Porter’s Five Forces
Tesla Inc. was founded in 2003 with the mission to accelerate the world’s transition to sustainable energy (Tesla Inc., 2017). Initially founded as Tesla Motors, it recently changed its name to Tesla Inc. to better reflect a broader scope beyond electric automobile manufacturing. It considers itself to be a technology and design company with a focus on energy innovation. Recent product offerings such as the Tesla Powerwall (a rechargeable lithium-ion battery that uses solar power and is intended for home use) Tesla has proven that it is more than just cars. Despite this, revenue from its Powerwall product is less than 1/5th the revenue generated by its electric car sales (Tesla Inc., 2016). While a very small company as it relates to sales volume (especially when compared to any of the established car manufacturers) Tesla managed to outsell Mercedes Benz C class, the BMW 7 series, and every other large luxury sedan back in 2013, a fantastic achievement considering the last successful major American car manufacturer is the Chrysler Corporation, founded back in 1920.
The Five Forces Model: Competitive Analysis (External)
To better understand the competitive forces within the automotive industry, and more specifically within the market segment for luxury/electric automobiles, I’ll use Michael Porter’s framework for industry analysis, the “Five Forces Model”.
1. Risk of entry by potential competitors: Moderate to high
The automotive industry is one that has been ruled by long established brands. All three major US companies were founded over a century ago, and while there is a healthy list of minor automakers, these focus mostly on car components and modifications of existing models. A quick check on Wikipedia returns a list of well over a thousand defunct American automobile manufacturers, a testament to the difficulty of breaking into this industry and establishing long term success. This does not mean however that Tesla shouldn’t worry about competition from new entrants, as there are several companies with the capability of entering the market for luxury electric cars, while others are already attempting to do so, mainly because for the majority of legacy automakers, their ability to remain competitive in the long run hinges on their ability to offer a compelling electric vehicle product, if not now, in the not so distant future. While Tesla was first to market with an electric product that was appealing for more than just its environmental benefits (it is fun to drive due to fast acceleration, style, technology, etc.) Companies such as BMW, GM, Ford, Toyota, Nissan and Mercedes Benz already have made EVs part of their strategic plans. The threat is not only coming from the legacy brands. Recently, a new company was created that competes directly with Tesla, it’s name is Faraday Future and so far its game plan looks very similar to Tesla’s, it is focusing...