Question

Provide an analysis of the competitive landscape of Tesla using Porter’s Five Competitive Forces. Structure your answer around:

1. Each of the competitive forces and its impact on Tesla’s business model

2. Ways that information technology is changing the basis of competition and the implications for Tesla.

Answer 1

Michael. E. Porter put forward a model in an article in the Harvard Business Review in 1979. This model, known as Porter's Five Forces Model is a strategic management tool that helps determine the competitive landscape of an industry.

Each one of the five forces mentioned in the model and their strengths help strategic planners, managers understand the inherent profit potential within an industry.

Porter’s five forces are as follows:

Porter’s Five Forces model can be used to gauge the industry in which Tesla Inc operates, in terms of attractiveness through inherent profit potential. The information analyzed using the model can be used by planners, managers for Tesla Inc to make strategic decisions.

• Threat of New Entrants
• Bargaining Power of Suppliers
• Bargaining Power of Buyers
• Threat of Substitute Products or Services
• Rivalry Among Existing Firms

Threat of New Entrants

• Tesla Inc can take advantage of the economies of scale it has within the industry, fighting off new entrants through its cost advantage.
• Tesla Inc can focus on innovation using new technologies such as artificial intelligence, robotic and other innovative software to differentiate its products from that of new entrants. It can spend on marketing to build strong brand identification. This will help it retain its customers rather than losing them to new entrants.

Bargaining Power of suppliers

• Huge number of suppliers in the EV auto industry in which Tesla Inc operates is a lot compared to the buyers which are only a few. This means that the suppliers have less control over prices and this makes the bargaining power of suppliers a weaker.
• The products suppliers provide are standardized, less differentiated and have low switching costs. This makes it easier for buyers like Tesla Inc to switch suppliers. This makes the bargaining power of suppliers a weaker force.

Bargaining power of Buyers

Buyers have only few firms to choose from, and therefore, do not have much control over prices. This makes the bargaining power of buyers a weaker force within the industry.

The income of the buyers within the industry is low which means there is significant pressure to purchase at low prices, making the buyers more price sensitive. This makes the buying power of buyers a weaker force within the industry.

• Tesla can focus on innovation and differentiation to attract more consumers. Product differentiation and quality of products are important to buyers within the industry, and Tesla can attract a massive number of customers by bringing innovation and product differentiation.
• Tesla also needs to build a large customer base, as the bargaining power of buyers is weak. It can do this through marketing efforts aimed at building brand loyalty.
• Tesla can also take advantage of its economies of scale to develop a cost advantage and sell at low prices to the low-income buyers of the industry.

Threat of Substitute Products

There are few substitutes available for the products that are produced in the industry in which Tesla operates. The few substitutes available are also produced by low profit earning industries.

Tesla can focus on providing greater quality in its products which would convince buyers to choose its products than looking for substitutes.

Tesla can also differentiate its products by using tech savvy software etc. that would make its product more appealing.

Rivalry Among Existing Firms

• The number of competitors in the EV industry in which Tesla operates are not too many.
• The few competitors have a large market share. This means that they will engage in competitive actions to gain position and become market leaders. This makes the rivalry among existing firms a stronger force within the industry.

How Tesla can fight the Rivalry among existing firms?

• Tesla needs to emphsize on differentiating its products so that the actions of competitors will have less effect on its customers that seek its unique products.
• As the electric vehicle industry grows, Tesla can focus on new customers.

2.

Information Technology has changed the basis of competition and implications for Tesla. In fact, if today Tesla's market cap is more than BMW, GM etc., it is because of the presence of extensive IT products and gadgets in its cars such AI, Robotics, Machine Learning, that have helped make its products unique and very attractive to buyers.

Tesla needs to keep innovating and bring such innovative products that may make it as next Apple of cars.