analysis provides insight into a company's current competitive position and the future stronger position that the company may wish to expand.Porter's Five PowersThe analysis also helps to understand the strengths and to identify and improve the weak sides of the company. Tesla is probably the most innovative and dynamic company in the industry, and it has grown so much in such a short space of time that it is the example to study Porter's model.
2. Background of Tesla
Tesla Inc was founded in 2003 by Martin Eberhard and Marc. Tesla also recognized Elon Musk, JB Straubel, and Ian Wright as co-founders. While Tesla isn't a very old company, it has made a major contribution to the industry with a market cap of around $28 billion. In 2006, Tesla introduced its first prototype to the EV market, the Roadster. After continuous work and development, the final production model was launched in 2008. The current model is the Tesla Model 3. Tesla is ahead of its competitors because it can charge at Supercharger stations worldwide.
3. The Five Forces by Tesla Porter
The automotive industry is a very dynamic business with its unique challenges, and Tesla is a very successful company that speaks volumes for its strategic competence and effectiveness. Let's checkThe Five Forces by Tesla Porterto understand it better.
- Competition in the industry (strong force)
- The threat of new entrants (weak force)
- Bargaining power of suppliers (moderate force)
- Bargaining power of customers (moderate force)
- The threat of substitute products or services (moderate force)
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3.1. Industry Competition (Strong Force)
The automotive industry is highly competitive, so industry competition is a powerful force. Different forces are at work in Tesla's competitive analysis, and there are many external factors and strong forces in the competitive rivalry. Let's list potential forces in Tesla's competitive analysis.
- The weak force of the number of competitors in the industry.
- The powerful force of aggressive competitors in the market.
- The powerful power of low switching costs for buyers.
Now that we've identified the forces, let's look at how Tesla is handling this intense competition in the marketplace.
- Innovation and integrated services with charging stations distributed around the world give Tesla an advantage over its competitors.
- Supply chain improvement, vertical integration and commitment to continuous improvement contribute to lower costs and high profits. Low cost is an attractive trait for competitive advantage.
- An aggressive media marketing strategy is important to survive in this competitive environment.
3.2. The Threat of New Entrants (Moderate Violence)
The threat of new entrants is a minor force in Tesla Porter's Five Forces. Many factors discourage newcomers from venturing into this industry and allow us to identify these factors.
- Brand development is expensive as it requires highly innovative and very advanced technology. The high cost is a weak force to discourage new ventures.
- The automotive industry requires a significant amount of funding to function, also a weak force.
- High economies of scale are another weak force. Economies of scale are a positive force for established market players; however, new entrants are not favored.
3.3. The bargaining power of suppliers (weak force)
Bargaining power of suppliers is a moderate force in Tesla Porter's Five Forces. Tesla depends on suppliers for its smooth supply lines. Therefore suppliers influence the business and the forces involved are:
- Forward integration is a moderate force.
- Tesla buys from several suppliers, so it is ultimately not dependent on one supplier. So it's a moderate force.
- A moderate level of supply is a moderate force. A larger order volume for suppliers weakens the bargaining power of suppliers.
3.4. The Bargaining Power of Customers (Strong Force)
The bargaining power of customers in the electric car industry is moderate. Various factors influence the bargaining power of customers in Tesla Porter's Five Forces model.
- Low switching costs are a powerful force because they increase buyers' bargaining power. You can switch to any vehicle at no additional cost.
- Moderate spare availability is a moderate force. There aren't many electric car suppliers on the market, and there are quite a few, but very strong ones.
- Low purchasing volume as each customer can own one or more cars.
3.5. Threat of replacement products or services (strong force)
The replacement product threat in Tesla Porter's Five Forces is a moderate force as Tesla Inc. has a moderate and limited number of replacement options in the market. Let's take a look at the contributing factors.
- The most important factor is low switching costs, which increases competition between competitors.
- The average or a limited number of spare availability is a moderate force.
- A moderate performance by substitutes is also a moderate force.
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4. Strategies for Success
Tesla is a brand in the electric car industry and is becoming almost synonymous with electric cars. However, in this evolving industry, there is plenty of room to fly even higher. After seeing Tesla Porter's five forces, let's review some strategies for success.
- cost leadership
- Distinction
- Focus
4.1. cost leadership
High costs are a major obstacle for customers to use electric cars. Tesla has already identified this barrier and is moving toward cost leadership.
For example, they claim that their Gigafactory can reduce battery costs by 30%. This price reduction helps Tesla take a significant leap into cost leadership.
4.2. Distinction
Porter's Five Forces example of Tesla shows that it can use the broad differentiation strategy for competitive advantage. Tesla is already known for its high quality and unique coffee taste. They also use this policy of differentiation in the design of their cafes, where they offer a cozy and friendly environment that people enjoy. Product diversity through new types of beverages apart from coffee is a promising strategy for also addressing customers who are not always into coffee. The switch to the service and product industry can also diversify Tesla's portfolio.
4.3. Focus
Tesla focuses on its product to gain a competitive advantage over other market participants. It doesn't spend much on advertising and relies on positive reviews and word of mouth for promotions. It spends most of its resources on research and development, manufacturing excellence and technological excellence.
Apart from that, Tesla also has a social message of an eco-friendly approach in focus.
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5. Key takings
Tesla Porter's Five Forces Analysisis a testament to the potential for success of innovation and technology. After a detailed review of this model, you can also implement the success strategies for your company.
You must use a comprehensive and simple business chart maker tool to make it more detailed and easier to understandPorter's Five Forces Model. We recommend EdrawMax Online to create all kinds of business diagrams as it offers a straightforward and wide range of functions and well-stocked libraries of symbols, templates and tools. find morePorter's Five Forces Templates.
6. References
adamkasi 2020. "Porter's Five Forces of Tesla". Porter analysis. Available at:https://www.porteranalysis.com/porters-five-forces-of-tesla/(January 21, 2022).