The Competitive Environment for Tesla Inc. Case Study

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Table of Contents

Introduction
Rivalry Among Competitors
The threat of New Entrants
The Threat of Substitute Products
Bargaining Power of Buyers
Bargaining Power of Suppliers
Strengths
Weaknesses
Conclusion
References

Introduction

Tesla is a well-known brand that achieved popularity and loyalty despite being on the market for a relatively short time. The automotive industry in itself correlates with high competition among the different corporations, yet in Tesla’s case, the circumstances are more complex. The factor that drives the competition and creates unique advantages and disadvantages is the electric automotive sector, which is nuanced. For the competitive environment for Tesla to be examined, Porter’s Five Forces will be applied, and an analysis will be conducted regarding the external and internal environments of the organization.

Rivalry Among Competitors

As mentioned prior, the electric vehicle market is yet to be fully developed. Nevertheless, Tesla’s rivals are the automotive brands that manufacture electric cars alongside fossil-fueled ones. The biggest rival for Tesla Model S, for example, is the BMW i4 (Graham & Brungard, 2021). However, Tesla is the only corporation offering only EVs, which gives the organization a competitive advantage.

The threat of New Entrants

The threat of new entrants is relatively low, which is facilitated by the high cost of creating a company specializing in cars and electric vehicles specifically. Extensive investment in research, technology, manufacturing, and marketing creates challenges for potential entrants. As a result, the potential negative impact on Tesla is minimized.

The Threat of Substitute Products

The threat of substitutes is higher than the threat of new entrants, yet the lack of opportunities for new companies to be established minimizes the current factor. However, Tesla encounters the aforementioned threat because multiple corporations operating in the automotive industry are investing in EVs. Thus, moderate risks correlate with the appearance and development of substitute products.

Bargaining Power of Buyers

The number of suppliers is relatively low to the number of buyers, which puts Tesla at a favorable competitive advantage. Moreover, as an electric vehicle company, Tesla is often promoted through governmental implementations that allow consumers to access vehicles more easily through tax cuts and subsidies. Thus, from this perspective, buyers do not have extensive opportunities to impact their dependence on the brand.

Bargaining Power of Suppliers

The bargaining power of suppliers is relatively high as electric vehicles are relatively new technologies requiring raw materials and elements that are not as widely available. Researchers mention the batteries that Panasonic manufactures for Tesla compared to the more affordable Chinese alternatives that BTW incorporates in its EVs (Jiang & Lu, 2018). In this case, suppliers provide raw materials and elements for vehicles from all over the world, which means different regulations apply. The vast number of actors within the supply chain as well as the global environment impose a relative threat regarding supplier bargaining power.

Strengths

Tesla’s main strengths are its nuanced approach to the task environment and business strategies. The company has created a name that individuals associate with innovation, comfort, and uniqueness. It is the only company that manufactures exclusively electric cars and has revolutionized the business sector. Needless to say, such approaches facilitate interest among potential consumers and loyalty toward Tesla products.

Weaknesses

Two weaknesses that can be highlighted are the price and the distribution channels. Tesla offers luxury cars that cannot compete in affordability with fossil-fueled automobiles. Moreover, researchers point out that the company sells products online and through exclusive stores (Chen & Perez, 2018). Car dealerships cannot offer Tesla models, which limits sales.

Conclusion

Tesla’s competitive advantage regarding its external environment includes low rivalry among competitors, the threat of new entrants or substitute products, and the bargaining power of buyers. On the other hand, supplier power of bargaining is a potential limitation since sourcing raw materials involves multiple actors, the industry is relatively new, and affordable alternatives are challenging to acquire. In regards to the internal environment, Tesla’s strengths include innovation, intellectual capital, and uniqueness, while the high price and limited distribution channels are weaknesses.

References

Chen, Y., & Perez, Y. (2018). Business model design: Lessons learned from Tesla Motors.Towards a Sustainable Economy, 53–69.

Graham, J. D., & Brungard, E. (2021). Consumer adoption of plug-in electric vehicles in selected countries.Future Transportation, 1(2), 303–325.

Jiang, H., & Lu, F. (2018). To be friends, not competitors: A story different from Tesla driving the Chinese automobile industry.Management and Organization Review, 14(3), 491–499.

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