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PORTER FIVE FORCES ANALYSIS FOR TESLA
Executive Summary
The set of plans being executed by a company to be implemented for making a competitive position in the market is required. The America based company tesla, strategic in the year 2003, has reached rank sixth in the leading automobile company. However, certain competitions that exist in the market were based on the Porter five force analysis. Volkswagen and BYD are their number one rivals. To stay ahead of competitors in the market, it needs to adopt some strategies that can benefit the company. Porters five forces analysis has been carried out for the identification of the most suitable strategy.
This framework is particularly useful for the competition analysis, based on which differential strategy or leadership strategy can be developed. That is where the need for cost leadership comes. Cost leadership strategy is the simplest way to gain an advantage in the competitive market while having the lowest cost of operation in the area. Through this, the company can have less profit margin per product, but there will be a greater amount of sales as their market share is already high, so their profit will not be compromised.
Table of Contents
Executive Summary    2
Current Market Status of the Firm    4
Application of Porter's Five Forces Model to the firm    7
Rivalry among the Existing Competitors    7
The Threat of New Entrants    8
Bargaining Power of the Supplier    9
The Bargaining Power of the Buyers    9
Threat of Substitutes    10
Proposed Strategy (Cost Leadership)    10
Justifications for Choice of Strategy    12
Conclusion    13
References    14
Current Market Status of the Firm
Tesla is a company based in America, which has been established in the year of 2003 by Martin Eberhard and Marc Tarping, who is famous for the production of cats in the automobile industry along with batteries and solar panels (Tesla, 2021). The company has aimed to become a leading one of the 21st century through a suitable method of transporting where significant numbers of quality electric cars have been brought about in the markets in the past few years. Currently, the company has gained its brand image over the years through delivering quality goods to meet the shifting demands of the customers.
The company has come this far through their team spirit and leadership management rather than unhealthy rivalry (Kim, 2020). They have a total 48,016 number of employees as of 2019 for meeting the best possible demands of their customers in time of need (Statista, 2020). At present, the company is in the sixth ranking position among leading companies in the equity market with a value of $825 billion, which has even overtaken the position of Volkswagen (Morning Star, 2020).
In the international market, all 180,570 cars have been delivered by this company in the automobile industry (The Economic Times, 2020). The company invests large amounts of money in its research and development to develop innovation all the time. It has already increased its cost of spending on R&D by $0.8%billion in 2018 from 2015 (Forbes, 2020).
The company has focused on the carbon emission aspect for reducing carbon in the environment as the world is shifting towards climatic conditions with less carbon footprint generation (Government of UK, 2020). Their technical department has come up with fast riding cars and automated cars where the chances of collision are reduced greatly with enhanced user experience, which makes their product a lot more interesting and demanding.
They have an auto lane facility and auto parking facility in their products, making them very attractive to the target customers. Apart from that, the company has also taken the initiative to introduce solar panels as a battery backup that are sleek and durable. The company has innovative manufacturing techniques where it has made rare goods for customers (Auto News, 2020). A safety design in their automated cars with high impact protection beats other competitors in the marketplace.
Figure 1: Sleek and Durable Solar Panel
(Source: Tesla, 2021)
Figure 2: High Impact Safety Protection by Tesla
(Source: Tesla, 2021)
Figure 3: Long Range Battery Technology
(Source: Tesla, 2021)
Figure 4: Aerodynamics of Model S
(Source: Tesla, 2021)
There are certain advancements and competitive advantages of the company, which have been mentioned above, but apart from that, the downtime and the disadvantages the company has faced the need to be mentioned. Due to price cuts, there have been cases of losing suppliers such as Amperex Technology Co. and Contemporary, which may not be gained in the future and if these suppliers are taken by the competitors in the market, that will be a threat for the company (Wall Street Porter, 2020). During this pandemic situation, the relationship with international countries such as the UK and China has been threatened as a controversial issue regarding the launch of batteries in the Chinese market (Wall Street Porter, 2020). In Germany, which is one of its markets, there are entrants in the market such as NKLA and BYD, which are constantly upgrading their efforts and their systems to compete with Tesla shortly. These are why; Tesla needs to develop a different strategy to what is currently there to come up with a more competitive average that can be substituted easily.
Application of Porter's Five Forces Model to the firm
The organisational strategy should always encounter the basic concepts of Porter's five forces to develop a competitive strategy based on the industry structure and market analysis. The aim is to recognise the competitive environment by identifying the competitors in the market while contemplating a broader perspective that competes against organisational growth. This model or framework was coined by Professor Michael Porter in 1079, an influential tool for power identification (Mathooko and Ogutu, 2015). Through recognising the competitive forces, the ability of the company can be jeopardised for making a profit.
The origin of this framework is based on the industrial organisation where the market structure influences the behaviour of the contributors in the market. The strategic behaviour of the organisation is therefore impacted through the market structure. While the collective impact of individual forces will change, there will be an impact on the company's market environment. In addition, the changes in the policies and the macroeconomic audits regulate focus companies power in the industry (Wall Street Porter, 2020). This framework is particularly useful for the competition analysis, based on which differential strategy or leadership strategy can be developed.
Rivalry among the Existing Competitors
The rivalry among the competitors impacts the profitability of the organisation where price disc out, new product introduction, promotional campaigns and service improvements may be required for staying ahead than that of others while knowing others positions and strategies through the market analysis (Pervan, Curak and Pavic Kramaric, 2018). However, the company will choose the type of promotional activities depending on the intensity of the competition and the number of companies that are presently rivals in the same industry.
There are many competitors of Tesla in the market, who need to be put back and completed efficiently to maintain its position in the industry. BYD in China and Volkswagen Germany are setting themselves up to compete with Tesla to move their business ahead of this company. They have strategies for reaching the costumes in the market while being able to join the group through the direct involvement of the suppliers...